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SECTION 232 UPDATESOffice of Residential Care Facilities

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Tim Gruenes

Workload Manager, ORCF

Minneapolis HUD Office

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OHP/ORCF – Who We Are

•OHP (Office of Healthcare Programs) – Roger Miller – DAS

•ORCF (Office of Residential Care Facilities)

•Hospitals (242)

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OHP/ORCF – Who We Are

•ORCF – Director – Michael Vaughn (as of mid-June will be Kelly Haines

•Production: Director – Roger Lewis (Seattle)•Asset Mgmt: Director – Kelly Haines (St. Louis)•Policy: Director – John Hartung (St. Louis)

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OHP/ORCF – Who We Are

•Designated Lender Relations Liaison is Mary Walsh – Ft. Worth:• Work with Lenders

• Submissions for Development and Asset Mgmt

• Measures of lender submission quality and risk profile

• LQMD –

• Lender Qualification• Post Closing Monitoring Activities

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A Much Brighter Picture!!!!

•2010: Loads of Applications, Hoping for more resources in 2011.

•2011: More Applications, We were in worse shape (total queue topped out over 400 projects).

•Now: Next Few Slides……..

•We’ve hired staff and added contractors…..

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Activity F Y ‘12 (5/31/12)

FY 2011 FY 2010 FY 2009

Applications Received

359/479 708 768 271

Commitments 546/728 473 318 132

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Office of Residential Care FacilitiesQueue Volume

QUEUE VOLUME

 as of

12/31/11 as of

1/31/12 as of

2/29/12as of

3/31/12as of

5/31/12

223f Regular Queue 135 77 54 13 8

223f Portfolio Queue 0 5 2 5 1

223a7 27 19 21 22 15

232 Other 41 40 42 36 21

TOTAL 203 141 119 76 45

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Office of Residential Care FacilitiesInflow & Outflow

Application Inflow & OutflowSept.2011

Oct. 2011

Nov. 2011

Dec.2011

Jan. 2012

Feb. 2012

March2012

New Applications Received

16 33 45 51 31 48 54

223f 10 11 20 24 14 20 17

223a7 6 19 25 23 16 26 33

Other 0 3 0 4 1 2 4

Firm Commitments Issued

43 61 57 69 64 74 76

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Section 232 Lean Phase II

LEAN PHASE II

• Goals: End of Queue, Commitments issued within 30 days of application, closings within 45 days

• Adherence to these performance standards will increase the program’s attractiveness for high quality borrowers and facilities.

• Focus on both Internal and External production elements.

• Identifying Internal Bottlenecks

• Tracking through Internal Delay categories in Visual Management Report

• Making necessary changes in resource allocation, process steps• Other Queue

• Working with OGC and ORM to remove obstacles to production flow

• Setting expectations for Underwriting processing times

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Section 232 Lean Phase II

LEAN PHASE II (cont’d)

• Setting expectations for completeness of Lender submissions• Lender Narrative should address all issues/conclusions• HUD (or contractor) UW should be able to proceed without delay

• Tracking through External Delay categories in Visual Management Report

• Working with Lenders to reduce delays (Mary Walsh)

• Working with OGC/Lenders Counsel to reduce closing delays

• Reduction of Queue should reduce stale underwriting/document/legal delays

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Section 232 Lean Phase 2External Delay Categories

External Delay Categories

1a.  NOI:  Market/vacancy/payer mix   (2) 4c.  AR

1b.  Cap Rate   (1) 4d.  Master Lease

1c.  Incorrect/ineligible costs  (2) 5a.  Typographical errors

2a.  Quality of Care/surveys 5b.  Calculations/Math Errors   (1)

2b.  2530 or other Derog Issues  (2) 5c.  Missing Exhibits   (13)

2c.  Operations  (2) 5d.  Not using standard lean standard templates/forms or obsolete

2d.  DEC findings  (2) 5e.  Error in identifying Green Lane or Non-Green Lane criteria (a7)

2e.  Failure to identify portfolio  (3) 5f.  Incorrect Amortization values (a7)

3a.  Environmental   (2) 6a.  Updates to Financials   (10)

3b.  Obsolescence 6b.  2530

3c.  Property Condition/Reserves    (2) 6c.  A/R

4a.  Corp, Structure, Title 6d.  Master Lease

4b.  Litigation status/Other   (1) 6e.  Legal    (4)

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Section 232 UnderwritingNew Construction Risk Mitigation

Risk Mitigation for 232 New Construction

Market analysis must support strong demand

Financial strength of the developer/owner/operator

Relevant experience of the developer/owner/operator

Conservative lease up

Substantial operating deficit reserve

Requirement for significant cash investment by strong ownership

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What’s New?

