Office of Residential Care Facilities SECTION 232 UPDATES

Office of Residential Care Facilities SECTION 232 UPDATES 1

Tim Gruenes Workload Manager, ORCF Minneapolis HUD Office 2

OHP/ORCF – Who We Are • OHP (Office of Healthcare Programs) – Roger Miller – DAS • ORCF (Office of Residential Care Facilities) • Hospitals (242) 3

OHP/ORCF – Who We Are • ORCF – Director – Michael Vaughn (as of mid-June will be Kelly Haines • Production: Director – Roger Lewis (Seattle) • Asset Mgmt: Director – Kelly Haines (St. Louis) • Policy: Director – John Hartung (St. Louis) 4

OHP/ORCF – Who We Are • Designated Lender Relations Liaison is Mary Walsh – Ft. Worth: • Work with Lenders • Submissions for Development and Asset Mgmt • Measures of lender submission quality and risk profile • LQMD – • Lender Qualification • Post Closing Monitoring Activities 5

A Much Brighter Picture!!!! • 2010: Loads of Applications, Hoping for more resources in 2011. • 2011: More Applications, We were in worse shape (total queue topped out over 400 projects). • Now: Next Few Slides……. . • We’ve hired staff and added contractors…. . 6

Activity F Y ‘ 12 (5/31/12) FY 2011 FY 2010 FY 2009 Applications Received 359/479 708 768 271 Commitments 546/728 473 318 132 7

Office of Residential Care Facilities Queue Volume QUEUE VOLUME as of 12/31/11 as of 1/31/12 as of 2/29/12 as of 3/31/12 as of 5/31/12 135 77 54 13 8 0 5 2 5 1 223 a 7 27 19 21 22 15 232 Other 41 40 42 36 21 203 141 119 76 45 223 f Regular Queue 223 f Portfolio Queue TOTAL 8

Office of Residential Care Facilities Inflow & Outflow Application Inflow & Outflow Sept. 2011 Oct. 2011 Nov. 2011 Dec. 2011 Jan. 2012 Feb. 2012 March 2012 New Applications Received 16 33 45 51 31 48 54 223 f 10 11 20 24 14 20 17 223 a 7 6 19 25 23 16 26 33 Other 0 3 0 4 1 2 4 43 61 57 69 64 74 76 Firm Commitments Issued 9

Section 232 Lean Phase II LEAN PHASE II • Goals: End of Queue, Commitments issued within 30 days of application, closings within 45 days • Adherence to these performance standards will increase the program’s attractiveness for high quality borrowers and facilities. • Focus on both Internal and External production elements. • Identifying Internal Bottlenecks • Tracking through Internal Delay categories in Visual Management Report • Making necessary changes in resource allocation, process steps • Other Queue • Working with OGC and ORM to remove obstacles to production flow • Setting expectations for Underwriting processing times 10

Section 232 Lean Phase II LEAN PHASE II (cont’d) • Setting expectations for completeness of Lender submissions • Lender Narrative should address all issues/conclusions • HUD (or contractor) UW should be able to proceed without delay • Tracking through External Delay categories in Visual Management Report • Working with Lenders to reduce delays (Mary Walsh) • Working with OGC/Lenders Counsel to reduce closing delays • Reduction of Queue should reduce stale underwriting/document/legal delays 11

Section 232 Lean Phase 2 External Delay Categories 1 a. NOI: Market/vacancy/payer mix (2) 4 c. AR 1 b. Cap Rate (1) 4 d. Master Lease 1 c. Incorrect/ineligible costs (2) 5 a. Typographical errors 2 a. Quality of Care/surveys 5 b. Calculations/Math Errors (1) 2 b. 2530 or other Derog Issues (2) 5 c. Missing Exhibits (13) 2 c. Operations (2) 5 d. Not using standard lean standard templates/forms or obsolete 2 d. DEC findings (2) 5 e. Error in identifying Green Lane or Non. Green Lane criteria (a 7) 2 e. Failure to identify portfolio (3) 5 f. Incorrect Amortization values (a 7) 3 a. Environmental (2) 6 a. Updates to Financials (10) 3 b. Obsolescence 6 b. 2530 3 c. Property Condition/Reserves (2) 6 c. A/R 4 a. Corp, Structure, Title 6 d. Master Lease 4 b. Litigation status/Other (1) 6 e. Legal (4) 12

Section 232 Underwriting New Construction Risk Mitigation for 232 New Construction Market analysis must support strong demand Financial strength of the developer/owner/operator Relevant experience of the developer/owner/operator Conservative lease up Substantial operating deficit reserve Requirement for significant cash investment by strong ownership 13

