a

GAO

United States Government Accountability Office

Report to Congressional Committees

February 2006 HOSPITAL 

MORTGAGE 

INSURANCE 

PROGRAM

Program and Risk 

Management Could Be 

Enhanced

GAO-06-316
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

February 2006

HOSPITAL MORTGAGE INSURANCE 

PROGRAM 

Program and Risk Management Could Be 

Enhanced 

Highlights of GAO-06-316, a report to 

congressional committees 

Under its Hospital Mortgage

Insurance Program, the

Department of Housing and Urban 

Development’s (HUD) Federal 

Housing Administration (FHA) 

insures nearly $5 billion in 

mortgage loans for the renovation 

or construction of hospitals that 

would otherwise have difficulty 

accessing capital. In response to a 

requirement in the 2005

Consolidated Appropriations 

Conference Report, GAO examined

(1) the design and management of

the program, as compared with 

private insurance, (2) the nature

and management of the

relationship between HUD and the 

Department of Health and Human

Services (HHS) in implementing

the program, (3) the financial 

implications of the program to the 

General Insurance/Special Risk 

Insurance (GI/SRI) fund, including

risk posed by program and market

trends, and (4) how HUD estimates

the annual credit subsidy for the

program, including the factors and

assumptions used. 

What GAO Recommends

GAO recommends that the HUD 

Secretary ensure that program 

performance measures are useful, 

update the program handbook,

develop a formal geographic 

diversification strategy, and 

explore adding factors to HUD’s

credit subsidy model. HUD agreed

with GAO’s recommendations but 

said that the report did not 

adequately emphasize the 

program’s accomplishments. 

The Hospital Mortgage Insurance Program insures the mortgages of 

hospitals that are generally riskier than those that can obtain private 

bond insurance. While FHA’s process for reviewing mortgage insurance 

applications includes more steps and generally takes longer, the agency

monitors active loans with many of the same techniques that private 

bond insurers use. 

Under a Memorandum of Agreement, FHA and HHS work together in a 

variety of ways to review mortgage insurance applications and monitor 

active loans. However, FHA does not collect data to assess program 

performance against most performance measures specified in the 

memorandum, some of which are not objective. Further, FHA has not kept 

its program handbook of policies and procedures for applicants, lenders, and 

others up-to-date. 

The hospital program is small compared with other programs in the GI/SRI 

fund, and the losses from claims have been relatively low. Despite the 

program’s relatively small size, some program and market trends may pose 

risks. For example, 61 percent of the program’s total insured, outstanding 

loan amount is concentrated in New York, which makes the program 

vulnerable to state policies and regional economic conditions. While FHA 

has goals to diversify the hospital insurance portfolio and has made efforts 

to do so, it does not have a formal strategy to achieve these goals. 

To estimate the credit subsidy cost, or program costs, over the life of the 

outstanding loans insured, HUD uses a model that incorporates factors and 

assumptions about how loans will perform, including estimated claim and 

recovery rates, which are consistent with federal guidance. However, HUD’s 

model does not explicitly consider some factors, such as the potential 

impacts of prepayment penalties or restrictions, which according to some 

economic studies, are important in modeling default risk. 

FHA Hospitals Remain Concentrated in the Northeast as of December 2005: Active Loan 

Dollar Amount and Number of Loans by State 

Sources: GAO analysis of HUD’s F47 database, a multifamily database (data); Art Explosion (map).

Less than $50M

$50M - $100M

$100M - $300M

More than $300M

N/A (no active loans)

1

1

3

4

45

1

1

1

1

1

1 1

1

1

1

1

1

1

2

2

2

1

Puerto

Rico

www.gao.gov/cgi-bin/getrpt?GAO-06-316. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David G. Wood

at (202) 512-6878 or WoodD@gao.gov. 
Page i GAO-06-316 Hospital Mortgage Insurance Program

Contents

Letter 1

Results in Brief 3

Background 5

FHA’s Selection Process Includes Additional Steps Compared with 

Private Insurers, but Monitoring Techniques Are Similar 8

Agencies Coordinate Key Activities, but FHA Does Not Track Most 

Performance Measures 11

Potential Risks Exist Although FHA Has Mitigation Strategies in 

Place 18

HUD’s Model for Estimating Credit Subsidy Costs Excludes 

Potentially Relevant Factors 33

Conclusions 38

Recommendations for Executive Action 40

Agency Comments and Our Evaluation 40

Appendixes

Appendix I: Objectives, Scope, and Methodology 45

Appendix II: FHA and HHS’ Responsibilities in FHA’s Hospital Mortgage 

Insurance Program Loan Cycle 49

Appendix III: FHA Assessed Performance Using 2 of 22 Performance 

Measures Included in the 2002-2005 Memorandum of 

Agreement 51

Appendix IV: Comments from the Department of Housing and Urban 

Development 53

Appendix V: Comments from the Department of Health and Human 

Services 60

Appendix VI: GAO Contact and Staff Acknowledgments 61

Table Table 1: Number of New Loans Insured through the Hospital 

Mortgage Insurance Program Since 2001 6

Figures Figure 1: FHA Did Not Process Most Hospital Mortgage Insurance 

Applications within Targeted Time Frame 14

Figure 2: Hospital Mortgage Insurance Program Comprises a 

Relatively Small Part of the GI/SRI Fund 19

Figure 3: Proportion of FHA Hospital Loans That Have Been 

Insured Less Than 10 Years 20
Contents

Page ii GAO-06-316 Hospital Mortgage Insurance Program

Figure 4: Selected Median Financial Indicators Show Varying 

Levels of Risk 22

Figure 5: Selected Median Financial Indicators Show High Levels 

of Risk for Priority Watch List Hospitals 23

Figure 6: FHA Loans Remain Concentrated in the Northeast as of 

December 2005: Active Loan Dollar Amount and Number 

of Loans by State 24

Figure 7: Applications for Hospital Mortgage Insurance are 

Geographically Dispersed as of December 2005: 

Application Dollar Amount and Number of Applications 

by State 26

Figure 8: FHA-Insured Hospitals Have Medicare and Medicaid 

Payers among Their Patient Discharges 29

Figure 9: Credit Subsidy Rates for the Hospital Mortgage Insurance 

Program Have Generally Not Indicated a Need for 

Subsidies 35

Abbreviations

AE Account Executive

CAH Critical Access Hospitals

CMS Centers for Medicare & Medicaid Services

FHA Federal Housing Administration

GI/SRI General Insurance/Special Risk Insurance

HHS Department of Health and Human Services

HMIMIS Hospital Mortgage Insurance Management Information System

HUD Department of Housing and Urban Development

MOA Memorandum of Agreement

OMB Office of Management and Budget

PART Program Assessment Rating Tool

PMG Program Management Group

PWL Priority Watch List

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Page 1 GAO-06-316 Hospital Mortgage Insurance Program

United States Government Accountability Office

Washington, D.C. 20548

A

February 28, 2006 Letr

The Honorable Christopher Bond

Chairman

The Honorable Patty Murray

Ranking Member

Subcommittee on Transportation, 

Treasury, the Judiciary, Housing and Urban 

Development, and Related Agencies

Committee on Appropriations

United States Senate 

The Honorable Joe Knollenberg

Chairman 

The Honorable John W. Olver

Ranking Member

Subcommittee on Transportation, Treasury, and

Housing and Urban Development, The Judiciary,

District of Columbia, and Independent Agencies

Committee on Appropriations

House of Representatives

The Department of Housing and Urban Development (HUD), through the 

Federal Housing Administration’s (FHA) Hospital Mortgage Insurance 

Program, insures loans to finance the renovation or construction of 

hospitals. Through an interagency agreement, the Department of Health 

and Human Services (HHS) administers certain aspects of this program 

based upon its health care and hospital expertise. The program is intended 

to protect lenders against losses they might incur if hospitals fail to make 

their mortgage payments. As of December 31, 2005, FHA reported that it 

insured nearly $5 billion in outstanding mortgages under the program.

The Hospital Mortgage Insurance Program is one of several programs 

included in FHA’s General Insurance/Special Risk Insurance (GI/SRI) fund; 

other programs in the GI/SRI fund are much larger and include mortgage 

insurance for various types of multifamily housing projects and for nursing 

homes. Pursuant to the Federal Credit Reform Act of 1990, for budget 

purposes HUD must annually estimate the credit subsidy for the program.1

 

1

2 U.S.C secs. 661-661f. In this report, we refer to the requirement of the act as “credit 

reform.”
Page 2 GAO-06-316 Hospital Mortgage Insurance Program

The credit subsidy cost for loan guarantees is the present value of cash 

flows over the life of the loan from estimated payments by the government 

(for defaults, delinquencies, and other payments) minus estimated 

payments to the government (for loan origination and other fees, penalties, 

and recoveries); it excludes administrative costs. Such estimates are 

important indicators of the full cost of programs to the government.

The 2005 Consolidated Appropriations Conference Report mandated that 

we review two FHA insurance programs—those for hospitals and nursing 

homes. This report provides the results of our evaluation of the Hospital 

Mortgage Insurance Program.2

 For this report, we reviewed (1) the design 

and management of the program, as compared with private insurance; (2) 

the nature and management of the relationship between HUD and HHS in 

implementing the program; (3) the financial implications of the program to 

the GI/SRI fund, including risk posed by program and market trends; and 

(4) how HUD estimates the annual credit subsidy for the program, 

including the factors and assumptions used.

To address these objectives, we reviewed program manuals and 

documentation of loan processing procedures and analyzed program 

financial data, which we determined to be reliable for the purposes of our 

review. We also reviewed documentation of HUD’s credit subsidy model 

and applicable program laws, regulations, and policy statements. We 

interviewed officials from FHA’s Office of Insured Health Care Facilities 

and the Division of Facilities and Loans within HHS’ Health Resources and 

Services Administration. We also interviewed health care and hospital 

associations, mortgage and investment banking firms, rating agencies, and 

private bond insurers. Our review of the hospital program did not include 

an evaluation of underwriting criteria, construction monitoring, or the need 

for the program. See appendix I for more detailed information on our 

objectives, scope, and methodology. 

We conducted our work in New York, New York; Chicago, Illinois; 

Paterson, New Jersey; Rockville, Maryland; and Washington, D.C., between 

February 2005 and January 2006 in accordance with generally accepted 

government auditing standards.

2

The results of our study on the nursing home insurance program will be provided in a 

separate report.
Page 3 GAO-06-316 Hospital Mortgage Insurance Program

Results in Brief The Hospital Mortgage Insurance Program insures the mortgages of 

hospitals that are financially riskier than those that can obtain private 

insurance, but it shares some management techniques with private 

insurers. While FHA’s process for reviewing mortgage insurance 

applications includes more steps, such as a preapplication meeting and 

review by an independent consultant, and generally takes longer, FHA 

officials believe these extra steps are justified given the generally riskier 

nature of the hospitals applying. Once it insures a hospital mortgage, FHA 

monitors the loan using many of the same techniques that private insurers 

use. For example, both FHA and private insurers identify the riskiest loans 

in their portfolios for closer monitoring. They also periodically review 

hospital financial statements and management activities and can require 

hospitals experiencing financial difficulties to use consultants for needed 

expertise. 

FHA and HHS work together throughout the process of reviewing mortgage 

insurance applications and monitoring active loans, guided by a multiyear 

Memorandum of Agreement between the two agencies. However, FHA has 

not used the agreement’s performance measures to manage the program, 

and its program guidance is not up to date. FHA and HHS use joint working 

groups to carry out certain activities. For example, client service teams, 

which can be composed of HHS staff, FHA staff, or both, review 

application materials. Also, senior FHA and HHS officials meet weekly to 

discuss insurance applications, as well as insured hospitals that are 

experiencing difficulties. While the agencies coordinate in program 

implementation, FHA does not collect data to track most of the 

performance measures, including those for coordinated or HHS-delegated 

tasks. For example, one performance measure is designed to capture the 

soundness of the analysis of a hospital’s application, but FHA does not 

collect data to assess this performance measure. Other performance 

measures are not measurable or objective. According to FHA, the measures 

are intended to communicate expectations, and it has not tracked most 

performance measures because there have not been enough problems to 

warrant a tracking system. Finally, FHA has not updated the program 

handbook, which contains program eligibility requirements, policies, and 

procedures, since 1984. 

The Hospital Mortgage Insurance Program is small compared with other 

programs in the GI/SRI fund—accounting for about 7 percent of the 

amount of all active loans insured by the fund—and the losses from claims 

have been relatively low. The program has not experienced a claim since 
Page 4 GAO-06-316 Hospital Mortgage Insurance Program

1999. Despite the program’s relatively small size, some program and market 

trends may pose risks. For example, the geographic concentration of 

insured hospitals located in the state of New York, while decreasing, makes 

the program vulnerable to state policies and regional economic conditions. 

