Senior Living Business Interactive: HUD LEAN: Changes and Updates

The HUD LEAN program evolved when oversight for senior living policy and underwriting was moved out of the Department of Housing and Urban Development (HUD) multifamily group and into its own unique group within the Office of Health Care Programs. HUD LEAN officially began on July 1, 2008, for refinance and acquisition projects and on January 1, 2009, for all Section 232 projects.

HUD LEAN is based on the Toyota manufacturing philosophy, which focuses on efficiency and continuous improvement in an effort to eliminate waste and unnecessary people, steps, or other activities. For HUD, the approach is an effort to continually streamline and improve upon the application and approval process for its senior living/health-care programs. And after four years in practice, most will agree that HUD LEAN has been successful.

The HUD LEAN program offers funding for the acquisition, refinance, substantial rehabilitation, and new construction of various kinds of senior living properties. Licensed skilled nursing, assisted living, and/or Alzheimer’s-care projects are eligible for the program. On the non-LEAN side, HUD MAP is restricted to unlicensed, age-restricted (age 62 and above), multifamily housing projects with no mandatory meals or services. At this time, HUD has no standalone program for unlicensed independent living projects with mandatory meals and services; however, HUD will allow 25% of the units in eligible projects (with a waiver to 30% available) to be unlicensed independent living.

HUD MAP, the program for multifamily properties, operates through various field offices and hub systems, explained Nick Gesue, Chief Credit Officer at Lancaster Pollard in Columbus, Ohio, and its chief underwriter for all FHA, USDA, and Fannie Mae programs. When health care was handled under the MAP program, the staff would cover both multifamily and senior living applications. “That created significant inconsistencies from one field office or hub to another and even one HUD employee to another,” he said. Having a dedicated staff focused exclusively on senior living underwriting has created a lot more consistency across all HUD senior living programs and across the country, providing more predictability regardless of location.

“Predictability is the cornerstone of the HUD LEAN program,” added Scott Moore, Managing Director of Red Mortgage Capital, LLC, also in Columbus, where he leads its efforts in FHA-insured HUD loan-origination efforts. And HUD LEAN has become very predictable in terms of both the outcome and the timing—original goals of the program that, by all accounts, have been achieved for well-underwritten projects.

There have also been a fair amount of policy changes—mostly with an eye toward improving the program. Lenders and borrowers alike have had to be somewhat nimble and certainly attentive to those changes and improvements.

One important change is that the underwriting parameters—the guidelines—have become very well defined. “On valuations or underwriting the performance of an asset, for example, we now know to use in-place, trailing-12 performance,” Moore explained. “That makes it easier to determine, early in the process, our borrowers’ needs and whether the program can meet those needs.” 

Most often, lenders are working with related-party real estate owners and lessee operators, which appears to be a rather common senior living organizational structure; but it has definitely become harder to have a third-party operator involved in a HUD-insured financing, according to Moore. “There has been a lot more focus on the operator’s involvement, both before and after closing, under the evolving policy and procedure changes in the HUD LEAN process"............Want to read more? Click here for a free trial to Senior Living Business Interactive  and download the current issue today