Ginnie Mae’s REMIC Program for FHA Hospital Loans is Limited, Plans to Expand

When Ginnie Mae announced that acute care hospital loans backed the by Federal Housing Administration were eligible for its REMIC product, a closer look revealed it may not be as useful as many would have hoped.  Despite the agency’s best intentions, it could take a few tweaks before a larger number of borrowers see benefit from the release.

Guidelines published by the agency show it’s requiring the 242 loans be secured by 100% real property, which contradicts requirements from HUD, says Brian Pollard, president of Lancaster Pollard.

“Every hospital typically has a large amount of equipment they invest in, and HUD requires that they include it with the security,” said Pollard during an interview with SHN.

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According to HUD guidelines, the mortgage loan must be secured by a first mortgage lien on the entire hospital, including property, plant and equipment. This creates problems with GNMA’s program, considering the agency requires the loan be secured only by real property.

The Committee on Healthcare Finance, a coalition of lenders in the industry, has spent years trying to make the program eligible, and Pollard said it will continue to see if any changes can be made. If the guidelines are modified to accept a lower amount of 80% of the loan to be secured by real property, Pollard says borrowers could see an improvement of 40 to 60 basis points on rates.

“A lot of the buyers of these securities are looking for REMICs,” he said. “[By not letting these loans qualify,] you eliminate a lot of the market for the securities.”

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According to a GNMA official, the agency understands the initial roll out may only meet the needs of a small number of borrowers to begin with, but it plans to continue expansion of the program.

“We want to make it a more robust product because the 242 loans have really been underserved,” the official said. “We understand the value might be limited on the first set of guidelines, but we’re planning to expand upon them based on industry feedback.”

Other executives in the senior housing industry say that any movement from HUD or GNMA is a good sign and it’s generally how the process works for getting any program running.

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“Everything with regards to HUD is a process, and this is one step in a process to make sure the program continues to move forward,” said Jeff Davis, CEO of Cambridge Realty Capital Companies. “Eventually the program will become more useful because the stakeholders in the process will make it work.”