In addition, literature on hospital industry market trends generally predicts 

reductions in hospital revenues along with increasing capital needs—

conditions that could increase the risk of FHA insured loans going to claim. 

FHA has established mitigation strategies to address some potential risks. 

For example, FHA requires hospitals to establish cash reserve funds equal 

to 2 years worth of mortgage payments. These funds may be used to help 

hospitals through temporary financial crises and prevent their lenders from 

filing an insurance claim. Also, FHA’s identification of its riskiest hospitals 

enables the agency to prioritize those hospitals that need additional 

monitoring and assistance. In addition, since 1999, FHA has had goals for 

geographically diversifying the hospital mortgage insurance portfolio. 

Though it has made efforts to diversify the portfolio, FHA does not have a 

formal strategy for reaching its diversification goals.

HUD uses a model for estimating annual credit subsidies, or program costs 

over the life of the outstanding loans insured, that does not explicitly 

consider the impacts of some potentially important factors. HUD’s model—

an important tool for estimating the cost of the hospital program to the 

government—incorporates factors and assumptions about how the loans 

will perform, including estimated claim and recovery rates, which are 

consistent with guidance issued by the Office of Management and Budget 

(OMB). Although the number of claims paid since the program’s inception 

is small, HUD assumes that the lenders for some active hospitals will file 

claims for insurance and, therefore, increases its estimated claim rate. In 10 

of the 14 years that HUD has been estimating the cost of the hospital 

program under credit reform, HUD has calculated a negative subsidy rate, 

meaning that estimated cash inflows (including fees, premiums, and 

recoveries on defaulted loans) have been greater than estimated cash 

outflows (including claims and certain program expenses). HUD’s model 

does not explicitly consider the potential impacts of prepayment penalties 

or restrictions, which can influence cash flows through the timing of 

prepayments, collection of premiums, and claims. HUD’s model also does 

not consider the initial debt-service coverage ratios of hospitals (an 

indicator of a borrower’s ability to make regular mortgage payments) at the 

point of loan origination when estimating future claims, although, 

according to some economic studies, this ratio is an important factor in 

modeling default risk. HUD does not include these factors in its model 

because, according to HUD, it does not collect data on prepayment 
Page 5 GAO-06-316 Hospital Mortgage Insurance Program

restrictions and because debt-service coverage ratios, among other things, 

do not vary. We found that data on prepayment restrictions are readily 

available to FHA. Further, our analysis of projected debt-service coverage 

ratios for hospitals that applied for mortgage insurance between 2002 and 

2005 found that these ratios varied (with the highest being over twice that 

of the lowest) and thus can be useful in assessing relative risk.

This report contains recommendations designed to improve FHA’s 

management of the Hospital Mortgage Insurance Program and reduce risks 

associated with the geographic concentration of the portfolio. We provided 

draft copies of this report to HUD and HHS. In its response, HUD’s 

Assistant Secretary for Housing concurred with our recommendations and 

noted actions that it plans to take. HUD also stated that the report did not 

adequately emphasize the program’s accomplishments. HHS concurred 

with HUD’s observations.

Background In 1968, the Congress added Section 242 to the National Housing Act 

establishing the Hospital Mortgage Insurance Program to address a serious 

shortage of hospitals and the need for existing hospitals to expand and 

renovate. Through this program, FHA insures the loans lenders make for 

the construction and renovation of hospitals.3

 Since the inception of the 

program, FHA has insured 341 hospital mortgages for $11.9 billion in 42 

states and Puerto Rico. As of the end of calendar year 2005, FHA was 

insuring 74 hospital mortgages totaling nearly $5 billion.4

 The number of 

loans insured annually has increased in recent years, from 2 in fiscal year 

2001 to 11 in fiscal year 2005 (see table 1). According to the House report 

accompanying the Hospital Mortgage Insurance Act of 2003, which revised 

the standards for determining the need and feasibility for hospitals, as well 

as eligibility requirements for small, rural hospitals, hospitals face 

significant financial challenges when providing care to patients who are 

covered by Medicare and Medicaid, as well as those that are uninsured. At 

the same time, improvements in technology and health care knowledge 

necessitate capital improvements such as additions and renovations to 

existing buildings. 

3

The Hospital Mortgage Insurance Program supplemented the Hill-Burton Program. Under 

Hill-Burton, HHS, formerly the Department of Health, Education, and Welfare, made loan 

guarantees and direct loans to hospitals for construction and modernization projects.

4

FHA was insuring 74 mortgages for 59 hospitals as of December 2005.
Page 6 GAO-06-316 Hospital Mortgage Insurance Program

Table 1: Number of New Loans Insured through the Hospital Mortgage Insurance 

Program Since 2001

Source: FHA.

FHA’s Office of Insured Health Care Facilities and HHS’ Division of 

Facilities and Loans coordinate to implement the hospital program. HUD 

has statutory responsibility for the program based on the FHA’s experience 

with promoting housing construction through housing mortgage insurance 

programs. As such, HUD is fully responsible for management of the 

program, including developing and proposing legislation, policy 

development, strategic planning, and approval of applications and loan 

documents. The House Committee on Banking and Currency, in 

recommending that HUD be given this responsibility, expected HUD to 

draw upon HHS’s hospital expertise to devise standards for insuring 

hospitals’ mortgages. Through an interagency agreement, HUD formally 

delegates authority to HHS to assist in the review of applications for 

mortgage insurance and the monitoring of insured loans. HHS is also given 

full responsibility for construction monitoring. See appendix II for 

additional information about FHA and HHS’s loan processing 

responsibilities.

FHA’s Hospital Mortgage Insurance Program generally serves the segment 

of the market consisting of hospitals that are too risky to obtain private 

bond insurance but are strong enough to pass FHA’s underwriting tests. 

Mortgage insurance, like private bond insurance, guarantees that lenders 

will be paid if the hospital stops making payments on its loan. In addition, 

both mortgage insurance and private bond insurance are forms of credit 

enhancement and improve the credit rating of the underlying debt for the 

insured entity, resulting in a lower interest rate for the loan. Hospitals with 

FHA-insured mortgages automatically receive investment-grade ratings 

(AA or AAA) because the reliability of the cash flows from the mortgage 

note are rated on the insurer’s, not the hospital’s, ability to repay the debt. 

Both FHA and HHS officials and private insurers agree that FHA’s Hospital 

Mortgage Insurance Program serves a different market than private 

Fiscal year Loans insured

2005 11

2004 6

2003 7

2002 1

2001 2
Page 7 GAO-06-316 Hospital Mortgage Insurance Program

insurers. According to FHA and HHS officials, FHA insures loans that are 

too risky, too small, or too large for private insurers, or are located in a 

market not served by private insurers. 

For the Hospital Mortgage Insurance Program, if a hospital fails to make 

any payment due under the mortgage, the mortgage is in default. If a default 

continues for 30 days, the lender is entitled to receive benefits from FHA. 

FHA may pay claims in either cash or debentures.5

Federal agencies that provide direct loans or loan guarantees are required 

by the Federal Credit Reform Act of 1990 to estimate the expected cost of 

programs by estimating or predicting their future performance and 

reporting the costs to the government in their annual budgets. Such 

estimates are important in that they more accurately measure the 

government’s costs of federal loan programs and permit better cost 

comparisons among different programs. Under credit reform procedures, 

the cost of loan guarantees, such as mortgage insurance, is the net present 

value of all expected future cash flows, excluding administrative costs.6

 

For guarantees, cash inflows consist primarily of fees and premiums 

charged to insured borrowers and recoveries on assets, and cash outflows 

consist mostly of payments to lenders to cover the cost of claims. Agencies 

discount projected future cash flows to the year in which the guaranteed 

loan was disbursed. The discounted cash flows are the estimated budgetary 

cost or gain of the cohort of loans obligated in a given fiscalyear.7

 The net 

present value of each cohort’s estimated cash flows is expressed as a 

percentage of the volume of guaranteed loans in the cohort—that is, a 

subsidy rate. Agency managers are responsible for accumulating relevant, 

sufficient, and reliable data on which to base their credit subsidy estimates. 

5

In a cash pay transaction, FHA will pay approximately 90 percent of the claim within a few 

days of when the mortgage is assigned to FHA. The remaining 10 percent is generally paid at 

a later date, after FHA has completed its due diligence in processing the claim and the title 

passes to FHA. Debentures are financial instruments with 20-year terms issued by FHA that 

pay interest semiannually. Interest on the debenture is used to pay principal and interest on 

the bonds. 

6

Present value is the worth of the future stream of cash inflows and outflows, as if they had 

occurred immediately. Calculating present value for credit reform requires the utilization of 

the interest rate on a marketable zero-coupon Treasury security with the same maturity 

from the date of disbursement as the cash flow provides the basis for converting future 

amounts into their “money now” equivalents. Net present value is the present value of 

estimated future cash inflows minus the present value of estimated future cash outflows.

7

A cohort refers to all direct loans and loan guarantees obligated in a given fiscal year.
Page 8 GAO-06-316 Hospital Mortgage Insurance Program

OMB has final responsibility for determining subsidy estimates, in 

consultation with agencies.

FHA’s Selection 

Process Includes 

Additional Steps 

Compared with Private 

Insurers, but 

Monitoring Techniques 

Are Similar

FHA requires hospitals to take certain steps, both before they apply for 

mortgage insurance and as a part of the application process, that private 

insurers do not mandate. These additional steps are used because FHA 

insures mortgages that are generally riskier than those using private bond 

insurance. For example, before they apply for mortgage insurance, FHA 

advises hospitals to compare their financial status with the program’s 

minimum requirements. If they meet these requirements, FHA requires 

hospitals to submit market and financial information so that FHA can make 

a preliminary assessment about the project and determine whether to 

conduct a preapplication meeting with the applicant to discuss the project. 

None of the private insurers that we met with have similar preapplication 

processes. 

After these preapplication steps are met, FHA’s application process 

includes additional steps compared with those of private bond insurers. 

FHA requires hospitals to submit a financial feasibility study containing 

historic and forecasted financial statements and ratios, a financing plan, 

and information about market demand, among other things. In addition, 

FHA hires consultants to evaluate the feasibility of each proposed project 

as an additional, independent check on the viability of the project. While 

the private bond insurers that we met with review the types of information 

included in feasibility studies, they do not require hospitals to submit such 

studies and do not hire consultants to assess the feasibility of proposed 

projects.

FHA’s application process also includes a final level of review that is absent 

from private bond insurer processes. After an application for mortgage 

insurance has gone through underwriting and been reviewed by an 

independent consultant, it is considered by the program management 

group, a group of senior-level FHA and HHS staff. FHA also refers to this 

group as its “credit committee.” Similarly, private bond insurers also 

consider applications within a credit committee structure. However, while 

private bond insurers make final insurance decisions through their credit 

committees, FHA has an additional layer of review. Based upon input from 

the program management group, the Director of FHA’s Office of Insured 

Health Care Facilities makes a recommendation to the FHA Commissioner, 

who then makes the final decision. 
Page 9 GAO-06-316 Hospital Mortgage Insurance Program

It generally takes FHA longer to process applications than it takes private 

bond insurers. According to program data, it took FHA an average of 265 

days to process the 11 applications for hospital mortgage insurance that it 

endorsed in fiscal year 2005.8

 According to the FHA, processing times vary 

with the complexity of the project and may be affected by issues requiring a 

hospital to rethink or resubmit its application, including issues that are 

beyond HUD’s control. In contrast, according to the private bond insurers 

and investment bankers that we interviewed, it generally takes private 

insurers up to 60 days to process an insurance application, sometimes less. 

While FHA’s average processing time is higher than private bond insurers, it 

has decreased from an average of 399 days in fiscal year 1999. According to 

FHA, processing times have improved as a result of implementing the 

preliminary review process, which disqualifies hospitals that don’t meet the 

program’s minimum requirements.

FHA uses many of the same techniques that private insurers use to monitor 

insured hospitals. Both FHA and private bond insurers identify the riskiest 

hospitals in their portfolio for closer monitoring. Since November 1999, 

FHA has placed on a priority watch list hospitals it determines are at risk of 

having a claim filed within the next 12 months. FHA considers a hospital 

for inclusion on the priority watch list if certain financial criteria are not 

met. For example, if the ratio measuring a hospital’s ability to pay its 

mortgage payments with cash generated from current operations (the debt 

service coverage ratio) falls below an acceptable level, the hospital may be 

placed on the watch list.9

 A hospital can also be placed on the list if FHA 

becomes aware of other conditions at the hospital, such as management or 

personnel problems. As of December 2005, FHA data showed that 11 of the 

59 insured hospitals are on this list, representing an unpaid (insured) 

principal balance of approximately $762 million. Private insurers also 

assess the risk of the hospitals that they insure in order to identify those 

that should be monitored more closely. For example, one private bond 

insurer explained that they monitor compliance with loan agreements by 

reviewing financial statements, documentation of payer mix (i.e., 

8

This figure is based on the number of days elapsed from the point that a complete 

application has been received to the point that HUD makes a decision to either commit to 

insuring the project, or rejects the application. 

