Lenders See Senior Housing Crossroads Ahead for HUD

Despite hurdles presented by the government shutdown in October, the landscape for Department of Housing and Urban Development senior housing and healthcare lending is looking much brighter, though a crossroads is expected ahead.

The hurdles were not inconsequential, say those in the HUD lending space, as the shutdown on October 1 came just days after the department exhausted its $25 billion in commitment authority for fiscal year 2013. HUD’s backlog suffered slightly as a result. But with the government shutdown now past and new commitment authority pro-rated through the early part of January 2014, those in the lending space say lending under HUD has never been better, especially in light of a queue that reached close to 300 loans earlier this year.

“We have to commend the HUD staff for the preparation they did in anticipating the shutdown,” says Steve Ervin, senior vice president for Berkadia. “The agency kept people around to close loans. We weren’t expecting them to do so.”


During the shutdown period, Berkadia closed seven HUD loans, which Ervin calls “remarkable” under the circumstances.

Commitment authority was restored as a result of the budget deal, which lenders began to see within a week post-shutdown, he says.

“The queue is moving relatively quickly at this point and we hope things operate similarly to this year,” he says. “It might take a month in the queue and underwriting, but closings are not being delayed.”


The progress is being seen as positive, pending any additional budgetary pressures that may come up in January, says Nick Gesue, senior vice president and chief credit officer for Lancaster Pollard.

“Not only are the HUD employees back to work, but they have the third party contractors back on the job, and that has sped things up. According to the last queue data that HUD released on their site, there are fewer deals in the queue now than pre shut down,” Gesue says.

Business is slightly behind, due to the previous challenges faced by HUD, he says.

“We’ve still lost a large chunk of time this year, so business is definitely behind where it should be. However, we’re pleased so far. Hopefully we don’t have to revisit this issue again in January.”

The biggest shift within HUD lending that lenders are anticipating currently, and are seeing demand for, is new construction loans, which historically have not comprised a substantial portion of HUD’s healthcare and senior housing loans. Yet HUD lenders say they are seeing an uptick in demand for new construction loans with a race to capitalize on the new opportunities in the market.

“There was an element of new construction discussed during 40% of our conversations over the three days [at the NIC conference], an increase from previous years,” Cambridge Capital Chairman Jeff Davis noted following the early October conference.

While lenders are hesitant to say they are seeing widespread overbuilding, there has been much speculation on whether the Federal Housing Administration will shift resources toward new construction as a result of less demand for Section 232/223(a)(7) refinance transactions from one HUD loan into another HUD loan.

HUD has declined to comment on whether it will pursue more construction lending, but some lenders are seeing strong potential for new opportunity.

“There is significant demand for construction money,” Ervin says. “One of the things HUD really did focus on over summer was clearing queue on the construction side. It has been incredibly focused on getting that construction pipeline moving so people don’t have to wait two to three years to get construction going.”

Written by Elizabeth Ecker

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