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1 OFFICE OF Residential Care facilities Midwest Lenders Conference – June 2013 Section 232 LEAN Update Tim Gruenes – Director, Asset Management & Lender.

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Presentation on theme: "1 OFFICE OF Residential Care facilities Midwest Lenders Conference – June 2013 Section 232 LEAN Update Tim Gruenes – Director, Asset Management & Lender."— Presentation transcript:

1 1 OFFICE OF Residential Care facilities Midwest Lenders Conference – June 2013 Section 232 LEAN Update Tim Gruenes – Director, Asset Management & Lender Relations Rita Dockery – Supervisory Account Executive

2 2 Loan Types and 2012 Activity Loan Types and FY 2012 Volume*: Section 223(a)(7): 52% of Total Section 232/223(f): 45% of Total Section 232 New Construction: 2% of Total Section 232 Substantial Rehabilitation: 1 Loan Section 241(a): 1% of Total Section 232 Blended Rate: 1 Loan Section 223(d): No Loans since FY 2011 Section 232(i): 1 Loan *Based upon Firm Commitments issued

3 3 General Guidelines Lender Training in Philadelphia All slide presentations posted to FHA.GOV to include: Underwriting 101 Loan Committee Mechanics New Construction Panel Asset Management and Lender Relations Policy Appraisal/Survey/Environmental


5 5 Production Volume: Oct 1, 2012- May 2013 223a7419 223f175 232br2 232nc10 232sr2 241a4 Grand Total612

6 6 LOOKING BACK TO 2012 Actual Application Processing Times 01/01/2012 to 03/31/2012 Type of Application # of Applications Average of Days in Queue Average of Days in UW Average of Days in Closing Total Processing Time (Days) 223a7 72 97.4 50.4 86.5 234.4 223f 68 237.0 48.2 73.5 358.7 Other 5 230.8 61.2 373.0 665.0 Grand Total 145 167.5 49.7 90.3 307.6

7 7 THIS YEAR- 2013 Processing Times Actual Application Processing Times 1/1/2013 to 3/31/2013 # of Applications Average of Days in Queue Average of Days in UW Average of Days in Closing Total Processing Time 223a7 126.0 53.4 38.077168.4 223f 30.0 42.4 82.463187.9 Other 5.0 167.8 175.6150.4493.8 Grand Total 161.0 54.9 50.576.7182.2

8 8 All New Section 232 Loans

9 9 Doing our best to keep pace…… In FY 2012, we received 714 Firm Applications and issued 783 Firm Commitments. In FY 2012, average processing time for underwriting was 50 days, and we successfully reduced application queues. FY 2013 (as of 6/17/13), we have received 716 Firm Applications and issued 654 Firm Commitments. We are on a pace for….. Receipt of around 1,000 Firm Applications Issuance of just over 900 Firm Commitments

10 10 232 Q UEUE V OLUME as of 1/31/2013 as of 2/28/2013 as of 03/31/13 as of 6/17/2013 223f Regular Queue37467854 223f Portfolio Queue0008 223a766837430 232 New Construction15 1613 232 Sub-Rehab2231 241a Supplemental5556 232 Blended Rate2210 TOTAL APPLICATIONS 127153177112 232 Queues

11 11 General Guidelines…

12 12 General Guidelines Participants Review Must be experienced: Type (SNF/ALF/MC/ILU) Size & Average Occupancy Levels CMS Ratings Locations Loan Sizing/Value: Financial Performance- Trailing 12 Trends in Occupancy, NOI, Quality Mix Marketability (Age and Condition of Building)

13 13 General Guidelines State Surveys G tag citations Instances of actual harm or immediate jeopardy Open findings Patterns of repeat findings/systemic deficiencies CMS Star Rating Special Focus Facilities CMS has required nursing homes to be fully sprinklered by August 13, 2013.

14 14 General Guidelines Projects with New Units (Heightened Risk) Strength of Participants: Experience of participants with particular proposed type of facility (rent up and quality of care) Financial wherewithal (ability to carry project if necessary) Overall Market Demand/Proposed Rents Assumptions used for NOI Estimate reasonable? Assumptions used in Initial Operating Deficit calculation reasonable?

15 15 Addressing Backlog in Other Queue We are prescreening Other Queue projects to determine which projects to concentrate scarce appraisal resources on. HUD UW/WLMs doing pre-screening will be contacting lenders with Other Queue projects. Pre-screening using information on Lender Narrative Next two slides cover the key decision criteria we are using to prioritize projects…….

