9001-ORCF Lender Narrative Section 232/223(a)7 Refinance
Comprehensive Listing of Transactional Documents for Mortgagors, Mortgagees and Contractors
9001_orcf
Transactional Documents for Mortgagees and Contractors
OMB: 2502-0605
Lender Narrative – Section 232/223(a)7 Refinance |
U.S. Department of Housing and Urban Development Office of Residential Care Facilities |
OMB Approval No. 2502-0605 (exp. 06/30/2022) |
Public reporting burden for this collection of information is estimated to average 22 hours. 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.
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 responses. Double click on a check box and then change the default value to mark selection (e.g., ).
Table of Contents
Project is Currently HUD- Insured 9
Special Underwriting Considerations 10
Net Operating Income Analysis 13
Project Capital Needs Assessment (PCNA) 13
Fire / Building Codes and HUD Standards 16
Completion and Inspection of Repairs 17
Other Environmental Concerns 23
Site Work, Ground Disturbance or Digging 25
State Historic Preservation Office (SHPO) Clearance 26
Borrower (or Purchaser, as applicable) 29
New/Proposed Principal of the Borrower (or Purchaser, as applicable) 33
Organization (not applicable to individuals) 33
Experience / Qualifications 34
Other Business Concerns/232 Applications 34
Experience / Qualifications 36
Parent of the Operator (if applicable) 39
Other Business Concerns/232 Applications 40
Other Facilities Owned, Operated or Managed 41
Upper Payment Limit (UPL) Transaction Summary (if applicable) 45
Management Agent’s Duties and Responsibilities 49
Other Facilities Owned, Operated or Managed 50
Past and Current Performance 50
(Note both Tier and Internal/External) 53
Accounts Receivable (AR) Financing 53
Permitted Uses and Payment Priorities 55
Professional Liability Coverage 58
Fidelity Bond/Employee Dishonesty Coverage 60
Commercial General Liability Insurance 60
Directors’ and Officers’ Liability Insurance 61
Commercial Auto Liability Coverage 61
Amount Based on the Cost to Refinance 62
Existing HUD-Insured Indebtedness 63
Other Eligible Existing Indebtedness 63
Additional Replacement Reserve Deposit 64
Legal and Organizational Costs 65
Sources & Uses – Copied from HUD-92264a-ORCF 66
Circumstances that May Require Additional Information 66
Executive Summary
Project Name: |
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Project Address: |
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Lender Name: |
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Purpose of Loan: |
<<Description of purpose of loan (e.g., lower interest rate, fund repairs, correct default, etc.)> > |
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Licensed |
Operating |
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Licensed |
Operating |
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Type of facility: |
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Skilled Nursing (SNF): |
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beds |
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Assisted Living (AL): |
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Memory Care (AL): |
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Board & Care (B&C): |
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Independent Living (IL): |
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beds |
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Total: |
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Effective Gross Income: |
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Expenses: |
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Expense Ratio: |
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Replacement Reserves: |
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Net Operating Income: |
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Borrower: |
<<Legal Name>> |
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Operator: |
<<Legal Name>> |
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Operating Lease |
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Management Agent: |
<<Legal Name>> |
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License held by: |
<<Legal Name>> |
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Licensed issued by: |
<<Legal Name>> |
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Effective date: |
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Through: |
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(If applicable,) An application to transfer the license was filed on: |
Date: |
Name of Entity: |
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Resident contracts with: |
<<Entity with whom residents contract for services>> |
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Section 38 of the Regulatory Agreement shall apply to the following individuals and/or entities (list name(s)):
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Risk Factors
Key Questions
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If you answer “yes” to any of the above questions, please address below.
<<Identify the risk factors. Analyze and clarify how they are mitigated.>>
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.>>
Program Eligibility
Project is Currently HUD- Insured
<<Affirmative statement confirming the existing loan is currently HUD-insured and not HUD-Held.>>
Prepayment Approval
<<Make an affirmative statement confirming that HUD has approved prepayment of the existing loan. Provide the date of HUD’s prepayment approval. Evidence of HUD’s approval should be included in the application.>>
Waivers
<<Identify any waivers required for proposed financing. Identify specific provisions to be waived and justification for the waiver.>>
Underwriting Team
Lender
Name: |
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Underwriter: |
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Underwriter Trainee: |
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Lender #: |
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<<UNDERWRITER>>
<<Brief description of qualifications>>
<<UNDERWRITER TRAINEE, if Applicable>>
<<Brief description of qualifications>>
<<INSPECTING UNDERWRITER, if Applicable>>
<<Brief description of qualifications.>>
Program Guidance: Handbook 4232.1, Section II Production, 2.5N |
Identities of Interest
Key Questions
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<<If you answer “yes” to any of the above questions, please briefly address below.
Example: Borrower and Operator: The borrower and operator are related parties – John Doe has ownership in both entities. No other identities of interest are disclosed.>>
Special Underwriting Considerations
Key Questions
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If you answer “yes” to any of the above questions, discuss the topic. If there are any associated risks, describe how they will be mitigated.
Occupancy
Key Questions
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Units |
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Month/Year
Occupancy
Year-to-date
1 year ago
2 years ago
3 years ago
<<Please address any item(s) listed above that need explanation. If bed/unit additions or reductions have taken place, fully explain the terms of the approval obtained from HUD, including any escrow or principal paydown requirements.>>
Term Extensions
<<Complete these questions even if a term extension is not being requested.>>
Key Questions
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Responses |
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Yes No |
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Yes No |
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Yes No |
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<<Please address any item(s) listed above that needs explanation.>>
Lender Site Visit
Key Questions
Date of visit:
Name and title of individual(s) with whom lender representative met while on site:
Please provide an overall assessment of the facility. Photographs are optional.
<<Please address any item(s) listed above that needs explanation.>>
Net Operating Income Analysis
Key Questions
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No |
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If you answer “yes” to the above questions, please identify the specifics of the circumstance and describe how the underwriter justified or mitigated this risk. Note that a more detailed analysis of operating income may be required. If the debt service payments increase, a full three-year and year-to-date historical analysis must be provided (use Section 223f model).
