In June and July, Sims Mortgage Funding participated in national conferences that highlighted two of HUD’s most important initiatives: healthcare lending under the LEAN Section 232/223(f) program and affordable housing development and preservation.
The LEAN conference was a one-day session in Denver attended by HUD’s senior production and asset management executives and the lenders active in the Section 232/223(f) program. In order ensure a maximum level of participation and foster on open, transparent dialogue, attendance was limited to one lender representative. Anthony Luzzi, President of Sims Mortgage Funding, participated in the conference. Some of the key takeaways were:
- The new draft LEAN Handbook is likely to increase loan production under the Section 232/223(f) program, as it now contains more flexible provisions regarding the refinancing of bridge loans, operator debt and loans made in connection with related-party sales.
- Capitalization rates for LEAN valuations should be based on market indications, not arbitrary “benchmark” rates that in the past have produced more restrictive valuations. Cap rates for nursing homes and assisted living facilities have been trending downward, and HUD stressed the need to use this market data. As a result, we expect valuations and loan sizings to increase based on lower capitalization rates.
- LEAN continues to move towards greater transparency with its “Decision Circuit” model that helps lenders in advance identify prospective issues before an application is filed and what level of appraisal review might be required. Moreover, HUD is moving to simplify the Decision Making model to improve its functionality. This will help expedite the application review process by HUD and lead to shorter timeframes.
One of the reasons the LEAN program has been so successful to date has been its emphasis on continuous improvement of its practices, and on partnership with its participating lenders. This was on full display at its Denver conference, and it is a good sign for the future of the HUD healthcare mortgage insurance programs.
HUD is moving in a similar way with its housing mortgage insurance programs through its Multifamily for Tomorrow restructuring initiative, which has led to the consolidation of 51 field offices into five regional and seven satellite offices. Part of the initiative has been to make its mortgage insurance more effective in the development and preservation of affordable housing.
In early July, Chicago played host to the Midwest Lenders Association’s Low Income Housing Tax Credits (LIHTC) Workshop. The two-day workshop, which was attended by Andrew Patykula, Senior Vice President at Sims Mortgage Funding, focused on the use of tax credits to promote the development and preservation of affordable multifamily housing. Due to Chicago’s central location and HUD’s continued emphasis on affordable housing, the workshop was well attended by lenders, housing consultants and senior HUD multifamily officials. Topics included the benefits of tax credits, equity pay-in timing, coordinating the closing process, and construction issues. The workshop included two real-world case studies: one for substantial rehabilitation of an existing property and one for the development of a new project.
The major takeaway from the workshop was that LIHTCs are an effective financing tool, representing a unique way to attract private capital to the development and preservation of affordable housing. Moreover, HUD recognizes the key role its mortgage insurance programs can provide in the capital stack for affordable housing transactions, and has tried to make those programs as user friendly as possible.
Sims Mortgage Funding has been approved by HUD to participate in its Tax Credit Pilot Program and stands ready to assist you evaluate a potential LIHTC transaction. For additional information, contact Andrew Patykula or Anthony Luzzi.