The HUD Lean program celebrates its sixth anniversary this month. Lean has brought significant improvements to the delivery of HUD-insured financing for skilled nursing and assisted living projects. It has established a uniform application template, standard underwriting and review protocols, and centralized policy and program development.
Moreover, Lean’s emphasis on continuous improvement has seen HUD make a number of positive changes over the years in order to maintain the competitiveness of the program. This was clearly on display last week when HUD held a Lean “Lender’s Dialogue” meeting in Jacksonville, FL that was attended by Andrew Patykula, a Senior Vice President at SMF. At the meeting, HUD proposed a number of revisions that will make the Section 232/223(f) program for refinance or acquisition of existing healthcare facilities more expansive and user-friendly. Revisions being considered include:
- Reducing the seasoning period for bridge loans used for equity take-outs from two years to potentially six months.
- Reducing the three-year eligibility requirement for a project to qualify for Section 232/223(f) mortgage to two years.
- Expanding the definition of eligible debt to be refinanced to include some form of operator-level debt and partner buy-outs in related party transactions.
Over the years, Lean has transformed HUD mortgage insurance from the “financing of last resort” to an attractive, highly-competitive program, one whose popularity has been further fueled by historically low interest rates. The following table illustrates the growth in HUD-insured loan closings for healthcare and assisted living facilities under Lean.
|Fiscal Year||Amount Closed (Billion)||Number of Loans Closed||Average Loan Size (Million)|
The decrease in volume in 2014 was largely the results of a wave of refinancing of loans already in HUD’s portfolio that closed in 2012 and 2013, and the re-emergence of alternative lending sources. However, we believe that if HUD implements the changes that were introduced at the recent Lean Lender’s Dialogue, there will be heightened interest in the Section 232/223(f) program. Interest rates continue to remain attractive, and as always, HUD-insured loans are non-recourse and feature fully amortizing terms of 35 to 40 years.
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