SPECIAL FOCUS: FEDERAL HOUSING ADMINISTRATION
APARTMENT FINANCE TODAY • SEPTEMBER 2007
What I Like About You
By Jerry Ascierto
The Federal Housing Administration’s (FHA) flagship
products are the Sec. 221(d)(3) and (d)(4) programs, which
provide mortgage loan insurance for new construction or
substantial rehabilitation of multifamily rental or
cooperative housing for moderate-income families,
the elderly, and the handicapped.
“That product is their shining star,” said Mark
Dellonte, president of Love Financing. “I think it’s
one of the best financing vehicles in the market.”
Sec. 221(d) programs feature a 40-year amortization
period and are non-recourse during both
the construction and the permanent phases. Nonrecourse
means that if the borrower defaults and
its collateral doesn’t cover the outstanding balance,
then the borrower has no further liability for the loan.
Since the FHA insures the loan, the lender would be covered
for the loss.
“Most construction loans would have recourse,” said
Bruce Minchey, chief FHA underwriter at KeyCorp Real
Estate Capital Markets, Inc. The ability to lock in the interest
rate when the construction loan is closed is a huge plus.
“You don’t have the interest rate risk as you go through
construction, which could be 12 to 18 months or longer.”
In the healthcare field, the FHA’s flagship is the Sec. 232
program, for the construction or substantial rehabilitation
of nursing homes, intermediate care facilities, board-andcare
homes, and assisted-living facilities.
“Nursing homes in particular have other sources available
to them, but not at the interest rates that are available
under the FHA program,” said Brian Pollard, president of
Lancaster Pollard. “So FHA truly provides, with that credit
enhancement, with that guarantee, a real value-add
to a nursing home owner/operator.”
The FHA’s healthcare programs (hospitals, nursing
homes, assisted-living facilities) are as popular
as its 221(d)(4) program, since many capital
providers, such as conduit lenders, Fannie Mae, and
Freddie Mac, rarely serve this market segment.
Marie Head, president of Prudential Huntoon
Paige, is helping to modernize Sec. 232 as chair of
a Mortgage Bankers Association FHA-focused
committee, and as a member of the nonprofit
Committee on Healthcare Finance. One proposal would
allow borrowers to use accounts receivable financing in the
232 program, which most conventional lenders currently
allow. “There are so many receivables coming in on these
types of properties, and to be able to leverage that would
be great for borrowers and operators of those facilities,”
Head said.
Another change would relax the level of professional liability
insurance that the FHA currently requires of its borrowers.
“FHA issued some instructions years ago which
required certain levels of professional liability insurance, and
a lot of people don’t maintain those levels; it’s very expensive,”
she said. “A lot of people were put off and wouldn’t
come into the program because they had to do that.”
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