9

While FHA requires applicants to provide data showing historical and projected debtservice coverage ratios, and monitors this ratio for insured hospitals, it does not explicitly 

factor the ratio into its forecast of loan performance when estimating credit subsidies. This 

issue is discussed in more detail later in this report in the section on FHA’s credit subsidy 

model. 
Page 10 GAO-06-316 Hospital Mortgage Insurance Program

proportion of reimbursement from Medicare, Medicaid, private insurance, 

etc.), and notices of litigation, among other things. 

As a part of their monitoring efforts, both FHA and private bond insurers 

monitor agreements that exist between themselves and the insured 

hospital.10 These agreements specify the requirements that the insured 

hospital must comply with in order to maintain the insurance. Agreements 

may cover issues such as the debt-service coverage ratio; liquidity, or the 

ability to convert assets to cash; and activities that a hospital cannot do 

without approval by the insurer. Both FHA and private insurers require 

hospitals to request waivers from agreement requirements if they are not 

going to meet them. FHA and private insurers monitor hospitals’ 

compliance with these agreements through various means, such as by 

evaluating changes in indicators of financial performance, as reported in 

hospitals’ financial statements. For example, one private bond insurer 

reported that it monitors hospitals’ cash on hand, and FHA monitors 

hospitals’ debt-service coverage ratios. FHA and private insurers monitor 

financial statements and other documentation quarterly and annually, 

respectively, and more frequently for hospitals that are experiencing 

financial difficulty. Both FHA and private insurers require hospitals that are 

not in compliance to correct violations within specific time frames. 

10FHA’s Regulatory Agreement contains covenants, or requirements that must be adhered to. 

In addition, FHA can require hospitals to adhere to supplemental covenants. 
Page 11 GAO-06-316 Hospital Mortgage Insurance Program

Both FHA and private insurers can require hospitals experiencing financial 

difficulties to hire consultants. In some cases, FHA will pay for consultants 

to identify and suggest solutions to hospitals’ financial difficulties. 

According to FHA, since fiscal year 2000, it has paid $1.3 million for 

consultant’s studies of 27 hospitals.11 However, FHA can also require 

hospitals to hire and pay for consulting services on their own. Similarly, 

private insurers can require hospitals to hire consultants to assist them 

with identifying and addressing problems. The requirement for a hospital to 

hire a consultant can be triggered if a hospital is not in compliance with its 

loan agreements, according to both FHA and private bond insurers.12

Agencies Coordinate 

Key Activities, but FHA 

Does Not Track Most 

Performance Measures 

FHA and HHS coordinate key activities, including screening applicants, 

underwriting loans, and monitoring insured hospitals. While FHA has 

established performance measures for both coordinated tasks and tasks 

delegated to HHS through an interagency agreement, it does not collect 

data with which to assess most of these measures. FHA’s primary guidance 

for the program has not been updated in over 20 years and, therefore, does 

not reflect key changes in eligibility criteria.

11This figure does not include financial feasibility study reviews, which are done as a part of 

FHA’s application review process.

12According to FHA, hospitals can also be required to hire consultants if they fail to meet 

certain minimum financial ratios, incur a significant adverse difference between budgeted 

and actual performance, or experience significant adverse changes in reimbursement rates.
Page 12 GAO-06-316 Hospital Mortgage Insurance Program

FHA and HHS Coordinate 

Their Client Screening, 

Application Review, and 

Loan Monitoring Activities

FHA and HHS coordinate to implement the hospital program based upon 

FHA’s experience with promoting housing construction through its housing 

mortgage insurance programs and HHS’s hospital and health care 

expertise. As previously noted, FHA is responsible for management of the 

program and formally delegates certain responsibilities to HHS. A 

Memorandum of Agreement (MOA) between FHA and HHS outlines the 

duties and responsibilities of each agency in carrying out the Hospital 

Mortgage Insurance Program, including coordinated activities and tasks 

that FHA delegates to HHS.13 In accordance with this agreement, both FHA 

and HHS staff are involved with the screening of applicants during the 

preapplication meetings. FHA’s policy is to include senior FHA staff and 

legal counsel, the account executive and client service team members 

(both of which can be either FHA or HHS staff), and engineering staff from 

HHS, among others, in such meetings.14 This policy helps insure that 

preapplication discussions with applicants are coordinated between FHA 

and HHS. 

FHA and HHS also coordinate activities during the underwriting review 

portion of the application process, which is the process used by FHA to 

assess the risk of a potential loan to the GI/SRI fund. The nature of 

coordination at this level depends on the staffing of the account executive 

and client service team positions, since these positions can be filled by 

either FHA or HHS staff or a combination of both. The account executive 

and client service team are responsible for underwriting activities, 

including analysis of the market and financial feasibility of the project. In 

addition, HHS engineers review all design and construction aspects of the 

proposed project. Appendix II presents the roles and responsibilities of 

each agency in more detail.

FHA and HHS use regular meetings of the program management group to 

coordinate additional activities. This group, composed of senior FHA and 

HHS staff, meets weekly to assist account executives and client service 

teams as they review applications for mortgage insurance and monitor 

insured hospitals. Minutes of program management group meetings that we 

13The MOA in effect during the period of our review covered fiscal years 2002 through 2005. 

A new Interagency Agreement became effective for fiscal years 2006-2010. 

14For every hospital that applies to or is insured by the program, FHA designates an account 

executive to provide information about the program, assist the hospital, and monitor the 

hospital and its market. 
Page 13 GAO-06-316 Hospital Mortgage Insurance Program

reviewed show joint FHA and HHS discussion of new applications, as well 

as issues associated with the existing portfolio. According to investment 

bankers, hospital associations, consulting firms, and selected hospitals we 

spoke with, coordination between FHA and HHS is generally seamless. 

FHA Has Not Used 

Performance Measures to 

Manage the Program

The fiscal years’ 2002-2005 MOA between FHA and HHS provides for FHA 

to establish performance measures and use them to evaluate tasks.15 While 

the MOA between FHA and HHS contains 22 performance measures, FHA 

has tracked actual performance for only 2 of these measures, 1 for 

processing complete applications within 120 days, and 1 for processing 

loan modification requests within 30 days. As a result, it is not possible to 

evaluate how well the agencies perform in implementing the program. 

According to FHA officials, the agency never intended to track these 

measures, or use them as actual measures of performance, but rather to 

show FHA’s expectations of HHS. Neither HUD’s fiscal year 2005 

performance plan nor its performance and accountability report includes 

other performance measures for this program. Moreover, OMB did not 

assess this program as a part of its fiscal year 2005 Program Assessment 

Rating Tool (PART), which is used to assess the performance of federal 

programs. Appendix III provides more detailed information about the 22 

performance measures contained in the MOA between FHA and HHS.

Analysis of the two performance measures for which data is collected 

shows that FHA is not meeting its performance goals for those measures. 

Based upon analysis of data from the Hospital Mortgage Insurance 

Management Information System, we determined that FHA did not meet its 

goal of processing 75 percent of hospital mortgage insurance applications 

within 120 days. Although the FHA received no more than 10 applications 

each year between fiscal years 2002 and 2005, FHA and HHS never 

processed more than 2 within 120 days (see fig. 1). 

15Beginning in fiscal year 2006, HHS is responsible for delivering an annual report to FHA 

detailing its performance against each of the measures in the Interagency Agreement.
Page 14 GAO-06-316 Hospital Mortgage Insurance Program

Figure 1: FHA Did Not Process Most Hospital Mortgage Insurance Applications 

within Targeted Time Frame

In addition, according to FHA, the agency did not meet its goal of 

processing at least 75 percent of loan modification requests within 30 

days.16 However, analysis of available data shows that FHA and HHS 

improved from processing 45 percent of loan modification requests 

received in fiscal year 2002 within 30 days to processing 71 percent in fiscal 

year 2005.

FHA has not tracked other performance measures related to activities that 

are coordinated, or can be done, by both FHA and HHS staff. For example, 

according to one performance measure, hospitals with a weakening 

financial position should be identified early enough to allow time for the 

16A loan modification refers to any action a hospital takes that requires HUD’s consent under 

the terms of the Regulatory Agreement.

Applications

Fiscal year

Source: GAO analysis of FHA’s Hospital Mortgage Insurance Management Information System.

2002 2003 2004 2005

Processed within 120 days

More than 120 days to process

0

2

4

6

8

10
Page 15 GAO-06-316 Hospital Mortgage Insurance Program

account executive to provide technical assistance and undertake default 

prevention measures. Since such hospitals are identified through the FHA’s 

priority watch list system, these data are readily available for 

measurement. Similarly, another performance measure is designed to 

capture the soundness of analysis performed by client service teams, which 

can include both FHA and HHS staff, in assessing insurance applications. 

FHA has also not tracked this measure.

FHA also does not track performance measures of activities that it 

delegates to HHS. For example, one measure is designed to capture the 

number of complaints and compliments about HHS’s timeliness, 

helpfulness, courtesy, and understanding. According to FHA, the agency 

has not tracked this or other measures because it has not had enough 

problems with HHS to warrant establishing a tracking system and that 

establishment of such a system would be both an administrative burden 

and a poor use of their resources. However, without collecting appropriate 

information, FHA cannot quantify the input it receives about HHS. In 

addition, FHA has not tracked performance measures related to 

construction design and monitoring, which HHS is responsible for. 

According to FHA, performance measures exist to indicate FHA’s 

expectations of HHS’s performance, even though HHS’s performance is not 

tracked.

Several of the performance measures contained in the agreement between 

FHA and HHS lack the necessary characteristics of performance measures; 

that is, they are not measurable or objective. As a result, they do not 

provide useful information about the performance of the hospital program. 

For example, the measures related to the number of complaints and 

compliments about HHS are not measurable in that they do not specify a 

quantifiable threshold for expected performance. As a result, even if FHA 

tracked complaints, it is not possible to tell whether performance is 

meeting expectations. Other goals lack objectivity in that they require 

subjective judgment to assess program performance. As an example, one 

performance measure indicates that “plans and specifications do not need 

major revisions during the construction process because of significant 

architectural or engineering errors.” Another indicator states that 

“preconstruction meetings are thorough and do not precipitate delays in 

application processing.” In both cases, the performance measures require 

subjective judgment, because they do not make explicit what constitutes 

“major,” “significant,” or “thorough.” As we have previously reported,
Page 16 GAO-06-316 Hospital Mortgage Insurance Program

useful performance information is based upon measurable and objective 

performance measures.17 If useful performance information is collected, 

managers could use it to identify problems, try to identify the causes of 

problems, and/or to develop corrective actions.18 (App. III provides a 

complete list of the performance measures.)

While FHA does not track most of the performance measures outlined in 

the MOA, FHA’s Hospital Mortgage Insurance Management Information 

System captures a significant amount of quantitative and qualitative data 

about the performance of the program, which could be incorporated into 

measurable and objective performance measures. This system captures 

key loan processing dates, financial performance data over time, and 

documentation of internal meetings and actions performed by both 

agencies to assist insured hospitals. Incorporation of this readily-available 

data into meaningful performance measures would enable FHA to better 

assess its management of the program.

FHA and HHS established a new interagency agreement covering fiscal 

years 2006 through 2010, which includes many of the same measures as the 

previous agreement, including those that are not measurable or objective. 

The new agreement also includes a requirement that HHS provide FHA 

with an annual report detailing its performance against each of the 

performance measures in the agreement. However, this interagency 

agreement does not specify whether and how FHA will track its own 

performance against the measures.

17GAO, The Results Act: An Evaluator’s Guide to Assessing Agency Annual Performance 

Plans, GAO/GGD-10.1.20 (Washington, D.C.: April 1998), 14.

