Welcome Introduction Roger Lukoff Associate Deputy Assistant Secretary

Welcome & Introduction Roger Lukoff Associate Deputy Assistant Secretary, Office of Healthcare Programs (OHP) Kelly Haines Director, Office of Residential Care Facilities (ORCF) Tim Gruenes Director, Asset Management & Lender Relations, Office of Residential Care Facilities (ORCF) 1 Eastern Lenders Conference Philadelphia, PA March 13 & 14, 2013

• WHO WE ARE v Section 232 Residential Care Facilities and Section 242 Hospitals v Healthcare principal balance of over $28. 3 billion with over 2, 890 loans in the FHA portfolio (as of 12/31/12) • WHAT WE DO v Enable more affordable financing of needed healthcare facilities v Reduce cost of care and increase accessibility Ø Allow borrowers to achieve at least an AA credit rating v Improve access to quality healthcare nationwide at no cost to the taxpayer v Strengthen communities - healthcare facilities are economic engines Ø Healthcare facilities employ millions of Americans and support trillions in economic activity 2

Our Hallmark • Continuously improving our business practices and processes, while preventing claims. v Lean Processing redesign has greatly cut processing time, improved customer service, and strengthened risk analysis v Net claim rates have been less than 2% in both programs 3 The Harrison at Heritage Ft. Worth, Texas, Section 232 New Construction

Fiscal Year-End Production Statistics Section 232 Applications Received T Commitments Issued Initial Endorsements COUNT $ BILLIONS FY 11 FY 12 FY 11 708 714 473 783 $3. 7 B $6. 0 B 415 FY 12 FY 11 8 4 $ MILLIONS FY 12 6 FY 11 $398 M FY 12 FY 11 FY 12 706 $3. 3 B $5. 5 B Section 242 Commitments Issued COUNT $ BILLIONS $246 M

Economic Impacts of FY 12 Commitments • Section 232 v During Construction: § 5, 720 projected new jobs will be created during construction, with $643 million of overall economic benefit. v Following Construction: § FY 12 projects will generate an estimated annual new economic activity of $316 million and 2, 600 new jobs. • Section 242 v During Construction: § 2, 731 projected new jobs will be created during construction, with $695 million of overall economic benefit. v Following Construction: § FY 12 projects will generate an estimated annual new economic activity of $1. 35 billion and 8, 584 new jobs. 5

DEMAND FOR SECTION 232 REMAINS STRONG! 6

WE ARE DOING OUR BEST TO KEEP PACE WITH SUBMITTALS 7

PRODUCTION Continues this week Roger Lewis, Director of Production 8

All 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 2/28/13) 9

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 2/28/13), we have received 460 Firm Applications and issued 372 Firm Commitments. We are a pace for…. . v. Receipt of over 1100 Firm Applications v. Issuance of just short of 900 Firm Commitments 10

232 Queues 232 QUEUE VOLUME as of 8/31/12 as of 9/30/12 as of 10/31/12 as of 11/30/12 as of 12/31/12 as of 03/7/13 223 f Regular Queue 6 23 23 57 67 32 223 f Portfolio Queue 4 1 0 0 223 a 7 62 82 105 78 72 77 232 New Construction 15 14 14 15 16 16 232 Sub-Rehab 3 2 2 1 1 2 241 a Supplemental 3 5 5 4 5 5 232 Blended Rate 4 4 2 2 232 i Fire Safety 0 0 2 0 0 0 97 131 155 159 163 139 TOTAL APPLICATIONS 11

223 f and 223 a 7 Queues: • Oldest 223 f in the queue was submitted 2/1/13 (there are 4 projects on hold listed at top of the queue). • Oldest 223 a 7 in queue submitted 1/31/13 v. We consolidated the Green and Regular 223 a 7 Queue. 12

Addressing Other Queue: • Recently moved resources to underwriting Other Queue/241 a projects v. Oldest Other Queue = submitted 4/25/12 • Considering establishing a Green Lane queue for 241 a projects where current NOI covers the debt service on the new loan v Oldest 241 a in queue = submitted 7/5/12 • Rachel Coleman continuing pre-screening of Other Queue projects to better serve you. 13

