FHA 232 LEAN Letter

LOW INCOME HOUSING TAX CREDITS AND SECTION 232 NEW CONSTRUCTION/SUBSTANTIAL REHABILITATION PROJECTS:

Provided the Firm Applications are submitted in a timely manner, HUD reserves the right to adjust its Other Queue to give preference to processing new construction and substantial rehabilitation Section 232’s that include Low Income Housing Tax Credits (LIHTC) to meet placed in service deadlines on specific projects.   We encourage lenders to submit the Firm Applications on these projects in such a manner that will allow as much time as possible for HUD to act on the applications – including reviewing whether our 2 Stage Firm Application process will provide for such.  

CHANGES TO OUR PROCEDURE FOR HANDLING SEASONING OF DEBT:

The April 10, 2009 Email Blast discussed our definition of Eligible Debt and the two and five year seasoning rules.  Although this language was silent on the date that the seasoning is based upon, we have consistently required that the two or five year period must have passed prior to the application being submitted (entering our queue).  Because of the length of time that projects are spending in our queues, we are changing how we will handle this.  Effective immediately, the two and five year time period will be based upon when a project is assigned to an OHP Underwriter (exits our queue).  Lenders may choose to submit a project prior to the seasoning period expiring, however, if the project reaches the top of the queue prior to the debt being properly seasoned, the project will be placed on hold.   Lenders submitting projects in such a manner must regularly monitor the project’s progression through the queue and contact a Workload Manager at HUD (prior to the project being assigned to an OHP Underwriter) if it becomes evident that the project will be assigned prior to the seasoning period expiring. 

REFUNDS OF HUD APPLICATION FEE:

We understand that HUD is no longer issuing refund checks  - all refunds are being handled by Direct Deposit.  To accommodate this procedure, when requesting refunds in the future, please use the attached document as a template for your letter requesting the refund.  This document will be posted to HUD.GOV in the future.

MANAGEMENT AGENT AND OPERATOR GRID:

Please see the attached grid.  This document addresses HUD’s closing document requirements for operators and management agents to ensure that HUD has a valid security and regulatory interest in the project assets of the healthcare facility.  Particularly of note, this grid addresses the document signing requirements of the operator and/or management agent for the operating lease, license, equipment, provider agreements, deposit accounts and facility repairs.  This document will be posted to “Sample Closing Documents” on HUD.GOV in the future.

STALE DATE ON PHASE I ENVIRONMENTAL REPORTS:

We have been asked numerous times in the past few months to waive the stale date on Phase I Environmental Reports – listed in the endnotes on our Checklists.  We have turned down all such requests as we are unable to waive this requirement. 

CLOSING QUEUE:

We will soon be posting our closing queues to HUD.GOV.  Until these are posted, please see the attached two spreadsheets, which list the projects in our closing queues.  Projects will be assigned from the top to bottom of the spreadsheets.  Currently we have three closing coordinators working on the non 223(a)(7) queue (one of these individuals concentrates on Insured Advances projects).

CLARIFICATION ON MINIMUM LEASE PAYMENTS:

During the closing of Section 232 loans, OHP and OGC have encountered confusion on the minimum lease payment required for closing documents and operating leases.  For the actual leases, we are requiring that the annual lease payment be calculated using a minium of a 1.05 coverage ratio - annual principal + annual interest + annual mortgage insurance premium + annual reserve for replacement deposit + annual property and liability insurance + annual property taxes times a multiplier of 1.05.  This minimum coverage level required for executed leases is different than the test measurement used in the 223 F Lender’s Narrative, which remains unchanged - it will continue at the 1.17 coverage level.

REVISED CONSTRUCTION SPECIFICATION TEMPLATE:

OHP will be following the revised construction specification template discussed in HUD Mortgagee Letter 2010-41 – see attached.  All Firm Applications submitted to HUD on or after April 25, 2011, must use the new CSI MasterFormat 2010.  Future revisions to our checklists and other documents posted to HUD.GOV will reflect this revised document. 

