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By Jeffrey A. Davis Chairman Cambridge Realty Capital Cos.
Learn what it takes to
get deals fast-tracked
for Section 232 —
aka LEAN — loans
Prudent time management is widely viewed as the key to cost-saving efficiencies in
industries of every kind. The commercial mortgage industry is no exception. Brokers with clients in the
senior-housing and health-care segment have been closely following the
U.S. Department of Housing and Urban Development’s (HUD’s) highly visible efforts to deliver Federal Housing
Administration (FHA)-insured loans
for nursing homes and assisted-living
properties in a more timely and efficient fashion.
In 2008, FHA and HUD formally announced a major restructuring for HUD
Section No. 232 loan funding. The
change involved gradually shifting responsibility for processing these loans
from HUD field offices to the FHA’s Office of Insured Health Care Facilities in
Washington, D.C. This was part of the
LEAN loan-processing concept, which
seeks to create more value with less
work, saving everyone time and money.
By moving program administration
to a centralized location, HUD hoped
Lending sources dried up?
to create a single unified source for
program and policy development, as
well as a more consistent and user-friendly platform for borrowers and
lenders. Its LEAN processing likely
would also enable HUD to deliver insured loans on a timetable more similar to conventional loans.
HUD committed to thinking about
solutions in new and untested ways,
a decision that soon was severely
tested by events. The introduction of
HUD’s Section 232 LEAN program for
health-care loans was swiftly followed
by the financial meltdown and economic downturn. As capital from conventional sources dried up, HUD found
itself dealing with a groundswell of demand as it worked to put critical new
program elements in place.
From October 2008 to September
2009, HUD was in a transition period,
and many loan requests continued to
be handled by its regional offices. By
the end of 2009, however, HUD had
completely shifted over to its new centralized processing system. The number of processed applications and
closings were up sharply through this
In the 2009 fiscal year, HUD insured
255 loans through the system. For
fiscal 2010, the total was 310 loans.
Conceivably, it will be even greater in
the year ahead, as demand for HUD’s
Section 232 loans shows no signs
new risk-assessment point system it
uses to determine which other low-risk
applications deserve to be processed
in this way, however. The point system
considers cash flow, appraised value,
loan to value, debt-service-coverage
ratio, occupancy and various competitive factors. Positive or negative scores
are given for each of these areas, with
points awarded accordingly.
To better serve clients, FHA-approved
lenders have been zeroing in on what
it takes to make certain client applications are ready to travel in the low-risk
green-lane queue as swiftly as possible. According to the American Association of Homes and Services for the
Aging, there are three main requirements for this queue:
1. no waiver requests on the
2. all participants in the request
should have completed 2530 previ-
ous participation submissions.
3. the application must have a posi-
tive risk-assessment score.
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In another significant development,
HUD officials have begun to focus
more thoughtfully on what happens
after loans are closed. In the past, asset management appeared to be little
more than an afterthought, but the
agency has moved rapidly to change
this perception. The emphasis now is
on establishing new matrixes to better manage and monitor existing loans
already on the books. The intention is
to monitor loan assets more closely
to identify problems earlier or avoid
In connection with this development,
the agency has come up with the idea
of appointing HUD account executives
whose role in the asset-management
activity is to function as the lender’s
advocate and quality-control officer.
HUD officials also have been considering further options to deal with the
current underwriting crunch. The department’s ability to respond with innovative
solutions is scoring points with lenders
and borrowers alike. Improvements in
all program phases likely will be high on
HUD’s to-do list in the months ahead.
Brokers should know how their senior-housing and health-care clients can take
advantage of HUD’s green lane, as well
as track the changes that continue to
make Section 232 LEAN loans popular
and profitable. •
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Mike Jaynes, firstname.lastname@example.org
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Making LEAN leaner
Primarily because of the industry’s favorable response to the product, processing HUD LEAN applications has
been taking longer than anyone intended. A major bottleneck developed
as HUD struggled to find underwriters
to process the large numbers of applications. The agency has continued to
tweak the process and to make steady
HUD created the Office of Healthcare
Programs (OHP) to oversee and manage all HUD LEAN 232 deals. Creating
this department has helped to differentiate the steps of processing and improve the agency’s ability to process
loans quickly. There are three OHP divisions: policy and risk analysis, production, and asset management and
lender relations. All three have been instrumental in changes that are making
Earlier this year, all HUD applications were being processed in the
same queue in the order received, but
it quickly became apparent that a more
efficient approach was needed. The
production and the policy-and-risk-analysis divisions established a special queue called the “green lane” to
process low-risk loans more quickly.
Initially, only HUD 223(a) 7 loans,
which refinance existing HUD loans,
could cruise in this fast lane. The
agency subsequently came up with a
Jeffrey A. Davis is chairman of Chicago-based Cambridge Realty Capital Cos., one
of the nation’s leading senior-housing and
health-care lenders with more than 300
closed transactions totaling more than $3
billion. The company is consistently ranked
among the top Federal Housing Administra-tion-approved Section No. 232 lenders in the
country. Reach him at (312) 521-7600 or jd@