What’s New? • Proposed Rule/Document Revisions: • Comment Period until 7/2/12 • Webcast today @ 2: 30 to 5 EST • Information on our HUD. GOV website 14

What’s New? • We Created a Separate Queue for 241 a’s • Preference in Other Queue for projects with TC’s/Other Grant Funds for Affordable Units 15

What’s New? • Elimination of Legal Completeness Review: • HUD Legal Review at same time as Underwriting • Complete/Full Firm Submittal imperative given short queue 16

What’s New? • Initial Screening of Other Queue Projects: • Diane Rosinski – Buffalo • Patrick Berry – Detroit – WLM • Dated submissions: if no longer feasible, request refund of app fee (before HUD assigns appraiser/UW). 17

What’s New? Initial Screening Continued. • Projects Placed in one of 3 categories: • No Revision necessary • Minor Revisions necessary • Major Revisions necessary: • Removed from queue until corrected • If Corrected, project returns to same spot in queue relative to other projects – FIFO • Currently 13 Projects 18

What’s New? Initial Screening Continued. • Some items being reviewed: • Compliance with previous Email Blasts: Experience, net worth/liquidity, equity investment. • IOD • Major Environmental Issues • Brief review of APPS/2530’s • Brief review of Forms 19

What’s New? • Swap Fees: ML 2012 -8 • Contact OHP/Contract Closer if Firm Commitment issued (not closed) and want to include. • We’ll be clarifying what we want to see in future submissions in Email Blast – until checklists/narratives can be revised. 20

What’s New? • Policy Staff Working on Mortgagee Letters: • Eligible Debt • Portfolios/Master Leases 21

What’s New? • Projects with Common Ownership: • Per November 2011 Email Blast, identify on initial request form fro FHA Number and Certification for Electronic Submittal. • If recommending no Master Lease separate issue – present risk based reasons to UW. 22

What’s New? Revenue Funding Cuts. • If enacted (Medicare recently), reflect in appraisal and in Underwritten NOI • If proposed (Illinois): • If possible to quantify, show in sensitivity analysis how project may be affected – can still cover at 1. 45 and 1. 0 DSCR? • Discuss owner/operator’s plan to deal with them if enacted. 23

Section 232 Delinquencies > 60 Day Delinquencies (earlier in 2012) 18 of 26 are Assisted Living 11 of those 18 are New Construction 8 of 26 are Nursing Homes 6 of those 8 are Refinances, 2 seasoned NC 24

Section 232 Claims FY 2010 - 2012 • Type • • • • • • UPB Cohort Property AL 1, 514, 988 2002 AL 2, 111, 004 2009 AL 1, 125, 079 2005 AL 4, 933, 963 2002 BC 1, 231, 477 1995 BC 1, 613, 754 1998 BC 512, 990 1997 NH 26, 482, 547 2003 NH 3, 917, 2002 NH 4, 588, 799 2001 NH 6, 229, 592 2000 NH 3, 963, 459 2008 AL 7, 864, 276 2000 AL 5, 299, 558 2008 AL 3, 317, 582 2009 AL 2, 637, 155 2003 NH 3, 729, 042 2001 NH 2, 514, 427 2008 NH 1, 644, 127 2003 AL 21, 183, 217 2006 NH 3, 988, 697 2003 NH 988, 953 2002 City State Cause BARSTOW RET. PL. BARSTOW CA Market/Owner MAPLEWOOD RIDGE PELHAM AL Owner RIVER BIRCH RES. HOLFORD MN Market/Owner SUNAPEE COVE GEORGES NH Owner ESSEX MANOR SUPERIOR MI Market/Owner LANDMARK MANOR HAMPTON PA Market/Owner SOMERSET HOUSE CHICAGO IL Owner/State FOX RIVER PAV. AURORA IL Owner/State JAMES S TAYLOR LOUISVILLE KY Owner WEST ROCK HC E. N. HAVEN CT Owner/State PECAN RIDGE LC WACO TX Owner /State GARDEN PK VILLAS ESCONDIDO CA Owner NORTHPORT HLDS NORTHPORT MI Market/Owner RIVER BEND AL VALLEY AL Owner HEARTLAND PLAZA MOORE OK Market/Owner FAIRCHILD MANOR LEWISTON NY Owner GOVALLE CARE CTR AUSTIN TX Owner NORTHVIEW DV CTR EASTLAND TX State/Owner Lenox on the Lake Lauderhill FL Market/Owner South. Park Brownwood TX State/Owner San Augustine TX State/Owner 25

Thank-You! Tim. gruenes@hud. gov Or Leanthinking@hud. gov