1. Moderator: Jon Camps, Love Funding Panelists:Renee’ Greenman, Acting Director, LEAN Field Operations Tim Gruenes, Workload Manager, HUD- OIHCF Patrick Berry, Workload Manager, HUD-OIHCf

3. Lean Closings – Calendar Year Loan# ofDays ClosingProjectsTo OccurredClosedFirmClosing 200833454 Quarter 1, 2009174973 Quarter 2, 2009475294 Quarter 3, 20092270136 Quarter 4, 20096375163 Q 1, 20102485134

4. Average Time to Lean Closing All Lean Closings Average Days to Firm = 66 Average Days to Closing = 127

5. All Lean Firm Issued or Closed # of Type of LoanLoans% Section 223f20075% Section 223a75521% New Construction104% Section 223d1<1%

6. QueueStatistics Queue (non-223a7’s) = 115 Projects Of these, currently 16 with Risk Assessments that passed 223a7 Queue = 1 Projects Preapplication = 8 Projects

7. Month Entered the QueueAverage # of Days Before Assignment of Underwriter July, 200931 August63 September73 October (approximate)110 Most Recently Assigned (non Green)133 Average Days in Queue by Month Entered in Queue

8. Medium & Large Portfolios Status# Portfolios# Facilities Loans Closed 358 Portfolio Approved 5277 Portfolio Pending 140 HHQ Reviewing 4442 Totals 13817

9. Improvements Green Team – and results 1 st project assigned 1/8/10 20 Projects Processed to Firm/Reject Avg. days from UW assignment to Firm/Reject = 17 Last assignment 1 month quicker out of queue than non-green. Difference will increase as only 16 of 115 in queue passed Risk Assessment Lead = Tom McMillan

10. Improvements Assignment of Env. and OGC reviewers while in Queue Processing of APPS/2530’s on Green Team projects while projects in Queue Team reviewing Pre-applications in queue Removed Preapplication process and implementing revised Firm process to replace – details later.

12. In Lieu of Pre-Apps Option 1: Full Option 2: Staged Full Firm Application (unchanged from current option) Initial Submission Final Submission

13. Staged Application Basics Initial FHA Application Fee Market Study / Appraisal / Environmental Qualify Mortgagor, Operator, Management Limited Plans Final Architectural / Cost Reviews Qualify Contractor / Architect(s) Final Plans / Specs Final Construction Costs

14. Initial Submission FHA Application Fee – 0.3% of mortgage If HUD elects NOT to continue with the loan, ½ of the application fee can be refunded. If HUD issues a commitment, the Lender has 10 business days to decline the commitment and request a refund of ½ of the application fee. Market Study / Appraisal / Environmental Complete review and approval of Market and Value Environmental review starts immediately Same expiration time frames

15. Initial Submission Mortgage Sized on Fair Market Value and Debt Service Qualify Mortgagor / Operator / Management Agent Full submission of exhibits (just like direct to firm) Full HUD review Final Submission permits for modifications Limited Plans Minimum submission similar to MAP Pre-App Changes to plans after initial submission that affect value will require an appraisal update at Final Submission

16. Initial Submission Other Submission Exhibits Site Control Certificate of Need (if applicable) Title Search & Pro Forma Land Title Survey Budgets Stabilized Operations Initial Lease-Up Development Costs Affirmative Fair Housing Marketing Plan Additional Facility Information Early Commencement of Construction Exhibits (if applicable)

17. HUD Review of Initial Submission Issue Commitment Approve Market Approve Value Approve Mortgagor Approve Operator / Management Agent Approve Environmental

18. Commitment Term: 120 days with one 120 day extension Extension request must demonstrate forward progress on development Extension requires updated appraisal and market study with final submission Extension may require additional conditions as well Re-opening fees and rules apply after extension period New Conditions: Submission of complete plans and specs HUD approval of General Contractor / Architect(s) HUD review and approval of Final Exhibit Submission HUD review and approval of any 3 rd Party Updates (as needed) Mortgage Re-calculated with all applicable criteria Lender has 10 business days to reject commitment

19. Final Submission Updated Underwriting Architectural Review Cost Review Contractor Exhibits Architectural Exhibits Final Plans / Specs AIA B181(s) Certifications HUD-2328 Major Movable Schedule Construction Schedule Soil Report State Licensing Additional Funding Source documentation PLI exhibits Property Insurance Requirements / Schedule Zoning/Code Compliance Utility Assurance Other Misc. Exhibits Updates of Initial Submission Commitment Amendment Draft Closing Documents

20. HUD Review of Final Submission Close Approve General Contractor Approve Architect, Drawings, Specs Approve Professional Liability Insurance Approve Updated Underwriting FHEO / Labor Relations Approval Approve Closing Documents

21. Update on Status of This Program Draft documents should be posted this week for the initial submission process on HUD.GOV Beta testing of a live deal to verify process and documents are correct Final Submission documents will be posted to HUD.GOV upon the beta test coming in for final submission

22. Early Commencement of Construction Early Commencement of Construction Checklist, including: Memo Form HUD-92415, and Rider Permits Construction Contract, and Rider Specifications, Division 1 Environmental Documents Procedures for requesting Early Commencement approval.

