Transcript Office of Residential Care Facilities

2016 SMAC Conference
Office of
Residential
Care facilities
Corley Audorff
Healthcare Account Executive,
Office of Residential Care Facilities,
HUD
Atlanta, GA
May 12, 2016
ORCF Staffing Changes
• New staff from Seattle & Portland Offices
– Wealth of experience/expertise from MF
– Trained for ORCF
– New Seattle/Portland Staff in each ORCF division
• An additional WLM team in Asset Management (7)
– Volume per AE remains high
• 1 new underwriter
• 4 joining Wayne’s team
– 2 appraisers and 2 environmental reviewers
PRODUCTION
2
Processing Times – Key Drivers
• 223f Underwriting – Average 74 days
– Maximum 129 days, Minimum 21 days
– Slows down (> 90 days)
• Environmental issues
• Lender delays
• Debt allocation
– Expedites (< 35 days)
•
•
•
•
Passed Decision Circuit – no appraisal review needed
Complete/clean application package
Clean environmental
Low LTV, 5-star
223f Application Trend
Trend in 223f Applications Received
Year over Year
70
# of Applications Received
60
50
40
30
20
10
0
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
2012
10
19
21
11
32
11
10
8
24
25
13
19
2013
25
33
27
30
34
45
28
36
32
59
23
21
2014
25
54
26
20
33
20
16
8
18
20
19
21
2015
18
9
23
12
8
14
14
22
26
26
25
16
2016
9
36
15
8
65
15
Processing Times – Key Drivers
• 223a7 Underwriting – Average 43 days
– Maximum 134 days, Minimum 6 days
– Slows down (> 90 days)
• TPA or change in operator required
• Low star rating
• Poor REAC score; DEC referrals
– Expedites (< 35 days)
• Complete/clean application package
• 5-star
Processing Times – Key Drivers
• 232NC/SR/BR & 241(a) Underwriting
– Characteristics of smooth projects (30-45 days)
• Environmental issues clearly identified and addressed
in advance
• Other issues and risks presented early in the lender
narrative with appropriate mitigation
• Application follows lender narrative instructions,
includes everything in the checklists, and adheres to
232 Handbook guidance
• Good comps, similar services
Tips for a Smooth Application
• [email protected]
– Environmental, program eligibility, waivers
• ORCF Website> UW > 223(f) > Environmental
– Lender’s Environmental Checklist
• Review master lease and master lease
alternatives
Tips for a Smooth Application
• Give clear explanations
– Good: “The reason NOI decreased in 2015 was
because of an abnormal decrease in occupancy
due to a number of deaths, therefore decreased
revenue, and a non-recurring expense of
additional marketing dollars to back fill vacated
beds”
– Squishy: “The reason NOI decreased in 2015 is
because revenue decreased and expenses
increased”
Tips for a Smooth Application
• Use specifics
– Good: “NOI has increased an average of 1% per
year over the past 3 years”
– Squishy: “NOI has generally been trending
positively over the past 3 years”
Tips for a Smooth Application
For 223f: Concerns and example of mitigation:
• Valuing/sizing the loan using prospective Net Operating
Income (NOI)
– Mitigation: Debt service reserve, reduce mortgage
• Resident care issues
– Mitigation: Third-party risk management (one-time or on-going)
• Market concerns, facility low historical occupancy levels
– Mitigation: Let season until operations turn-around
• Loan term as it relates to some functional obsolescence
– Mitigation: Reduce loan term, reduce mortgage
Tips for a Smooth Application
• Make sure UW NOI is less than or equal to T12
• Problems occur when underwritten NOI is
prospective
– Loan Committee Does Not Like:
•
•
•
•
UW NOI > T12 and 2015
When annualized NOI is used to support UW NOI
Big delta between NOI for value and NOI for DSCR
Normalized NOI for any expense items other than
management fee, replacement reserves, property taxes
12
Use of Prospective NOI in Underwriting
Appropriate Mitigation
Combination of:
Underlying
Reasons for Using
Prospective NOI
•
Reduce Mortgage
•
Debt Service Reserve to be held for 12
consecutive months at
underwritten NOI
• Reserve amount
equal to 6-12
months of debt
service
•
Accept As-Is
•
Do Not Approve
•
Defer to Let Season and
Prove Out
Risk
to
HUD
Degree of
Aggressiveness
Loan to Value
13
Decision Circuit
• Going through PRA process (form approval)
• Locking down data inputs required
– If changes are needed in the future we will issue
patch notes for version control.