<< A detailed analysis of the income and expenses may not be required. The debt service mortgage criterion can be based on a trailing 12-month operating statement. If the borrower is unable to supply historical income and expenses in the form of trailing 12-months, the most recent full year data is acceptable. Net operating income equals earnings before interest, taxes, depreciation, amortization and rent (EBITDAR). If either a decrease in reimbursement rate or an increase in net operating income is projected, a more detailed analysis of the net operating income must be provided.>>
Net Income*
In total $
20XX |
20XX |
20XX |
YTD (Indicate time frame) |
Lender’s Underwritten Net Operating Income |
$ |
$ |
$ |
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*before depreciation, amortization, and any other non-cash expense
<<Provide an explanation of any Net Losses or declining Net Incomes for the year-to-date and last 3 fiscal years, as applicable.>>
Project Capital Needs Assessment (PCNA)
NOTE: This section is applicable for Section 223(a)(7) when a term extension is requested or when it has been more than 10 years since the last PCNA inspection. If not applicable, check the box and move to the ALTA/ACSM Land Survey section. N/A
Date of Inspection: |
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Firm: |
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Needs Assessor: |
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Units Inspected: |
units ( % of units) |
The scope of the inspection consisted of a visual evaluation of the project site, building exteriors, roof, interior common areas, all mechanical rooms, and a sampling of resident units (as indicated above). The report was prepared in accordance with HUD’s requirements, as provided in applicable guides or handbooks, for a Limited Scope PCNA.
A summary of the PCNA and underwriting conclusions
PCNA Repair Summary |
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PCNA |
Underwriter |
Critical Repairs |
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Non-Critical Repairs |
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Borrower Proposed Repairs: |
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Total Repairs: |
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Key PCNA Questions
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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.>>
Lender Modifications
<<Provide a brief summary of modifications made by underwriter. If none, state none. Example: “The PCNA’s analysis of reserve requirements for major movable equipment included replacement of the facility’s bus/van. The underwriter has deleted this item as it is not eligible for reimbursement from the replacement reserve account.”>>
Fire / Building Codes and HUD Standards
<<Provide narrative description regarding needs assessor’s finding.>>
Handicapped Accessibility
Program Guidance: Project Capital Needs Assessment (PCNA) Statement of Work and Accessibility Matrix for Section 232, located at HUD.gov.
<< Provide a brief summary of modifications made by underwriter. If none, state none. Example: “Per the needs assessor, the facility is in substantial compliance with the Fair Housing Accessibility Guidelines. The needs assessor calls for installation of enunciator/strobe light smoke detectors in one unit in each building under Section 504….>>
Seismic Evaluation
<< Provide narrative discussion. Example: “The facility is located within seismic zone 2B, an area of limited potential for earthquake ground shaking. No additional evaluation is required regarding seismic activity.”>>
Repairs
Critical Repairs
<<Provide a brief summary of the required critical repairs. If none, state none.
Example:
The needs assessor identified the following non-critical repair items
totaling $X:
Remove and replace
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Estimated cost: $ .
Install in all units. Estimated Cost: $ >>
Non-Critical Repairs
<<Provide a brief summary of the required non-critical repairs. If none, state none.
Example:
The needs assessor identified the following non-critical repair items
totaling $ :
Remove and replace . Estimated cost: $ .
Install in all units. Estimated Cost: $ .
Borrower Proposed Repairs
<<Provide a brief summary of the borrower proposed repairs. If none, state none. >>
Remove and replace . Estimated cost: $ .
Install in all units. Estimated Cost: $ .
Completion and Inspection of Repairs
The repair list attached to Exhibit C of the Draft Firm Commitment clearly describes the location of the repairs and what is required. The description is sufficiently detailed so that an experienced person can perform the work and that an experienced inspector can inspect with minimal additional direction or consultation.
Replacement Reserves
Replacement Reserve Summary |
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Amount |
Per Unit |
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Initial Deposit |
$ |
$ |
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Annual Deposit |
Years: |
1-15 |
$ |
$ |
<<Annual deposits should not change from year to year.>>
General Review
The replacement reserve analysis includes a combined analysis of both capital items and major movable equipment. The underwriter has reviewed the replacement reserve schedule and provided a summary analysis below. The full 15-year replacement reserve schedule, including the major movable analysis, is provided as Exhibit B to the Draft Firm Commitment submitted with this narrative.
In the analysis below, the underwriter spreads the anticipated replacements by year based on the needs assessor’s replacement reserve analysis and assumes an interest rate of % and an inflation rate of %.
Reserve for Replacement Fund Schedule
(Double click inside the Excel Table to add information)
As you can see, the year-end balance for each year through year 15 is positive, indicating that the initial and annual deposits are sufficient based on these assumptions. The HUD program requires the lender to re-analyze the capital needs in year 10.
ALTA/ACSM Land Survey
Date: |
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Firm: |
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Key Questions
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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 and the effect on value or the marketability of the project.
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. >>
Title
Title Search
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. >>
Pro Forma Policy
Date/Time: |
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Firm: |
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Policy Number: |
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Key Questions
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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…>>
Environmental
NOTE: This section is applicable for Section 223(a)(7) transactions if:
If not applicable, check the box and move to the Program Eligibility section. N/A |
Program Guidance: Handbook 4232.1, Section II, Production, Chapter 7.
It is the lender’s responsibility to review the Phase I and all other environmental review documentation to ensure that all environmental requirements are met.
Assistance Prior to Application Submission: Many Federal agencies require contact directly from HUD. This list includes, but is not limited to, State Coastal Zone Management councils, U.S. Fish and Wildlife service, and local/regional Native American tribes. In this instance, please contact [email protected] in advance of the application submission.
Phase I Site Assessment
Date of Inspection: |
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Consultant: |
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A reconnaissance of the subject site and the immediate surrounding area, a review of regulatory agency information, a survey of local geological and topographical maps, a review of aerial photographic studies, a survey of water sources, and a review of historical information. |
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<< Explain any “no” answer above. >>
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. >>
Radon
Program Guidance: Handbook 4232.1, Section II, Production, Chapter 7.8.
Date of Testing: |
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Firm: |
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Radon Professional: |
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Certification/License Information: |
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EPA Radon Zone: |
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Key Questions
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<<Provide narrative discussion of radon risk applicable to the subject project. If a radon report was not required per HUD Handbook 4232.1, Chapter 7.8, please explain why the radon report was not required.>>
Lender Comments
<<Provide a brief summary of comments made by underwriter. If none, state none.>>
Other Environmental Concerns
Key Questions
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<<For each “yes” answer above, provide a narrative discussion on the topic. Describe any risk and how it will be mitigated. For example: “A preliminary flood map is available on the FEMA website (Preliminary Flood Map #XXXXXXXXX) which identifies the project’s flood zone as Zone X (shaded), a 500-year flood zone. Documentation for the completion of an abbreviated 8-step decision making process is provided at Exhibit X. The project has prepared and participates in an early warning system. An emergency evacuation and relocation plan has been implemented. Evacuation routes out of the 500-year floodplain have been identified; and the estimated flood level has been marked at 3 feet above ground level at the southerly and northerly elevations of the building. An example of the floodplain notice that will be signed by the resident or their agents is provided.”>>
Site Work, Ground Disturbance or Digging
Program Guidance: Handbook 4232.1, Section II Production, 7.5.
