6 ORCF Underwriting Contract Current Contract Underwriter AssignmentsTotal in Firm Review219Contract UnderwritersORCF Underwriter1784182%18%223(f) = 170(a)(7) = 8
7 Applications Received FY 14 to 3/21/14 Type of ApplicationFY 11FY 12FY 13FY 14223f347458456187223(a)(7)30222139923Other59353414Total708714889224
8 Firm Commitments Issued FY 14 to 4/25/14 Type of ApplicationFY 11FY 12FY 13FY 14223f231404250239223(a)(7)21035452240Other32253419Total473783806298Production is picking up: 39 Firm Commitments issued in the past 2 weeks
9 Insurance ChangesProposed changes were vetted with MBA and large FHA servicing lenders along with FNMANew Requirements:90 % of Estimated Replacement Cost.Loss of Business IncomeWindstorm coverageExpanded flood insurance coverage if facility is located in flood zone
10 Decision Circuit Tool for setting the scope of the appraisal review. All applications are looked at by an ORCF appraiser.The scope of review is on a spectrum depending on risk factors.
11 Flags - Continued NOI trending down for 3 years. Recent NOI at half of concluded rate.Private Pay or Medicare census higher than proven history.Medicaid census lower than history.Occupancy lower than 75%Change in potential resident daysRecent purchases
12 Green Flags (tend to offset red flags) DSCR over 2.00LTV under 80%(LTV evaluated under two Scenarios)As underwrittenUsing most recent NOI and Avg Market Cap rate.
13 Special Consideration Loans over $25 millionHistory doesn’t match Operating Statement.Purchase within 3 years.Loans over $25 million – Will trigger a full appraisal review and a site inspection.History doesn’t match Operating Statement – We have been seeing some adjustments to the NOI we are not comfortable with, such as adjusting administration or management costs. The historical summary should represent reality. Sometimes adjustment are needed to explain conclusions. The most straightforward way to present those adjustments is on a separate table. An appraisal review can be avoided if an explanation is included in the LN.Purchase within 3 years. – We rarely see enough analysis of a purchase in the appraisal or LN.What were income expectations of the buyer?What was the cap rate?How was it marketed?Reconcile the purchase price with the appraised value!
14 ORCF Loan Committee For 223f main concerns and example mitigation: Valuing/sizing the loan using prospective NOIMitigation: Debt service reserve, reduce mortgagePatient/Resident care issuesMitigation: Third-party risk management (one-time or on-going)Market concerns, facility low historical occupancy levelsMitigation: Let season until operations turn-around, management/marketing effortsLoan term as it relates to some functional obsolescenceMitigation: Reduce loan term, reduce mortgage
15 Continued ORCF Loan Committee New construction concernsBorrower/Operator’s lack of experience in developing and operating similar facilitiesLow equity contribution less than 20 %Market concernsSize of facility in relation to comparableAggressive metrics used in loan sizing
16 Underwriting Highlights What is going wellNew Process for Reviews – changesExpediting Processing & ReviewsExpediting Processing & Reviews:We will be going out with a 4128 Environmental guidance checklist soon. It includes guidance on each of the 4128 checklist review items for lenders to use in assembling applications. It is not a required exhibit, but we would encourage lenders use it to try and minimize any delays for back and forth for HUD to be able to finalize the 4128 review.
17 Underwriting Highlights Valuation Issues & ConcernsProspective or Aggressive NOI conclusionsNOI Conclusion not yet AchievedFluctuating NOI HistoryDeclining NOI trendAggressive Expense RatioAggressive Cap Rate
18 New ConstructionNew Construction Remains Highest Risk: 52% of Projects on Priority Watch Listvs.24% of Portfolio are/were NC
19 Proposed New Construction SUPPLYCompetition – existing and proposed (pipeline)Market position within PMASaturation ratesReasonable capture rates
20 Replacement Facilities SUPPLYProximitySame demographicsSame services – adding or deletingHow many current residents will transfer
21 New Construction Supply CON’s and MoratoriumsCON (Certificate Of Need)Moratoriums on adding new bedsState need calculationsOnly transfer within county
22 New Construction Supply Transitional Rehab FacilitiesHospital discharges to rehabALOS (Average Length of Stay)Hospital incentivesRehab purpose (cardio, stroke, hip, orthopedic, etc.)
23 New Construction Demand Demand determinants for Assisted LivingAgeHousehold IncomeHome ValueIncome QualificationLiving StatusAcuity, Mobility and Care LimitationsMemory Care Adjustments
24 New Construction Demand Demand determinants for Skilled NursingAgeAcuityIncome QualificationMobilityDemand for Transitional Rehabilitation
26 Closing Team UpdatesORCF’s Closing Team is keeping the “conveyor belt” of closing moving!FY 2013 had 766 closings, compared to 706 in FY 2012, 415 in FY 2011, and 309 in FY 2010Fiscal year to date volume much lower, mostly due to 223a7 volume dropping off.
27 How do I get a HUD Closer assigned? For a HUD Closer assignment (and any other closing related issues, including extensions) when the HUD Attorney closing package is mailed.Average turnaround time for closer assignment right now: 1-2 business daysORCF has 11 full time Closers and 3 contract Closers (most pictured below at our January 2014 Closing Kaizen)
28 Partnership & Collaboration Closing DocsClosing TablePartnership & CollaborationPlease Remember:Complete, clean, and accurate closing packages get reviewed and closed quickerAll special conditions must be met and properly documented prior to closingUse the Special Conditions Matrix!Responsiveness to HUD Closer and HUD Attorney and fast turnaround is KEYSend in your packages, we’re ready!