President Obama’s 2013 Federal Budget was released just in time for Valentine’s Day, in which the Department of Housing and Urban Development (HUD) revealed its plans to raise mortgage insurance premiums on many of its loan programs, including its healthcare facility lending, in a bid to mitigate future loan risks and woo the private market back into the lending space.
The Health Care and Nursing Homes, and Health Care Refinances loan programs performed relatively well in 2011 with negative subsidy rates that are projected to improve still further in both 2012 and 2013. The total guaranteed loan subsidy is an estimated -4.01% for 2013, with an estimated guaranteed loan subsidy budget authority of -$661 million.
“Credit subsidy rates for 2013 reflect mortgage insurance premium increases for newly insured market rate multifamily housing and healthcare facility loans. The Budget proposes increases of 20 basis points for 221(d)(4) loans, 5 basis points on 223(a)(7) refinances of current FHA loans, and 15 basis points on all other types of healthcare and multifamily loans,” the budget says.
Despite good performance on healthcare facility loans in the recent past, HUD plans on raising premiums.
“Clearly, there is [a need to raise the premiums],” HUD Secretary Shaun Donovan told SHN during HUD’s 2013 Budget Overview press briefing. “Given the crisis we’ve been through and the performance we’ve seen, we have re-benchmarked all of our programs to look at the long-term risk that’s being taken on the balance sheet, not only to protect the [Mutual Mortgage Insurance] Fund, but also to make sure that each of the programs individually fully pays for themselves.”
He says that as that risk is “re-benchmarked in the wake of the [economic] crisis,” the long-term levels of insurance premiums need to be higher.
“We certainly want to encourage the private sector to return to funding,” he continued. “It’s not just in single-family ad multifamily, but also in healthcare where our market share has grown substantially. And we do want to make sure the private market returns.”
However, increasing the price of these loans won’t necessarily have a chain-reaction effect of encouraging private lenders to re-enter the healthcare lending market, says Bill Kauffman, managing director of Seniors Housing at Oak Grove Capital, a privately held company which specializes in financing senior housing, healthcare, affordable housing, and multifamily housing.
“I don’t see that [move] happening immediately, because the bulk of the [healthcare loan] program is still used for skilled nursing facilities, and the bulk [of lenders] still don’t want to finance skilled nursing facilities,” he says.
Others think that the bid to allow greater room for the private sector is “nonsense.”
“I still believe that FHA could do much more to stimulate the economy,” says Paul Dribin, President of Dribin Consulting, a firm that coordinates financing and refinancing of senior living facilities, among other real estate sectors.
“Raising insurance premiums will hurt the overall ability of senior care developers to get their projects funded,” he says, adding that each program fund already has its own risk factors, and that senior living hasn’t been detrimental to FHA’s portfolio.
Besides FHA-insured healthcare facility loans, the GSEs’ senior housing portfolios are also performing well, according to Kauffman.
“In my conversations with Fannie and Freddie, and looking at Oak Grove Capital’s portfolio, there’s very limited default issues in the senior housing space, and that’s expected to continue,” he says.
During the press briefing, Donovan also stated HUD’s intention to implement “additional premium increases beyond those contained in the budget” in the coming days.
Written by Alyssa Gerace