23. Tips and Observations: PreConstruction Conference & Construction Phase Lender and the PreConstruction Conference Prior to the PreConstruction Conference The PreConstruction Conference After the PreConstruction Conference Construction Phase HUD Inspections Communication

24. What’s New?

25. NC/SR/241a Closings Team developing procedures for Cost Cert. Checklist (lender deliverables). If interested in volunteering to help in development, email Gary Golding. OGC developing revised Initial Closing and Final Closing Checklists. Mollie Yeatts in Seattle is now handling the program side of NC/SR/241a Initial Closings, the Cost Certification review and the Final Closing

27. Revised Section 232/223(f) Documents Original Section 232/223(f) Documents Pre-Application: (Link removed per December 18, 2009 Email Blast) Initial Submittal of Firm (NC, SR, 241a): (Under Construction) Existing Construction with New Addition: (Under Construction) Section 232 New Construction Section 232 Substantial Rehabilitation Section 232/241(a) Section 223(a)(7) on a 232 Section 223(d): (Under construction) Early Commencement of Construction Accounts Receivable Financing Documents Sample Closing Documents TAP OIHCF Processing of 232’s: (Under Construction) Lender Processing Information:

28. Want to view a list of new construction and substantial rehabilitation projects that are proposed or under construction under Lean? See the below links. Please note, the first link contains a spreadsheet from August of 2009 and includes # of units and type of facility. The second link contains a spreadsheet that is more up to date, but does not include # of units and type of facility - we are unable to obtain this data from our systems at this time. We ask that you use both of these spreadsheets until we have time to address our systems. "Link to spreadsheet from August of 2009" "Link to spreadsheet to more updated spreadsheet" Want to find out about HUD's Queue for processing 232's? Visit the "Queue Update" or go to Previous Queue Updates

29. Lean Snapshot of Projects March 5, 2010 Lean 232 Closings: Week ending 3/5/2010 = 2 Fiscal Year to Date: 85 Projects with Firms Issued that haven’t reached closing: 223a7: 15 All others:49 Total:64 Firms in Process or Preliminary Reject (no Firm Issued yet): 223a7: 23 All others:44 Total:67……………………………..

31. Phase in of new documents New documents to be posted to HUD.GOV soon. Email Blast – to officially announce. Initially: Lenders have option of using either version When lender sends hard copies, lender notifies HUD UW whether old or new are used. Lender must entirely use either all old or new docs 90 days from Email Blast – all submissions must use new documents.

32. Some of Changes…….. Certs will contain language on DACA requirements. Risk Assessment Worksheet required Clarification to how treat Mgmt Agent in situations with separate Operator (Lease) Removes Form 92438 Requires proof of Business Partners Registration System registration Master Lease – if portfolio

33. Some of Changes…….. Medicare/Medicaid – SNF’s: How addressing upcoming Sprinkler Requirements, if applicable. Clarifies requirements on surveys on other facilities

34. Recommendations for Lean 232 Submittals

36. Loan Sizing – Statute, Regs, MAP Type of New/ Existing Mortg agorMaxMin UnitUnitsTypeLTVDSCR AllNewFor Profit90%*1.11 AllNewNon-Profit95%*1.05 AllExistingFor Profit85%1.17 AllExistingNon-Profit90%1.11 36 * On new construction mortgage not to exceed 90% of HUD Replacement Cost

38. Benchmarks – 11/20/09 Email Blast Type ofEntity UnitUnitsTypeLTVDSCR SNF/ILUBothFor Profit80%*1.45 SNF/ILUBothNon-Profit85%*1.45 ALFNewFor Profit75%*1.45 ALFNewNon-Profit80%*1.45 ALFExistingFor Profit80%1.45 ALFExistingNon-Profit85%1.45 38 * On new construction, mortgage not to exceed 90% of HUD Replacement Cost

39. Loan Sizing – Continued Not-for-Profit Owners and Operators: To achieve the more liberal LTV benchmark, must demonstrate: A successful operating track record Significant project operating and management experience A solid financial track record If exceeding LTV’s on previous slide, need significant justification/mitigation of why low risk for HUD. 39

40. Loan Sizing – Potential Mitigants Conservative Underwriting – (NOI, Cap Rate, etc.) NOI based upon historical operations Cap Rate reflects project’s risks Stable NOI, Occupancy, Payor %’s.