If the project includes any ground disturbance, contact [email protected] in advance of application submission so that ORCF may initiate agency to agency contact. Include a project description including type of project, purpose of the project, the proposed activities/site work, and the current condition of the site (what is on the site now) as well as a location map, aerial view map, site layout map and a topographic map in your request to Lean Thinking.
Examples of ground disturbance include, but are not limited to, tree removal, burying a tank, new parking, increases in building footprint, adding a new fence, etc. If there is uncertainty regarding what may constitute ground disturbance, contact [email protected] in advance of application submission.
Key Questions
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State Historic Preservation Office (SHPO) Clearance
Program Guidance: Routine maintenance definition.
For SHPO review purposes, HUD has a specific definition of routine maintenance, which may differ from other definitions of routine maintenance. See Notice CPD-16-02 for HUD’s definition.
Note, if the answer to Key Questions 4 or 5 is yes, then the SHPO must be contacted. The lender may submit a Section 106 request to SHPO in order to expedite the process.
<<Provide narrative description indicating whether or not SHPO has been contacted, information sent to SHPO, and any response received. For example: “Since we are not making changes to the exterior of the building, and internal repairs are limited to routine maintenance as defined in Notice CPD-16-02 there is no impact on any historical property.”>>
Key Questions
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<<As applicable, for each “yes” answer above, provide a narrative discussion on the topic. For example: “We have received a letter from the XXXX State Historic Preservation Office, dated XXXX. It was determined that the site is of no historical or suspected cultural significance. No additional investigation was recommended by the State.” Please indicate if a response has not been received. If the SHPO concluded that the project will have an adverse effect, please explain how this will be mitigated.>>
Area of Potential Effects
Program Guidance: Handbook 4232.1, Section II Production, Chapter 7.
In situations where the SHPO was contacted, provide a description of the Area of Potential Effects (APE) that was included in the correspondence that was sent to the SHPO.
<<Provide a narrative discussion on the Area of Potential Effects. For example: “The subject is located in the X Historic District, so we have determined that the APE is the entire Historic District.” Or, “The subject is not located near any properties that are on or eligible for the National Register of Historic Places, so the APE is only the subject site., etc. >>
Floodplain
NFIP Map Panel #: |
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<< When in Zone X, indicate whether it is designated as X “(shaded)” or “(unshaded)”. When the site is located in multiple flood zones, identify each zone designation. For example: “X (unshaded), X (shaded), AE”.>>
Key Questions
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<< *Provide a narrative discussion evaluating the floodplain exhibits. Include the elevation of the property, the elevation of the floodplain, and the location of the life support systems.
(If citing 24 CFR Part 55.12(c)(7) for an exemption from floodplain management regulations, provide a narrative summary confirming that the project qualifies for the regulatory exception. Note that the permanent restrictive covenant or comparable restriction that must be placed on the property’s continued use to preserve the floodplain must run with the land and will not be dependent on the mortgage instrument.) >>
Program Eligibility
Borrower (or Purchaser, as applicable)
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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<<For each “yes” answer above, provide a narrative discussion regarding the risk and how it will be mitigated.>>
Organization
<<Provide an organization chart and narrative. At a minimum, all borrower principals must be identified.>>
New Borrower (Purchaser)
This section is applicable to Section 223(a)(7) loans when there has been a change, or a change is proposed, in the borrower entity. |
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If the answer to either question above is yes, complete this section. If the answer to both questions is no, check the box and move to the Additional Proposed Changes to Existing Borrower section. N/A |
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Experience/Qualifications
<<Provide narrative description of the proposed borrower experience and qualifications. For example: “The proposed borrower entity is a single-asset entity that was established in {date} to own the subject project…”>>
Credit History
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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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>
Financial Statements
The application includes the following borrower financial statements:
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>> |
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. Example: Tenant Security Deposits: The tenant security deposits do not appear to be fully funded. At closing, however, the borrower will not be the operator and the tenant deposit obligation will fall to the new operator. Therefore, the underwriter has included a commitment condition requiring the new operator to set up project accounts by closing and to provide an acceptable, certified Balance Sheet showing that the tenant security deposits are fully funded.
Owner-operated projects with material accounts receivables over 120 days that do not intend to have Accounts Receivable Financing should address the project State’s recent trends in length of time until reimbursement is made. The Lender should address these projects’ ability to handle delayed payments (e.g., access to sources of liquidity in an amount comparable to material accounts receivable over 120 days.) >>
General Overview
<<Provide Narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, working capital should be discussed along with the general financial stability and position of the entity. >>
Conclusion
<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example: “The borrower entity has demonstrated an acceptable financial and credit history. The borrower has the experience to continue to successfully own this facility. The underwriter recommends this borrower for approval as an acceptable participant in this transaction.”>>
Additional Proposed Changes to Existing Borrower
This section is applicable to Section 223(a)(7) loans when there has been a change, or a change is proposed, in the borrower entity that does not involve a deed transfer or conveyance. Such changes include, but are not limited to, a change in an Internal Revenue Services Reporting Structure (i.e., when a Borrower converts from a limited partnership to a limited liability company). NOTE: this section does not apply to changes in principals – this section focuses on changes at the ownership entity level. |
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Is there a change or proposed change in the borrower entity that does not involve a deed transfer or conveyance? |
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If the answer to either question above is yes, complete this section. If the answer to both questions is no, check the box and move to the Additional Proposed Changes to Existing Borrower section. N/A |
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Organization
<<Organization Chart and Narrative, as applicable.>>
Recommendation
<<Provide narrative recommendation regarding acceptability of the proposed change, as applicable. Discuss what is required for the change, including changes to the organizational documents, and what special conditions are appropriate. >>
New/Proposed Principal of the Borrower (or Purchaser, as applicable) –<< enter Principal Name >>
This section is applicable to Section 223(a)(7) loans when there has been a change, or a change is proposed, in the principal ownership of the borrower entity. The section must be provided for each new or existing principal that has not been previously approved by HUD. |
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Has there or will there be a change in a principal of the borrower entity? |
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If the answer to the above question is no, check the box and move to the Operator section. N/A |
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<<Provide this section for each principal of the borrower>>
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. >>
Organization (not applicable to individuals)
<<If the principal is an entity, provide the following:>>
State of Organization: |
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Date Formed: |
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Termination Date: |
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<<Provide Organization Chart and Narrative, as applicable.>>
Experience / Qualifications
<<Narrative description of principal’s experience and qualifications: Discussion should highlight direct experience and involvement in other HUD transactions. This section should clearly demonstrate that the principal has sufficient expertise from which to draw to successfully own the facility.>>
Credit History
Report Date: |
<<within 60 days of submission>> |
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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<<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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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.
