HUD LEAN: powerful and persnickety

During today’s general session of the very first National Skilled Nursing Investment Forum (held by the National Investment Center for the Seniors Housing & Care Industry [NIC]) in San Diego, attendees heard from a panel of HUD-approved lenders and experts on the “practical realities” of the HUD LEAN application process.


Leonard A Lucas, First Vice President-Senior Loan Originator, Love Funding Corp.

Scott Moore, Managing Director, RED Mortgage Capital, Inc.

T. Brian Pollard, Managing Director, Lancaster Pollard

Moderated by Alan Plush, President, HealthTrust

The Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) insured funding has, as NIC states in its program for the Forum, “become the dominant source of capital in the tenuous credit environment.” With the LEAN application process for HUD funding in place for more than a year, the panel was assembled to discuss some key issues influencing delays or rejections of submissions. These issues will have a direct impact on seniors housing for years to come.


There is already a growing queue of applications waiting to be financed, which was not by design, the panel said. Here are some current challenges affecting the timing of the HUD LEAN process:

· Understaffing (program was originally forecasted to have 100 employees; there is currently around half of that number dedicated)

· Risk management

· Portfolio monitoring and asset management

To address the issues with timing, a “green lane” has been implemented for the process to allow lower risk loans to be approved with faster processing times. However, because the green lane is relatively new, there is not enough data to show if this feature is actually any faster than the normal process. The panel hinted that perhaps in six months to a year from now enough information will have been collected to give a precise update on the green lane’s effectiveness.

Forget about being high risk

HUD applications are a tough sell. So tough, in fact, that two-thirds of HUD applications over the last four months have been rejected, the panel said.

The following characteristics can make an application high risk:

· Location in a HUD-declared high risk state, which include one of the following eight states heavily affected by the economic downturn: Arizona, California, Florida, Illinois, Indiana, Michigan, Nevada, and Ohio

· A full market rate project

· Aggressive quality mix in excess of market averages

· Little to no barrier to entry

· Limited ownership/operator experience

· Use of inflated land value to meet equity requirements

Improving likelihood of success

The panel did spend some time educating attendees on a much more positive approach to HUD funding, and that is how applicants can improve their chances of getting accepted, starting with the following attributes:

· Having plenty of cash on hand

· Creating a project that offers the broadest continuum of services (skilled nursing, Alzheimer’s care, assisted living, independent living)

· The minimization of units that offer resort-style amenities, which would most often be offered in independent living, as the funding program is designed only to serve frail elderly needing help with several daily activities

· A highly experienced owner/operator

· An articulated story, meaning the applicant should clearly communicate with the lender all qualitative attributes in the application package so it’s received well by HUD

· A detailed and comprehensive plan for pre-lease

As the panel discussion came to its conclusion, NIC President Robert Kramer asked the experts, What is the purpose of HUD? The participants’ consensus opinion was that the HUD LEAN process is a challenging, worthwhile, stable debt and cost-effective form of funding. That notion, coupled with the fact that HUD’s importance will not diminish any time soon, indicates the LEAN process is something that must continue to be dealt with seriously by seniors housing operators.

Click here for more information on the HUD LEAN process.

Topics: Articles