Application Processing Times (Calendar Days) ACTUAL APPLICATION PROCESSING TIMES (AVERAGE CALENDAR DAYS) For Deals that Closed between October 2012 to January 2013 (4 months) 14 Type Count In Queue In Underwriting In Closing Total Processing 223 a 7 104 28 days 41 days 71 days 140 days 223 f 39 40 days 61 days 64 days 165 days Other 3 398 days 37 days 145 days 580 days TOTAL 146 39 days 46 days 71 days 156 days

Underwriting Contract • Averaging 60/month assigned to contractor • Contractor processed 299 applications last year • Contract expiration 6/30/13: Plan to keep contract support in place 15

WHAT’S NEW? 16

Firm Commitment Authority • FHA nearing amount allocated in Continuing Resolution • OHP continuing to present projects at Loan Committee. • OHP determining which Firm Commitments to fund with remaining allocation. 17

New Section 232 Forms (PRA) • Underwriting, Asset Management, Closing • Our goal is to introduce you to these in this training • Final Notice – Tomorrow (3/14/13) • Generally, new closing documents required on projects where Firm Commitments issued on or after 4/9/13 18

New Section 232 Forms (Continued) • Others, required for submissions on or after 120 days from Final Notice (July 12, 2013) v. Optional use prior to then, however, submissions must be entirely new or old documents • HUD. GOV: Posted as links to new documents – we are planning on organizing by program type/action type. v. Now posted as lump sum: § www. hud. gov/232 forms 19

Sprinkler Compliance • CMS has required nursing homes to be fully sprinklered by August 13, 2013. v 1999 Edition of National Fire Protection Association (NFPA) 13 Standard for the Installation of sprinkler systems. • Projects and their compliance are listed at the CMS website – see Slides 24 and 25 • If not in compliance by this date, puts license in jeopardy – therefore HUD takes very serious. v. Therefore………. 20

Sprinkler Compliance, Continued • Any Section 223 f Firm Application on a Skilled Nursing Facility submitted to HUD on or after 5/1/2013, must be listed as fully sprinklered per the CMS website prior to HUD acceptance of the application. 21

Sprinkler Compliance, Continued • All Section 223 f Firm Applications submitted prior to 5/1/2013 (on which a Firm Commitment has not been issued prior to 3/8/13) on Skilled Nursing Facilities that are not listed as fully sprinklered per the CMS website, must: v. Prior to Closing: § Be listed as fully sprinklered per the CMS website, or § Demonstrate to HUD’s satisfaction that the property is currently in compliance with the 1999 Edition of NFPA 13 Standard for the Installation of sprinkler systems. 22

Sprinkler Compliance, Continued • On Section 223(a)(7) Firm Applications (that have not closed) on Skilled Nursing Facilities that are not listed as fully sprinklered per the CMS website, HUD will at its option: • • 23 Require demonstration to HUD’s satisfaction that the property is in compliance with the 1999 Edition of NFPA 13 Standard for the Installation of sprinkler systems prior to Closing, or Require demonstration to HUD’s satisfaction that the property will be in compliance with the 1999 Edition of NFPA 13 Standard for the Installation of sprinkler systems by an agreed upon date after closing (prior to August 13, 2013)

Sprinkler Compliance, CMS Website • http: //www. medicare. gov/Download. D B. asp • Excel Spreadsheet: v“Column M- Sprinkler Status” indicates if the facility is Fully, Partially or Not Sprinklered and v“Column I- Fire Survey Date” indicates the date of that determination by the state surveyor. 24

Sprinkler Compliance, Instructions – Once You Click on the CMS Website Link: • From the drop down menu called “Select A Database” select “Nursing Home Compare – About The Nursing Home” and the click on the “Continue” button • Click on Download button for the CSV Flat Files option (2 nd download button from the top). • Click Open to open the ZIP file folder that will pop up. • Within the ZIP file folder is an excel file called “NHC_NH csv” Click on it to open it up. 25

Section 232 Handbook • ORCF staff is currently working on this. • John Hartung will cover more on this in his 4: 30 session on Thursday. 26

Miscellaneous • Mary Walsh, who is our Lenders Relations liaison, is available to meet with you if you want to discuss feedback on lender performance. • Powerpoints used for this training will be posted to HUD. GOV after the training. 27

Agenda Highlights 28

Questions 29