•Proposed Rule/Document Revisions:

•Comment Period until 7/2/12•Webcast today @ 2:30 to 5 EST•Information on our HUD.GOV website

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What’s New?

•We Created a Separate Queue for 241a’s

•Preference in Other Queue for projects with TC’s/Other Grant Funds for Affordable Units

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What’s New?

•Elimination of Legal Completeness Review:

•HUD Legal Review at same time as Underwriting

•Complete/Full Firm Submittal imperative given short queue

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What’s New?

•Initial Screening of Other Queue Projects:

•Diane Rosinski – Buffalo•Patrick Berry – Detroit – WLM•Dated submissions: if no longer feasible, request refund of app fee (before HUD assigns appraiser/UW).

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What’s New? Initial Screening Continued.

•Projects Placed in one of 3 categories:

• No Revision necessary

• Minor Revisions necessary

• Major Revisions necessary:

• Removed from queue until corrected • If Corrected, project returns to same spot in queue

relative to other projects – FIFO• Currently 13 Projects

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What’s New? Initial Screening Continued.

•Some items being reviewed:

• Compliance with previous Email Blasts: Experience, net worth/liquidity, equity investment.

• IOD

• Major Environmental Issues

• Brief review of APPS/2530’s

• Brief review of Forms

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What’s New?

•Swap Fees: ML 2012-8

•Contact OHP/Contract Closer if Firm Commitment issued (not closed) and want to include.

•We’ll be clarifying what we want to see in future submissions in Email Blast – until checklists/narratives can be revised.

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What’s New?

•Policy Staff Working on Mortgagee Letters:

•Eligible Debt•Portfolios/Master Leases

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What’s New?

•Projects with Common Ownership:

•Per November 2011 Email Blast, identify on initial request form fro FHA Number and Certification for Electronic Submittal.

•If recommending no Master Lease separate issue – present risk based reasons to UW.

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What’s New? Revenue Funding Cuts.•If enacted (Medicare recently), reflect in appraisal and in Underwritten NOI

•If proposed (Illinois):

•If possible to quantify, show in sensitivity analysis how project may be affected – can still cover at 1.45 and 1.0 DSCR?

•Discuss owner/operator’s plan to deal with them if enacted.

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Section 232 Delinquencies

> 60 Day Delinquencies (earlier in 2012)

18 of 26 are Assisted Living

11 of those 18 are New Construction

8 of 26 are Nursing Homes

6 of those 8 are Refinances, 2 seasoned NC

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Section 232 Claims FY 2010 - 2012

• Type UPB Cohort Property City State Cause • AL 1,514,988 2002 BARSTOW RET.PL. BARSTOW CA Market/Owner • AL 2,111,004 2009 MAPLEWOOD RIDGE PELHAM AL Owner • AL 1,125,079 2005 RIVER BIRCH RES. HOLFORD MN Market/Owner • AL 4,933,963 2002 SUNAPEE COVE GEORGES NH Owner • BC 1,231,477 1995 ESSEX MANOR SUPERIOR MI Market/Owner • BC 1,613,754 1998 LANDMARK MANOR HAMPTON PA Market/Owner • BC 512,990 1997 LANDMARK MANOR HAMPTON PA Market/Owner • NH 26,482,547 2003 SOMERSET HOUSE CHICAGO IL Owner/State • NH 3,917,200 2002 FOX RIVER PAV. AURORA IL Owner/State • NH 4,588,799 2001 JAMES S TAYLOR LOUISVILLE KY Owner• NH 6,229,592 2000 WEST ROCK HC E. N. HAVEN CT Owner/State • NH 3,963,459 2008 PECAN RIDGE LC WACO TX Owner /State• AL 7,864,276 2000 GARDEN PK VILLAS ESCONDIDO CA Owner • AL 5,299,558 2008 NORTHPORT HLDS NORTHPORT MI Market/Owner • AL 3,317,582 2009 RIVER BEND AL VALLEY AL Owner • AL 2,637,155 2003 HEARTLAND PLAZA MOORE OK Market/Owner • NH 3,729,042 2001 FAIRCHILD MANOR LEWISTON NY Owner • NH 2,514,427 2008 GOVALLE CARE CTR AUSTIN TX Owner • NH 1,644,127 2003 NORTHVIEW DV CTR EASTLAND TX State/Owner• AL 21,183,217 2006 Lenox on the Lake Lauderhill FL Market/Owner• NH 3,988,697 2003 SouthPark Brownwood TX State/Owner• NH 988,953 2002 San Augustine San Augustine TX State/Owner

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Thank-You!

Tim.gruenes@hud.gov

Or Leanthinking@hud.gov