1. 1 SECTION 232 UPDATES Office of Residential Care Facilities

2. 2 Tim Gruenes Workload Manager, ORCF Minneapolis HUD Office

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

4. 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. 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. 6 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…..

7. 7 ActivityF Y ‘12 (5/31/12) FY 2011FY 2010FY 2009 Applications Received 359/479708768271 Commitments546/728473318132

8. 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 Queue1357754138 223f Portfolio Queue05251 223a72719212215 232 Other4140423621 TOTAL2031411197645

9. 9 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 16334551314854 223f 10112024142017 223a7 6192523162633 Other 0304124 Firm Commitments Issued 43615769647476

10. 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. 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. 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. 2530 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. 2530 3c. Property Condition/Reserves (2)6c. A/R 4a. Corp, Structure, Title6d. Master Lease 4b. Litigation status/Other (1)6e. Legal (4)

13. 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. 14 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

15. 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. 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. 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. 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. 19 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

20. 20 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.

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

22. 22 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.

23. 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. 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. 25 Section 232 Claims FY 2010 - 2012 Type UPB Cohort Property City State Cause AL 1,514,988 2002 BARSTOW RET.PL.BARSTOW CA Market/Owner AL 2,111,004 2009 MAPLEWOOD RIDGE PELHAM AL Owner AL 1,125,079 2005 RIVER BIRCH RES. HOLFORD MN Market/Owner AL 4,933,963 2002 SUNAPEE COVE GEORGES NH Owner BC 1,231,477 1995 ESSEX MANOR SUPERIOR MI Market/Owner BC 1,613,754 1998 LANDMARK MANOR HAMPTON PA Market/Owner BC 512,990 1997 LANDMARK MANOR HAMPTON PA Market/Owner NH 26,482,547 2003 SOMERSET HOUSE CHICAGO IL Owner/State NH 3,917,200 2002 FOX RIVER PAV. AURORA IL Owner/State NH 4,588,799 2001 JAMES S TAYLOR LOUISVILLE KY Owner NH 6,229,592 2000 WEST ROCK HCE. N. HAVEN CT Owner/State NH 3,963,459 2008 PECAN RIDGE LCWACO TX Owner /State AL 7,864,276 2000 GARDEN PK VILLAS ESCONDIDO CA Owner AL 5,299,558 2008 NORTHPORT HLDS NORTHPORT MI Market/Owner AL 3,317,582 2009 RIVER BEND ALVALLEY AL Owner AL 2,637,155 2003 HEARTLAND PLAZA MOORE OK Market/Owner NH 3,729,042 2001 FAIRCHILD MANOR LEWISTON NY Owner NH 2,514,427 2008 GOVALLE CARE CTR AUSTIN TX Owner NH 1,644,127 2003 NORTHVIEW DV CTR EASTLAND TX State/Owner AL 21,183,217 2006Lenox on the LakeLauderhill FLMarket/Owner NH3,988,697 2003SouthParkBrownwood TX State/Owner NH 988,953 2002San AugustineSan Augustine TX State/Owner

26. 26 Thank-You! Tim.gruenes@hud.gov Or Leanthinking@hud.gov