1 SECTION 232 UPDATES Office of Residential Care Facilities

2 Tim Gruenes Workload Manager, ORCF Minneapolis HUD Office

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

4 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)

5 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

6 A Much Brighter Picture!!!! 2010: Loads of Applications, Hoping for more resources in : 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…..

7 ActivityF Y ‘12 (5/31/12) FY 2011FY 2010FY 2009 Applications Received 359/ Commitments546/

8 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 223f Regular Queue f Portfolio Queue a Other TOTAL

9 Office of Residential Care Facilities Inflow & Outflow Application Inflow & Outflow Sept Oct Nov Dec Jan Feb March 2012 New Applications Received f a Other Firm Commitments Issued

10 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

11 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

12 Section 232 Lean Phase 2 External Delay Categories External Delay Categories 1a. NOI: Market/vacancy/payer mix (2)4c. AR 1b. Cap Rate (1)4d. Master Lease 1c. Incorrect/ineligible costs (2)5a. Typographical errors 2a. Quality of Care/surveys5b. Calculations/Math Errors (1) 2b or other Derog Issues (2)5c. Missing Exhibits (13) 2c. Operations (2) 5d. Not using standard lean standard templates/forms or obsolete 2d. DEC findings (2) 5e. Error in identifying Green Lane or Non- Green Lane criteria (a7) 2e. Failure to identify portfolio (3)5f. Incorrect Amortization values (a7) 3a. Environmental (2)6a. Updates to Financials (10) 3b. Obsolescence6b c. Property Condition/Reserves (2)6c. A/R 4a. Corp, Structure, Title6d. Master Lease 4b. Litigation status/Other (1)6e. Legal (4)

13 Section 232 Underwriting New Construction Risk Mitigation 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

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

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

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

17 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).

18 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

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

20 What’s New? Swap Fees: ML 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 Blast – until checklists/narratives can be revised.

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

22 What’s New? Projects with Common Ownership: Per November 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.

23 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.

24 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

25 Section 232 Claims FY Type UPB Cohort Property City State Cause AL 1,514, BARSTOW RET.PL.BARSTOW CA Market/Owner AL 2,111, MAPLEWOOD RIDGE PELHAM AL Owner AL 1,125, RIVER BIRCH RES. HOLFORD MN Market/Owner AL 4,933, SUNAPEE COVE GEORGES NH Owner BC 1,231, ESSEX MANOR SUPERIOR MI Market/Owner BC 1,613, LANDMARK MANOR HAMPTON PA Market/Owner BC 512, LANDMARK MANOR HAMPTON PA Market/Owner NH 26,482, SOMERSET HOUSE CHICAGO IL Owner/State NH 3,917, FOX RIVER PAV. AURORA IL Owner/State NH 4,588, JAMES S TAYLOR LOUISVILLE KY Owner NH 6,229, WEST ROCK HCE. N. HAVEN CT Owner/State NH 3,963, PECAN RIDGE LCWACO TX Owner /State AL 7,864, GARDEN PK VILLAS ESCONDIDO CA Owner AL 5,299, NORTHPORT HLDS NORTHPORT MI Market/Owner AL 3,317, RIVER BEND ALVALLEY AL Owner AL 2,637, HEARTLAND PLAZA MOORE OK Market/Owner NH 3,729, FAIRCHILD MANOR LEWISTON NY Owner NH 2,514, GOVALLE CARE CTR AUSTIN TX Owner NH 1,644, NORTHVIEW DV CTR EASTLAND TX State/Owner AL 21,183, Lenox on the LakeLauderhill FLMarket/Owner NH3,988, SouthParkBrownwood TX State/Owner NH 988, San AugustineSan Augustine TX State/Owner

26 Thank-You! Or