How a single FHA-insured mortgage note originated by SMF in 1991 produced three separate transactions and created value savings for the client that exceeded transaction costs 23 times.
The Chapin Home for the Aging, which has been in existence since the 1860s, is a 220-bed not-for-profit, skilled nursing facility located in Jamaica Estates, NY.
The Chapin Home has been an SMF client since 1991, when we helped finance a renovation and 142-bed expansion by originating a $17,269,100 FHA-insured Section 232 loan, funded with tax-exempt bonds.
Thirteen years later, in 2004, SMF closed the first note modification, which involved the prepayment of the 1991 bonds from the proceeds of the sale of a taxable GNMA security. The existing FHA-insured mortgage note remained intact and became the underlying collateral for the GNMA. This initial note modification reduced Chapin’s annual debt service by approximately $300,000 per year through the April 2034 maturity date.
Ten years after the first note modification, Chapin was looking to further reduce debt service, and again asked SMF to help.
- In May 2014, serving as financial advisor to Chapin, SMF closed a $12,957,000 second note modification for the facility.
- The note modification involved the prepayment of the 2004 GNMA security with a new GNMA that is collateralized with the same FHA-insured Mortgage Note that SMF originated in 1991.
- SMF developed the formal Note Modification proposal that was filed with Office of Residential Care Facilities (ORCF), by the existing loan servicer.
- The proposal was approved by ORCF in fourteen days.
- Closing on the loan occurring less than forty-five days later.
By helping the Chapin Home take advantage of note modification under the recent Lean protocol established by ORCF, Sims Mortgage Funding was able to help the facility obtain:
- A reduction in debt service of $124,000 annually.
- ORCF approval of a suspension of Chapin’s $157,000 annual deposit to the Reserve Fund for Replacements.
- Total cash-flow savings of approximately $281,000 in per year.
- Interest and mortgage insurance premium savings over the term of the refinance, which was not extended beyond its April 2034 maturity, will exceed $2,500,000.
- Present value savings that exceed transaction costs by 23 times.
To learn more about these and other transactions, contact Anthony Luzzi at 201-307-9383 or email@example.com.