Example: Other Section 232 Applications: XXXXX identified XX other Section 232 loan application – {projects}. The applications were submitted XXX and closed in XXX. As this is only XXXXX’s Xth HUD-insured healthcare loan, no additional reviews are required>>
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
<<If borrower has sufficient financial strength, no review of a principal’s financials is required. If a review of the principal’s financials is required to support approval of the loan, provide an analysis similar to the one provided for a borrower.>>
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 this and other facilities. The underwriter recommends this principal as an acceptable participant in this transaction.”>>
Operator
This section is applicable to Section 223(a)(7) loans when a change in operator has occurred or is proposed. The information must be provided if the operator has not been previously approved by HUD for the subject property.
If not applicable, check the box and move to the Parent of the Operator section. N/A
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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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. >>
Organization
<<Organization Chart and Narrative, as applicable.>>
Experience / Qualifications
<<Narrative description of Operator’s and principal’s experience and qualifications: Discussion should highlight direct experience and involvement in other HUD transactions. This section should clearly demonstrate that the operator and its principals have the expertise to successfully operate the facility.>>
Credit History
Report Date: |
<<within 60 days of submission>> |
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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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>
Financial Statements
The application includes the following operator financial statements:
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>> |
Key Questions
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(Note: Projects with material accounts receivables over 120 days that do not intend to have Accounts Receivable Financing should address the project State’s recent trends in length of time until reimbursement is made. The Lender should address these projects’ ability to handle delayed payments, e.g. access to sources of liquidity in an amount comparable to material accounts receivable over 120 days.) |
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<<If you answer “yes” to any of the above questions, please identify each risk factor and how it is mitigated below. The Accounts Payable and Accounts Receivable analysis provides information regarding an entity’s collection and payment practices, policies, and potential risks to the new project. Discuss your analysis of these issues and how the lender determined they are an acceptable risk.
Example: No Financial Statements: The operator is a newly formed entity and does not have a financial history to report. At this time, the operation of this facility is the new entity’s sole purpose, so there is no need to review financial data from other facilities or sources.
Example: Tenant Security Deposits: The tenant security deposits do not appear to be fully funded. At closing, however, the borrower will not be the operator and the tenant deposit obligation will fall to the new operator; therefore, the underwriter has included a commitment condition requiring the new operator to set up project accounts by closing and to provide an acceptable, certified Balance Sheet showing that the tenant security deposits are fully funded.
Projects with material accounts receivables over 120 days that do not intend to have Accounts Receivable Financing should address the project State’s recent trends in length of time until reimbursement is made. The Lender should address these projects’ ability to handle delayed payments, e.g. access to sources of liquidity in an amount comparable to material accounts receivable over 120 days.)>>
General Overview
<<Provide narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, working capital should be discussed along with the general financial stability and strength of the entity. >>
Net Income Analysis
Net Income*
In total $
20XX |
20XX |
20XX |
YTD (Indicate time frame) |
$ |
$ |
$ |
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*before depreciation, amortization, and any other non-cash expense
<<Provide an explanation of any Net Losses or declining Net Incomes for the year-to-date and last 3 fiscal years, as applicable.>>
Conclusion
<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example: “The operator entity has demonstrated an acceptable financial and credit history as discussed in our analysis of their financial statements and credit history above. The operator has the experience to continue to successfully operate this facility. The underwriter recommends this operator for approval as an acceptable participant in this transaction.”>>
Parent of the Operator (if applicable)
This section is applicable to Section 223(a)(7) loans when a change in the Parent of the Operator has occurred or is proposed. The information must be provided if the operator has not been previously approved by HUD for the subject property.
If not applicable, check the box and move to the Operation of the Facility section. N/A
<<Provide this section for each parent organization of the operator. This section is not applicable to individuals who are principals unless you are depending on the person or persons for approval of the operator (e.g., newly formed entity). In that instance (individuals – follow the Principal of the Borrower section and modify it appropriately for an operator.>>
Name: |
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State of Organization: |
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Date Formed: |
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Termination 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. Example: S&P Rating: The entity is rated X by S&P. The rating agency indicates the outlook for the company is X.>>
Organization
<<Organization Chart and Narrative, as applicable.>>
Experience/Qualifications
<<Narrative description of experience and qualifications: Discussion should highlight direct experience and involvement in other HUD transactions. This section should clearly demonstrate the expertise to successfully operate the facility.>>
Credit History
Report Date: |
<<within 60 days of submission>> |
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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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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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated. Example: Other Business Concerns: XXXXX identified XX other business concerns in addition to the borrower and the newly formed operator discussed in this narrative. 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 participation in this loan transaction.
