Spreadsheet: c46b8612-c891-4aae-92d9-7630cbb90abd
Sheet: Loan Sizing-CH.4

[NAME] | ANSWER | Last Updated
What minimum Loan to Value (LTV) and Debt Service Coverage Ratio (DSCR) does HUD require on Skilled Nursing facilities?  Assisted Living? Independent Care Facilities? | OHP Benchmarks for each facility type are  below, with the LTV presented first (in percentage) and the DSCR presented after the LTV for each type:  SNF/ILU Both  For Profit (80%) 1.45 SNF/ILU Both  Non-Profit ** (85%) 1.45 ALF New For Profit (75%) 1.45 ALF New Non-Profit ** (80%) 1.45 ALF Existing For Profit (80%) 1.45 ALF Existing Non-Profit ** (85%) 1.45 | 2012-02-01 00:00:00
What constitutes "justification" for a LTV of greater than 75%? | Justification for an LTV of greater than 75% will vary from project to project, but it must address and limit market and financial risk.  Factors to consider (there are only examples) include:  • Factors to consider (these are only examples): • Independent Living Units • State/Federal Rental Assistance Subsidies • Strength/Experience of Principals • Strength of market • Debt Coverage Ratio • Stability of underwritten NOI (historical #’s?) • Equity investment  • Marketability of project | 2012-02-01 00:00:00
Does the 15% proprietary earnings apply to Section 232 projects? | Proprietary Earnings carve out is not required on any LEAN project. | 2012-02-01 00:00:00
Can any upfront costs associated with an electronic risk  management system be considered Eligible Costs, and therefore paid to the owner as a result of a refinance? | OHP will not allow these costs to be included in the Criterion 10 MIM calculation as they are not capital costs. | 2012-02-01 00:00:00
Who determines the "final project value" for a substantial rehab project? | The final project value is from the [NAME]. | 2012-02-01 00:00:00
Is an identity-of-interest operator/[NAME]'s working capital line of credit eligible debt for refinancing? | No.  At this time, OHP does not recognize operating debts of the operating entity as eligible indebtedness for refinancing, even in IOI instances. | 2012-02-01 00:00:00
In a 232/223f deal can past due assessments be included as eligible debt as part of the underwriting?  If a non-identity of interest operator is involved? | This would be considered eligible debt as long as you can clearly show the past due assessment is related to this project.  However, the Lender Narrative needs to describe the circumstances for the owner/operator not paying this assessment and what measures are in place to ensure this will not happen in the future. If this scenario involves a non-identity of interest operator, it would not be consider eligible debt but rather an operator’s expense. | 2012-02-01 00:00:00
Does HUD Section 232 have any statutory rent limitations for assisted living developments? | There are no Statutory per unit cost limits nor does FHA 232 Insurance place any rent restrictions on the property. | 2012-02-01 00:00:00
If the borrower of a proposed project identifies additional capital improvements to include as eligible mortgage costs while the project waited in the queue which results in an increased LTV, should the lender:  1) Submit the hard copy of the application as-is (consistent with the electronic submission from this past February), and work with HUD to increase the mortgage amount in the review process?  2) Re-assemble the hard copy of the application noting the new mortgage amount prior to submitting to HUD? | To expedite OHP's review, the application should be reassembled noting the new mortgage amount, as well as, incorporating all updates.  We would also request that an electronic copy be sent to the appropriate Program Specialist so that they can upload to the HUD SharePoint site. | 2012-02-01 00:00:00
In underwriting a 232 New Construction “continuum of care” facility with a mix of ALF and SNF beds,  which benchmarks should be used? | Given the concern over new construction, you should underwrite at the more conservative [NAME] of 75% LTV.  If exceeding this, significant mitigation/justification would be required. | 2012-02-01 00:00:00
For new construction and substantial rehab projects, is the maximum mortgaged limited to 90% of the HUD Replacement Cost and 75% of value, or 75% of both value and replacement cost? | The maximum mortgage amount is the lesser of 90% of Replacement Cost and 75% of value. | 2013-03-01 00:00:00
For a new construction project, should the calculation of the HUD replacement cost on the 92264-HCF include a deduction for depreciation? | No need to account for depreciation on 92264-HCF form. | 2012-02-01 00:00:00
Should Criteria 10 on the 92264-A for a 232/223(f) refinance be based upon the total estimated allowable transaction costs to complete a transaction, or the loan amount? | The Criterion 10 calculations should be based off the loan amount – not based upon the Criterion 10 maximum insurable mortgage. | 2012-02-01 00:00:00
For a new construction 232, can the market Medicare percentage be used in lieu of the 3% limit? | Provided you can demonstrate the local market percentage, we would be amenable to waiving the 3% limit and allowing you to underwrite at the rate the local market is seeing. | 2012-02-01 00:00:00
When underwriting new construction, can a market appraisal be used, in which the market value exceeds the HUD replacement cost because the market recognizes a developer fee and entrepreneurial profit? | Yes. The appraiser’s market value should be developed independently from the HUD Replacement cost and can be higher or lower. Maximum mortgage tests will be applied separately to both market value and HUD replacement costs in the new version of the 92264a worksheet. | 2013-03-01 00:00:00
Are existing accounts receivables  fundable in the loan amount on an acquisition? | The purchase agreement should address how the parties plan to handle accounts receivable in the transaction.  It must state who they go to, but it does not need to break down the amount.  The entire amount of the purchase may be included in Criteria 7 on the 92264a, however it should be realized if the other Maximum Mortgage Criterion don’t support the Criterion 7 maximum mortgage, the full amount of the purchase price (plus fees) may not be mortgagable. | 2012-02-01 00:00:00
