Lender Narrative Section 232/232(i) - Fire Safety Equipment Installation, with Existing HUD-Insured Mortgage |
U.S. Department of Housing and Urban Development Office of Residential Care Facilities |
OMB Approval No. 2502-0605 (exp. 03/31/2018) |
Public reporting burden for this collection of information is estimated to average 15 hour(s). This includes the time for collecting, reviewing, and reporting the data. The information is being collected to obtain the supportive documentation which must be submitted to HUD for approval, and is necessary to ensure that viable projects are developed and maintained. The Department will use this information to determine if properties meet HUD requirements with respect to development, operation and/or asset management, as well as ensuring the continued marketability of the properties. This agency may not collect this information, and you are not required to complete this form, unless it displays a currently valid OMB control number.
Warning: Any person who knowingly presents a false, fictitious, or fraudulent statement or claim in a matter within the jurisdiction of the U.S. Department of Housing and Urban Development is subject to criminal penalties, civil liability, and administrative sanctions.
Privacy Act Notice: The Department of Housing and Urban Development, Federal Housing Administration, is authorized to collect the information requested in this form by virtue of: The National Housing Act, 12 USC 1701 et seq. and the regulations at 24 CFR 5.212 and 24 CFR 200.6; and the Housing and Community Development Act of 1987, 42 USC 3543(a). The information requested is mandatory to receive the mortgage insurance benefits to be derived from the National Housing Act Section 232 Healthcare Facility Insurance Program. No confidentiality is assured.
INSTRUCTIONS:
The narrative is a document critical to the Lean Underwriting process. Each section of the narrative and all questions need to be completed and answered. If the lender’s underwriter disagrees and modifies any third-party report conclusions, provide sufficient detail to justify. The narrative should identify the strengths and weaknesses of the transactions and demonstrate how the weaknesses are mitigated by the underwriting.
Charts: The charts contained in this document have been created with versatility in mind; however, they will not be able to accommodate all situations. For this reason, you are allowed to alter the charts as the situation demands. Be sure to state how you have altered the charts along with your justification. Include all the information the form calls for. Charts that include blue text indicate names that should be modified by the lender as the situation dictates.
Applicability: If a section is not applicable, state so in that section and provide a reason. Do not delete a section heading that is not applicable. The narrative will be checked to make certain all sections are provided. If a major section is not applicable, add “– Not Applicable” to the heading and provide the reason. For instance:
Parent of the Operator – Not Applicable
This section is not applicable because there is no operator.
The rest of the subsections under the inapplicable section can then be deleted. This instruction page may also be deleted.
Format: In addition to submitting the PDF version of the Lender Narrative to HUD, please also submit an electronic Word version.
Instead of pasting large portions of text from third-party reports into the narrative, it is preferred that the lender simply reference the page number and the report. The focus of this document is for lender conclusions, analyses, and summaries.
Italicized text found between these characters <<EXAMPLE>> is instructional in nature, and may be deleted from the lender’s final version. Please use the gray shaded areas (e.g., ) for your response. Double click on a check box and then change the default value to mark selection (e.g., ).
<<Insert Project Photo>>
Special Underwriting Considerations 7
Principal of the Borrower – <<enter name of principal here>> 13
Other Business Concerns/232 Applications 14
Professional Liability Insurance (PLI) Coverage 19
Commercial General Liability Insurance 19
Additional Replacement Reserve Deposit 21
Legal and Organizational Costs 21
Sources & Uses – Copied from HUD-92264a-ORCF 22
Special Commitment Conditions 22
FHA number: |
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Project name: |
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Project location: |
<<street address, city, county, and state>> |
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Lender’s name: |
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Lender’s UW: |
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UW trainee: |
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Borrower: |
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Operator: |
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Parent of operator: |
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Management agent: |
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General contractor: |
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License holder: |
Borrower Operator Management agent |
Purpose of loan: |
<<description of purpose of fire safety equipment loan (e.g., automatic sprinklers, fire safety lighting, etc.)>> |
Type of facility: |
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Skilled Nursing (SNF): |
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beds |
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units |
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Assisted Living (AL): |
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beds |
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units |
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Memory Care) (AL): |
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beds |
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units |
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Board & Care (B&C): |
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beds |
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units |
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Independent Living (IL): |
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beds |
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units |
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Total: |
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beds |
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units |
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UW Effective gross income: |
$ |
UW Occupancy Rate: |
% |
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UW Expenses & repl. res.: |
$ |
Expense ratio: |
% |
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UW Net operating income: |
$ |
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Borrower: |
<<Legal Name>> |
Operator: |
<<Legal Name>> Operating lease |
Parent of Operator: |
<<Legal Name>> |
Does the operating lease cover multiple properties or tenants (is it a master lease)? Yes No |
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Management Agent: |
<<Legal Name>> |
License held by: |
<<Legal Name>> |
Resident contracts with: |
<<Entity with whom residents contract for services>> |
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Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion regarding the topic. Identify the risk factors and analyze and clarify how they are mitigated.
