HUD Makes Contingencies for Borrowers During COVID-19 Outbreak

The U.S. Department of Housing and Urban Development (HUD) is offering borrowers in the seniors housing space some assistance in response to the financial challenges caused by the COVID-19 virus that has claimed the lives of over 58,000 Americans so far.

More specifically, borrowers in the HUD/FHA Section 232 mortgage insurance program can take advantage of a series of four benefits designed to address their obligations to HUD and to take care of their residents.

The provisions allow eligible borrowers to:

  1. suspend monthly deposits to be placed for replacement reserve through July 31, 2020, or longer if the authority to grant this benefit is extended. At the conclusion of the suspension period, the sum of such suspended payments shall be paid into the reserves for replacement in equal monthly increments over the next 12 consecutive months;
  2. use operating deficit funds to make debt-service payments, subject to repayment provisions if any contained in the subject escrow agreement;
  3. use debt-service reserves to meet debt-service payments, subject to repayment provisions, if any, contained in the subject escrow agreement;
  4. use replacement reserves to meet debt-service payments required, so long as the reserve for replacement reserve account does not fall below $1,000 per unit.

These benefits do not require HUD review or approval, provided that HUD has not notified the lender that the property in question is under review by the Office of Residential Care Facilities’ risk mitigation branch. (Properties with an inadequate debt-service coverage ratio or which exhibit serious quality issues are subject to review by the risk mitigation division.)

“HUD, like many lenders across the United States, realizes that it needs to support its borrowers and help them get through this terrible time,” says Jeffrey Davis, president of Chicago-based Cambridge Realty Capital, referring to the concessions made by the agency.

“Obviously of great concern to operators is the ability to continue delivering the necessary level of service to residents, and not just maintaining the status quo, but also being able to respond to emergent needs that arise due to the COVID-19 virus, which has infiltrated many senior facilities across the country,” adds Davis.

Founded in 1983, Cambridge has three distinct business units: FHA-insured HUD loans, conventional financing, and investments and acquisitions. The company, which specializes in providing debt and equity to the seniors housing and healthcare sectors, has closed over 500 seniors housing transactions totaling more than $5.5 billion.

Davis assures operators that HUD is still processing applications, “and Cambridge is still submitting those applications during this time, as well as closing on loans that were and still are in process.”

The HUD/FHA Section 232 program may be used to finance the purchase, refinancing, new construction or substantial rehabilitation of nursing homes, assisted living facilities or board and care properties.

In fiscal year 2019, lenders in the HUD/FHA Section 232 program closed 288 loans totaling $3.7 billion. Cambridge Realty Capital ranked ninth by dollar amount with $80.8 million in loans closed.

— Matt Valley

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