18GAO, Managing for Results: Enhancing Agency Use of Performance Information for 

Management and Decision Making, GAO-05-927 (Washington, D.C.: Sept. 9, 2005), 7.
Page 17 GAO-06-316 Hospital Mortgage Insurance Program

Program Guidance Is Not 

Up to Date

FHA’s primary guidance for its hospital mortgage insurance program has 

not been updated in over 20 years and does not reflect changes to the 

program over that time. As a result, this document does not contain current 

eligibility requirements, which may cause confusion for potential 

applicants. In 1973, FHA published the Mortgage Insurance for Hospitals

Handbook and last updated the handbook in 1984. The purpose of the 

handbook is to provide complete information about the processing of 

hospital mortgage insurance, including basic program features and 

requirements, to hospitals, lenders, sponsors, FHA and HHS personnel, and 

all other interested parties. According to FHA, the Office of Insured Health 

Care Facilities has not had adequate staff to revise the handbook and is 

waiting for a proposed regulation to become final before revising it. Since 

the handbook has not been updated since 1984, it does not contain current 

eligibility requirements, policies, and processing procedures. As we have 

previously reported, internal control standards applicable to federal 

programs provide that information should be recorded and communicated 

in a timely manner.19

The handbook does not reflect key changes that the Hospital Mortgage 

Insurance Act of 2003 made to the program. This act revised the existing 

requirement that hospitals applying for FHA mortgage insurance have 

either a Certificate of Need or a state-commissioned study of market need; 

specifically, it provided that FHA would establish the means for 

determining market need and feasibility for hospitals.20 In addition, the 

2003 act exempted Critical Access Hospitals (CAH) from the requirement 

that at least 50 percent of care must be for general acute-care patients.21

According to one of the mortgage bankers that we met with, the handbook 

causes confusion because hospitals are uncertain about requirements 

applicable to them. 

19GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999), 18.

20A Certificate of Need is a state-issued designation of the market need for a hospital. 

21CAHs, designated by states and HHS, are rural hospitals that, as of January 2004, may 

operate up to 25 beds for acute care and receive cost-based reimbursement from Medicare. 

CAHs were exempted from the requirement that no more than 50 percent of the total patient 

days during any year are customarily assignable to the categories of: chronic convalescent 

and rest, drug and alcoholic, epileptic, mentally deficient, mental, nervous and mental, or 

tuberculosis through July 31, 2006. 
Page 18 GAO-06-316 Hospital Mortgage Insurance Program

As we have previously reported, internal control standards provide that 

information, such as changes in eligibility requirements and application 

processing procedures, should be communicated in a timely manner. While 

FHA publicly communicates program changes through Mortgagee Letters, 

updating the Applicant’s Guide, distributing copies of its minimum criteria 

for consideration, and updating its Web page, it has not incorporated all of 

this updated information into the program’s handbook. All documentation, 

including the handbook, should be updated in a timely manner.22 

Maintaining current documentation is an internal control that would 

benefit both those interested in the program and those that administer the 

program.

Potential Risks Exist 

Although FHA Has 

Mitigation Strategies in 

Place

The hospital program is a relatively small program within the broader 

GI/SRI fund and has a record of recovering claims. Despite its small size, 

both program and market trends show risks that could affect the hospital 

portfolio. FHA has mitigation strategies in place to address some risks but 

does not have a formal strategy to geographically diversify the hospital loan 

portfolio.

The Hospital Program 

Accounts for a Relatively 

Small Share of the Broader 

GI/SRI Fund, and Has 

Recovered a Majority of All 

Claims

The Hospital Mortgage Insurance Program comprises a relatively small part 

of the GI/SRI fund, representing about 2.9 percent of the GI/SRI’s fund’s 

fiscal year 2006 total commitment authority.23 Moreover, the approximately 

$5 billion in loans that FHA currently insures through the program is 6.5 

percent of the $77 billion in unpaid principal balance of the fund (see fig. 

2). In addition to being a financially small component of the broader GI/SRI 

fund, the Hospital Mortgage Insurance Program has a record of recovering 

more than two-thirds of all historical claims, and lenders have not made a 

claim on an insured loan since 1999. Since the program’s inception in 1968, 

there have been a total of 22 claims totaling $225 million. Of this amount, 

FHA recovered 68 percent, or $153 million. 

22FHA and HHS staffs compile updates to policies and procedures in an internal manual 

available only to FHA and HHS employees. According to FHA, this document is not meant to 

replace the Mortgage Insurance Handbook for Hospitals.

23“Fiscal Year 2006 Federal Credit Supplement of the United States Government; Table 2—

Loan Guarantees: Subsidy Rates, Commitments, and Average Loan Size” (Washington, D.C.: 

Office of Management and Budget, February 2005), http://www.gpoaccess.gov/

usbudget/fy06/cr_supp.html (downloaded Oct. 6, 2005).
Page 19 GAO-06-316 Hospital Mortgage Insurance Program

Figure 2: Hospital Mortgage Insurance Program Comprises a Relatively Small Part 

of the GI/SRI Fund 

Loan Performance and 

Market Trends Reveal 

Sources of Potential Risks

In spite of the hospital program’s relatively small size and the relatively 

good performance history of insured loans, analysis of both program and 

market trends shows risks that could affect the future performance of the 

hospital loan portfolio. For example, the average loan size insured through 

the program has varied over time but has been increasing from about $26 

million in 2002 to over $122 million in 2005. This growth creates financial 

risk because a claim from one large loan could have a significant impact 

upon the program. 

2006 total commitment authority

2.9%

97.1%

Hospital Mortgage Insurance Program

Remaining GI/SRI fund

Total unpaid principal balance

6.5%

($5B)

93.5%

Total: $21B Total: $77B

Source: GAO analysis of data on FHA’s Hospital Mortgage Insurance Program. 
Page 20 GAO-06-316 Hospital Mortgage Insurance Program

In addition, the majority of the currently insured loans in FHA’s hospital 

portfolio are less than 10 years old. According to HUD, 70 percent of claims 

have historically occurred prior to a loan’s tenth year. Currently, the loans 

that have been insured for less than 10 years have an aggregate unpaid 

principal balance of $2.8 billion, representing about 57 percent of the 

aggregate unpaid principal balance (see fig. 3).24

Figure 3: Proportion of FHA Hospital Loans That Have Been Insured Less Than 10 Years

24This figure was calculated for all currently active FHA hospitals that had loans endorsed 

from 1996 through 2005.

Unpaid principal balance for loans insured less than 10 years

57%

Aggregate unpaid principal balance

of loans insured for less than 10 years

$2.8 billion

Proportion of all loans

insured less than 10 years

Source: GAO analysis of HUD’s F47 database, a multifamily database.

0

.3

.6

.9

1.2

1.5

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Dollars in billions
Page 21 GAO-06-316 Hospital Mortgage Insurance Program

Comparing FHA data on selected financial indicators with the criteria the 

agency uses to determine the financial health of program applicants shows 

some favorable trends but also indicates sources of potential financial risk 

(see fig. 4). Specifically, our analysis of program data for calendar years 

2000 to 2004 shows that some insured hospitals increased their ability to 

meet their monthly and future mortgage payments. For example, the 

median debt-service coverage ratio, a measure of a hospital’s ability to pay 

its mortgage with cash generated from current operations, increased from 

1.54 to 2.18. While a value of 2.18 for this ratio indicates a low level of risk, 

according to FHA criteria, other financial indicators indicate medium levels 

of risk.25 For example, the median number of days of cash on hand and the 

median current ratio (which compares a hospital’s current assets to its 

current liabilities) both improved, yet still indicate a medium level of risk to 

the program. Finally, the median operating margin, which is indicative of a 

hospital’s ability to control costs and expenses, improved between 2000 

and 2004, yet indicates a medium level of risk based on FHA’s criteria.

25Financial ratios for active hospitals were compared with FHA criteria used to determine 

financial health of program applicants listed in the underwriting guidelines in the hospital 

insurance manual. 
Page 22 GAO-06-316 Hospital Mortgage Insurance Program

Figure 4: Selected Median Financial Indicators Show Varying Levels of Risk 

a

The N for debt-service coverage ratio differs slightly. It is 36 in 2000, 41 in 2001, 42 in 2002, 44 in 

2003, and 49 in 2004.

Median financial indicators for the 11 hospitals that FHA has placed on its 

priority watch list show much greater levels of risk when compared with 

FHA’s underwriting guidelines (see fig. 5). For these hospitals, performance 

as measured by all four selected indicators declined from 2000 to 2004. 

Further, in 2004, three indicators showed a high level of risk, based on 

FHA’s criteria. For example, according to FHA’s criteria, an applicant with 

an operating margin of less than zero is considered high risk. The hospitals 

on FHA’s priority watch list had median operating margin of -2.65 in 2004. 

Similarly, according to FHA’s criteria, an applicant with less than 15 days of 

cash on hand is also high risk, and hospitals on the priority watch list had a 

median of 3.3 days of cash on hand in 2004. FHA recognizes that the high 

risk levels of these selected financial indicators are among the reasons that 

Ratio

Debt 

service

coverage

a

Days

cash on

hand

Current

Operating

margin

Year

2000

(N=37)

2001

(N=42)

2002

(N=45)

2003

(N=50)

2004

(N=53)

FHA risk level

(2004)

1.54

2.18

-.52

.37

1.21 1.41

5.7

18.8

0

1.5

3.0

Percentage

0

10

20

30

Days

0

0.5

1.0

1.5

2.0

Percentage

-1.5

0

1.5

3.0

Percentage

low

medium

medium

medium

Sources: GAO analysis of FHA’s Hospital Mortgage Insurance Management Information System and FHA applicant risk levels in 

hospital mortgage “Underwriting Guidelines” (hospital insurance manual).
Page 23 GAO-06-316 Hospital Mortgage Insurance Program

these hospitals are on its priority watch list and are, therefore, subject to 

closer monitoring to reduce the risk of a claim.

Figure 5: Selected Median Financial Indicators Show High Levels of Risk for Priority 

Watch List Hospitals

Analysis of program data further shows that, while loans are increasingly 

being insured outside of the Northeast, the program is still concentrated in 

New York (see fig. 6). Though the percentage of the unpaid principal 

balance concentrated in New York has decreased from 89 percent in 2000, 

61 percent of the unpaid principal balance in the program remains 

concentrated in New York in 2005. Of the 30 hospital loans that FHA has 

insured since 2000, 21 are outside of New York, and 19 are outside of the 

Northeast region. Since 2003, 5 of the loans insured were for CAHs.

medium

0

2

4

6

Ratio

Debt 

service

coverage

Days

cash on

hand

Current

Operating

margin

FHA risk level

(2004)

1.2 1.08

-1.81

-2.65

.86 .73

2.84 3.3

Percentage

Days

Percentage

Percentage

high

high

high

Sources: GAO analysis of FHA’s Hospital Mortgage Insurance Management Information System and FHA applicant risk levels in 

hospital mortgage “Underwriting Guidelines” (hospital insurance manual).

0

1

2

0

.50

1.00

Ratio

Year

2000

(N=9)

2001

(N=11)

2002

(N=11)

2003

(N=11)

2004

(N=11)

-3.0

-2.0

-1.0

0
Page 24 GAO-06-316 Hospital Mortgage Insurance Program

Figure 6: FHA Loans Remain Concentrated in the Northeast as of December 2005: Active Loan Dollar Amount and Number of 

Loans by State 

Sources: GAO analysis of HUD’s F47 database, a multifamily database (data); Art Explosion (map).

Less than $50,000,000

$50,000,000 - $100,000,000

$100,000,000 - $300,000,000

More than $300,000,000

N/A (state has no active loans)

1

1

3

4

45

1

1

1

1

1

1 1

1

1

1

1

1

1

2

2

2

1

Puerto Rico
Page 25 GAO-06-316 Hospital Mortgage Insurance Program

Further, 24 out of 25 mortgage insurance applications in development at 

the time of our study are located outside of the Northeast (see fig. 7).26

26 The 24 applications in development are those that HUD considers to be in the application 

pipeline. These include applications that are still under development and have not yet been 

received by HUD for review.
Page 26 GAO-06-316 Hospital Mortgage Insurance Program

Figure 7: Applications for Hospital Mortgage Insurance are Geographically Dispersed as of December 2005: Application Dollar 

Amount and Number of Applications by State

Sources: GAO analysis of FHA’s Hospital Mortgage Insurance Management Information System (data); Art Explosion (map).

Less than $50,000,000

$50,000,000 - $100,000,000

$100,000,000 - $300,000,000

More than $300,000,000

N/A (states without current program applicants)

1

1

1

3

1

1

1

1

3

1

1

1

1 2

2

Puerto Rico
Page 27 GAO-06-316 Hospital Mortgage Insurance Program

Despite these strides, the high concentration of the program’s unpaid 

principal balance in New York, as well as concentrations with single 

borrowers with multiple loans, creates risks. New York hospitals insured 

through FHA, like hospitals nationwide, rely heavily upon reimbursement 

through Medicare and Medicaid.27 Since a portion of Medicaid funding 

comes from states, any cuts made by the state of New York could have an 

especially negative impact on the hospital program. Insured hospitals in 

New York are also vulnerable to other state policies. For example, a task 

force appointed by the Governor is in the process of identifying New York 

hospitals for closure or restructuring. The Governor and state legislature 

have committed state funds to assist in restructuring efforts, and the state 

has had a history of helping its hospitals avoid defaults. Nevertheless, any 

recommendations for the closure or restructuring of FHA-insured hospitals 

may present the risk of an insurance claim. Further, some New York 

hospitals have multiple loans insured through the program, one with 

unpaid principal balances totaling approximately $828 million as of 

December 2005. According to HUD’s comments on the draft of this report, 

this hospital is a financially sound, well-endowed institution that poses a 

low risk of default.