Example: Other Section 232 Applications: XXXXX identified XX other Section 232 loan application – {projects}. The applications were submitted XXX and closed in XXX. As this is only XXXXX’s Xth HUD-insured healthcare loan, no additional reviews are required.>>
Other Facilities Owned, Operated or Managed
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. Example: Other Facilities: XXXXX identified XX other facilities it owns, operates, or manages in addition to the subject facility. PLI Insurance: XXXXXX identified XX facilities which are carried on the same PLI policy as the subject project. Other facilities of the parent of the operator are covered on XX separate PLI policies.>>
Program Guidance: Handbook 4232.1, Section II Production, 8.8. |
Financial Statements
The application includes the following operator financial statements:
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>> |
Key Questions
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Yes |
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No |
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<<If you answer “yes” to any of the above questions, please identify each risk factor and how it is mitigated below. The Accounts Payable and Accounts Receivable analysis provides information regarding an entities collection and payment practices, policies, and potential risks to the new project. Discuss your analysis of these issues and how the lender determined they are an acceptable risk. >>
General Review
<<Provide narrative and analysis of financial statements as appropriate. In addition to the Key Questions above, working capital should be discussed along with the general financial stability and strength of the entity.>>
Net Income Analysis
Net Income*
In total $
20XX |
20XX |
20XX |
YTD (Indicate time frame) |
$ |
$ |
$ |
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*before depreciation, amortization, and any other non-cash expense
<<Provide an explanation of any Net Losses or declining Net Incomes for the year to date and last three fiscal years, as applicable.>>
Conclusion
<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example, “The parent of the operator entity has demonstrated an acceptable financial and credit history. The underwriter recommends this parent of the operator for approval as an acceptable participant in this transaction.”>>
Operation of the Facility
Administrator
Name: |
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Employed by: |
<<Name of entity who employs/pays administrator>> |
Facility Start Date: |
<<Date started at this facility as Administrator>> |
<<Narrative description of experience and qualifications - For example, “{Administrator} has been a licensed administrator since XXXX. Her current Residential Care Administrator’s license No. XXXXXXX expires XXXXX. It was issued by XXXXXX in the State of XXXX. Her experience includes… Since arriving at the facility, XXXX has helped to increase the revenues and profitability of the project, as evidenced by the increasing effective gross income and net operating income (NOI). XXXXX is well qualified and has demonstrated her ability to act as Administrator for the subject facility.”>>
Subject’s State Surveys
The application includes the following state surveys issued on the following dates over the last three (3) years of operations: (State when the survey was conducted and when the project was found in compliance.)
3 Years of Survey Inspections
Date of survey/inspection |
Date state issued letter approving POC |
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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. Example: General Review and Findings: Provide narrative description of review. For example: “The {date} state survey inspection letter indicates that there were X deficiencies. The deficiencies…”>>
Staffing
<<Provide narrative description of review. For example: “The appraiser and underwriter have reviewed the current and proposed staffing to be charged to the facility and found it to be acceptable and within reason…”>>
Operating Lease
Program Guidance: Handbook 4232.1, Section II Production, Chapter 8.6, Operating Lease Requirements
Date of Agreement: |
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Current Lease Term Expires: |
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Description of Renewals: |
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Major Movable Equipment: |
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Current Ownership: |
<<Borrower/Operator>> |
Post-closing Ownership: |
<<Borrower/Operator>> |
Key Questions
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If you answer “yes” to any of the above questions, please identify specifics of the circumstance.
<<Describe how the underwriter justified or identified mitigation of all associated risks.>>
Lease Payment Analysis
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 minimum annual lease payment must be at least 1.05 times the sum of the annual principal, interest, mortgage insurance premium, reserve for replacement deposit, property insurance, and property taxes. 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 |
$ |
i. |
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.”>>
Responsibilities
<<Provide a description of the responsibilities of the borrower and operator under the terms of the lease with regard to the following: payment of real estate taxes; maintenance of building; capital improvements; replacement of equipment; property insurance; etc.>>
Upper Payment Limit (UPL) Transaction Summary (if applicable)
This section is applicable to Section 223(a)(7) loans when the facility participates or will participate in the state’s Upper Payment Limit (UPL) Program. The information must be provided if the facility’s UPL Program has not been previously approved by HUD for the subject property.
If not applicable, check the box and move to the Master Lease section. N/A
<< If the there is a new, proposed or changed UPL Program, provide a narrative discussion regarding the topic. As applicable, discuss the issue and its effect on the transaction. Describe any potential risks and the mitigants. For waivers, identify specific provisions to be waived and justification for the waiver.>>
<<The state will require preliminary approval from HUD in order for the subject to participate in their UPL program. To obtain HUD approval, please provide the following:>>
Background
<<Provide narrative to explain how the state’s UPL program works and why the subject facility wants to participate in the program. Provide draft copies of any documents required by the state to participate in the UPL program as an attachment to this document (Exhibit A).>>
Proposed Structure
<<Provide narrative discussion and organization charts to describe the current and proposed organizational structure of the subject. Be sure to discuss the effect the proposed structure will have on any existing master lease, if applicable. Also, if applicable, discuss the effect of the proposed structure on any accounts receivable financing and what, if any, changes are needed to accommodate the new operator’s receipt of Medicare and Medicaid receivables.
Provide a Cash Flow Chart describing the current and proposed location of the Deposit Account Control Agreement (DACA) and Deposit Account Instructions and Services Agreement (DAISA).>>
Material Provisions
<<Provide a narrative discussion of provisions in proposed sublease (e.g., “Under XXX state law, the hospital districts must file change of ownership applications for licensure and Medicaid at least XX days before the sublease becomes effective….”) and management agreement (e.g., “The new management agreement will require the current licensee to provide management services necessary to operate the facility…. The hospital district will pay the current licensee (as manager) a base management fee and incentive payments that are equal to XXX% of the net revenue of the facility plus XX% of the supplemental payments that the hospital district receives under the UPL Program”). Attach copies of sublease and management agreement as Exhibits B and C, respectively.>>
Conclusion
<<Provide narrative discussion regarding how the proposed transaction will be of benefit. Complete income analysis in the table provided that compares financial operations with and without UPL participation.>>
Income Analysis |
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Trailing 12 mos. without UPL participation* <<TTM thru Month-Year>> |
Forecast with UPL participation |
Effective Gross Income (EGI) |
$ |
$ |
Expenses |
$ |
$ |
Replacement Reserves |
$ |
$ |
Net Operating Income (NOI) |
$ |
$ |
Date UPL participation to begin (month, year): |
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*Use trailing 12-month (TTM) figures in this column. The TTM data is preferred; however, if TTM is not available, year-to-date annualized figures may be used (please indicate this in the heading). |
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Certification
<The borrower must certify that a change in operator will not occur until HUD has given its preliminary approval for the change. Additionally, if at any time the state determines that it will not fund the UPL Program, the borrower will immediately notify their lender and HUD.
Master Lease
Program Guidance: Handbook 4232.1, Section II Production, Chapter 13. It is the lender’s responsibility to read the handbook chapter and provide HUD with a full set of documents for review of the proposed master lease or alternative master lease structure.
Key Questions
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Yes |
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No |
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If you answered “yes’ to all three questions, a master lease or master lease alternative is required.
