Asset Management Update ‹#› - PowerPoint Presentation

1. Asset Management Update‹#›

2. Section 232 PortfolioAs of 4/21/142,892 Projects - $21.5 Billion Outstanding Principal Balance153 Categorized as “Troubled” in HUD’s systemConcentration in servicing:50 total lenders servicing Section 232’s$18.5 Billion (86%) is being serviced by 13 lendersPortfolio Interest Rate:Currently = 4.20%; 2 Years Ago = 5.35%

3. Full Claims (by FY)

4. Section 232 Claims

5. Primary Reasons For Claim Last 5 Years of DataMarket or Rate Issues: 54%Operator or Survey Issues: 27%Money Follows the Person: 19%‹#›

6. Takeaways8 of 14 Claims Since 2012: MI PopulationOlmstead DecisionInitiative to move tenants to less institutionalized homes.New Construction Remains Highest Risk:52% of Projects on Priority Watch List vs. 24% of Portfolio are/were NC‹#›

7. Asset Management SpecializationLoan Modifications – done – Success!Next up……TPA’sR4R ReviewsNon-Critical Repair Escrow Reviews‹#›

8. Asset Management – Process Re-EngineeringChecklist and PunchlistsStarting with High VolumeStandardization and TransparencyPartner Involvement - possible Kaizen 9/2014?Electronic Asset Management Portal ‹#›

9. Section 232 Healthcare Portal‹#›

10. Proposed ComponentsOperator Financials: See Slides belowAsset Management Transaction/Requests Portal and Tracking:Just Began DevelopmentAll Asset Mgmt Processes and RequestsElectronic – Better Tracking

11. Phase I: Operator Financials‹#›

12. BackgroundAccountability Rule Change: 10/9/12 24 CFR Part 5.801Required Quarterly Operator FinancialsFY’s Beginning 60 Days After HUD Publishes CFR Notice Announcing Our SystemApplies to All Section 232’sNo Lease: Mortgagor = Operator‹#›

13. Background, ContinuedQuarterly: Must be submitted to HUD within 30 Days of the End of the QuarterFYE: Must be submitted to HUD within 60 Days of the End of the FYPursuing Reg. Change – 60/90 – also flexibilityOperator Certified Financials OK.Borrower Annual Audited Financials Still Required.‹#›

14. LogisticsOperators will submit quarterly financial reports to their servicing lender. HUD is not dictating formatThe lender will populate a standard excel template with key financial information on the Section 232’s they service.‹#›

15. Draft Entry Items – Lender Spreadsheet Operating CashInvestmentsR4R BalanceARCurrent LiabilitiesAmortization ExpenseNet IncomeFHA Interest Expense Rent/Lease ExpenseDepreciation ExpenseCurrent AssetsTotal ExpensesFHA Principal Pymt.MIP‹#›

16. Logistics, ContinuedLender uploads spreadsheet to a portal. Can upload spreadsheet in batches.Lender will be able to view and run reports on ratios:DSCRSeveral Liquidity MeasuresAR and AP Measures‹#›

17. Logistics, ContinuedWork in Progress: HUD generates an overall financial risk score for each project.Determine how to follow-up on perceived weaker financial projects.Lender on front lines‹#›

18. Timeline GoalsBeta Test w/several Lenders: 7/14All Lender Training: 8/14Deployment: Voluntary Reporting: 9/14CFR Notice: No Later Than 10/31/14Mandatory Use: Fiscal Years Beginning after 12/31/14‹#›

19. Section 232 Handbook‹#›

20. Handbook Logistics9/1/14 Effective Date:Applies to Asset Management transactions/requests submitted on/after this dateInsurance Chapter: applies only to new loans (applications received on/after 9/1/14).Comments: Leanthinking@hud.gov ‹#›

21. DetailsOperator & Lender Responsibilities, Including……‹#›

22. Dealing With Issues on Section 232’sFailure to make Lease PaymentSerious issues with State Inspections/LicensingSubstantial Legal Judgments/Penalties/FinesLarge PLI ClaimsBankruptcy‹#›

23. Issues Continued….Delinquent Mortgage PaymentsDefault of Master LeaseSignificant HUD Compliance Issues:Poor REAC ScoresDepartmental Enforcement Center Actions‹#›

24. Issues Continued….HUD Intends to Provide an Optional Standardized Format for Reporting:What the Issue EntailsActions Being Taken to Address Goal will ultimately be to submit through Asset Mgmt portal (phase II)In development‹#›

25. Lender ResponsibilitiesQuarterly – proactively monitor CMS’s Special Focus List.Annually – proactively monitor PLI and Fidelity Bond Coverage.Quarterly Operator Financials Review and submission of Asset Management Actions/Transactions‹#›

26. Other Handbook Changes for Asset Management…….‹#›

27. Lender Review & Approval of R4R Requests:Option of LenderLender approval: Automatically approved if MF approvesIf not, can request approval from ORCFOnly R4R ReleasesMinimum of $1,500 per Unit in R4R After ReleaseAll Section 232 Loan Types Eligible‹#›

28. Lender Non-Critical Repair Escrow AdministrationOption of LenderLender approval: Automatically approved if MF approvesIf not, can request approval from ORCFMust be set up on each loan when in Development – no HUD Inspection Fee!‹#›

29. Lender Non-Critical Repair Escrow AdministrationBefore closeout of account, inspection by PCNA provider (mortgageable cost)HUD must approve of closeout of accountHUD must approve of any revisions to scope‹#›

30. Handbook Also Addresses…..Environmental Review Required per CFR when:Remodeling, Adding to, Subtracting from, Reconstructing, or DemolishingLanguage in Reg. AgreementsDefines Remodeling as Substantial RehabWill be built into checklist and punchlist for processes‹#›

31. Other Hot Topics‹#›

32. Flood Insurance on Existing ProjectsOn projects requiring flood insurance, Security Agreement requires coverage at lesser of:Maximum amount available under NFIP, Replacement cost minus land, or Existing loan balance‹#›

33. Flood Insurance, continued6/1/14: Maximum amount available under NFIP increased for “Residential Buildings with 5 or More Units” $250k to $500kMaximum amount available on “Non-Residential Buildings” is not impacted (nursing homes)   ‹#›

34. Flood Insurance, ContinuedORCF and Multi-Family joint guidance: Consistent approachMemo from Asset Management Directors to MF and ORCF staffORCF AE’s followed up with Servicing LendersAddress level of flood insurance upon policy renewals on/after 6/1/14.‹#›

35. Financials: 5/7/14 Email BlastMortgagor: Notice H 2013-23 Audited still required unless original amount of mortgages < $500,000 ‹#›

36. Financials: Lessee/OperatorMany Regulatory Agreements require:1996 Notice requiredOHP Lean Rider since December 2008 New email address: 232OperatorFinancialsFY2013@hud.govOr via mail to:Jacob K. Javitz Federal BuildingAttn: Simon Kleinman 26 Federal Plaza, Room 32-116New York, NY 10278‹#›

37. Financials: PortfolioMaster Lease documents require submittal of quarterly financial statements on portfolios.ORCF is having a team review these.Submit via email to:232PortfolioFinancials@hud.govFuture Email Blast to address‹#›

38.