HUD Senior Housing Financing “Not Worth the Trouble,” Many Look Elsewhere

Despite the attractive terms and interest rates offered by the Department of Housing and Urban Development’s (HUD) senior housing financing programs, many have been turned off by the lengthy HUD queue and are resorting to other funding sources.

“The basic problem with the FHA program is that it takes way too long, and a lot of people don’t want to wait that long,” says Paul Dribin, of Dribin Consulting. “The Lean program is taking a year to a year and a half, and that’s just unacceptable to a lot of people.”

It’s so unacceptable, in fact, that about three-quarters of the people who come to him to find financing are specifically requesting non-HUD financing, says Dribin; of these, about half get approved for financing.

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Lengthy timeframes have forced many borrowers to get interim loans at higher interest rates and less attractive terms, to “bridge” the gap between when they need financing, and when HUD approves their case.

“They shouldn’t have to do bridge financing and refinance into Lean,” says Dribin, who says the original guidelines under the HudMap were four to six months.

A recent Seniors Housing study showed that 47% of respondents indicated the HUD LEAN 232 program had “fallen short” of their expectations, compared to 41% who said it had met them, and only 4% who said the program had exceeded their expectations. Although some say the Lean program is “worth the wait,” others aren’t convinced.

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Some real estate financing firms aren’t doing any HUD funding whatsoever, a category Commercial Real Estate Financing, Inc. falls under, says Terry Smith, the firm’s president.

“It’s too long of a process. It’s too arduous. It’s not worth the trouble,” says Smith, of HUD programs.

Sewickley, Pa.-headquartered CREF, a comprehensive commercial real estate mortgage-banking organization, has its own warehouse line, and Smith says it offers comparable rates to HUD.

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“We are in great demand. We’re seeing a senior market exploding,” he says, talking about a growing need for senior housing financing as thousands of boomers reach retirement age each day. “I think a majority [of those looking for financing] is going to exit from HUD altogether.”

Whether or not that happens, HUD’s Office of Healthcare Programs (OHP) has taken action to pare down the queue, going so far as to add 35 permanent staff members, most of them in Section 232 production, HUD told SHN.

A third-party consulting firm was also contracted to assist with underwriting efforts, and the queue has since gone down significantly.

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Source: HUD, FY End of 2011 Key Production Statistics

“Although OHP issued 473 commitments in FY 2011, the incoming volume of applications was greater and the queue grew to over 400 applications,” said HUD. “Since July, the queue has declined to 280 applications. We project that with the contractor and new underwriters on board we will be through the queue by early next summer.”

Waiting times in the 223(a)(7) [expedited refinance of FHA-insured mortgages] queue have already dropped “dramatically,” says HUD, which expects a “substantial improvement in coming months” as it seeks to process a monthly average of 80-90 cases in the next six months.

However, despite this update, not everyone’s outlook is entirely favorable.

“I’d be very skeptical of any improvement in the Lean program or FHA within the next year,” says Dribin.

Written by Alyssa Gerace