Would the costs associated with adding skilled nursing beds (Certificate of Need (CON) / License) be eligible to be included in the transaction (assuming the maximum loan amount is not value constrained)? | HUD does not allow CON costs to be included in the FHA financing.  Only the real estate assets can be included. | 2012-04-01 00:00:00
What standards does OHP apply in their review of New Construction projects? | For LEAN 232 new construction applications, OHP requires conservative underwriting in order to mitigate the risk we face with these types of projects.    The following are some conservative underwriting standards we require for new construction projects: • Experienced Participants                                                                                                                                                                 • Significant owner equity contributions • Conservative rents and expenses numbers • Conservative Operating Deficit calculation • Establishment of a Debt Service Reserve Escrow may also be considered, as necessary | 2012-09-30 00:00:00
Can a transaction be underwritten to the income and expense levels that are supported by the market even though the current owner has had a negative NOI and the facility's current NOI is not yet at its full market potential? | OHP looks much more favorably upon historical data than prospective data, and therefore loan size toward historical information.  We urge caution in setting your loan sizing based on prospective information.  If prospective data is used, the project should have a  cap rate that reflects the fact that the NOI is prospective (or at least the portion that has not been realized).  You should be very conservative in your assumptions relating to the Initial Operating Deficit (IOD) calculation and  you may want to consider a debt service escrow.  Finally,  a project like this be should underwritten at a very conservative LTV threshold. | 2012-02-01 00:00:00
In underwriting a 241(a) application, how much should the Working Capital Escrow and the Initial Operating Deficit Escrow be? | OHP recommends extremely conservative underwriting.  A Working Capital Escrow is not required for Section 241(a) projects.  You will need to complete an IOD analysis that takes into account the current historical operations (does it  support both the first and second (proposed) mortgage?)  You may want to consider an IOD and/or debt service reserve in your underwriting.  Initial Operating Deficit (IOD): An IOD analysis is required on all applications where new units are being added to the subject or when the occupancy performance assumptions used in the underwriting are not presently being achieved by the subject. An escrow will be required when any period of deficit operations is identified. The escrow will provide funding for operating expenses and debt service when net income is inadequate during the initial lease-up and stabilization period. The escrow is not mortgageable, and must be funded either through cash or through one or more unconditional, irrevocable letter(s) of credit issued to the lender by a banking institution.  Working Capital Escrow:  The working capital escrow requirement for new construction Insured Advances transactions is 4% of the mortgage amount, half of which will be a construction contingency for cost overruns and approved change orders. The Working Capital Escrow is designed to cover accruals of taxes, insurance, and interest in the case of construction delay, construction contingencies for cost overruns and change orders, and other miscellaneous expenses which are not included in the mortgage and is required for new construction and substantial rehabilitation proposals.  A working capital escrow is not required for projects underwritten with non-profit underwriting criteria. | 2013-03-01 00:00:00
What is OHP’s appetite for a 100% private pay SNF new construction deal? | OHP can process the project without a Medicaid contract, but would prefer to size the mortgage in accordance with the payee mix distribution of Medicare not in excess of 10%, or the average percentage demonstrated in the market, Private pay not in excess of the average percentage demonstrated by at least 5 competing facilities, and the combined percentage of Medicare and Private pay not in excess of 30% (or more conservatively). | 2012-02-01 00:00:00
Will HUD consider refinancing a stabilized private-pay nursing home facility that doesn’t have a Medicaid contract? | Yes. | 2013-03-01 00:00:00
Is the debt service reserve required for campus properties that include skilled nursing, assisted living and independent living? | Yes, anytime you combine Nursing Home/Intermediate Care or Board and Care units with Independent Living units, the debt service reserve is required. | 2012-04-01 00:00:00
Can fundraising revenue be included in underwritten NOI? | No, we would not accept fundraising revenue in the NOI.  This would not a dependable source of income and would not be available to a purchaser in the event of sale of the property (similar to appraisal rules). | 2012-04-01 00:00:00
If a seller has put improvements into a land parcel such as grading and an off-site storm water management system, and an unrelated buyer is purchasing the land to construct an assisted living facility can the value of the improvements be included in land value? | The value of the improvements cannot be included dollar for dollar in the subject’s land value. Only the increased land value in terms of increased utility to the subject itself can be included. The land value is to be established by an appraiser’s conclusion of market value, as currently configured, for the subject site alone. | 2012-04-01 00:00:00
