Summary Of HUD’s LEAN 232 Program E-Mail Blast: Office Of Residential Care Facilities (ORCF), December 19, 2012

by Pepper Hamilton LLP
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In an effort to summarize the highlights of the LEAN E-mail Blasts that we receive, and rarely have time to review in a timely fashion, we at Pepper are providing this quick synopsis of the latest LEAN update. Our aim is to provide pertinent information succinctly as a roadmap to the LEAN E-mail Blasts, not to replace them. We hope you find these summaries helpful.

Revised 232 Loan Documents

On November 21, 2012, ORCF released the latest draft 232 loan documents for public comment. Comments on the loan documents were due on December 21, 2012. Available here are highlights of the loan documents that we believe are particularly important to lenders. There has not been an official timeline released for when ORCF hopes to implement the new loan documents, but the rumor is that Commitments issued after April 1, 2013 will be required to use the new loan documents. It remains to be seen if ORCF will meet this ambitious goal.

Consolidated Section 223(a)(7) Queue

Due to the influx of additional staffing resources, ORCF has merged the 223(a)(7) “Green Lane” and “Regular Lane” into one consolidated 223(a)(7) queue. The consolidated Section 223(a)(7) queue will take effect for firm Applications submitted on or after January 15, 2013, with those applications assigned to underwriters on a first-in, first-out basis.

New Queue Views for Section 223(f) and 223(a)(7)

ORCF has added new information fields to the existing queue views for Section 223(f) and 223(a)(7) loans, which allow lenders to view those loans assigned to underwriters within the past week, along with the underwriter’s name.

Updated Documents for ‘Other Queue’ Deals

Lenders are being asked when one of their deals reaches 5th from the top of the queue to begin preparing to submit the following documentation, which will be required when the deal is assigned to an underwriter (below is a summary; to see the complete requirements, see the LEAN Blast):

  1. insert updates in the hard copy of the full application
  2. provide electronic and hard copies of dated financials (YTD) for relevant entities. If there is a significant change from the original submission, lender must provide a narrative explanation of those changes
  3. update working capital calculation for the general contractor – not required for initial submission applications
  4. if necessary, submit revised organization charts and update any other relevant exhibits
  5. submit an electronic copy of Division 1 of the specifications – not required for initial submission applications
  6. for existing SNF projects, update the state survey information
  7. respond to questions regarding the operator and general contractor concerning the aging of accounts payable and the existence of any net losses or declining net incomes.

Finally, lenders must review the September 1, 2011 E-mail Blast regarding Financial Capacity, Participant Experience and Debt Service Reserve Escrows, and update any relevant exhibits. Finally, remember that once the underwriting review has begun, it is unlikely that a refund of the HUD application fee will be issued.

Revised Accessibility Matrix

ORCF’s Accessibility Matrix has been revised. The revised matrix, dated December 5, 2012, can be found online at http://portal.hud.gov/hudportal/documents/huddoc?id=MatrixSec232Dec52012.doc and is to be used immediately. The matrix is also posted under “Lender Tools for Firm Application,” for New Construction, Substantial Rehabilitation, 241(a), and 223(a)(7). Any questions should be directed to LeanThinking@hud.gov.

The highlights of the significant changes include:

  • the Fair Housing Amendments Act (FHAA) is applicable to Skilled Nursing and Intermediate Care, Assisted Living, and Board & Care facilities
  • the Uniform Federal Accessibility Standards (UFAS) is applicable to all existing HUD Section 232 New Construction, and existing HUD Section 232 Substantial Rehabilitation (but only those elements that underwent alteration), that Initially Closed with HUD after July 11, 1988 and are being refinanced in the LEAN program
  • compliance with Title II and Title III of the Americans With Disabilities Act (ADA) has been clarified.

Risk Management Program

As noted in our comments regarding the new LEAN loan documents, the new form of Operator Regulatory Agreement requires all operators to create and maintain a risk management program. In certain circumstances, ORCF has begun requiring operators to create a risk management program as a Special Condition.

ORCF has set forth general examples of risk management programs that operators should anticipate may be required, depending on the circumstances. They include:

  1. develop and document a comprehensive software-based risk management program and have designated staff positions to implement the risk management program
  2. contract with a third-party provider of electronic risk management. See the LEAN Blast for HUD’s requirements concerning the third party’s statement of work.

The risk management program, which must be reviewed and approved by HUD prior to closing, is expected to be maintained for the life of the loan. If at some time in the future the operator requests to make any changes to the original risk management program that was approved by HUD prior to closing, Asset Management must approve changes on a case-by-case basis.

