HUD expands horizons for health facility financing.

During 1994, many came to the realization that there is a demand for housing for senior citizens who are not quite ready for a nursing home but who do need some type of assistance for daily living activities and suitable recreation. Moreover, some astute developers realized that seniors receiving social security benefits and small pensions could easily handle the cost of such board and care, which could range from $1,500 per month for a semi-private room to $3,000 per month for private quarters, which includes room and board, all meals, some assistance for daily living, a congenial atmosphere and a suitable recreation program. The U.S. Department of Housing and Urban Development now recognizes the need as well.

Prior to December of 1994, the HUD 232 mortgage financing program was only available for the construction of new nursing homes and existing nursing homes that needed major renovation.

HUD has revised the 232 Mortgage Insurance Program to allow for the refinancing of conventionally financed nursing homes without the requirement of renovation and for the first time to include intermediate care, board and care and assisted living facilities.

Properties that are eligible for Section 232 financing are Nursing Homes, both proprietary and not-for-profit facilities that are licensed or regulated by state or local government and provide skilled nursing care; Intermediate Care Facilities, licensed and regulated by the state, providing for continuous care but not continuous medical or nursing services; Board and Care Facilities, licensed and regulated by the state, providing room, board and protective oversight for relatively independent occupants and for dependent occupants, providing supervision of nutrition and medication with assistance for daily living activities; and Assisted Living Facilities, also licensed and regulated for frail elderly residents to receive supportive services to assist the residents in carrying out activities in daily living. Dwelling units may or may not have kitchen units, but the facility must have, or have space for, a central kitchen.

The types of financing available for these projects are straight refinancing of conventional or HUD financing with a term of up to 35 years or new construction or renovation loans with a forward commitment for permanent financing with a term of up to 40 years. All financing (including construction) is on a fixed-rate basis, requires no personal guarantees, is self-liquidating and is assumable without fee.

The financing procedure is not overly complicated when handled by an authorized mortgagee with HUD experience in the health care field. An application for mortgage insurance is prepared and submitted to the appropriate local HUD office by the mortgagee for processing by the HUD staff. Upon underwriting completion, HUD issues a commitment for mortgage insurance on the loan. The interest rate is locked after HUD's issuance of a commitment to insure to the mortgagee. The loan is funded and closed by the mortgagee at the local HUD office. Tax-exempt bond financing for eligible non-profit borrowers is possible with HUD mortgage insurance as credit enhancement for the bonds.

To insure a timely and successful refinancing, borrowers must choose a mortgagee with the utmost of care. A good mortgagee will be able to provide the borrower with an accurate financing proposal for the project based on the information provided about the project and their knowledge of the HUD underwriting procedure. The mortgagee must have a staff member that can be assigned to the project who is either a former HUD employee or who has years of experience with such projects. The individual will need to work together with the borrower (especially first time HUD borrowers) to first assemble the application documents, file the application with HUD and then act as liaison between the borrower and HUD staff during the underwriting procedure.

A market study will show that well run health care facilities have little or no vacancies and most have long tenant waiting lists. The typical worries and difficulties faced by the aged are eased as they live in comfort in an environment that is designed and structured to meet their needs.

With the current emphasis in Washington and State Capitals throughout the U.S. to reduce Medicare and Medicaid costs, we expect the number of assisted living facilities such as these to double during the last half of this decade. The reason is simply because a less expensive level of care is provided at these facilities in comparison to nursing homes and hospitals. It will help to reduce the burden covered by the public health system. In addition, as the population ages and science extends the life span even further, there will be a need for more nursing homes as well.