41. Loan Sizing – Potential Mitigants Debt Coverage Ratio (based on historical NOI) Large Initial Operating Deficit and/or Debt Service Reserve Replacement facility = less risk of rent up Strength of market Experience of participants

42. If Instability in Historical NOI…. Suggest lender submit updated financial statements to OIHCF Underwriter when project comes out of queue (UW may request either way).

43. If 223f, Purchase…… Fully investigate and explain any potential Identity of Interest situations between seller and purchaser (“however slight”). Also see February 20, 2009 Email Blast (current operator continuing as operator after sale).

44. Completing the 92264- HCF Reflect Lender’s conclusions (not appraiser), exception: Section J, K, L and M (appraiser conclusions). Section D (Salaries), not required G6 and G7 blank – Proprietary Earnings Carve Out. 44

45. Completing the 92264- HCF On 223f’s if no cost approach, do not complete Section H Signed by Lender (not appraiser) 45

46. If Project Receives State Inspections….. Survey deficiencies must be addressed - particularly repetitive findings

47. Risk Assessment Calls for historical NOI #’s. Do not use prospective #’s. We want to have OIHCF Appraiser review projects where no history at the underwritten NOI.

48. Third Party Reports Review details Ensure repairs are clearly specified Remaining Economic Life Cost Approach to Value 48

49. Application Packages Include completed Firm Checklist Tab according to HUD checklist Don’t bind too many docs together Include any prior OIHCF staff guidance If clean submission (Title, License, PLI, A/R) then quicker/easier to close 49

50. Other General Issues Proofread! Math (Is it right? Is it consistent?) Charts (do they contradict each other?) Complete the Business Partner Registration System (for paper 2530s) 50

51. Other General Issues Ensure Narrative matches other docs in the submission and vice versa Submit all required docs the first time Include all docs that you reference in Narrative Complete all sections 51

52. Lessons Learned From HUD Loan Committee- Refinances

53. Underwritten NOI Not Supported by Historical NOI Tough sell for OIHCF Underwriter. HUD Loan Committee views as very risky in this economy. Prefer some history at underwritten levels. Absent that, must mitigate risk. Initial Operating Deficit and/or Debt Service Reserve Cap Rate must reflect additional risk of prospective income. 53

54. Exceeding Lean LTV and DSCR Benchmarks Tough sell for OIHCF Underwriter. Must be signficant justification/mitigation of why acceptable risk to HUD. We find that many that are submitted exceeding, are not an acceptable risk. 54

55. Cost Approach HUD has stopped short of requiring a Cost Approach on existing. If disregarded by appraiser and especially on newer projects, Underwriter should ask themselves the question of whether the facility could be built for the final value conclusion.

56. Loan Term – Reflect Physical Obsolescence Aged, without updates 3-4 Bed wards Communal bathrooms Short Ceilings Institutional Feel 56

57. Lessons Learned From HUD Loan Committee- New Construction of Units

58. Conservative Underwriting NOI estimate must be conservative and supported by comparables In today’s environment, too risk to say property is going to outperform comps. Large Initial Operating Deficit Significant Equity Only experienced participants If needed, Debt Service Reserve 58

59. Market Studies Must reflect current conditions at time of report (See 12/11/09 Email Blast) 59

60. Existing Project w/ NC Units NC = where adding units outside existing building foundation 12/2008 Lean Training Process as 223f or SR November 20, 2009 Email Blast Must be done as a ‘straight 232’.

61. Existing Project w/ NC Units Davis Bacon: Applies to both NC and Existing Work We’re working on new guidance Continue using MAP Guide 8.8B and refer to 11/20 Email Blast Use Substantial Rehabilitation Checklist posted to HUD.GOV – modify as needed Projects in Queue: we’ll work with you to meet the changed guidance

62. Blending LTVs Example: 77 existing & 39 new construction beds 77 multiplied by.8 (80% applicable to existing) = 61.6 39 multiplied by.75 (75% applicable to NC) = 29.25 Total = 90.85 90.85 divided by 116 (total beds) = Blended LTV of 78.3% 62