Example: Debt Service Coverage Lower than XXX: {If the debt service coverage of the loan is less than 1.45, the lender must provide sufficient justification/mitigation to support the additional risk associated with the loan. The HUD Underwriter will be required to specifically approve this item and may ask for additional input and request a discussion with the lender and/or HUD HQ.}>>
Other Risk Factors identified by Underwriter
Additionally, the underwriter has identified the following risk factors: <<Provide discussion on other risk factors identified by the underwriter and how they are mitigated.>>
<<Provide affirmative statement that project is currently HUD-insured, and the loan is not HUD-held.>>
<<Identify any waivers required for proposed financing. Identify specific provisions to be waived and justification for the waiver.>>
Key Questions
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<<For each “yes” answer above, provide a narrative discussion regarding the topic. As applicable, discuss the issue and its effect on underwriting. Describe any potential risks and the mitigants. For waivers, identify specific provisions to be waived and justification for the waiver.>>
Name: |
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Underwriter: |
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Underwriter trainee: |
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Lender #: |
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Site inspection date: |
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Inspecting underwriter: |
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Lender’s Underwriter
<<Brief description of qualifications. >>
Underwriter Trainee (if applicable)
<<Brief description of qualifications.>>
Inspecting Underwriter (if applicable)
<<Brief description of qualifications. A MAP-approved 232 Underwriter or Lean-approved 232 Underwriter employed by the lender must visit the site AND sign this narrative.>>
Program Guidance: Handbook 4232.1, Section I, Chapter 1.6 and Section II Production, Chapter 2.9.A.2.
Key Questions
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No |
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<<For each “yes” answer above, provide a narrative discussion regarding the topic. As applicable, describe the risk and how it will be mitigated. For example: The borrower and operator are related parties – John Doe has ownership in both entities. No other identities of interest are disclosed.>>
<<Brief narrative description about site to include location, size, etc. >>
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Legal Conforming |
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Legal Non-Conforming |
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Other |
<<Narrative description: identify local jurisdiction; zoning designation; results of Zoning Letter provided in application submission; and discuss any variances, conditional uses, non-conformance or other pertinent issues affecting zoning. If the building is not a legal conforming use, discuss the adequacy of the zoning ordinance insurance coverage and/or recommend a condition to mitigate this risk.>>
<<Lenders may elect to defer addressing title-related issues (including title search, pro forma policy matters, and land title survey matters) until after receiving a firm commitment with conditions related to these items.>>
Date of Search: |
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Firm: |
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File Number: |
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Key Questions
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>
Date/Time: |
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Firm: |
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Policy Number: |
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Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion regarding the topic. Example: Additional Endorsements: As described in the Risk Factors section of the narrative, the XXXX does not conform to the past or current zoning requirements. The lender recommends…>>
Date: |
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Firm: |
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Key Questions
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Yes |
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No |
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If you answer “no” to all of the above questions, copies of the most recent signed and certified “as-built” survey, accepted by HUD, must be provided (originals are not required). No further review is needed. If copies are not available, a current “as-built” survey, confirming to the HUD Survey Instructions & Owner’s Certification may be required and the ALTA/ASCM Land Title Survey addendum must be attached to this narrative. If a current “as-built” survey is submitted, COMPLETE THE KEY QUESTIONS BELOW.>>
<<If you answer “yes” to any of the above questions, a current “as-built” survey, confirming to the HUD Survey Instructions & Owner’s Certification is required. COMPLETE THE QUESTIONS BELOW.>>
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated and the effect on value or the marketability of the project. For example, “Encroachments: The survey indicates an encroachment of the adjoining property fence on the easterly portion of the property. An encroachment endorsement will be received at closing. There is no impact on the value or marketability of the project.>>
Name: |
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State of Organization: |
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Date Formed: |
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Termination Date: |
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FYE Date: |
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Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>
<<Provide organization cart and narrative, as applicable. At a minimum, all principals of the borrower should be identified.>>
Key Questions
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Key Questions
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>
<<Not applicable to individuals. If the principal is an entity, provide the following:>>
Name: |
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State of organization: |
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Date formed: |
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Termination date: |
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<<As applicable, please provide organization chart and narrative discussion.>>
Program Guidance: Handbook 4232.1, Section II Production, Chapter 2.5FF.
