The Federal Housing Administration’s Healthcare Section 232 & Section 242 programs did their part to reduce the annual Federal deficit, according to a Department of Housing and Urban Development (HUD) spokesperson.
While FHA’s single family program remains below the two percent capital ratio required by Congress, the General Insurance fund—which includes the two healthcare programs that generated about $68 million in budgetary receipts in fiscal year 2011—performed well, at rates better than the previous year.
“Such receipts have the effect of offsetting other governmental spending and thereby reduce the annual Federal deficit,” said HUD spokesperson Lemar Wooley.
The Section 232 and 242 programs saw liability decrease, adding up to $336 million in what FHA expects to make during the life of the loans,a 115% rise from its 2010 estimate.
For the Section 232 Refinance program, liability for all loans insured in 2011 and in all prior years decreased by $98 million from ($45) million last year, to ($143) million, as significantly increased insurance-in-force, resulting in income from insurance premiums, outweighed claims. The report says the year saw $2.6 billion in FY 2011 endorsements paired with lower claim expectations.
Meanwhile, Section 242 liability also decreased by $82 million from the ($111) million estimate in FY 2010, to ($193) million in FY 2011, as premium revenue increased due to decreased prepayment expectations.
As for the Section 232 New Construction program, which provides mortgage insurance for construction or substantial rehabilitation of nursing homes and assisted living facilities, even though its liability increased by $6 million, from ($22) million in FY 2010, the program’s loans are still expected to produce $16 million in revenue, according to the FY 2011 estimate.
The increase in liability can be attributed to slightly diminished insurance-in-force and recovery rate expectations, as the economic environment made it harder for applicants to meet underwriting criteria.
Overall, demand for senior care mortgages through HUD’s Office of Healthcare Programs saw a significant increase from 2008, when OHP received 224 initial applications, to 708 initial applications in 2011.
“Together, the Section 232 program for Residential Care Facilities and the principal Hospital insurance fund, Section 242, endorsed 423 new loans with a total mortgage amount of $3.7 billion,” said Carol Galante in the report. “Through these transactions, FHA not only increased access to quality health care in many communities, but created thousands of jobs tied to construction and medical care.”
OHP has an outstanding portfolio balance of $26.7 billion, and as the portfolio grows, so does the importance of managing risk, says FHA.
With this in mind, the office say it’s working to improve underwriting standards and ensure consistent application while reducing processing time.
“Utilization of Lean Processing in the Section 232 program has improved business practices by standardizing nationwide submission and underwriting,” says the report. “This process has allowed for greater focus on the creditworthiness of the operator and its principals.”
The Section 232 program’s default rate in FY 2011 was at 4.49%, and the Section 242 program’s default rate was 1.81%. Overall, FHA had a net program loss of approximately $3.52 million in FY 2011.
Written by Alyssa Gerace