Does OHP approve Swap Termination fees? | On April 26, 2012, HUD issued Mortgagee Letter 2012-08 which defines its policy regarding interest rate swap termination fees associated with debt to be refinanced. The policy only applies to swap agreements that were entered into before January 1, 2009, which were integrated into the original financing.  [NAME] termination fees on swap agreements entered into after January 1, 2009 are not mortgagable costs. | 2012-09-01 00:00:00
Does OHP waive the time period in which swap termination fees are mortgagable costs? | OHP will consider waiving the date if it does not exceed 90 days past the date established in Mortgagee Letter 2012-08.  In that [NAME], swap agreements must have been entered into before January 1, 2009.  Lenders seeking a waiver must follow OHP's waiver procedures using form HUD-2. | 2012-09-01 00:00:00
In a contemplated 232 acquisition, the seller is looking to sell to a person with whom he has a current business relationship. The buyer and seller are in partnership together in both ownership and operation/management of other elder care projects. They are not in partnership on this piece of property. If the seller is exiting the project (from both management and ownership) and the buyer is not currently involved in the project, can this be treated as an acquisition; even though they have other projects in common? | This relationship would be considered an identity of interest (IOI) between the buyer and seller.  Even if they are not involved on the subject project together, they do other business together, thus they have a financial relationship that will survive this transaction.  In addition to being treated as a refinance, IOI purchases also require a debt seasoning period of two years. | 2012-09-01 00:00:00
Is equity cash-out to the LEAN borrower allowed on Section 232/223(f) transactions? | No.  Equity cash-out to the LEAN borrower is not allowed as it contravenes program intent.  Program intent is established in the National Housing Act, Section 223(f)(4)(B), which states that "the proceeds of any refinancing will be employed only to retire the existing indebtedness and pay the necessary cost of refinancing on such existing nursing home, assisted living facility...” | 2012-09-01 00:00:00
After purchasing a facility, the Mortgagor and IOI Operator renovated the facility financed by debt created to fund the capital improvements.  The Operator was erroneously listed as the borrower for this note.  Would LEAN recognize this debt as eligible debt for the LEAN refinance even though the Operator is technically the borrower of the capital improvements note? | No.  The debt must be an obligation of the mortgagor to include it as part of the Section 232 mortgage, which liens the subject facility.  The fact that the mortgagor and operator have an identity of interest has no bearing on this determination. | 2012-09-01 00:00:00
Can lenders qualify the funds used to buy and renovate, or to construct, as qualified existing indebtedness for 232, when it comes from cash flow of the property or the borrower's own funds, rather than borrowed funds? | Borrowers may not receive any cash proceeds from the refinance of the mortgage under Section 232/223(f). The lender can qualify the funds as existing indebtedness as long as the mortgagor provides the Lender and HUD with full documentation that verifies the obligation is directly connected to making needed capital improvements and betterments to the property. | 2013-03-01 00:00:00
Can we combine the two original mortgage amounts to set the upper limit for a new 223a7 mortgage? | As with any 223a7, the Maximum Insurable Mortgage (MIM) calculation will need to be done to determine the eligible mortgage amount; however, since the two original loans can be combined for the refinance, the two original loan amounts can both be used in the MIM test. | 2013-03-01 00:00:00
How does ORCF determine the maximum allowable term extension on a 223(a)(7) firm application? | ORCF Underwriters will consider term extensions of the existing loan term of: a) not more than 12 years beyond the remaining term of the existing mortgage, or b) the maximum of the original mortgage term, whichever is less.  Only if OHP determines that the additional term of not more than 12 years (but possibly less) will inure benefit to the insurance fund will a term extension be granted. | 2013-03-01 00:00:00
I have a new loan in which the borrower would like to add the cost of recently made improvements (paid for out of cash) to the outstanding loan amount to be refinanced.  What can or can not be included and what would be required? | I have a new loan in which the borrower would like to add the cost of recently made improvements (paid for out of cash) to the outstanding loan amount to be refinanced.  What can or cannot be included and what would be required?   The costs incurred by the borrower for recently made capital improvements or betterments can be included in the outstanding loan amount to be refinanced.  Such costs would be treated as unrecorded debt directly connected with the project supported by documentation from the mortgagor.  The mortgagor would have to provide the Lender with documentation that substantially verifies that the obligation is directly connected to the project and that it was incurred by the mortgagor.  This documentation would include related invoices, photographs and a description of the work completed.                                                                                                                                                                                                                                                                                                                                As far as the limits to what substantially verified repairs can be included in the eligible debt to be refinanced as a 223(f), the amount of repairs must not meet or exceed the threshold of a Section 232 Substantial Rehabilitation project (i.e. the hard costs of repairs, including major movable equipment eligible for inclusion in the mortgage, cannot exceed 15% of the project’s value after completion of all the repairs and fewer than two major building components can be substantially replaced) See MAP Guide, 2002, Section 3.10. | 2013-03-01 00:00:00
