1. 1 Office of Healthcare Programs Madison Hotel Washington, D.C. October 10, 2012 Roger E. Miller Deputy Assistant Secretary for Healthcare Programs, Office of Healthcare Programs, HUD Roger M. Lukoff Associate Deputy Assistant Secretary for Healthcare Programs, Office of Healthcare Programs, HUD Tim P. Gruenes Acting Director, Asset Management and Lender Relations Division, Office of Residential Care Facilities, HUD Fall 2012 MAP Lenders Roundtable

2. 2 FHA Healthcare Overview WHO WE ARE  Section 232 Residential Care Facilities and Section 242 Hospitals  Healthcare principal balance of over $28.1 billion with over 2,900 loans in the FHA portfolio (as of 8/31/12) WHAT WE DO  Enable more affordable financing of needed healthcare facilities  Improve access to quality healthcare nationwide at no cost to the taxpayer  Reduce cost of care and increase accessibility  Allow borrowers to achieve at least an AA credit rating  Strengthen communities - healthcare facilities are economic engines  Healthcare facilities employ millions of Americans and support trillions in economic activity  FY12 hospital projects create 8,584 new jobs following construction, with $1.35 billion in post-construction annual economic benefit* *Estimates generated using the IMPLAN model

3. 3 FY12 Year-End Report Section 232Section 242 Maintained a negative credit subsidy and very low claim rate in FY12 through proactive asset management Maintained a negative credit subsidy with zero claims in FY12 through proactive asset management Processed a record $6 billion in commitments for 783 projects and completed 706 initial endorsements. Processed $246 million in commitments for 6 hospitals, with 2 a(7) refinancing deals. Average processing time for underwriting was 50 days, and successfully reduced application queues. Median processing time in FY12 for Section 242 applications was 63 days. Published a Proposed Rule on Accountability and a Final Rule significantly strengthening the 232 Program. Developed online FAQ resource for easy public search and access. Conducted OHF Roundtable session and 2 LEAN events. 11 training sessions for staff. Published Guidance for a(7) refinancing applications on web.

4. 4 Year-End Production Statistics Section 232 Type of Application Applications Received Commitments IssuedInitial Endorsements count$ billionscount$ billions FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 223f 347 458 231 404 $1.8 $3.0 221 371 $1.8 $2.8 223a7 302 221 210 354 $1.6 $2.8 168 311 $1.3 $2.4 Other 59 35 32 25 $0.3 26 24 $0.2 $0.3 Grand Total 708 714 473 783 $3.7B $ 6.0B 415 706 $3.3B $ 5.5B Section 242 Type of Application Commitments Issued count$ millions FY11 FY12 FY11 FY12 242 6 3 $354 $167 241 1 1 $15 $55 223a72 $24 223f 1 0 $29 Grand Total 8 6 $398M $ 246M

5. 5 SECTION 232

6. 6 Underwriting Time (Avg. # Days) Type of LoanFirm IssuedTime in Queue IN UWSubmittal to Firm Issuance 223fFY 201217058227 223f4 th Q. FY ’125679*135 223a7FY 20126148109 223a74 th Q. FY ’12224365 241(a)FY 201227074344 NC/SRFY 2012345104449

7. 7 Demand For Program is Strong Sept 2012 count still preliminary

8. 8 8 as of 4/30/12 as of 5/31/12 as of 6/30/12 as of 7/31/12 as of 8/31/12 as of 10/5/12 223f Regular Queue108915624 223f Portfolio Queue11131441 223a7311519456284 232 Other2720162325 26 TOTAL69445797 135

9. 9 Other Queue and 241(a)’s Composition:  15 New Construction  2 Sub. Rehab.  4 Blended Rate  5 241a’s Pre-screening:  Currently 9 on Long Term Hold  Diane Rosinski retired – now Rachel Coleman  7 of 26 in Other Queue have not been pre-screened Previously 2 FTE’s, now 4 FTE’s.

10. 10 Underwriting and Closing Contract Delay After Removal from Queue Before Assigned to UW:  Appraisal (if applicable) and Env. Review completed Currently 50% of Projects Being Underwritten by Contractor  Working on Documents Capacity for 450 more projects in contract before 6/30/13 Contract Expiration 6/30/13: Revisit then.

