OFFICE OF Residential Care facilities Midwest Lenders Conference

OFFICE OF Residential Care facilities Midwest Lenders Conference – June 2013 Section 232 LEAN Update Tim Gruenes – Director, Asset Management & Lender Relations Rita Dockery – Supervisory Account Executive 1

Loan Types and 2012 Activity • Loan Types and FY 2012 Volume*: v. Section 223(a)(7): 52% of Total v. Section 232/223(f): 45% of Total v. Section 232 New Construction: 2% of Total v. Section 232 Substantial Rehabilitation: 1 Loan v. Section 241(a): 1% of Total v. Section 232 Blended Rate: 1 Loan v. Section 223(d): No Loans since FY 2011 v. Section 232(i): 1 Loan *Based upon Firm Commitments issued 2

General Guidelines • Lender Training in Philadelphia • All slide presentations posted to FHA. GOV to include: v. Underwriting 101 v. Loan Committee Mechanics v. New Construction Panel v. Asset Management and Lender Relations v. Policy v. Appraisal/Survey/Environmental 3

HUD REVIEW - HOW LONG WILL IT TAKE? 4

Production Volume: Oct 1, 2012 - May 2013 Count of Project Number 232 nc 232 br 241 a 232 sr 223 f 223 a 7 5 223 a 7 223 f 232 br 232 nc 232 sr 241 a Grand Total 419 175 2 10 2 4 612

LOOKING BACK TO 2012 Actual Application Processing Times 01/01/2012 to 03/31/2012 Average of Days in Type of # of Average of Days Applications Queue Days in UW in Closing 223 a 7 72 7. 4 223 f 68 7. 0 Other 5 Grand Total 5 6 0. 8 14 7. 5 9 50. 4 23 48. 2 23 61. 2 16 49. 7 Total Processing Time (Days) 86. 5 234. 4 73. 5 358. 7 37 3. 0 665. 0 90. 3 307. 6

THIS YEAR- 2013 Processing Times 1/1/2013 to 3/31/2013 Actual Application Processing Times # of Average of Applications Days in Queue 223 a 7 223 f Other Grand Total 7 Average of Days in UW Average of Days in Closing Total Processing Time 126. 0 53. 4 38. 0 77 168. 4 30. 0 42. 4 82. 4 63 187. 9 5. 0 167. 8 175. 6 150. 4 493. 8 161. 0 54. 9 50. 5 76. 7 182. 2

All New Section 232 Loans 900 800 700 600 500 400 Applications Received 300 Commitments Issued 200 100 0 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 (to 6/17/13) 8

Doing our best to keep pace…… • In FY 2012, we received 714 Firm Applications and issued 783 Firm Commitments. • In FY 2012, average processing time for underwriting was 50 days, and we successfully reduced application queues. • FY 2013 (as of 6/17/13), we have received 716 Firm Applications and issued 654 Firm Commitments. We are on a pace for…. . v. Receipt of around 1, 000 Firm Applications v. Issuance of just over 900 Firm Commitments 9

232 Queues 232 QUEUE VOLUME as of 1/31/2013 2/28/2013 as of 03/31/13 as of 6/17/2013 223 f Regular Queue 37 46 78 54 223 f Portfolio Queue 0 0 0 8 223 a 7 66 83 74 30 232 New Construction 15 15 16 13 232 Sub-Rehab 2 2 3 1 241 a Supplemental 5 5 5 6 232 Blended Rate 2 2 1 0 127 153 177 112 TOTAL APPLICATIONS 10

General Guidelines… 11

General Guidelines • Participants Review v. Must be experienced: § § Type (SNF/ALF/MC/ILU) Size & Average Occupancy Levels CMS Ratings Locations • Loan Sizing/Value: v Financial Performance- Trailing 12 v Trends in Occupancy, NOI, Quality Mix v Marketability (Age and Condition of Building) 12

General Guidelines • State Surveys v“G” tag citations v. Instances of actual harm or immediate jeopardy v. Open findings v. Patterns of repeat findings/systemic deficiencies v. CMS Star Rating v. Special Focus Facilities • CMS has required nursing homes to be fully sprinklered by August 13, 2013. 13

General Guidelines Projects with New Units (Heightened Risk) • Strength of Participants: v. Experience of participants with particular proposed type of facility (rent up and quality of care) v. Financial wherewithal (ability to carry project if necessary) • Overall Market Demand/Proposed Rents • Assumptions used for NOI Estimate reasonable? • Assumptions used in Initial Operating Deficit calculation reasonable? 14

Addressing Backlog in Other Queue • We are prescreening Other Queue projects to determine which projects to concentrate scarce appraisal resources on. • HUD UW/WLM’s doing pre-screening will be contacting lenders with Other Queue projects. v. Pre-screening using information on Lender Narrative • Next two slides cover the key decision criteria we are using to prioritize projects……. 15

Key Decision Criteria • Borrower & Operator/Management Agent Experience v 10 or more relevant facilities (strong) v 3 to 9 (medium) • Marketing & Leasing Up v 10 or more relevant facilities (strong) v 3 to 9 (medium) • Financial Strength v Net Worth > Loan Amount (strong) v Equal to Loan Amount (medium) • Percent Total Equity in Deal v 30% or more (strong) v 20% to 30% (medium) 16