<<Provide narrative description of principal’s experience with development, lease-up and operations of facilities similar to the proposed project in resident type, regulatory environment, size and complexity of project. Discussion should highlight direct experience and involvement in other transactions. Provide key operating metrics from initial lease-up to stabilization, including fill pace, occupancy and net operating income.>>
Report date: |
<<within 60 days of submission>> |
Reporting firm: |
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Score: |
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<<Provide an explanation of the credit score in terms of risk level (i.e., low, medium, or high). Also, if the score is evaluated numerically, explain what value the credit agency places on the score. >>
Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>
Other Business Concerns/232 Applications
Key Questions
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Yes |
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No |
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<<As applicable, a “yes” answer requires a narrative discussion on the topic describing the risk and how it will be mitigated.>>
Credit Reports for Other Business Concerns:
<<Provide narrative discussion on other business concerns. For example, “XXX identified XX other business concerns. The underwriter reviewed Dunn and Bradstreet credit reports for XX other business concerns identified by XXXX. {Discuss each report}. No reports indicated derogatory information that would prohibit XXXXX from participation in this loan transaction.>>
Name of Entity |
Report Type (Commercial, etc.) |
Report Date |
Comments |
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Financial Statements – For Party(ies) Responsible for Financial Requirements for Closing and Beyond – <<enter name(s) of responsible party(ies) here>>
<<Complete this section if the borrower entity does not have sufficient financial capacity.>>
Year to date: |
<<dates for start and end of period>> |
Fiscal year ending: |
<<date – end of period>> |
Fiscal year ending: |
<<date – end of period>> |
Fiscal year ending: |
<<date – end of period>> |
<<Include a discussion on the borrower’s financial capacity. Include the percentage of owner’s equity into the project. The discussion must address: (1) the borrower’s net worth; (2) liquidity; (3) the borrower’s ability to meet the cash requirements of the project; and (4) the borrower’s ability to meet the financial obligations of the project for the long term.>>
<<If Form HUD-92417-ORCF is included, provide discussion on the individual’s financial capacity, net worth and liquidity.>>
Effective date (of HUD-92417) |
Total assets |
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Total liquidity (cash available) |
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$ |
$ |
$ |
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Conclusion
<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “XXXXX has demonstrated an acceptable credit history and sufficient experience owning and operating other facilities. The underwriter recommends this principal as an acceptable participant in this transaction.”>>
Date of Agreement: |
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Current Lease Term Expires: |
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Description of Renewals: |
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Current Lease Payment: |
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Major Movable Equipment Current Ownership: |
<<Borrower/Operator>> |
Post Closing Ownership: |
<<Borrower/Operator>> |
Key Questions
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Yes |
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No |
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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it
<<Discuss compliance with HUD lease provisions and identify any modifications required.>>
Key Questions
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No |
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<<For each “yes” answer above, provide a narrative discussion regarding the topic.>>
Program Guidance: Handbook 4232.1, Section II Production, Chapter 8.6, Operating Lease Requirements |
<<If the project is a part of a portfolio subject to an existing master lease, explain how the lease provisions will be modified to reflect payments to cover increased debt service associated with this loan.>>
The lease payments must be sufficient to (1) enable the borrower to meet debt service and impound requirements; and (2) enable the operator to properly maintain the project and cover operating expenses. The current leases indicate an aggregate rent payment of $ per month ($ annually) above the payments required by the HUD-insured loan.