11. 11 Kaizen - Work in Progress Closing Improvements Insurance Requirements: Kaizen early Nov. New Construction – Development to AM Standardizing Portfolio Reviews On-going Monitoring of Portfolios in AM Definition of Management Agent

12. 12 Other Work in Progress 232 Documents (150+)  Comments from Industry were due 7/2  Staff revising documents  Goal – publishing in December  Grandfathering period announced via Email Blast Handbook:  Many portions drafted  Several key chapters remain  Need to account for rule and document changes Possible Lender Training in January of 2013?  Will be communicated via Email Blast

13. 13 Other Work in Progress Possible future change to the below Regulations (will take time):  24 CFR 232.3: Bathrooms: we do approximately 10 Regulatory Waivers each year on this language. Possible future change to Regulation to address?  24 CFR 232 Subpart C: Sprinkler Loan (232i): we did a blanket Regulatory Waiver to make this program more viable. Possible future change to Regulation to address?

14. 14 Asset Management Likely Re-Allocation of Properties Amongst Account Executives over next month:  Portfolios (concentration with one or more AE)  Posted to HUD.GOV  Handoff call/transition with lenders

15. 15 2012: $36 M; 8 Projects

16. 16 Characteristics of FY 2012 Assignments 1 of the 8 was New Construction  Construction Delays and Missed Lease up Opportunity 5 of 8 were Texas MI Projects  Money Follows the Patient Borrower/Operator Quality:  No claims on projects UW by OHP  Project being approved at LC exhibit strong, experienced borrower/operators

17. 17

18. 18 Final Rule on Accountability REAC Inspections  ALF’s, B & C, ICF: Option in future to address – not now.  SNF’s:  Inspections will Cease  Working with REAC to cancel those scheduled on or after 11/9/12  If scheduled before 11/9/12, cancelled those with previous REAC of 80+ (10 projects)  If scheduled before 11/9/12, and previous REAC < 80 inspection will continue (around 20 projects)  Identifying SNF’s by SOA Code in our systems.  We’ll include this in the next Email Blast.

19. 19 Final Rule on Accountability Extensions of Claims:  Only on projects with Firm after April 9, 2013  If workout not viable, no extension  Most lenders already follow Surplus Cash – loosening of restrictions:  Only on projects with Firm after April 9, 2013 Surplus Cash Definition: still working out details - Handbook Operator Working Capital  Only on projects with Firm after April 9, 2013  Operator may not withdraw funds when most recent quarterly financial statement shows negative WC

20. 20 Final Rule on Accountability Operator Quarterly Financials:  Applies to all Section 232 projects.  Early in FY HUD will explore possibility of a contract.  FY’s 60 days after we announce (via CFR) the system we have established.

21. 21 Policy Issues Unlicensed Assisted Living (Independent Units):  Currently no change to long standing policy on this (see April 10, 2009 email Blast): Internal Discussion Ongoing Partial Payment Claim:  Mortgagee Letter issued  CFR didn’t address PPC’s on 232’s  Proposed Rule issued Summer of 2012  No negative comments received  Going through Final Rule process (no change) Financial Wherewithal – Other Queue plus potentially certain 223f projects.

22. 22 Policy Issues Portfolio/Master Lease: Mortgagee Letter going through Internal Process – may change:  Small Portfolio: Up to 49 facilities and total mrtg amount < = $90M.  Midsize Portfolio: Up to 49 facilitites and total mortg amt. > $90 M and < = $250 M.  Large Portfolio: 50 or more facilitites and/or total mortg amt. > $250 M.  Master Lease:  3 or more properties and/or $15 M. in aggregate mortgage amount.  Waiver possible on small, high performing portfolios

23. 23 Policy Issues Eligible Debt: Kaizen in September; Possible Changes/Clarifications:  HUD reserves right to require proof of no cash out even if loan being refinanced is > 2 years old.  HUD is evaluating original MAP guide language on:  Pooled Debt  REITS  HUD is evaluating how to handle loan proceeds held in escrow. We may only allow as eligible debt if:  Release provisions were clear at time of original loan.  Escrows released before application to HUD for new loan.

24. 24 SECTION 242

25. 25 Section 242 Hospitals FHA serves hospitals nationwide Acute care hospitals Rural and Critical Access Hospitals Large urban teaching hospitals University hospitals Not-for-profit, for-profit, and government- owned hospitals Capital Health System. Trenton NJ $755.9 million mortgage

26. 26 Program Activity and Historical Volumes

27. 27 Economic Impacts of FY11 Deals For Section 242 FY12 projects/commitments:  During Construction:  2,731 projected new jobs will be created during construction, with $695 million of overall economic benefit.  Following Construction:  FY12 projects will generate an estimated annual new economic activity of $1.35 billion and 8,584 new jobs. *Estimates generated using the IMPLAN model

28. 28 THANK YOU Office of Healthcare Programs 1-877-HLTH-FHA www.fha.gov Navigate to: Programs>Healthcare Programs www.fha.gov