Industry Trends Pose Risks 

to Hospitals, Including 

Those with FHA Insured 

Mortgages

The hospital program may also face risks from changes in the health care 

industry at large. According to industry literature, decreasing revenue 

streams, increases in the number of uninsured patients, increased 

competition from specialized facilities, and heightened capital needs are 

some of the trends that affect all hospitals, including FHA-insured 

hospitals. 

27According to Centers for Medicare & Medicaid Services (CMS) data, of the total patient 

discharges for insured New York hospitals, 21 percent were reimbursed by Medicaid and 29 

percent by Medicare.
Page 28 GAO-06-316 Hospital Mortgage Insurance Program

We and others have reported that Medicare and Medicaid spending may not 

be sustainable at current levels.28 If program cuts occur in Medicaid, for 

example, states may take cost containment measures to reduce spending.29

Such measures may include frozen, or reduced, reimbursement rates to 

providers and restrictions on eligibility for these programs.30 In addition, 

the number of Medicare enrollees is projected to increase as baby-boomers 

age and become Medicare-eligible.31 These trends will affect all hospitals, 

including FHA-insured hospitals, which generally have Medicare and 

Medicaid patients in their payer mix. On average, Medicare discharges for 

FHA-insured hospitals represented 29 percent of total discharges per 

hospital, and Medicaid discharges represented 19 percent of total 

discharges per FHA-insured hospital.32 (See fig. 8 for Medicare and 

Medicaid discharges by state.) Stated another way, nearly 50 percent of the 

reimbursement that program hospitals receive is through Medicare and 

Medicaid. 

28GAO, 21st Century Health Care Challenges: Unsustainable Trends Necessitate Reforms to 

Control Spending and Improve Value presented before the Citizens’ Health Care Working 

Group, Salt Lake City, Utah, on July 22, 2005, 8.

29Medicaid program cuts of $4.8 billion over 5 years are included in the pending Deficit 

Reduction Omnibus Reconciliation Act of 2005 (S.1932). Should it be enacted, the act’s 

provisions include increasing cost-sharing for Medicaid beneficiaries and allowing states to 

reduce benefits.

30Fitch Ratings, 2005 Non-Profit Hospitals and Health Care Systems Forecast (New York, 

NY: Jan. 20, 2005), 8.

31Ibid. According to the United States Bureau of the Census, baby boomers are those people 

born in the post-World War II period from 1946 through 1964.

32 The term discharge refers to the formal release of a patient by a hospital; this includes the 

termination of a period of hospitalization by disposition to a nursing home or home care. 

Medicare discharges refer to hospital reimbursement through Medicare, and Medicaid 

discharges refer to hospital reimbursement through Medicaid.
Page 29 GAO-06-316 Hospital Mortgage Insurance Program

Figure 8: FHA-Insured Hospitals Have Medicare and Medicaid Payers among Their 

Patient Discharges

Note: More than 90 percent of these data have undergone basic edit checks; however, Centers for 

Medicare & Medicaid Services (CMS) has not yet determined whether these data require an audit. 

These data may change as they undergo further review by CMS. In addition, CMS does not enforce 

dates by which hospitals must report data. Thus, only 49 of the 59 FHA hospitals active as of October 

2005 had provided data for 2003.

Hospitals, including FHA-insured hospitals, must also contend with the 

rising number of underinsured and uninsured patients, which place 

demands on hospitals to provide care with little to no reimbursement. 

According to the U.S. Census Bureau, the number of uninsured persons 

rose from under 40 million people in 2000 to approximately 45 million 

people in 2003. This trend may pose a risk to the program. In addition, 

hospitals in New York, where the hospital mortgage insurance is 

concentrated, serve a high proportion of uninsured patients. 

Colorado

Florida

Idaho

Illinois

Maryland

Michigan

Minnesota

New Jersey

New Mexico

New York

North Carolina

Ohio

Puerto Rico

South Carolina

Texas

Arkansas

State Medicare

Percentage of discharges by type

Medicaid

Total

hospital

discharges

Wisconsin

27.15

59.05

65.31

13.19

34.59

45.91

48.52

32.18

15.36

29.17

47.03

69.99

27.87

27.23

30.41

46.53

28.82

22.38

13.88

9.09

56.58

7.53

15.06

10.22

18.71

20.66

27.21

5.76

15.70

34.63

.52

9.65

12.62

3,565

1,729

539

18,385

3,865

1,860

2,430

45,060

18,816

571,034

11,026

833

8,281

25,622

63,521

2,435

1,728

Source: GAO analysis of CMS hospital cost report database as of calendar year 2003.
Page 30 GAO-06-316 Hospital Mortgage Insurance Program

Credit rating agencies state that competition is increasing in the health care 

market as the type of care provided shifts to outpatient and specialty 

hospitals, which provide profitable services, such as cardiology, surgery, 

orthopedics, and diagnostic imaging.33 Specialty facilities providing these 

services can take patients and revenue from general acute-care hospitals, 

which supplement revenue shortfalls with profitable services after 

providing needed, but unprofitable, services to the community. The growth 

of specialty hospitals, such as ambulatory surgery centers, is strong. The 

average number of specialty hospital openings has increased from 5 

hospital openings in the 1960s to 27 hospital openings in the 2000-present 

time period.34

Hospitals throughout the health care sector face increasing capital 

demands, yet many have limited access to capital according to hospital 

industry literature.35 For example, hospitals face demand for outpatient 

services, emergency room upgrades, and technological advancements, 

which have significant up-front and maintenance costs. A reputable credit 

rating agency estimates that information technology expenditures now 

range between 20 to 30 percent of a hospital’s capital budget. Financially 

weaker hospitals have less access to capital, yet often have pent-up capital 

needs. According to a recent rating agency report, New York hospitals have 

unmet capital needs as a result of their older infrastructure and because 

they are generally financially weaker than the average hospital.36

33Fitch Ratings, 2005 Non-Profit Hospitals and Health Care Systems Forecast (New York, 

NY: Jan. 20, 2005), 6; Standard & Poors,U.S. Not-For-Profit Health Care 2005 Median 

Ratios: Improvement Continues Across the Rating Spectrum (New York, NY: July 20, 

2005), 10; Moody’s Investors Service, Not-For-Profit Healthcare Sector: 2004 Industry 

Outlook (New York, NY: January 2004), 9-10. 

34GAO, Speciality Hospitals: Information on National Market Share, Physician 

Ownership, and Patients Served, GAO-03-683R (Washington, D.C.: Apr. 18, 2003), 6.

35Healthcare Financial Management Association, Financing the Future Report 1: How are 

Hospitals Financing the Future? Access to Capital in Health Care Today (Westchester, IL: 

2003), 1; Moody’s Investors Service, Not-For-Profit Healthcare: Capital Access: Moody’s 

Answers the Five Most Frequently Asked Questions on Capital Planning (New York, NY: 

September 2004), 1. 

36Standard and Poor’s, New York Health Care: Low Hospital Ratings, Weak Access to 

Capital (New York, NY: May 11, 2004), 1.
Page 31 GAO-06-316 Hospital Mortgage Insurance Program

FHA Uses Tools to Mitigate 

Risk

FHA uses a variety of tools to mitigate risk in the hospital program. For 

example, during its preliminary assessment of a hospital, FHA reviews the 

hospital’s ability to pay its mortgage by analyzing its debt service coverage 

ratio and determines if this ratio meets FHA’s minimum requirement.37 FHA 

takes other steps when reviewing applications (as discussed previously) 

designed to keep out excessively risky projects and also imposes 

requirements on insured hospitals to control risks. These include 

• assessing the viability of projects at preapplication meetings with key 

hospital representatives; 

• using a comprehensive underwriting process that assesses, among other 

factors, past and projected financial performance and the demand for 

the hospital’s services; 

• hiring an independent consultant to evaluate the feasibility of the 

proposed project and its potential risk to the FHA;

• requiring insured hospitals to establish a cash reserve fund sufficient to 

cover 2 years of mortgage payments;38

• requiring insured hospitals to maintain compliance with key agreements 

between the hospital and FHA and monitoring these agreements;39 and

37While hospitals should meet certain criteria in terms of their debt-coverage ratio and other 

financial ratios, if the hospital cannot do so, but can demonstrate that its financial 

performance has been improving in recent years, it may still be considered by FHA for 

mortgage insurance. 

38The reserve fund may be used to pay debt service on the mortgage until the insurance 

proceeds or debenture payments are received from FHA. According to FHA guidelines, 

hospitals may borrow from this fund with FHA's permission.

39When an insured hospital breaks a covenant, FHA requires the hospital to take corrective 

action so that the loan is in compliance with the covenant. For example, a hospital may be 

required to hire a consultant to help it identify and resolve the issues that led to its 

noncompliance.
Page 32 GAO-06-316 Hospital Mortgage Insurance Program

• considering insured hospitals that fail to meet certain financial criteria 

for placement on the priority watch list.40

FHA has also made some efforts to address the risks associated with the 

geographic concentration of the program in New York. Since 1999, FHA has 

had goals for geographically diversifying the hospital portfolio. Currently, 

FHA’s goals for diversifying the portfolio include reviewing and processing 

applications for projects in states other than New York. While the agency 

does not have a formal strategy for marketing the program outside of New 

York, it has made some efforts to diversify the hospital portfolio by

• simplifying its application process for CAHs and providing rural hospital 

associations with information about the program; 

• hiring an expert in rural hospitals;

• visiting hospital association conferences to educate members about the 

program; and

• educating HUD field attorneys, mortgage bankers, and consultants 

about the program.

HUD has also cooperated with requests for program information from the 

trade media and assisted other researchers, which resulted in the 

publication of articles and reports that provided information about the 

advantages of the hospital program in financing capital projects. A formal 

strategy, however, would provide the agency with a tool for 

comprehensively planning for and executing activities that would lead to 

the geographic diversification of the hospital portfolio. OMB guidance, for 

example, requires that agencies include a description of the means and 

strategies that will be used to achieve goals in their strategic plans. Such 

strategies could include, for example, the processes, skills, technologies, 

and various resources that will be used to achieve goals. 

40According to FHA policy, the following circumstances should be used as flags to trigger 

closer evaluation of a hospital’s financial status: a missed principal or interest payment; 

significant losses from adverse revenue or expense trends over time, or a major one-time 

loss; poor liquidity; and a negative cash flow over debt service requirements.
Page 33 GAO-06-316 Hospital Mortgage Insurance Program

HUD’s Model for 

Estimating Credit 

Subsidy Costs 

Excludes Potentially 

Relevant Factors

HUD uses a model for estimating annual credit subsidies that does not 

explicitly consider the impacts of some potentially important factors. 

HUD’s model incorporates factors and assumptions about how loans will 

perform, including estimated claim and recovery rates, which are 

consistent with OMB guidance. HUD has generally calculated a negative 

subsidy rate for the hospital program, meaning that estimated cash inflows 

have been greater than estimated cash outflows. However, HUD’s model 

does not explicitly consider the potential impacts of prepayment penalties 

or restrictions when estimating prepayments, or the debt-service coverage 

ratios of hospitals at the time of loan origination. 

For budgeting purposes, agencies that make loans and provide loan 

guarantees must estimate the costs to the government over the life of the 

loans that will be insured, commonly referred to as the subsidy cost. In 

order to estimate the subsidy cost of the Hospital Mortgage Insurance 

Program, HUD uses a cash-flow model to project expected net cash flows 

for all these loans over their entire life. HUD’s model is a computer-based 

spreadsheet that uses assumptions based upon historical and projected 

data to estimate the amount and timing of claims, subsequent recoveries 

from these claims, as well as premiums and fees paid by the borrower. In 

addition, HUD does not consider prepayment penalties and restrictions 

when it estimates the level and timing of prepayments, which affect 

estimates of future claims and premiums.

