HUD mortgage insurance covers a wide variety of real estate, ranging from multifamily housing to nursing homes and assisted living to acute care hospitals. Moreover, the programs cover construction, renovations, expansions, acquisitions, and refinancing. There are three separate mortgage insurance platforms to deliver all of this goodness: Multifamily Accelerated Processing (MAP); LEAN for senior care facilities; and the Office of Hospital Facilities (OHF). Each platform has its own underwriting requirements, eligibility standards and policy directives, so changes in one of the platforms does not necessarily affect the others. SMF is active across all three platforms, so we keep close tabs on new developments that might make the programs more competitive or enhance lending opportunities. We have good news to report!
In the multifamily space, HUD recently took a major step forward to enable grant-funded Section 202 elderly housing, commonly known as Project Rental Assistance Projects, or PRACs to access much-needed capital. There are approximately 2,800 PRACs nationwide that currently have limited, if any, means to finance capital improvements, and with many of the properties over 20 years old, the situation has become critical. HUD has been working on a solution, and recently released for public comment a draft notice that will amend its popular Rental Assistance Demonstration (RAD) program to include PRACs. The comment period ended in March, so we expect the final notice to be issued shortly. A key element to the RAD for PRAC program will be the issuance of long-term Section 8 Housing Assistance Payment (HAP) contracts that should provide a stable source of revenue to support debt incurred for capital repairs and building improvements. Will the Section 8 rents under these new contracts be sufficient for this purpose? As the saying goes, the devil is in the details. We can assist PRAC owners preliminarily estimate borrowing capacity based on the draft notice – contact us for additional information and a preliminary analysis.
The Office of Hospital Facilities (OHF) does not have the level of activity of its MAP and LEAN counterparts, but it provides an alternative source of capital for creditworthy hospitals who otherwise might not be able to access the tax-exempt bond markets or conventional financing with the same ease and cost of capital as their more-stronger competitors. HUD-insured hospital loans have 25-year, fully amortizing maturities, fixed-rates of interest and are assumable and pre-payable under a variety of structures. Moreover, loans can be up to 90% of a project’s replacement cost, and in cases involving rehabilitation or additions, 100% of the project costs can be financed. In an effort to attract more business, OHF recently announced some upcoming changes that will facilitate and expedite their review process, lessen burdensome application requirements for stronger credits and reduce the amount of escrows to be funded from operations post-closing. Hospitals who might be on the fence about considering HUD as a financing option should take note of these changes, as they are likely to enhance the competitiveness of the program. We expect to know more about how these improvements will be implemented when OHF holds its lender training in July.
There have been no new developments in the LEAN program, but as Meatloaf once sang, two out of three ain’t bad. However, next month is the annual meeting of the Healthcare Mortgagee Advisory Council (HMAC), which is LEAN-focused and will be attended by a number of senior HUD program officials, as well as the entire SMF team. Stay tuned in this space for potential updates from LEAN.