HUD Section 232 LEAN Processing Mortgage Insurance Program

HUD Section 232 LEAN Processing Mortgage Insurance Program

The new LEAN loan processing program is designed to expedite loan approvals for assisted living, board and care, and intermediate or skilled nursing care facilities.  Formerly under HUD’s Office of Multifamily Housing, it is now under the control of HUD’s Offices of Insured Healthcare Facilities.

LEAN is now in effect for new construction and substantial rehabilitation loans and for acquisition and refinance loans.  This should appeal to senior housing owners, operators and developers seeking ways to finance projects amid the credit squeeze.

Highlights of the Program –

* Loan to Value: 75% maximum for for-profit borrowers (July 2011 - I'm told that its almost a 7 month wait for HUD to even look at an application)  Just recently announced:  HUD is hiring a private contractor to help reduce the waiting line and time.
* Type: Non-recourse

* Loan term: 40 years

* Rate: Competitive

Documents Required –

* Pre-applications are required only for new units being added to the market

* The pre-application focuses completely on the acceptability of the market.

* Pre-application requires a Market Study, Phase I Environmental report and information about the development and operation team, as well as general information about the property’s services and amenities.

* The appraisal is a market appraisal.

Financing Costs –

* Processing Fee as determined by lender

* The client must pay for all third party reports, which include a phase I environmental analysis, a full appraisal and a contracted architectural PCNA analysis. Funds must be remitted to the lender and these contractors are engaged and paid by the lender directly.

* Financing and permanent placement fees of up to 3.5% are based on final loan amount, due upon commitment and payable from mortgage proceeds at closing.

* Annual Mortgage Insurance Premium (MIP) is 1.14% at closing (one year pre-paid) and 0.57% annually thereafter.

* HUD application fee 0.3% of mortgage amount due at the time of submission of the firm application.

Other Notes –

* Commercial space cannot exceed 20% of net rentable area or 20% of gross income

* There are escrows for property taxes, insurance, MIP, and replacement reserves for realty and equipment.

* Independent living units cannot exceed 25% of total units of the project.

* Loan guarantees for Independent Living senior housing under HUD 231 programs are not under the LEAN program.