HUD inputs its estimated cash flows into the OMB’s credit subsidy 

calculator, which produces the official credit subsidy rate. A positive credit 

subsidy rate means that the present value of cash outflows is greater than 

inflows, and a negative credit subsidy rate means that the cash inflows are 

estimated to exceed cash outflows. For the hospital program, cash inflows 

include premiums and fees, servicing and repayment income from notes 

held in inventory, rental income from properties held in inventory, and sale 

income from notes and properties sold from inventory. Cash outflows 

include claim payments and expenses related to properties and notes held 

in inventory.
Page 34 GAO-06-316 Hospital Mortgage Insurance Program

Since the hospital program’s inception, FHA has paid a total of 22 hospital 

mortgage insurance claims. The last claim was filed in 1999. Because of the 

small number of claims, HUD determined that claim rates based solely 

upon the program’s historical claims experience would not be reliable.41 As 

a result, HUD uses a methodology initially developed by OMB to increase 

its estimated claim rate by assuming that the lenders for some active 

hospitals would file claims for insurance. HUD refers to this methodology 

as an artificial default.42 In determining which loans to artificially default, 

HUD focuses on hospitals that generally have a higher risk of default, and 

are therefore on FHA’s priority watch list.43 According to OMB officials, the 

use of this artificial default accounts for the risk that exists due to the low 

number of large size loans insured, potential changes in Medicare or 

Medicaid reimbursement rates, and the geographic concentration of the 

program in New York, which make the program vulnerable to regional 

economic conditions. 

In 10 of the 14 years that HUD has been estimating the cost of the Hospital 

Mortgage Insurance Program under credit reform, HUD has estimated that 

the present value of cash inflows from fees, premiums, and recoveries from 

loans and properties sold would exceed the outflows from claim payments 

and other expenses related to properties and notes held in inventory. As a 

result, HUD calculated a negative credit subsidy rate for the hospital 

program for these 10 years. In the other 4 years, HUD estimated positive or 

no credit subsidy costs for the program. Figure 9 shows changes in the 

credit subsidy rate from 1992 to 2005.

41Three hundred forty-one loans have been insured over the life of the program, as of Dec. 

31, 2005.

42While the term “default” refers to the status of a loan when a mortgage payment is late and 

“claim” refers to the filing of a claim for insurance, HUD uses the term “artificial default 

methodology” to refer to its methodology for increasing the number of expected claims for 

insurance.

43Inclusion on the priority watch list is based in part on financial criteria, including a current 

debt service coverage ratio of less than 1.10. This criterion serves as a flag but is not a 

determinant for inclusion on the priority watch list.
Page 35 GAO-06-316 Hospital Mortgage Insurance Program

Figure 9: Credit Subsidy Rates for the Hospital Mortgage Insurance Program Have Generally Not Indicated a Need for Subsidies

While HUD’s model includes assumptions that are consistent with OMB 

guidance, such as assumptions on estimated claim and recovery rates and 

an artificial default methodology to supplement the claim experience, 

HUD’s model does not explicitly consider the potential impact of 

prepayment penalties or restrictions, even though they can influence the 

timing of prepayments and claims and collection of premiums. Inclusion of 

initial debt-service coverage ratios, as a factor predictive of defaults and 

claim rates into HUD’s cash-flow model for the hospital program, could 

potentially enhance HUD’s estimate of the subsidy cost of the program. 

According to some economic studies, prepayment penalties, or penalties 

associated with the payment of a loan before its maturity date, can

Cohort

Rate

Sources: GAO analysis of HUD data (1992-1993) and OMB federal credit supplement data (1994-2005).

Subsidy required?

No

Yes

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Page 36 GAO-06-316 Hospital Mortgage Insurance Program

significantly affect borrowers’ prepayment patterns.44 In turn, prepayments 

affect claims because if a loan is prepaid it can no longer go to claim. 

According to FHA officials, FHA does not place prepayment penalties on 

FHA-insured hospital loans. However, according to the hospital program’s 

regulations, a mortgage loan made by a lender that has obtained the funds 

for the loan through bonds can impose a prepayment penalty charge and 

place a prepayment restriction on the mortgage’s term, amount, and 

conditions.45 

According to FHA officials and mortgage bankers, prepayment restrictions 

on hospital loans are generally in the form of 10-year restrictions on the 

prepayment of bonds. While FHA does not maintain data specifically on 

insured hospitals’ bond-financing terms, prepayment restrictions are 

specified on the mortgage note, which is available to FHA. Moreover, 

according to the Mortgage Insurance for Hospitals Handbook, FHA has 

access to bond-financing terms because, upon completion of bond issues, 

applicants are required to submit bond-related documents to FHA so that 

FHA can verify that the fees, charges, and other costs previously approved 

with respect to debt restructuring. Incorporation of such data into the 

hospital program’s credit subsidy rate model could refine HUD’s credit 

subsidy estimate by enhancing the model’s ability to account for estimated 

changes in cash flows as a result of prepayment restrictions. 

According to HUD officials responsible for HUD’s cash-flow model, 

prepayment penalties and restrictions are not incorporated into the model 

because HUD does not collect such data. HUD officials added that, even 

though the cash-flow model does not explicitly account for prepayment 

penalties and restrictions, its use of historic data implicitly captures trends 

that may occur as a result of prepayment penalties and restrictions. 

However, by not explicitly incorporating prepayment penalties or 

restrictions into the cash-flow model, HUD’s model is less able to estimate 

the impact of changes in prepayment patterns of current and future

cohorts. 

44Jesse M. Abraham and H. Scott Theobald, “A Simple Prepayment Model of Commercial 

Mortgages,” Journal of Housing Economics, vol. 6, no. 1 (1997); Austin Kelly, V. Carlos 

Slawson, Jr., “Time-Varying Mortgage Prepayment Penalties,” Journal of Real Estate 

Finance and Economics, vol. 23, no. 2 (2001); Qiang Fu, Michael LaCour-Little, and Kerry D. 

Vandell, “Commercial Mortgage Prepayments Under Heterogeneous Prepayment Penalty 

Structures,” The Journal of Real Estate Research vol. 25, no. 3 (2003). 

45The regulations also state that prepayment restrictions and penalty charges must be 

acceptable to the FHA Commissioner.
Page 37 GAO-06-316 Hospital Mortgage Insurance Program

HUD’s cash-flow model also does not consider the initial debt-service 

coverage ratio of hospital loans at the point of loan origination. By initial 

debt-service coverage ratio, we are referring to the projected debt-service 

coverage ratio that is considered during loan underwriting. (HUD’s cashflow model does consider the current debt-service coverage ratio of 

insured hospitals through its artificial default methodology, which, as 

previously explained, includes hospitals that are on FHA’s priority watch 

list. This list may include insured hospitals if, based upon the last available 

full year of data, their debt-service coverage ratio is below 1.10.) 

According to the HUD official responsible for HUD’s cash-flow model, the 

initial debt-service coverage ratio of a hospital at the point of loan 

origination is not included as a part of the cash-flow model for the hospital 

program because it (1) is not a cash flow, (2) does not vary, and (3) has no 

predictive value. We agree that a debt-service coverage ratio is not a cash 

flow. However, initial debt-service coverage ratios potentially affect

relevant cash flows, as do other factors that are included in HUD’s model 

but are also not cash flows, such as prepayments. For example, the model 

considers estimated prepayments because they potentially affect future 

cash inflows from fees and future cash outflows from claim payments.

Initial debt-service coverage ratios are another important factor that may 

affect cash flows, as loans with lower initial debt-service coverage ratios 

may be more likely to default and result in a claim payment. They can also 

be used to assess the financial health of either an applicant or a hospital in 

the existing portfolio. 

According to officials from FHA’s Office of Insured Health Care Facilities, 

the projected debt-service coverage ratio is most meaningful for the third 

or fourth year projected, when construction is most likely to be complete. 

Our analysis of projected debt-service coverage ratios, which include the 

amount of new debt being insured, shows that these ratios varied from 1.48 

to 3.11 during the fourth year projected.46 All other factors being equal, 

loans with a debt-service coverage ratio of 3.11 are generally considered to 

have less risk than a loan with only a 1.48 debt-service coverage ratio. 

Finally, we also found that economic studies show mixed results regarding 

the significance of the impact of debt-service coverage ratios upon 

commercial mortgage defaults. Some studies find initial debt-service 

46We analyzed projected debt-service coverage ratios from the underwriting reports of 13 

hospitals that applied for mortgage insurance between 2002 and 2005.
Page 38 GAO-06-316 Hospital Mortgage Insurance Program

coverage ratios to be statistically insignificant in modeling commercial 

mortgage defaults.47 Other studies indicate that initial debt-service 

coverage ratios are meaningful factors in modeling default risk and are 

helpful in predicting commercial mortgage terminations.48 Analysis of 

initial debt-service coverage ratio information, which is available in 

underwriting documents, may be used to identify trends or shifts in the 

overall risk of the portfolios that should be considered when making credit 

subsidy estimates. Further, current credit reform guidance calls for 

agencies to use the best available data when preparing their credit subsidy 

estimates. 

Conclusions The Hospital Mortgage Insurance Program plays an important role by 

insuring loans for capital improvements at hospitals that, due to their 

greater financial risks, would otherwise face difficulty in accessing capital. 

FHA’s process for reviewing applications for mortgage insurance, while 

somewhat lengthier and involving more steps compared with those of 

private bond insurers, appears to be a reasonable response to the generally 

riskier nature of the applicants. Further, the agency’s techniques for 

monitoring insured hospitals are quite similar to those used by private 

insurers, and the program has operated for several years without 

experiencing an insurance claim.

FHA and HHS appear to work together reasonably well in carrying out their 

respective roles in administering the program. However, it is difficult for 

us, FHA’s managers, or the Congress to assess how well the agencies 

perform in implementing the program because FHA has not established a 

set of meaningful program performance measures or collected the 

information needed to assess performance. We have previously reported 

on the importance of agencies’ collecting useful performance information. 

47Brian A. Ciochetti, Yongheng Deng, Bin Gao, and Rui Yao, “The Termination of Commercial 

Mortgage Contracts Through Prepayment and Default: A Proportional Hazard Approach 

with Competing Risks,” Real Estate Economics; vol. 30, no. 4 (2002); Kerry D. Vandell, 

Walter Barnes, David Hartzell, Dennis Kraft, and William Wendt, “Commercial Mortgage 

Defaults: Proportional Hazards Estimation Using Individual Loan Histories,“ Journal of the 

American Real Estate and Urban Economics Association, vol. 21, no. 4 (1993).

48Athanasios Episcopos, Andreas Pericli, and Jianxun Hu, “Commercial Mortgage Default: A 

Comparison of Logit with Radial Basis Function Networks,” Journal of Real Estate Finance 

and Economics vol. 17, no. 2 (1998); Wayne R. Archer, Peter J. Elmer, David M. Harrison, 

and David C. Ling, “Determinants of Multifamily Mortgage Default,” Real Estate Economics, 

vol. 30, no. 3 (2002).
Page 39 GAO-06-316 Hospital Mortgage Insurance Program

If FHA collected useful performance information, such as information 

based on measurable and objective performance measures, the agency’s 

managers could use it to identify problems, try to identify the causes of 

problems, and/or to develop corrective actions. Many program activities, 

including those delegated to HHS, are recorded in FHA’s Hospital Mortgage 

Insurance Management Information System, and data from this system 

could be used to establish and monitor useful performance measures. In 

addition, because FHA has not updated the program handbook since 1984, 

hospitals, lenders, investment bankers, health care financing agencies, and 

other interested parties do not have ready access to a consolidated source 

of current program eligibility requirements, policies, and procedures. The 

lack of a consolidated source of current information may cause confusion 

and delay hospitals’ ability to prepare applications that meet FHA’s criteria. 

Further, outdated guidance in federal programs is an internal control 

weakness.

Although it represents a relatively small part of HUD’s GI/SRI fund, the 

hospital program insures multimillion dollar loans that currently total 

nearly $5 billion. The continued geographic concentration of insured 

hospitals in the state of New York poses a source of financial risk to the 

program. While this concentration has decreased from its high of 89 

percent of outstanding insured principal balance in 2000, the current 61 

percent represents a continuing concentration of credit risk. As a result, 

the program is vulnerable to New York State policies, such as the 

governor’s call to restructure hospitals, as well as regional economic 

trends. While FHA has taken steps in the right direction, it does not have a 

formal strategy or plan for geographically diversifying the hospital 

portfolio, which could enhance current efforts to reach this goal.

HUD’s cash-flow model used to estimate annual credit subsidy rates 

appears to be consistent with applicable OMB guidance; however, it does 

not explicitly take into account potentially useful factors such as 

prepayment penalties and restrictions or the initial debt-service coverage 

ratio of new loan cohorts. Although the program has not experienced a 

claim for insurance since 1999, the increasing size of loans insured, 

geographic concentration in New York and the Northeast, and other factors 

pose risks to the program. Including additional factors into HUD’s model 

could potentially enhance the agency’s estimates of the subsidy cost of the 

program, provide HUD and congressional decision makers with better cost 

data to assess the program, and help assure that the program adequately 

addresses financial risks. 
Page 40 GAO-06-316 Hospital Mortgage Insurance Program

Recommendations for 

Executive Action

To improve management of the Hospital Mortgage Insurance Program and 

reduce potential risks to the GI/SRI fund, we recommend that the Secretary 

of Housing and Urban Development direct the FHA Commissioner to take 

the following three actions:

• Establish measurable and objective performance measures for the 

hospital program and collect appropriate information to regularly assess 

performance against the measures. 