Key Decision Criteria • Achieved Rates Compared to Subject v Equal to or Less (strong) v Up to 10% above existing (medium) • # of Units at our facility compared to existing facilities in the PMA v Same or Fewer (strong) v 0% to 100% larger (medium) • Occupancy at Comps v Greater than 95% (strong) v 90 -95% (medium) • Other Unique Features may also impact underwriting risk • Applications assessed as Medium or Strong will be given priority for appraisal review assignment. 17

ORCF Claim Activity 18

Work In Progress � 232 Handbook (this year) �Asset Management Notification Forms �Working on a system for getting quarterly financial reporting for operator 19

Work in Progress Strengthening Relations/Collaborations § CMS § State Agencies § Risk Management § DEC § OGC § Ginnie Mae § MF Housing 20 Florence Park, Care Center Florence, KY

What’s New? • 2530 Interactive Webcast to be scheduled in the very near future • Please email comments or suggestions 2530’s@hud. gov 21

The Future State of HUD Legal Reviews One OGC review to be performed, AFTER Firm Commitment issued EXCEPT if project has any of the following issues: q Accounts Receivable Financing, or q Master Lease for Medium and Large Portfolios, or q Issues that may arise in underwriting that would require a legal consultation (e. g. , license not in the name of the Operator or Management Agent operating the project may trigger a review prior to Loan Committee) 22

Loan Modifications • Sample documents for lender submission posted to HUD. GOV: v http: //portal. hud. gov/hudportal/HUD? src=/federal_housing_adm inistration/healthcare_facilities/section_232/lean_processing_p age/loan_servicing_guidance_home_page • Checklist: v Lender documents to submit v Address all types of Loan Mods v Will be revised in next week or so and posted to HUD. GOV • Sample Format for Lender Analysis and Recommendations: contains all required lender analysis, recommendations, certifications 23

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Loan Modifications, Continued • General requirements v GNMA Comfort Letter required if in GNMA pool v Project must be out of lockout v Project must pay any required prepayment penalties v PCNA only required if >10 years since previous v Interest rate premiums – The following costs cannot be paid from trade premium: borrower counsel, title and recording, organizational costs and 3 rd party reports costs (e. g. , PCNA). Any portion of the trade premium that is not retained by Lender or applied to Lender costs (such as Lender's Counsel fees and GNMA commitment fee) may be used to defray the prepayment premium on the existing GNMA Securities, with the balance, if any, remaining to be contributed to the reserve for replacement. 26

Loan Modifications, Continued • Proposed Logistics: v. Documents required by Checklist: Electronic submission to Leanwork@HUD. GOV (change will be made to checklist) and one hard copy to Account Executive (AE) v. Account Executive assigned to project to process v. Commitment letter signed at Loan Committee v. Signing of final documents TBD § Folks signing closing documents now, or § WLM of AE who processed 27

Loan Modifications, Continued • Lender will be asked to address in Lender Narrative: v. R 4 R balance: If below $1, 000 per unit limit, we will ask lender to address v. Sprinklers: if Nursing Home and not listed as fully sprinklered. v. If financially troubled after Modification (below 1. 11 DSCR), we’ll be asking for a plan to address v. Medicare. GOV ratings – if applicable and if poor history of quality of care 28

New Section 232 Forms • 115 new Production, Asset management, and Closing Documents were announced March 14, 2013 • Mandatory use for submissions on or after 7/12/13: v. Optional use prior to then, however, submissions must be entirely new or old documents 29

REAC Inspections on Section 232’s • Continue except for facilities categorized in system as Skilled Nursing Facilities OR ICFs • SNF/ICF’s where most recent score was below 60 still get inspected; will continue until score 60+ v. HUD can order inspections on SNF/ICF’s where it determines it is needed 30

State Survey Inspection Reports • • 31 Available and FREE to Lenders for current HUD portfolio Available as a Risk Mitigation Tool Training Provided Every Month Report Provides: v Survey Performance history v County and State Ranking v Current and Historical Risk Score v Life Safety, Quality of Care, Survey Types

Lender’s Corner • New Tool for Lender located on HUD. gov v. Tool for lenders to use for the latest training opportunities v. Tool for portal access offered by the ORCF for current HUD insured properties http: //portal. hud. gov/hudportal/HUD? src=/feder al_housing_administration/healthcare_facilities /section_232/lean_processing_page/Lender_Co rner 32

Asset Management Lean Pilot • Identifying Bottlenecks • Provide Additional Training • Gauge National Volume • Serve the Industry in a reasonable time frame 33

How can you stay informed? • FHA. gov (click on Section 232 Lean Program) • Lean. Thinking@hud. gov • Email blasts • Contact Rita. J. Dockery@hud. gov or Tim. P. Gruenes@hud. gov 34

Organization Chart - ORCF 35

Organization Chart – Production 36

Organization Chart – Asset Management 37

Thank you 38