16 16 Key Decision Criteria Borrower & Operator/Management Agent Experience 10 or more relevant facilities (strong) 3 to 9 (medium) Marketing & Leasing Up 10 or more relevant facilities (strong) 3 to 9 (medium) Financial Strength Net Worth > Loan Amount (strong) Equal to Loan Amount (medium) Percent Total Equity in Deal 30% or more (strong) 20% to 30% (medium)

17 17 Key Decision Criteria Achieved Rates Compared to Subject Equal to or Less (strong) Up to 10% above existing (medium) # of Units at our facility compared to existing facilities in the PMA Same or Fewer (strong) 0% to 100% larger (medium) Occupancy at Comps Greater than 95% (strong) 90-95% (medium) Other Unique Features may also impact underwriting risk Applications assessed as Medium or Strong will be given priority for appraisal review assignment.

18 18 ORCF Claim Activity

19 19 Work In Progress 232 Handbook (this year) Asset Management Notification Forms Working on a system for getting quarterly financial reporting for operator

20 20 Work in Progress Strengthening Relations/Collaborations CMS State Agencies Risk Management DEC OGC Ginnie Mae MF Housing Florence Park, Care Center Florence, KY

21 21 Whats New? 2530 Interactive Webcast to be scheduled in the very near future Please email comments or suggestions

22 22 The Future State of HUD Legal Reviews One OGC review to be performed, AFTER Firm Commitment issued EXCEPT if project has any of the following issues: Accounts Receivable Financing, or Master Lease for Medium and Large Portfolios, or Issues that may arise in underwriting that would require a legal consultation (e.g., license not in the name of the Operator or Management Agent operating the project may trigger a review prior to Loan Committee)

23 23 Loan Modifications Sample documents for lender submission posted to HUD.GOV: ministration/healthcare_facilities/section_232/lean_processing _page/loan_servicing_guidance_home_page ministration/healthcare_facilities/section_232/lean_processing _page/loan_servicing_guidance_home_page Checklist: Lender documents to submit Address all types of Loan Mods Will be revised in next week or so and posted to HUD.GOV Sample Format for Lender Analysis and Recommendations: contains all required lender analysis, recommendations, certifications

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26 26 Loan Modifications, Continued General requirements GNMA Comfort Letter required if in GNMA pool Project must be out of lockout Project must pay any required prepayment penalties PCNA only required if >10 years since previous Interest rate premiums – The following costs cannot be paid from trade premium: borrower counsel, title and recording, organizational costs and 3 rd party reports costs (e.g., PCNA). Any portion of the trade premium that is not retained by Lender or applied to Lender costs (such as Lender's Counsel fees and GNMA commitment fee) may be used to defray the prepayment premium on the existing GNMA Securities, with the balance, if any, remaining to be contributed to the reserve for replacement.

27 27 Loan Modifications, Continued Proposed Logistics: Documents required by Checklist: Electronic submission to Leanwork@HUD.GOV (change will be made to checklist) and one hard copy to Account Executive (AE)Leanwork@HUD.GOV Account Executive assigned to project to process Commitment letter signed at Loan Committee Signing of final documents TBD Folks signing closing documents now, or WLM of AE who processed

28 28 Loan Modifications, Continued Lender will be asked to address in Lender Narrative: R4R balance: If below $1,000 per unit limit, we will ask lender to address Sprinklers: if Nursing Home and not listed as fully sprinklered. If financially troubled after Modification (below 1.11 DSCR), well be asking for a plan to address Medicare.GOV ratings – if applicable and if poor history of quality of care

29 29 New Section 232 Forms 115 new Production, Asset management, and Closing Documents were announced March 14, 2013 Mandatory use for submissions on or after 7/12/13: Optional use prior to then, however, submissions must be entirely new or old documents

30 30 REAC Inspections on Section 232s Continue except for facilities categorized in system as Skilled Nursing Facilities OR ICFs SNF/ICFs where most recent score was below 60 still get inspected; will continue until score 60+ HUD can order inspections on SNF/ICFs where it determines it is needed

31 31 State Survey Inspection Reports State Survey Inspection Reports Available and FREE to Lenders for current HUD portfolio Available as a Risk Mitigation Tool Training Provided Every Month Report Provides: Survey Performance history County and State Ranking Current and Historical Risk Score Life Safety, Quality of Care, Survey Types

32 32 Lenders Corner New Tool for Lender located on Tool for lenders to use for the latest training opportunities Tool for portal access offered by the ORCF for current HUD insured properties eral_housing_administration/healthcare_faciliti es/section_232/lean_processing_page/Lender _Corner

33 33 Asset Management Lean Pilot Identifying Bottlenecks Provide Additional Training Gauge National Volume Serve the Industry in a reasonable time frame

34 34 How can you stay informed? (click on Section 232 Lean Program) Email blasts Contact or

35 35 Organization Chart - ORCF

36 36 Organization Chart – Production

37 37 Organization Chart – Asset Management

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