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FHA Credit Enhancement for Healthcare Facility Mortgages: Lowering the Cost of Capital

Learn how FHA Mortgage Insurance can help lower the cost of capital for healthcare facilities looking to finance construction projects, refinance debt, or make acquisitions. Understand program eligibility and how to start the process.

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FHA Credit Enhancement for Healthcare Facility Mortgages: Lowering the Cost of Capital

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  1. FHA Credit Enhancement for Healthcare Facility Mortgages:Lowering the Cost of Capital

  2. Presenter <Name> <Title> Department of Housing and Urban Development Federal Housing Administration Office of Healthcare Programs Office of Hospital Facilities WWW.HUD.GOV/HEALTHCARE <email address>

  3. Learning Objectives • Learn how FHA Mortgage Insurance can help lower the cost of capital for hospitals and residential care facilities looking to finance construction projects, refinance existing capital debt, or make acquisitions • Understand the programmatic eligibility determinants • Establish a general understanding of what healthcare projects might be a fit for FHA programs • Learn how to start the process

  4. Definition of Terms • HUD – U.S Department of Housing and Urban Development • FHA – Federal Housing Administration • 242 – Section 242 of the National Housing Act (NHA) gives HUD/FHA the authority to insure mortgages for acute care hospitals. • 232 – Section 232 of the National Housing Act (NHA) gives HUD/FHA the authority to insure mortgages for nursing homes, assisted living, and other long-term care residential facilities • 223 (f) – Section 223 (f) of the NHA Act gives HUD/FHA the authority to insure mortgages for 100 % refinancing loans pursuant to 242 and 232 • 241 – Section 241 of the NHA gives HUD/FHA the authority to insure mortgages for supplemental loan for HUD portfolio hospitals.

  5. Who We Are • FHA Office of Healthcare Programs • Section 242 Hospital Facilities • Section 232 Residential Care Facilities • Office of Architecture and Engineering • Programs provide FHA mortgage insurance to back the mortgage on healthcare capital projects • Healthcare principal balance of $35 billion Willow Towers Assisted Living FacilityNew Rochelle, NY

  6. What We Do • Enable the affordable financing of needed healthcare facilities • Improve access to quality healthcare nationwide • Reduce cost of care • Strengthen communities - healthcare facilities are economic engines • Healthcare facilities employ millions of Americans and support trillions in economic activity • Our insured projects create thousands of jobs and billions of dollars in economic activity

  7. How Does FHA Do This? Mortgage Insurance FHA Investment FHA Insured Bank Mortgage Investor (Optional) Healthcare Project

  8. How Does FHA Benefit My Project? • Provide Access to Capital • Allow Flexible Funding Options • Enhanced Credit Rating/Reduced Cost of Capital

  9. Use of FHA-Insured Loans • Construction Financing • Refinancing • Replacement Facilities • Expansion • Modernization • Equipment • Remodeling • Acquisitions Kaleida Health Gates Vascular Institute, Buffalo, NY

  10. Healthcare Facilities that Utilize FHA • FHA serves healthcare facilities in all 50 states and territories • For-profit, not-for-profit, and government-owned health care facilities • No limit on size – big or small • From a $500K nursing home refinance • To a $700+ million large urban teaching hospital construction The Memorial Hospital (CAH) Craig, CO

  11. FHA Offers Attractive Loan Terms • No maximum loan amount • No cash required at closing, with sufficient equity • FHA insures 99% of the loan amount • Loan term can be up to 25 years • Fixed annual mortgage insurance premium of 0.7% of remaining balance (for new construction hospitals) • Upfront fees: 0.15% Application, 0.3% Commitment, 0.5% Inspection (for construction)

  12. Is Your Project Eligible for FHA Mortgage Insurance? • Eligibility • Market need • Financial feasibility University of New Mexico, Albuquerque, NM$183 million mortgage

  13. General Eligibility Requirements (1/2) • Both Section 242 and Section 232 Programs: • Mortgage must be on real estate held • In fee simple, or • Under a long-term lease • Section 242 Hospitals: • 0% (at minimum) Average Operating Margin for the past 3 years • 1.25 DSC (at minimum) for the past 3 years • 50% of Patient Days must be Acute Care • 90% Loan to Value

  14. General Eligibility Requirements (2/2)

  15. Other Program Requirements • Borrower must have sufficient equity and working capital on hand to be considered for mortgage insurance • FHA cannot insure a mortgage for a project in progress • Hospital must agree to contribute to a Mortgage Reserve Fund

  16. Steps to Obtaining your FHA-Insured Mortgage • Self assessment • Choose an FHA Lender • Initial contact with HUD • HUD conducts Preliminary Review (242 Projects Only) • Pre-application meeting (242 Projects Only) • Application • Application review • HUD decision • Insurance commitment • Initial closing • Construction • Final closing

  17. Case Study of Hospital That Utilized FHA Mortgage Insurance Rio Grande Hospital in Del Norte, CO

  18. Basic Hospital Facts (Pre-Financing)

  19. Phase 1: Rio Grande Receives Commitment for FHA 242 Financing

  20. Result: New Standalone Hospital

  21. Phase 2: Rio Grande Receives Commitment for FHA Section 241 Mortgage Insurance Addition

  22. Result: New Medical Office Building for Rio Grande Hospital

  23. Phase 3: Rio Grande Refinances Existing FHA Mortgages at Lower Interest Rate

  24. Final Result

  25. Initial Contact with HUD • Online Pre-Screening Tool • Describe project • Ask questions • Provide additional information • Receive pre-application list • Contact Info:

  26. Questions?

  27. THANK YOU HUD Washington, DC (202) 708-0599 1-877-HLTH-FHA hospitals@hud.gov www.hud.gov/healthcare Einstein Medical Center Montgomery East Norriton, PA

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