• Update the program handbook to make publicly available current 

eligibility requirements, policies, and procedures. 

• Develop a formal strategy to geographically diversify its portfolio of 

insured hospitals, including such elements as the processes, skills, 

technologies, and various resources that will be used to reach 

diversification goals. 

To potentially improve HUD’s estimates of the program’s annual credit 

subsidy rate, we recommend that the Secretary of Housing and Urban 

Development explore the value of explicitly factoring additional 

information, such as prepayment penalties and restrictions, as well as the 

initial debt-service coverage ratio of hospitals, as they enter the program 

into its credit subsidy model.

Agency Comments and 

Our Evaluation

We provided a draft of this report to HUD and HHS for their review and 

comment. In written comments from HUD’s Assistant Secretary for 

Housing–Federal Housing Commissioner, which incorporated comments 

from HHS, HUD concurred with our four recommendations. However, the 

agency disagreed with our presentation of certain aspects of the program, 

commenting that the report’s “critique of procedural and technical matters” 

overshadowed the program’s accomplishments. The Assistant Secretary’s 

letter appears in appendix IV, and a letter from HHS appears in appendix V.

HUD expressed general agreement with the recommendations and noted 

actions that it plans to take. Specifically, the agency agreed

• to develop appropriate performance measures and implement data 

collection procedures to evaluate both program and contract 

administration;
Page 41 GAO-06-316 Hospital Mortgage Insurance Program

• with the need to consolidate updated eligibility requirements, policies, 

and procedures into an updated handbook, and stated its intention to 

have the handbook finalized by the end of 2006;

• to develop a formal strategy to geographically diversify its portfolio of 

insured hospitals, including such elements as the processes, skills, 

technologies, and various resources that will be used to reach 

diversification goals; and

• to explore the value of explicitly factoring additional information, such 

as prepayment penalties and the initial debt-service coverage ratio of 

hospitals as they enter the program, during its annual review of cash 

flow modeling techniques for the hospital program.

In disagreeing with our presentation of FHA’s efforts to diversify the 

hospital portfolio, HUD commented that diversification has been a top 

program goal for many years. Our draft report acknowledged that FHA has 

had goals for geographically diversifying the portfolio since 1999 and 

provided examples of FHA’s diversification efforts. However, in response to 

the comments, we included additional examples of FHA’s efforts. HUD also 

commented that the report does not appropriately emphasize the success 

that HUD and HHS have had in working together to implement the hospital 

program. Our draft report acknowledged the agencies coordinated 

involvement with key meetings, underwriting, and monitoring. Further, as 

the letter from HHS observes, our draft report concluded that the two 

agencies appear to be working reasonably well together. Because we 

believe the report accurately characterizes the relationship, we did not 

change it. Finally, HUD commented that the report infers that (1) it has not 

maintained current policies and procedures and (2) indicates that current 

eligibility requirements, policies, and procedures are unavailable to the 

public. Our draft report stated that the handbook does not contain current 

eligibility requirements, policies, or processing procedures, and 

acknowledged that FHA publicly communicates program changes through 

Mortgagee Letters. Nevertheless, in response to HUD’s comments, we 

revised the report to include additional examples of FHA’s efforts to 

communicate changes in eligibility requirements, policies, and procedures. 

We also continue to emphasize the value of updating all program 

documentation, including the handbook.

HUD also offered comments regarding the report’s presentation of risks 

facing the hospital program, including potential cuts in reimbursement 

from Medicare and Medicaid, the potential for closures of hospitals in New 
Page 42 GAO-06-316 Hospital Mortgage Insurance Program

York stemming from a commission appointed by the Governor, and the 

large size of some loans. We recognize that potential cuts in reimbursement 

from the Medicare and Medicaid programs are a risk factor for hospitals in 

all states; however, New York is unique among states in accounting for over 

half of the hospital program’s insurance portfolio. We revised the report to 

clarify that, due to this concentration, any cuts that the state of New York 

makes to its Medicaid program could have an especially negative impact. 

Regarding the New York Governor’s commission, we are aware that state 

funds are available to assist in restructuring efforts, and that the Dormitory 

Authority of the State of New York is committed helping its hospitals avoid 

defaults. However, since there is no guarantee that FHA-insured hospitals 

will be protected, we continue to believe that a recommendation for their 

closure or restructuring may present the risk of an insurance claim. Finally, 

we revised the report as HUD suggested to note that the largest single 

exposure of $828 million is for a hospital that, according to HUD, poses a 

low risk of default.

HUD commented that GAO’s presentation of processing times for 

applications is misleading because it does not mention that there can be 

periods of time in which HUD cannot continue to process applications due 

to factors that applicants must address and are thus beyond HUD’s control. 

Because HUD’s system for tracking application processing times does not 

capture such periods of time, it is not possible for GAO to quantify their 

impact. Further, the report notes that processing times vary with the 

complexity of the project and may be affected by issues outside of HUD’s 

control.

HUD took exception with our conclusion that it is difficult for us, FHA’s 

managers, or the Congress to assess how well the agencies perform in 

implementing the program because FHA has not established a set of 

meaningful performance measures and stated a belief that program results 

indicate that the program is fulfilling its purpose. While our report 

acknowledges that the program has had a good performance history, the 

creation and use of performance measures can be used by agency 

managers to improve a program’s results. As we note in the report, analysis 

of performance information helps managers identify problems, identify the 

causes of problems, and develop corrective actions. In addition, 

performance information can be used to develop strategies, identify 

priorities, make resource allocation decisions, and identify more effective 

approaches to program implementation.
Page 43 GAO-06-316 Hospital Mortgage Insurance Program

HUD disagreed with our suggestion that it include such factors as initial 

debt-service coverage ratio into its credit subsidy modeling and noted that 

two of the studies that we cited found this ratio to be statistically 

insignificant in predicting commercial mortgage defaults. Our draft report 

in fact stated that economic studies have shown mixed results regarding 

the significance of the impact of debt-service coverage ratios on 

commercial mortgage defaults. However, we revised the report to explicitly 

footnote studies that show initial debt-service coverage ratios to be 

statistically insignificant and those that indicate that this ratio is a 

meaningful factor in modeling default risk. We also note that the two 

studies that found initial debt-service coverage ratios to be statistically 

insignificant were both based on the same, small data set. We acknowledge 

that HUD’s cash-flow model considers the current debt-service coverage 

ratio of insured hospitals through its artificial default methodology. 

However, our recommendation is to include the debt-service coverage 

ratios at origination, so that the risk of loans at origination will be reflected 

in the credit subsidy rates for the cohort.

Finally, our draft report stated that FHA estimates that hospital loans are 

most likely to experience a claim during their tenth insured year. In its 

comment, HUD stated that historically 70 percent of claims occurred prior 

to a loan’s tenth year. The statement in our draft report was based on actual 

historical conditional claim rate data. HUD subsequently provided 

additional information, which explained that the conditional claim rate 

peaked due to a single claim with multiple notes. As a result, we revised the 

report to reflect additional information.

We are sending copies of this report to the Secretaries of the Departments 

of Housing and Urban Development (HUD) and Health and Human 

Services (HHS). We also will make copies available to others upon request. 

In addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 
Page 44 GAO-06-316 Hospital Mortgage Insurance Program

If you or your staff have any questions about this report or need additional 

information, please contact me at (202) 512-8678 or woodd@gao.gov. 

Contact points for our Offices of Congressional Relations or Public Affairs 

may be found on the last page of this report. GAO staff who made major 

contributions to the report are listed in appendix VI.

David G. Wood, Director

Financial Markets and Community Investment
Page 45 GAO-06-316 Hospital Mortgage Insurance Program

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

Our objectives were to review (1) the design and management of the 

program, as compared with private insurance; (2) the nature and 

management of the relationship between the Department of Housing and 

Urban Development (HUD) and the Department of Health and Human 

Services (HHS) in implementing the program; (3) the financial implications 

of the program to the General Insurance/Special Risk Insurance (GI/SRI) 

fund, including risk posed by program and market trends; and (4) how HUD 

estimates the annual credit subsidy for the program, including the factors 

and assumptions used.

To review the design and management of the Hospital Mortgage Insurance 

Program we interviewed officials at both the Federal Housing 

Administration’s (FHA) Office of Insured Health Care Facilities and the 

Division of Facilities and Loans within HHS’ Health Resources and Services 

Administration, and reviewed program policies, documentation of 

application processes, laws, and regulations. To compare the program’s 

design with that of private insurers, we met with private bond insurers and 

the Association of Financial Guaranty Insurers, credit rating agencies, 

mortgage and investment banking firms, hospital associations, and state 

health care financing agencies in New York and New Jersey.1

To describe how FHA and HHS coordinate the implementation of the 

hospital program, we interviewed FHA and HHS officials about the 

responsibilities for each agency in implementing the program. We also 

reviewed the Memorandum of Agreement between FHA and HHS that 

describes the division of duties and responsibilities between the two 

agencies and organizational charts that depict FHA’s organization, HHS’s 

organization, and the FHA-HHS interrelationship in program 

administration. We analyzed the extent to which performance measures 

related to interagency coordination were met by obtaining available data 

from FHA and analyzing time frames for processing applications and loan 

modification requests from the Hospital Mortgage Insurance Management 

Information System (HMIMIS). We compared performance measures with 

our criteria on performance measures and compared performance 

measures in the 2002-2005 Memorandum of Agreement with the 

performance measures in the 2006-2010 Interagency Agreement between 

FHA and HHS to identify any changes. 

1

The Association of Financial Guaranty Insurers is the trade association representing 11 

insurers and reinsurers of municipal bonds and asset-backed securities.
Appendix I

Objectives, Scope, and Methodology

Page 46 GAO-06-316 Hospital Mortgage Insurance Program

To identify the financial implications of the program to the GI/SRI fund, we 

interviewed and obtained documentation from FHA and HHS program 

officials and analyzed FHA data on program portfolio characteristics, 

including number and amount of loans by cohort, current insurance-inforce, and geographic concentration of loans, claims, and recoveries. 

Specifically,

• To obtain the number and amount of active and terminated loans, we 

created a report from the HMIMIS database, which is updated monthly. 

To assess the reliability of the HMIMIS data, we reviewed relevant 

documentation, interviewed agency officials who worked with this 

database, and conducted electronic testing of the data, including 

frequency and distribution analyses. We determined the data to be 

sufficiently reliable to obtain the number and amount of active loans. We 

corroborated these data with the FHA’s 2004 report to the Congress.2

 As 

of December 2005, the administrators provided data from HUD’s F-47 

database, a multifamily database, to show (1) that there were 59 active 

hospitals with 74 active loans in the Hospital Mortgage Insurance 

portfolio and (2) that there had been 341 loans in the portfolio since the 

inception of the program. To assess the reliability of data from HUD’s F47 database, we reviewed HUD’s Hospital Mortgage Insurance Program 

Functional Requirements Document, Procedures for Maintaining Group 

Records, and other relevant documentation, interviewed agency 

officials who worked with this database, and conducted electronic 

testing of the data, including frequency and distribution analyses. Our 

assessment showed that two loan records were lacking state data, and 

one record was lacking hospital name data but were identified by a 

unique project number. FHA administrators verified that these loans 

were endorsed long before electronic loan records were maintained and 

that they were unable to provide additional information. None of our 

analyses utilized the missing data elements for the two projects; 

therefore, there was no impact on this report. We determined the data to 

be sufficiently reliable to describe the geographic concentration of loans 

in the program.

• To determine the proportion of the Hospital Mortgage Insurance 

Program to the larger GI/SRI fund, we reviewed a spreadsheet provided 

2

Assistant Secretary for Housing–Federal Housing Commissioner, Department of Housing 

and Urban Development, Report to the Committees on Appropriations on the Section 242 

program, Aug. 12, 2004.
Appendix I

Objectives, Scope, and Methodology

Page 47 GAO-06-316 Hospital Mortgage Insurance Program

by HUD’s Office of Evaluation dated June 2005 on insurance-in-force for 

the hospital program to that of the GI/SRI fund.

• To determine the risk posed by insurance claims to the Hospital 

Mortgage Insurance Program, we analyzed spreadsheets with historic 

claims and recoveries data provided by HUD’s Office of Evaluation and 

dated August 2005. 

• To determine the geographic concentration of loans and loan 

prepayment history in the program, we analyzed data current as of 

December 31, 2005, in an extract of HUD’s F-47 database. While we 

obtained extracts from HUD’s F-47 database in April 2005, October 2005, 

and December 2005, all analyses from F-47 data in the report utilize the 

December 2005 extract only. 