Final Rule for Section 232 Partial Payment of Claims

On December 7, 2012, HUD published a Final Rule providing for the partial payment of mortgage insurance claims in the Section 232 Program (FR-5537-F-02). The new rule allows HUD to request a mortgagee to participate in a partial payment of claim in lieu of assignment after HUD determines that partial payment would be less costly than other reasonable alternatives for maintaining the project and keeping it available to serve community needs. This tool will not be used except in circumstances in which HUD finds that the financial relief resulting from the partial payment of claim, when considered with other resources available to the project, will be sufficient to restore the financial viability and operational stability of the project (and thus prevent a full claim).

Update on REAC Physical Inspections

As a result of the Final Rule (FR–5465 F–02) published September 7, 2012 and as discussed in the October 31, 2012 E-mail Blast, HUD has revised its protocol on REAC physical inspections on some Section 232 projects. Consistent with the Rule, HUD is ceasing the routine inspection of skilled care facilities on the basis that those facilities are subject to routine surveys and inspections by the states pursuant to the requirements of the Centers for Medicare & Medicaid Services. The document entitled “Account Executive Facility Assignment – Contact Listing” (posted online at http://portal.hud.gov/hudportal/documents/huddoc?id=HUD232PortAEAssigDec2012.xls) lists which Section 232 projects are subject to future routine REAC inspections.

If a lender believes the coding for a particular project is incorrect, the lender should contact the project’s account executive. Please note, projects containing more than one type of facility are coded as the predominant facility type (based on the number of beds). Please also note that if the previous REAC inspection on a facility was below a 60, HUD will require a re-inspection regardless of the type of facility (until a score of 60 or above is obtained).

Revised Legal Punch List for Transfer of Physical Assets

Effective immediately, the TPA legal punch list posted online at http://portal.hud.gov/hudportal/documents/huddoc?id=TPAPunchlist_12122012.doc should be used for all TPA transactions.

ALTA 9 Title Policy Endorsement Requirement

Due to changes in the ALTA Title Policy Endorsement 9.3-06 comprehensive endorsement, HUD now requires Title Policy Endorsement 9-06 and 9.6-06.

Lender Training March 13 and 14, 2013

Save the date! Working in conjunction with the Eastern Lenders Association, ORCF plans to have a lender and third-party training on underwriting, closing, asset management, and policy related to Section 232 loans on March 13 and 14, 2013. The training will take place at the Philadelphia Marriott Downtown. The Eastern Lenders Association will be sending out additional information to their e-mail listserv. If you wish to be placed on this listserv, please e-mail Kim Henry (assistant to ELA Secretary Jeff Allshouse) at kim.henry@prudential.com.

FROM THE CLOSING CORNER

Section 232 New Construction Final Closing Consolidated Certification

The Section 232 New Construction Final Closing Consolidated Certification is a sample form first published in the June 27, 2012 E-mail Blast. This form is being republished (http://portal.hud.gov/hudportal/documents/huddoc?id=OHP-232NC_FConsCert112012.doc) since some minor changes have been made to fit the title designations in the Section 232 final rule, as well as to reiterate that it is completely discretionary. ORCF will accept this certification as an alternative to resubmitting documents from the initial closing.

Rollout of the Special Conditions Matrix

The purpose of the special conditions matrix is to consolidate the special conditions in an easy-to-use matrix and document how each of the special conditions is being satisfied. The special conditions matrix is available online at http://portal.hud.gov/hudportal/documents/huddoc?id=SpecialCondMatrix.doc and also posted on ORCF’s Sample Closing Documents Web page. The special conditions matrix is being e-mailed to the lender/lender counsel by the closing coordinator with the initial closing e-mail. The lender/lender counsel should include the special conditions matrix with the closing package. The lender/lender counsel is responsible for completing the column entitled: “Evidence provided to clear condition” with the necessary explanation on how the special condition is being satisfied. The ORCF closer will then indicate in the following columns whether the condition has been satisfied or not, along with a date. If the lender /lender counsel has not provided sufficient documentation to satisfy the special condition, the closer will notify the lender/lender counsel, asking for additional information or documentation. Once all of the special conditions have been cleared by the ORCF closer, a copy of the special conditions matrix will be sent to HUD counsel, along with the e-mail clearing the project for closing. If HUD counsel agrees, the special conditions matrix may be used in lieu of amending the firm commitment.

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