The underwriter has prepared an analysis demonstrating the minimum annual lease payment.
a. |
Annual principal and interest |
$ |
b. |
Annual mortgage insurance premium |
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c. |
Annual replacement reserves |
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d. |
Annual property insurance |
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e. |
Annual real estate taxes |
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f. |
Total debt service and impounds |
$ |
h. |
Minimum annual lease payment |
$ |
<<Compare the minimum annual lease payment to the current lease payment. If the lease payment needs to increase, add the following language: “The lease payment must be increased to $XX per year ($XX per month). The underwriter has included a special condition to the firm commitment requiring the lease payment be revised to meet or exceed this minimum.” If the lease payment does not need to increase, add the following language: “The current lease payment is sufficient. The recommended annual lease payment also provides the operator with an acceptable profit margin.”>>
Key Questions
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No |
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<<If you answered “yes” to the question above, please discuss the open findings and the resolution.>>
Risk Management Program
Program Guidance: See Risk Management Program grid on the Section 232 program website for additional guidance. Note that the below tier descriptions are general descriptions and HUD retains discretion to require additional risk management measures, as warranted, on a case by case basis.
Risk Management Tier General Descriptions:
Tier 1 Baseline: For most assisted living and low-risk skilled nursing projects with no more than one incident of actual harm/immediate jeopardy in the past three years. In these instances, the risk management program may be administered internally or by a third party provided the party administering the program is qualified.
Tier 2 Elevated Risk: Higher risk projects with two more incidents of actual harm/immediate jeopardy within the past three years. In these instances, the risk management program should be administered by a third party.
(Note both Tier and Internal/External)
Tier 1 Baseline |
Internally Administered Risk Management Program |
Tier 2 Elevated Risk |
External 3rd Party Administered Risk Management Program |
Describe the Risk Management Program and how it meets the following requirements
Real-time incident reporting and tracking that informs senior management:
Experience of Staff:
Training:
Continuous Improvement:
<<If a third party is involved, describe the contractual arrangement, what company has been contracted, what the contract provides for, when the contract was entered into, when it expires, what results have been seen thus far if the contract has been in place, etc.>>
Commercial insurance: |
Yes No |
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Self insurance: |
Yes No |
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If self insurance, describe: |
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Is there a fronting policy? |
Yes No |
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Name of insured: |
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Insurance company: |
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Rating: |
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Rater: |
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Insurance company is licensed in the United States: |
Yes No |
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Statute of limitations: |
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Current coverage: |
Per occurrence: |
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Aggregate: |
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Deductible: |
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OR |
Self insurance retention: |
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Policy Basis: |
Per occurrence Claims made |
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Current Expiration: |
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Retroactive Date: |
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Policy Premium: |
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<<Provide narrative discussion of policy coverage for bodily injury, property damage and personal injury. For example: General liability insurance will be provided by XX. The underwriter has confirmed estimates of the cost and coverage for underwriting and will re-verify this information prior to closing. The insurance coverage will comply with HUD requirements prior to closing.>>
<<Provide narrative recommendation regarding acceptability of general and professional liability insurance. For example, “The mortgagor’s professional and general liability insurance was analyzed in accordance with Handbook 4232.1, Section II Production, Chapter 14 and Appendix 14.1.. The property has XX current potential (threatened) insurance claims at this time as reflected on the certification provided by the borrower. It is {lender}’s opinion that the information provided above and in the application sufficiently demonstrates that the existing professional liability coverage meets HUD’s requirements and that the risk from professional liability issues is sufficiently addressed. No modifications to the current coverage are recommended.”>>
<<Provide narrative discussion of policy coverages as applicable, including property damage, ordinance and law coverage, and boiler and machinery/equipment breakdown insurance. For example, “Property insurance has been and/or will be provided by XX. The underwriter has confirmed estimates of the cost and coverage for underwriting and that it complies with HUD requirements.”>>
The mortgage criteria shown on the form HUD-92264a-ORCF are summarized as follows:
Requested amount: |
$ |
Debt service coverage: |
$ |
Transactions costs: |
$ |
Deduction of loan(s), grant(s), and gift(s) for mortgageable items: |
$ |
The underwriter concluded that the estimated remaining useful life of the project is years. For mortgages equal to $100,000 or more, the term of the mortgage is to be coterminous with the maturity of the existing HUD mortgage or 15 years. For mortgages less than $100,000, the term of the mortgage is to be coterminous with the maturity of the existing HUD mortgage or 10 years.