We also compared data on four financial ratios including debt service 

coverage, days cash on hand, current, and operating margin ratios provided 

from HMIMIS, current as of December 2005, with applicant criteria stated 

in the Manual of the Hospital Insurance Program. 

To determine how FHA manages program risks, we interviewed FHA and 

HHS program officials and reviewed the Mortgage Insurance for Hospitals 

Handbook and manual to determine steps taken by the agency during the 

application and monitoring phases of the insurance process. We analyzed 

cash inflows to the program from income from notes held in inventory, 

rental income from properties held in inventory, sales income from notes, 

and properties sold from inventory. We also reviewed documentation of 

cash outflows, such as claim payments and expenses related to properties 

and notes held in inventory. To assess risk based on geographic 

concentration, we identified the state with the highest unpaid principal 

balance insured by the program. Finally, to assess risk posed by the 

geographic concentration of the program’s unpaid principal balance, we 

extracted 2003 data from the Centers for Medicare & Medicaid Services 

(CMS) database on Hospital Mortgage Insurance Program hospitals active 

in 2005. We used CMS data to identify the number of discharged patients 

whose services were paid for through the Medicare/Medicaid programs 

from hospitals that have loans insured through the program. More than 90 

percent of these data have undergone basic edit checks; however, CMS has 

not yet determined whether these data require an audit. These data may 

change as they undergo further review by CMS. In addition, CMS does not 

enforce dates by which hospitals must report data. Thus, at the time of this 

report, only 49 of the 59 active FHA hospitals had provided data for 2003.
Appendix I

Objectives, Scope, and Methodology

Page 48 GAO-06-316 Hospital Mortgage Insurance Program

We conducted a literature review and interviewed numerous officials of 

rating agencies and hospital associations to obtain information on risks due 

to health care market trends. We conducted the following academic 

literature searches: (1) Google’s Scholar search engine using the terms 

“hospital mortgage insurance,” “nursing home mortgage insurance,” 

“hospital and default and FHA,” “nursing home and default and FHA”; (2) 

PubMed Web site using the terms “hospital mortgage insurance” and 

“nursing home mortgage insurance;” and (3) HUDuser.org Web site using 

the terms “hospital mortgage insurance,” “nursing home mortgage 

insurance,” and “Section 242.” We also searched for Inspectors General and 

agency reports through HUD and HHS Web sites using the terms “Hospital 

mortgage insurance” and “Section 242.” Finally, we conducted a search on 

our internal Web site to identify previous work on the Section 242 program. 

The terms “hospital,” “mortgage insurance,” and “Section 242” were used 

for the period of January 1995 through March 2005. 

To determine how HUD estimates the annual credit subsidy rate for the 

program, we interviewed program officials from HUD’s Office of 

Evaluation and program auditors from the Office of Management and 

Budget (OMB), reviewed documentation of HUD’s credit subsidy 

estimation procedures, and reviewed the cash-flow model for the program. 

We also compared the assumptions used in HUD’s cash-flow model with 

relevant OMB guidance and reviewed economic literature on modeling 

defaults to identify factors that are important for estimation. Additionally, 

we analyzed data provided by FHA on program hospitals’ projected debtservice coverage ratios (at the time of their loan application). HUD’s 

Budget Office provided the program’s annual credit subsidy rates for 1992 

and 1993, and we obtained this rate for years 1994-2005 from the Federal 

Credit Supplement of the United States Budget.3

 

Our review did not include an evaluation of underwriting criteria, 

construction monitoring, or the need for the program. We conducted our 

work in Albany, New York; Chicago, Illinois; New York, New York; 

Paterson, New Jersey; Rockville, Maryland; and Washington, D.C., between 

February 2005 and January 2006 in accordance with generally accepted 

government auditing standards.

3

For the years 1992 and 1993, the credit subsidy rate for the Hospital Mortgage Insurance 

Program was not reported in the Federal Credit Supplement.
Page 49 GAO-06-316 Hospital Mortgage Insurance Program

Appendix II

FHA and HHS’ Responsibilities in FHA’s 

Hospital Mortgage Insurance Program Loan 

Cycle ApendxiI

Development

Department of Health 

and Human Services 

(HHS)

Federal Housing 

Administration (FHA)

Conduct preliminary review of hospital proposed for insurance. x

Provide applicant guidance and feedback (including preapplication conference). x x

Conduct initial site visit to hospital. x x

Review and approve construction plans, specifications, and contracts. x

Engage independent feasibility consultant. x

Account Executive and review team recommend approval or disapproval to the 

Program Management Group (PMG).a

x x

PMG recommends approval or disapproval to the FHA management.b x x

FHA management recommends approval or disapproval to the FHA 

Commissioner.

x

FHA Commissioner makes final decision on whether to insure. x

Make final underwriting determinations, conduct any needed legal reviews, issue 

firm commitment, close, and initially endorse loan.

x

Conduct preconstruction conference, monitor construction work, and process 

requests for advances of mortgage proceeds.

x

Review cost certification, inform lender of maximum insurable mortgage amount, 

and process final advance.

X

Arrange final closing and finally endorse mortgage. x

Loan management

Account Executive monitors hospital’s performance by periodically reviewing 

financial and utilization data.

x x

Account Executive will receive, review, and recommend to FHA management 

approval or disapproval of special requests and loan modifications (for example, 

partial release of security, transfer of physical assets, bond refundings, or major 

capital projects)

x x

Approve or disapprove special requests and loan modifications. x

Develop and carry out strategies for helping a troubled hospital improve its 

financial condition and for preventing or curing defaults.

x x

Engage consultant to review finances and operations of a troubled hospital and to 

make recommendations for a financial turnaround plan.

x

Review quality and condition of insured hospital loan portfolio. x

Determine the amount of liability for loan guarantees and credit subsidy rates. x

Assignment

Receive/process assignment of loan and pay insurance claim. x

Review assigned hospital’s operational performance and financial condition and 

conduct site visits as needed.

x x
Appendix II

FHA and HHS’ Responsibilities in FHA’s 

Hospital Mortgage Insurance Program Loan 

Cycle

Page 50 GAO-06-316 Hospital Mortgage Insurance Program

Source: FHA Hospital Mortgage Insurance Program staff.

a

The Account Executive can be an FHA or HHS staff member. The review team, or Client Service 

Team, can consist of FHA and/or HHS staff. The PMG consists of both senior FHA and HHS staff.

b

FHA’s Director of the Office of Insured Health Care Facilities.

Account Executives receive, review, and recommend to FHA management 

approval or disapproval of proposed workout agreements, mortgage 

modifications, or note sales.

x x

Bill for and collect mortgage payments. x

Disposition

Analyze hospital’s situation, evaluate alternative uses, secure appraisal, make 

decision to foreclose, and arrange and hold foreclosure sale.

x

Contract for management services and repairs, as needed, to protect asset if FHA 

is mortgagee-in-possession or acquires hospital through foreclosure or deed-inlieu.

x

Develop marketing plan, advertise, and sell hospital. x

(Continued From Previous Page)

Development

Department of Health 

and Human Services 

(HHS)

Federal Housing 

Administration (FHA)
Page 51 GAO-06-316 Hospital Mortgage Insurance Program

Appendix III

FHA Assessed Performance Using 2 of 22 

Performance Measures Included in the 2002-

2005 Memorandum of Agreement ApendxiI

Performance measure 

Coordinated 

task

Task delegated to

the Department of 

Health and Human 

Services (HHS)

Measured by the 

Federal Housing 

Administration (FHA)?

Number of complaints from customers about the HHS staff's 

lack of helpfulness, timeliness, courtesy, understanding, etc. 

Number of compliments received for HHS staff's helpfulness, 

timeliness, courtesy, understanding, etc. 

x no 

Preliminary information is provided within 2 business days of 

inquiry.

x no

Time from receipt of complete application to decision letter. 

Process 75% of complete applications within 120 days of 

receipt.

x yes

There are no instances of incomplete applications being 

received because applicant was not informed of application 

requirements.

x no

Soundness of analysis. HUD may consider the following 

evidence that the team's analysis was flawed: (1) deterioration, 

within 2 yrs of the recommendation for approval, of the financial 

condition of an approved applicant due to conditions that should 

have been detected in the review, or (2) the ability of a 

disapproved applicant to subsequently obtain insurance 

elsewhere on similar terms and conditions within 6 months of 

the recommendation for disapproval.

x no

Plans and specifications do not need major revisions during the 

construction process because of significant architectural or 

engineering errors or omissions made prior to or during the 

application process.

x no

Problems do not arise during the construction period because of 

significant inconsistencies between contract documents.

x no

Preconstruction meetings are thorough and do not precipitate 

delays in application processing for our customers.

x no

Monthly inspection reports support the items and amounts 

included in monthly draws.

x no

Change orders are documented and recommendations are 

supportable.

x no

Length of time between the team's receipt of monthly requisition 

package and submission of the team's analysis and payment 

recommendation to HUD.

x no

Hospital construction project is completed on time and within 

budget, unless mitigating factors outside HHS's control prevent 

this from happening.

x no
Appendix III

FHA Assessed Performance Using 2 of 22 

Performance Measures Included in the 2002-

2005 Memorandum of Agreement 

Page 52 GAO-06-316 Hospital Mortgage Insurance Program

Source: HHS, Office of Special Programs, Memorandum of Agreement between the Department of Housing and Urban Development 

(HUD) and the Department of Health and Human Services (HHS), 2001.

Note: Some performance measures refer to tasks that can be done by either FHA or HHS officials, 

which we refer to as “coordinated tasks.” Other performance measures apply to tasks specifically for 

HHS, which we refer to as “HHS-delegated tasks.” 

Length of time between completion of construction and 

recommendation for final endorsement. HHS accomplishes all 

activities in a timely manner and provides assistance and works 

with the hospital and contractor so as to minimize the length of 

time between completion of construction and recommendations 

for final endorsement.

x no

Final recommendation package is complete, documented, and 

supportable if any issues or challenges are raised in relation to 

the construction phase of the project.

x no

Customers with a weakening financial position should be 

identified early enough to allow time for the Account Executive 

(AE) to provide technical assistance and undertake default 

prevention measures before a situation becomes an emergency.

x no

Each AE will develop and maintain a file in HHS's office on each 

customer with all pertinent information needed to evaluate the 

customer's condition.

x no

AE's should not be "blindsided" by local, state, and national 

developments that affect the viability of customers.

x no

Each customer meeting the conditions above for inclusion on 

the Priority Watch List (PWL) should be included on the PWL 

reports provided to HUD.

x no

HHS's work should assist HUD's goal of zero claim payments. x no

Time from receipt of request to recommendation to HUD. 

Performance target is to process at least 75% of complete loan 

modification requests within 30 days of receipt.

x yes

"Same as for insured loans." x no

HHS provides effective services to reduce or contain costs to 

the FHA insurance fund for the following activities: (1) transition 

into the HUD inventory; (2) stabilization of the hospital including 

patient, physical, and financial concerns; (3) marketing; and (4) 

disposition.

x no

(Continued From Previous Page)

Performance measure 

Coordinated 

task

Task delegated to

the Department of 

Health and Human 

Services (HHS)

Measured by the 

Federal Housing 

Administration (FHA)?
Page 53 GAO-06-316 Hospital Mortgage Insurance Program

Appendix IV

Comments from the Department of Housing 

and Urban Development ApendxiIV
Appendix IV

Comments from the Department of Housing 

and Urban Development

Page 54 GAO-06-316 Hospital Mortgage Insurance Program
Appendix IV

Comments from the Department of Housing 

and Urban Development

Page 55 GAO-06-316 Hospital Mortgage Insurance Program
Appendix IV

Comments from the Department of Housing 

and Urban Development

Page 56 GAO-06-316 Hospital Mortgage Insurance Program
Appendix IV

Comments from the Department of Housing 

and Urban Development

Page 57 GAO-06-316 Hospital Mortgage Insurance Program
Appendix IV

Comments from the Department of Housing 

and Urban Development

Page 58 GAO-06-316 Hospital Mortgage Insurance Program
Appendix IV

Comments from the Department of Housing 

and Urban Development

Page 59 GAO-06-316 Hospital Mortgage Insurance Program
Page 60 GAO-06-316 Hospital Mortgage Insurance Program

Appendix V

Comments from the Department of Health and 

Human Services ApendxiV
Page 61 GAO-06-316 Hospital Mortgage Insurance Program

Appendix VI

GAO Contact and Staff Acknowledgments ApendxiVI

GAO Contact David G. Wood (202) 512-8678

Staff 

Acknowledgments

Individuals making key contributions to this report included Alison Martin, 

Lisa Moore, David Pittman, Minette Richardson, Paul Schmidt, and Julie 

Trinder. 

(250239)
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