Key Questions
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No |
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<<Provide a narrative describing the terms and conditions of the master lease proposed payments to and from the master tenant, lease agreements between borrower, master tenant and subtenants, the flow of funds from the subtenants to the master tenant and the borrower (including the AR lender if applicable), and any waivers or requests for modification to standard requirements.
If the subject is being joined to an existing master lease, list projects/project numbers already included in the master lease.
Describe any other HUD master leases the principals of the borrower or parent of the operator are party to, list projects/project numbers, and indicate the HUD lender who is party to the lease(s).>>
Management Agent
This section is applicable to Section 223(a)(7) loans when a change in Management Agent or the Management Agreement has occurred or is proposed. The section must be provided if the Management Agent or the change in Management Agreement has not been previously approved by HUD for the subject property. If the only change that has occurred or is proposed relates to the Management Agreement, skip to the Management Agreement section and complete the rest of this section.
If a change in Management Agent is not applicable, but there has been a change in the Management Agreement, check the box and move to the Management Agreement section.
If neither a change in Management Agent or Management Agreement has occurred, check the box and move to the Compliance section. N/A
Name: |
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Relation to Mortgagor: |
<<Owner Managed/IOI Entity/Independent/Other>> |
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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.
Previous HUD Experience
Project Name |
Project City |
Project |
Type of Facility |
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Management Agent’s Duties and Responsibilities
<<Briefly describe the management agent’s duties and responsibilities (i.e., will the management agent control the operating accounts; contract for services; recruit, select or train employees; take responsibility for the management of the functional operation of the facility or the execution of the day-to-day policies of the facility; etc.). Also describe the nature of the management agent’s compensation and how it was calculated.>>
Experience/Qualifications
<<Provide a narrative description of experience and qualifications. Discussion should highlight direct experience and involvement in other HUD transactions. This section should clearly demonstrate the expertise to successfully manage the facility and meet the obligations of the management agreement.>>
Credit History
Report Date: |
<<within 60 days of submission>> |
Reporting Firm: |
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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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<<For each “yes” answer above, provide a narrative discussion on the topic describing the risk and how it will be mitigated.>>
Other Facilities Owned, Operated or Managed
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. Example: Other Facilities: XXXXX identified XX other facilities it owns, operates, or manages in addition to the subject facility.>>
Program Guidance: Handbook 4232.1, Section II Production, 8.8. |
Past and Current Performance
Indicator |
Findings |
Billing |
<<acceptable>> |
Controlling operating expenses |
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Vacancy rates |
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Resident turnover |
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Rent collection and accounts receivable |
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Physical security |
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Physical condition and maintenance |
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Resident relations |
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<<Provide narrative support for review and finding. For example: “Based on interviews with the principals of the borrower and management agent, as well as a review of the management policies and procedures, the underwriter has concluded that the management agent has demonstrated acceptable past and current performance with regard to all of the above indicators.”>>
Management Agreement
Date of agreement: |
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Agreement expires: |
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Management fee: |
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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. >>
Management Certification
<<Provide narrative review. For example: “The form HUD-9839-ORCF, Management Agent Certification, provided in the application package indicates a management fee of XX percent of the residential, commercial and miscellaneous income collected, which is in line with industry standards for projects of this size. The term of the agreement is for XX-years. The stated fee and term match those stated in the management agreement. The fee calculations on page 4 are coordinated with the underwriting conclusions.”>>
Conclusion
<<Provide narrative discussion of underwriter’s conclusion and recommendation. For example: “The management agent has demonstrated an acceptable credit history and has the experience to continue to successfully manage this facility. The underwriter recommends this management agent for approval as an acceptable participant in this transaction.”>>
Compliance
Key Questions |
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If you answered “yes” to any of the above questions, please discuss any open findings or issues, and their resolutions.
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:
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(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.>>
Accounts Receivable (AR) Financing
This section is applicable to Section 223(a)(7) loans when an addition or change in AR financing has occurred or is proposed.
If not applicable, check the box and move to the Insurance section. N/A
AR Lender: |
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AR Borrower: |
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Maximum Loan Amount: |
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Interest Rate: |
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Current Balance: |
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Current Maturity Date: |
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Key Questions
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<< For each “yes” answer above, provide a narrative discussion regarding the topic. For projects being added to an existing HUD-Insured AR line, provide specific information on when the AR line was originated (date), when documents were reviewed/approved by HUD, which HUD OGC field office performed he review, and provide a listing of projects participating in the line (project name, FHA#).>>
Terms and Conditions
Describe the borrowing base formula (e.g., XX% of AR borrower’s accounts receivable up to 120 days):
Describe term and renewal options:
Describe the rate applied to the used and unused portions of the AR loan:
Describe other fees (i.e., financing fees, late payment fees, etc.):
Mechanisms for operator receipts, disbursements, and control of operator funds:
<<Describe the flow of all funds, into and out of accounts. Describe how deposit accounts are controlled (e.g., number of controlled accounts, hard or springing lockbox, daily sweeps, etc.). Attach cash flow chart.>>
Collateral Security
<<Provide narrative description of the AR lender’s collateral/security. Explain any unsecured AR financing.>>
Permitted Uses and Payment Priorities
<<Provide descriptions of the permitted uses of the AR loan funds in order of priority. For example: (1) debt service incurred in connection with the AR loan; (2) operating costs; and (3) distributions to the operator’s shareholders.>>
Financial Analysis
Calculations as of: (Date of AR aging report submitted with application)
Borrowing Base Analysis
(Double click inside the Excel Table to add information)
Historical AR Loan Costs
<<If there is an existing AR loan that is not yet approved by HUD, provide a financial analysis that explains how the cost of the AR loan has been factored into the NOI calculation. Complete the Historical AR Loan Costs table.>>
Historical AR Loan Costs
(Double click inside the Excel Table to add information)
Proposed AR Loan Costs
<<If the AR borrower is obtaining AR financing for the first time, provide a financial analysis that demonstrates that the AR borrower has sufficient financial capacity to pay all projected operating expenses, AR financing costs and loan payments, and all rent or debt service payments. The analysis must assume the maximum AR loan amount to stress test the AR financing based on the lesser of the operator’s 12-month trailing operating statements or the underwritten NOI. Calculate the impact on the borrower’s debt coverage after payment of the AR loan expenses and payments.>>
Assuming the $ maximum AR loan limit, an annual interest rate of %, and that the entire amount is outstanding for the year, the maximum annual interest expense would be $ . In addition to the interest, the other associated fees are the fees <<list types of fees>>, which total $ per year for the same assumed balance. An analysis of the operator’s 12 month trailing financial statement (Month 20XX – Month 20XX) is below:
Trailing 12-Month Operating History |
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Operating revenue |
$ |
Less: Operating expenses |
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Net Operating Income (NOI) |
$ |
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Annual P&I + MIP |
$ |
AR fee: Interest |
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AR fee: Other |
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Total annual mortgage and AR debt service |
$ |
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DSCR including AR |
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The underwriting assumed an NOI of $ . The 12-month trailing NOI is $ . The annual debt service including the MIP amount is $ per year. Adding the AR fees equates to a total mortgage and AR debt service expense of $ per year. This equates to prospective debt service coverage.
