Mortgage Insurance for Nursing Homes, Intermediate Care, Board & Care and Assisted-living Facilities: Section 232 and Section 232/223(f)

Summary:
Section 232 insures mortgage loans to facilitate the construction and substantial rehabilitation of nursing homes, intermediate care facilities, board and care homes, and assisted-living facilities. Section 232/223(f) allows for the purchase or refinancing with or without repairs of existing projects not requiring substantial rehabilitation.

Purpose:
Section 232 insures lenders against the loss on mortgage defaults. Section 232 insures mortgages that cover the construction and rehabilitation of nursing homes and assisted living facilities for people who need long-term care or medical attention. The program allows for long-term, fixed rate financing (up to 40 years) for new and rehabilitated properties and (up to 35 years) for existing properties without rehabilitation that can be financed with Government National Mortgage Association (GNMA) Mortgage Backed Securities.

Type of Assistance:
FHA mortgage insurance for HUD-approved lenders

Eligible Activities:
Insured mortgages may be used to: 1) finance the construction and rehabilitation of nursing homes, intermediate care facilities, board and care homes, and assisted living facilities; 2) enable borrowers to buy or refinance (with or without repairs) projects that do not need substantial rehabilitation; 3) install fire safety equipment.

Facilities must accommodate 20 or more residents who require skilled nursing care and related medical services, or those who while not in need of nursing home care, are in need of minimum but continuous care provided by licensed or trained personnel. Assisted living facilities, nursing homes, intermediate care facilities, and board and care homes may be combined in the same facility covered by an insured mortgage or may be in separate facilities. Insured mortgages may include the cost of major movable equipment, daycare facilities, and the installation of fire safety equipment. Assisted living facilities, nursing homes, intermediate care homes, and board and care homes must be licensed or regulated by the appropriate state agency, municipality, or other political subdivision where located.

The maximum amount of the loan for new construction and substantial rehabilitation is equal to 90 percent (95 percent for nonprofit sponsors) of the estimated value of physical improvements and major movable equipment. For existing projects, the maximum is 85 percent (90 percent for nonprofit sponsors) of the estimated value of the physical improvements and major movable equipment.

Eligible Borrowers:
Eligible mortgagors include investors, builders, developers, public entities (nursing homes) and private nonprofit corporation and associations. For nursing homes only, applicants may be public agencies that are licensed or regulated by a State to care for convalescents and people who need nursing or intermediate care. A potential applicant must submit a Certificate of Need from the State agency designated by the Public Health Service Act. (If no State agency exists, an alternative study is required.) No Certificate of Need is required for board and care homes or assisted living facilities; instead, the applicant needs a statement from the appropriate State agency. The applicant must also provide documents that demonstrate the appropriateness of the property and the qualifications of the lender.

Eligible Customers:
Residents requiring skill nursing, custodial care, and assistance with activities of daily living are eligible to live in facilities insured under this program.

Application:
Section 232 is eligible for Multifamily Accelerated Processing (MAP). For new construction and substantial rehabilitation loans, the sponsor works with the MAP-approved lender who submits required exhibits for the pre-application stage. For refinance or purchase of an existing health care facility, under Section 232/223(f), there is no pre-application stage. HUD reviews the lender's exhibits and will either invite the lender to apply for a Firm Commitment for mortgage insurance, or decline to consider the application further. If HUD determines that the exhibits are acceptable, the lender then submits an application for Firm Commitment, including a full underwriting package to the Multifamily Hub or Program Center for processing. The local Multifamily Hub or Program Center reviews the application to determine whether the proposal is an acceptable risk. Considerations include market need, zoning, architectural merits, capabilities of the borrower, availability of community resources, etc. If the proposed health care facility meets program requirements, the local Multifamily Hub or Program Center issues a commitment to the lender for mortgage insurance.

Applications submitted by non-MAP lenders must be processed by HUD field office staff under Traditional Application Processing (TAP). Under TAP the sponsor will have a pre-application conference with the local HUD Multifamily Hub or Program Center to determine preliminary feasibility of the project. The sponsor must then submit a site appraisal and market analysis application (SAMA) (for new construction projects), or a feasibility application (for substantial rehabilitation projects). Following HUD's issuance of a SAMA or feasibility letter, the sponsor submits a firm commitment application through a HUD-approved lender for processing. If the proposed health care project meets program requirements, the local Multifamily Hub or Program Center issues a commitment to the lender for mortgage insurance.

Technical Guidance:
This program is authorized by Section 232 of the National Housing Act (12 U.S.C. 1715w). Regulations are found in 24 CFR 232. The basic TAP program instructions are in HUD Handbook "Section 232 Mortgage Insurance for Residential Care Facilities" 4600.1, Rev-1 available on HUDclips. Refer to the MAP web-site for guidelines and instructions, lender approval requirements, and MAP Coordinators. The program is administered by the Office of Multifamily Housing Development .

Program Accomplishments:
In fiscal year 2006, the Department insured mortgages for 222 projects with 24,945 beds/units, totaling $1.3 billion.