The $ debt service limit was calculated using HUD’s guidelines. This is based on 90% of the underwritten net operating income of $ , interest rate of % and a -year term. The mortgage calculation should account for debt service required by other mortgages that will remain in place.
<<Note: If the debt service coverage rate is less than 1.45, justification/mitigation of the additional risk to HUD must be addressed in the Risk Factors section of this narrative.>>
The costs associated with the project totals $ on the form HUD-92264a-ORCF, which is used to calculate the mortgage amount for this criterion. This total includes the following:
Legal and organizational fees |
$ |
Title and recording fees |
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HUD fees |
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Lender fees |
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Survey, if required |
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Other: <<identify here>> |
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Total: |
$ |
<<If none, please state “None.” Note that loan proceeds may not be used for additional replacement reserve deposits.>>
<<Repairs that are not for the installation of fire safety equipment may not be included in the mortgage.>>
The borrower’s legal and organization costs are estimated to total $ ($ for legal and $ for organizational expenses). The underwriter concluded that the budgeted amounts are reasonable.
Title and recording fees are estimated to cost $ . The underwriter concluded that the budgeted amount is reasonable.
A total of $ in third-party report fees has been included in the mortgage calculation and the fees include .
<<This section pertains to the transaction cost calculation and may not match the actual fees in the sources and uses. The HUD inspection fee is $5 per $1,000 of the fire safety mortgage amount.>> The HUD fees total $ and are comprised of MIP totaling 1.0% of the mortgage amount ($ ); the HUD application fee totaling 0.3%of the mortgage amount ($ ); and the HUD inspection fee ($ ).
<<This section pertains to the transaction cost calculation and may not match the actual fees in the source and use. All fees paid to the lender are to be discussed. Maximum lender fees cannot exceed 3.5% of the mortgage.>> The financing fees payable to the lender total $ . The total is made up of a fee of 1.50% of the mortgage amount ($ ); plus, fixed lender fees totaling $ . In total, the fees payable to the lender represent % of the mortgage amount.
<<If none, please state “None.” If the other fees are included, provide a descriptive listing with the estimated cost. Provide justification for eligibility.>>
<<Provide a Statement of Sources and Uses of actual estimated cost at closing. Include all eligible and ineligible transaction costs.>>
<<List and discuss all secondary sources, including terms and conditions of each. Secondary sources include surplus cash notes, grants/loans, tax credits, etc. >>
The type of financing available to the borrower upon issuance of the commitment will likely be in the form of .
<<List and discuss all existing long-term debt that will survive closing. >>
<<Discuss any Uses not previously discussed in this narrative. >>
<<List any recommended special conditions. If none, state “None.”>>
In addition to the information required in this narrative, depending upon the facility for which mortgage insurance is to be provided, the mortgagor, operator, management agent and such other parties involved in the operation of the facility, current economic conditions, or other factors or conditions as identified by HUD, HUD may require additional information from the lender to accurately determine the strengths and weaknesses of the transaction. If additional information is required, the questions will be included in an appendix that accompanies the narrative.
<<Provide narrative conclusion and recommendation.>>
Lender hereby certifies that the statements and representations of fact contained in this instrument and all documents submitted and executed by lender in connection with this transaction are, to the best of lender’s knowledge, true, accurate, and complete. This instrument has been made, presented, and delivered for the purpose of influencing an official action of HUD in insuring the loan and may be relied upon by HUD as a true statement of the facts contained therein.
Lender: |
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HUD Mortgagee/Lender No.: |
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This report was prepared by:
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Date |
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This report was reviewed by:
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Date |
<<Name>> <<Title>> <<Phone>> <<Email>> |
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<<Name>> <<Title>> <<Phone>> <<Email>> |
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This report was reviewed, and the site inspected by:
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Date |
<<Name>> <<Title>> <<Phone>> <<Email>> |
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File Type | application/vnd.openxmlformats-officedocument.wordprocessingml.document |
Author | H22192 |
File Modified | 0000-00-00 |
File Created | 2021-01-14 |