Does ORCF consider debt used to cover the payment of a judgment to be eligible debt on a refinance application? | The Lean Definition of Eligible Debt includes other recorded indebtedness such as mechanic’s liens and tax liens, provided they did not result from personal obligations of the mortgagor (or its principals).  The debt incurred from covering the payment of a judgment is not related to the project in the same way as other recorded indebtedness (mechanics’ liens, tax liens, etc.)  Debt incurred in order to fund a judgment against the principals is not the result of betterments made to the facility, nor can it be considered the result of the normal course of business. | 2013-03-01 00:00:00
Can a 223(f) application be processed through LEAN where the selling partner secures debt with a surplus cash note? | OHP will consider allowing secondary financing in the form of a surplus cash note (that follows our required structure), provided the sum of the surplus cash note and the new FHA Insured mortgage do not exceed 92.5% of value. | 2013-03-01 00:00:00
If an existing loan itself was done as an (a)(7) with a loan amount of $8MM, but the original loan  was a 223(f) with a loan amount of $9MM, would a new 223(a)(7) loan be capped at the most recent amount ($8MM), or are we allowed to go back up to the original 223f amount of $9MM? | The 223(a)(7) loan with an original amount of $8MM is the existing mortgage being refinanced; therefore, $8MM is considered the original principal amount when calculating the loan sizing for the newly proposed 223(a)(7). | 2013-03-01 00:00:00
What are the seasoning requirements for debt on a 232 transaction? | Debt seasoning is a minimally required period of time between the closing date of a loan and the date that a 232/223(f) refinance application on the existing debt is submitted to HUD.  When the FHA lender cannot provide evidence that the existing indebtedness was used for an eligible purpose, HUD requires at least a 2-year waiting period (and may require up to 5-years) from the time the existing debt was generated (loan closing) and the date the firm application for FHA-insured financing is submitted to HUD.                                                                                                                                                                                                                                                                                                                                                                                                                                                              Any debt less than five years old must undergo some degree of investigation.  When it has seasoned the required length of time, the deb will be considered eligible, subject to underwriting and final approval.   If the debt is between two and five years old.  The FHA lender must determine if there is an IOI between the borrower and the current lender:                                                                                                                                                                                                                  If yes, the debt must be investigated and can only be included in a refinance application if it can be demonstrated that it was used for an eligible purpose. If no, the lender can submit the refinance application and the debt will be considered eligible, subject to HUD underwriting and final approval.                                                                                                                                                                                                                  If the debt is less than two years old.  The debt must be investigated and can only be included in a refinance application if it can be demonstrated that it was used for an eligible purpose. | 2013-03-01 00:00:00
If a property was purchased less than a year ago with 100% of the purchase price financed with a bridge loan, would FHA process the 223(f) firm application as a refinance of the existing indebtedness and constrain the mortgage by value rather than the acquisition price? | As MAP Guide (Version 2002) states in Section 3.11, “Any property acquired before the date of the mortgage insurance application shall be treated as a refinance.”  So, FHA would process the application as a refinance of the existing indebtedness and base the maximum allowable mortgage on value (as determined in underwriting, but not to exceed 80% LTV).                                                                                                                                                                                                                                                                                                                   The lender would have to demonstrate that the existing indebtedness is on an eligible property (i. e. completed or substantially rehabilitated at least three years prior to the date of the Firm Commitment application).  Also, because fewer than two years would have elapsed since the purchase was completed, the lender would also have to show that the debt meets eligible debt requirements (in this case, an outstanding mortgage incurred in connection with the purchase of the project).  Additional debt investigation would be  required if there was an IOI between the bridge lender and the FHA lender. | 2013-03-01 00:00:00
If the sponsors pay off a partner and take a note or notes back (so there is subordinate unsecured debt that is owed to the exiting principal), how long is the seasoning period which HUD would require before we could include this debt for refinancing via 232/223(f)? | Debt used for a “partner buyout” would be subject to debt investigation for the debt seasoning period of two years.  Once the debt has seasoned for two years, and it is demonstrated that there is no IOI between the mortgagor and the current lender, the debt would be considered eligible, subject to underwriting and final approval.  Additionally, the transaction would need to be processed as a refinance. | 2012-09-01 00:00:00