<<If multiple HUD-insured facilities have access to the AR loan, repeat the analysis above with the consolidated revenues and expenses for all those facilities.>>
Recommendation
<<The lender recommends approval of the AR loan.>>
Insurance
Professional Liability Coverage
Program Guidance: Handbook 4232.1, Section II Production, Appendix 14.1 |
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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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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Summary of Six-Year Loss History for New Operator or its Parent of Operator |
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Year |
Total claims paid under this policy (dollars) |
Total claims paid under this policy (no. of claims) |
Total bed count covered under the policy |
Dollars paid in claims per bed |
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Total/average |
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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.
Example: 1.Multiple properties: The lender notes that the professional liability policy is a ‘blanket’ policy covering XXX facilities, including the subject…{address potential impact of other facilities on the subject’s coverage}
Example: 2.Less than 6-year loss history: The claims history reports were examined for the period XX through XX. The lender determined that there were no professional liability XX claims during that period… {Address claims and sufficiency of coverage, etc. based on history}.
Example: Claims made coverage: The project’s previous professional liability insurance coverage was a “claims made” form policy with XXXX, which expired XXXX, when the current policy was put in place. In XXXX the borrower purchased a “nose coverage” policy which is the coverage needed when going from a “claims made” form of insurance to a “per occurrence” form of insurance. The premium for this “nose” coverage liability was a one-time charge and was paid in XXX. Because of that additional insurance coverage, the insurance expense for XXXX was substantially higher than the current expense. The current “per occurrence basis” insurance policy covers the entire statute of limitations. The project’s professional liability insurance is in compliance with HUD’s requirements. >>
Lawsuits
<< Identify all potential or expected professional liability insurance (PLI) claims in excess of $35,000 that have been or may be filed for all periods within the statute of limitations for the state where the claim occurred. Identify any reserves held for potential claims. Discuss the risk associate with each potential PLI claim. Discuss how that risk is mitigated. Describe the circumstances, identify the potential award amount, provide evidence and analysis showing that the suits are covered by PLI insurance, and if the insurance is not sufficient, does the insured demonstrate adequate funds to cover the potential excess? Describe any other information that mitigates the risk.
As applicable, discuss other types of lawsuits (non-PLI) and describe the potential risk related to the party’s participation in the proposed project. Discuss how that risk is mitigated. If the suit is closed, does it contribute to a pattern? Does it materially affect the party’s ability to participate in the project? If not closed, describe the circumstances, identify the potential award amount, provide evidence and analysis showing that the suits are covered by insurance (general liability), and if the insurance is not sufficient, do they demonstrate adequate funds to cover the potential excess? Describe any other information that mitigates the risk.>>
Property Insurance
<<Narrative discussion of review. For example, “Hazard and Liability insurance will be provided by XX. The insurance coverage will continue to comply with HUD requirements.”>>
Fidelity Bond/Employee Dishonesty Coverage
<<Narrative discussion of review. For example, “The subject has inadequate fidelity (crime/dishonesty) insurance. HUD requires coverage equal to at least two (2) months gross income or $_________ for 223(a)(7)s. Coverage that meets or exceeds the HUD minimum requirements must be in place prior to closing. The Lender and HUD (451 7th St S.W. Washington D.C. 20410) must be named as additional loss payees.” If not sufficient, recommend special condition.>>
Additional Insurances
<<Provide narrative discussion of other insurance currently in place, including amount of coverage and deductible.>>
Commercial General Liability Insurance
<<If there has been an addition or change in the coverage, or a new Borrower is proposed, 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.>>
Property Insurance
<< If there has been an addition or change in the coverage, or a new Borrower is proposed, 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 will be provided by XX. The lender has confirmed estimates of the cost and coverage for and will re-verify this information prior to closing. The insurance coverage will comply with HUD requirements prior to closing.”>>
Directors’ and Officers’ Liability Insurance
<< If there has been an addition or change in the coverage, or a new Borrower is proposed, provide narrative discussion of policy coverages.>>
Commercial Auto Liability Coverage
<< If there has been an addition or change in the coverage, or a new Borrower is proposed, provide narrative discussion of policy coverages.>>
Additional Insurances
<< If there has been an addition or change in the coverage, or a new Borrower is proposed, provide narrative discussion of fidelity bond/crime insurance coverage. For example: “The current insurance policy reflects fidelity (crime) insurance with the limit of $XX and $XX deductible. The HUD requirement for at least two months potential gross income receipts would total $XX. The current level of coverage is sufficient for this project.” If not sufficient, recommend commitment condition.
Additionally, provide narrative discussion of business income coverage insurance, including amount of coverage and deductible.