• Relies on cell names instead of cell location
– Embracing automation
– Allows for sharing data between Word or your
proprietary Excel worksheets.
• All inputs appear in one tab (sockets)
ASSET MANAGEMENT
11
Section 232 Claims
• Claims rate on 232’s has remained low:
– FY 2014: 2 full claims and 1 PPC
– FY 2015: 0 full claims and 1 PPC
– FY 2016: 0 claims to date
• 2 working their way through claims process but not final
• Recent Claims:
– Operator:
• Causes:
• Fraud or poor (financial/quality of care)
– Olmstead: See next slide
– Market
Recent Experience - Olmstead
• 9 of 16 claims since 2012:
– High % or entirely Mentally Ill (MI) or
Developmentally Disabled (DD) population
– 7 of these 9 claims were in Texas
– 1 in Illinois (2014)
– 1 in Indiana (2014)
• 2 additional facilities (Ohio and Texas) now
empty but haven’t claimed yet
MIP—Billing Update
• Beginning with FY13, FHA changed MIP rates via Fed
Register for Residential Care, Hospital & MF loans
• Charged higher MIP during construction period than
published in Federal Register
• FHA has identified loans affected from FY13 to present
• FHA is modifying its system to correct the billings
• Adjustments being phased: Res Care, Hospitals, MF
• FHA expects the adjustments to the billings to be
complete no later than 9/30/2016
Healthcare Portal—Financial Reporting
• Servicing lenders began submitting quarterly
operator financials to ORCF in May 2015
• Were required to submit 23 data elements,
defined on ORCF’s web, to Portal on each loan
• Based on industry & ORCF collaboration, this #
has been reduced to 8 key data elements
• Reduced submission will be implemented in June
• HUD plans training for lenders & operators in
mid-May on the new 8 key data elements
Change of Participant Processing
•
•
•
•
•
New optional docs announced in 2/29 Blast
Consistent form for already-required info
Lacked standardized format beyond checklists
Both original & optional formats on ORCF web
Currently Required Processing Documents
– TPA: HUD-92266-ORCF, pages 1-5 and all
supporting material on the (original) Checklist
– Operator and/or Management Agent: All
supporting material on the (original) Checklist
Change of Participant Processing
Optional Processing
– TPA: HUD-92266-ORCF, adds pages 6-42, which
includes Lender Narrative and standardized
format for providing the information, and
corresponding optional Checklist
– Operator/Agent: HUD-92266A-ORCF/HUD92266B-ORCF, respectively, and corresponding
optional Checklist
POLICY & RISK ANALYSIS
Handbook Edits
• 3/24, began clearance; to post (Drafting Table)
• Aim to post draft edits to DT in May
• Welcome voluntary industry feedback, e.g.,
– Eligible Debt, Davis Bacon, Property Insurance
– In Asset Management, lender role clarifications
• Feedback window will be 21 days
• Will then review feedback, make further edits
• Re-submit into clearance for final publication
232 Document Collection
• Current collection expires June 30, 2017
• Starting review now!
– Existing docs to update & new docs to incorporate
• Portal Access form; DSR Escrow Agmt; Lender Nar. for
AR
– Internal process & two public comment periods
232 Document Collection
• Looking to make the 8 new optional
documents more permanent
• Incorporating current sample documents
– Load Mod (IRR) submission requests
– 241a Supplemental docs,
– MFH construction docs still being used by ORCF
• Examples of new/proposed documents
– Portal Access forms; Lender Narrative for changes
in A/R; DSR Escrow Agreement
Lean Thinking Inquiries--Examples
• Using “scattered site” for non-adjacent
facilities
• Deals involving more than 25% ILUs
• Ground Lease Addendum, HUD purchase
option
• Three-year rule—waiver inquiries
Thank You!
www.hud.gov/healthcare
Please email 232 related questions to:
[email protected]