CHANGES TO OUR STANDARD DOCUMENTS:

Please do not change Lean Approved exhibits posted on HUD.GOV.  This includes, but is not limited to, submitting exhibits in MS Excel or QuattroPro when they are to be in original Word format, adding or subtracting fields of information in current documents, and changing language in Firm Commitments.  When these changes are made it takes Underwriters and Closing Coordinators extra time to identify and mitigate these unapproved changes and is contrary to the standardization required under Lean.  We will be following the February 19, 2010 Email Blast and requesting a revision to the Firm Application when this situation is present.

In addition, if a section of the Lender Narrative or an exhibit is not applicable to your project, please note that it is “not applicable” and explain why you believe this is not applicable.  No sections are to be left blank or deleted from the Template. Your cooperation with this request will help us process your application more quickly.

MARKET INTEREST RATE ABOVE RATE USED IN SECTION 223(A)(7) APPLICATIONS:

Given the recent rise in interest rates, interest rates proposed in applications under Lean Section 223(a)(7) may not longer be achievable.  Please advise your assigned OHP Underwriter if this is the case so you can work to ensure your application is consistently updated throughout to reflect a more accurate interest rate at the time of Firm Commitment issuance. For applications still in the queue that are no longer feasible due to interest rate hikes, lenders can opt to withdraw their application and have the application fee returned. 

Need to Reference Previous LEAN 232 Updates?

Previous E-Newsletters (Email Updates) can be found at:

http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration/healthcare_facilities/section_232/lean_processing_page/underwriting_guidance_home_page/previous_e_newsletters

FHA Lean Lender - Guidance for Lenders for Market Rate Projects in Areas with Significant Adverse Economic Impacts:

FHA Lean Lender - Guidance for Lenders for Market Rate Projects in Areas with Significant Adverse Economic Impacts:: http://bit.ly/8Sn1im

FHA 232 LEAN Summary of LTV and DSC

For FHA LEAN Financing go to www.kendallrealtyadvisors.com
Click below for new table:
FHA 232 LEAN LTV DSC Summary - Google Docs

*  Maximum loan to values and minimum debt service coverage ratios are set by the Section 232 Statute and Regulations.  Any submittal above the LTV’s listed in this Email Blast or below the DSCR’s listed in this Email Blast will require justification/mitigation as discussed in the July 24, 2009 and November 20, 2009 Email Blasts.

            ** To qualify for the higher Non-Profit benchmarks, the owner/operator must demonstrate a successful operating track record,
            significant project operating and management experience, an a solid financial track record.

    Form HUD-92438, Itemization of Costs on form HUD-92264a, and Amendment Requests:

                                                                                                                      

Effective immediately, you are no longer required to submit a HUD Form 92438 (Underwriting Summary Report) on LEAN 232 submittals.  We are no longer requiring this form because all of the items included on the 92438 are reflected elsewhere in our Firm Commitment  and its attachments.   The Lender Firm Application Checklists will be revised to remove this document in the future.   On Section 232/223f’s, please ensure that all submittals of form HUD-92264a include an itemized breakdown of the costs of the transaction that make up the Criterion 7 or Criterion 10 maximum insured mortgage – this breakdown can be included at the bottom of page 2 or on page 4 of the form HUD-92264a.  Moreover, when submitting an amendment request that includes a change in the payment amount, please include the monthly principal and interest amount in the amendment request cover letter.

Requests for Clarification/Revisions on Firm Applications:

On some projects we spend a substantial amount of time going back and forth with lenders in an attempt to craft a project that is an acceptable risk to the FHA Insurance Funds.  Because of our severe staffing shortage and in the spirit of LEAN, we have chosen to expedite this process in the future, as the current process increases the time in queue for all other projects.  On projects where the OIHCF Underwriter needs clarifications/revisions, the email from the OIHCF Underwriter requesting such clarifications/revisions will give a timeline whereby a response is required.  If a full response (partial responses add time to our process) is not received by the stated timeline, the project will be brought to Loan Committee in its current state.  As we will only be allowing one timely response of a clarification/revision, it is important that the lender response is fully researched and thoughtfully assembled – taking into account the overall risk of the project to the FHA Insurance Fund.