Also, provide narrative discussion of coverage for the following, as applicable, including amount of coverage and deductible:
Earthquake insurance
Sinkhole/mine subsidence insurance
Windstorm coverage insurance
Flood insurance >>
Recommendation
<<Provide narrative recommendation regarding acceptability of professional and general liability insurance, and other coverages as applicable. For example: “The new borrower’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.”>>
Mortgage Loan Determinants
Overview
The mortgage loan criteria shown on form HUD-92264a-ORCF are summarized as follows:
Requested Loan Amount |
$ |
Original Principal Balance: |
$ |
Amount Based on the Cost to Refinance: |
$ |
The proposed mortgage loan is $ and is constrained by . The underwritten debt service coverage, including debt service and MIP payment, is , which is % of the estimated net operating income
Original Principal Balance
The original principal balance is $ . <<Multiple FHA-insured mortgage loans on the same facility can be refinanced under one 223(a)(7) loan. For each insured loan provide the current loan information identified in the Executive Summary.>>
Amount Based on the Cost to Refinance
The costs to refinance associated with the project total $ on form HUD-92264a-ORCF, which is used to calculate the mortgage loan amount for this criterion. This total includes the following:
Unpaid Principal Balance |
$ |
Payoff Processing Fee |
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Final Month’s Interest |
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Prepayment Penalty |
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Other Eligible Existing Indebtedness |
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Additional Replacement Reserve Deposit |
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Critical Repairs |
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Non-Critical Repairs |
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Owner-Elected Repairs |
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Borrower Legal & Organizational |
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Title & Recording |
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HUD Application Fee |
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HUD MIP |
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Lender Financing Fee |
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Lender Legal Fee |
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GNMA Fee |
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Permanent Placement Fee |
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Lender Closing Fee |
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PCNA, if required |
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Survey, if required |
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Other <<identify>> |
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Total: |
$ |
Existing HUD-Insured Indebtedness
Schedule of HUD-Insured Loans to Refinance
Lender |
Pay-off Amount |
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$ |
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$ |
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$ |
Total: |
$ |
General Review
<<Narrative review of debt and payoff information. The discussion should explain each item that is included in the existing indebtedness, including the unpaid principal balance, payoff processing fees, final month’s interest, and anything else included in the payoff. For example, “Per the statement from XXX dated XXXX, the current existing indebtedness is $XXXX. The payoff balance will be reconfirmed prior to closing and only eligible payoff charges will be included in the cost certification.”>>
Cost Recapture
<<Divide the costs of the transaction by the debt service savings per month. Do not include replacement reserve deposits, required repairs, taxes, insurance, interest or MIP. If any portion of the prepayment penalty will be paid for by an interest rate premium, do not include that portion of the prepayment penalty in the Cost Recapture. The Cost Recapture must be less than 120 months.>>
Other Eligible Existing Indebtedness
This section is applicable to Section 223(a)(7) proposals that include refinancing of non-HUD-insured loans.
If not applicable, check the box and move to the Prepayment Penalties section. N/A
Schedule of Non-HUD-Insured Debt to Refinance
Lender |
Payoff Amount |
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$ |
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$ |
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$ |
Total: |
$ |
Program Guidance: The non-HUD-insured debt is only eligible if you answer “yes” to Key Question 1 or 2. Accrued interest or fees associated with that debt are only eligible if you answer “yes” to Key Question 3. Evidence to support the details must be included in the application package and the underwriter must positively state that the evidence has been evaluated and concludes that it meets HUD guidelines for acceptance.
Key Questions
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No |
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<<For each answer above, provide a narrative discussion on the topic.>>
General Review
<<Narrative review of debt and payoff information: The narrative must provide full details of the underwriter’s analysis and determination that the debt is allowable per HUD guidelines including what it was for, who it is owed to, etc.>>
Prepayment Penalties
<<Describe any prepayment penalties associated with refinancing the existing obligations. Include the amount and explain how it is calculated. State when and by how much the prepayment penalty will decrease in the next 12 months. If none, state “None.”>>
Additional Replacement Reserve Deposit
<<If the proposal includes increasing the replacement reserve balance with loan proceeds, indicate the amount and provide justification for the increased balance. If none, state “None.”>>
Repairs
Program Guidance: Projects that involve repairs in excess of routine maintenance as defined in Notice CPD-16-02 require an environmental review. The lender must complete the Environmental section of this document. Please note that Notice CPD-16-02 has a specific definition of routine maintenance, which may differ from other definitions of routine maintenance.
<<If the proposal includes funding critical, non-critical or owner-elected repairs, list the repairs, the estimated cost and provide justification. If none, state “None”>>
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Critical:
$
Non-Critical:
$
Owner-Elected:
$
Does the lender propose to administer the non-critical repair escrow? |
Yes No |
Legal and Organizational Costs
The borrower’s legal and organization costs are estimated to total $ ($ for legal / $ for organizational expenses). The underwriter concluded that the budgeted amounts are reasonable.
Title and Recording Fees
Title and recording fees are estimated to cost $ . The underwriter concluded that the budgeted amount is reasonable.
HUD Fees
<<This section pertains to the Amount Based on the Cost to Refinance on the HUD-92264a-ORCF, and the fees calculated for that criterion may not match the actual fees in the sources and uses. If they do not match, provide both.>> The HUD fees total $ and are comprised of MIP totaling % of the mortgage loan amount ($ ) and the HUD application fee totaling 0.15% of the mortgage loan amount ($ ).
Program Guidance: Per HUD Handbook 4232.1, Part II, Production, 2.10D, there is no inspection fee required on Section 223(a)(7) transactions. |
Lender Fees
<<This section pertains to the Amount Based on the Cost to Refinance on the HUD-92264a-ORCF, and the fees calculated for that criterion may not match the actual fees in the sources and uses. If they do not match, provide both. All fees paid to the lender are to be discussed. Maximum lender fees cannot exceed 2% of the mortgage loan.>> The financing fees payable to the lender total $ . These fees are further broken down as follows:
Lender |
Pay-off Amount |
Lender Financial Fee |
$ |
Lender Legal Fee |
$ |
GNMA Fee |
$ |
Permanent Placement Fee |
$ |
Lender Closing Fee |
$ |
Other <<Identify.> |
$ |
Total: |
$ |
Other Fees
<<If other fees are included, provide a descriptive listing with the estimated cost. Provide justification for eligibility. If none, state “None.”>>
Sources & Uses – Copied from HUD-92264a-ORCF
<<Provide a statement of Sources and Uses of actual estimated cost at closing. Include all eligible and ineligible transaction costs.>>
Secondary Sources
<<List and discuss all secondary sources, including terms and conditions of each. Secondary sources include interest rate premiums, surplus cash notes, grants, loans, tax credits, lines of credit, and the like.>>
Surviving Debt
<<List and discuss all existing long-term debt that will survive closing. HUD must agree to the surviving debt and may require a surplus cash note. If none, state “None.”>>
Type of Financing
The type of financing available to the borrower upon issuance of the commitment will likely be in the form of .
Circumstances that May Require Additional Information
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.
Special Commitment Conditions
<<List any recommended special conditions. If none, state “None.”>>
Conclusion
<<Narrative conclusion and recommendation>>
Signatures
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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Previous
versions obsolete Page
| File Type | application/vnd.openxmlformats-officedocument.wordprocessingml.document |
| Author | Johnson, Nicole M |
| File Modified | 0000-00-00 |
| File Created | 2021-07-15 |
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