As market shifts, HUD financing program attracts more borrowers

A Q&A with Capital One’s Josh Rosen

It’s shaping up to be a healthy year for the HUD Lean 232 mortgage insurance program used to finance seniors housing facilities. Through the first six months of the 2017 fiscal year, lenders closed 125 deals in HUD loans totaling $1.36 billion.

Based on those figures and what’s currently in HUD’s deal pipeline, the consensus among lenders is that the total dollar amount in loans closed will exceed last year’s total of $2.83 billion. (HUD’s fiscal year runs from Oct. 1 to Sept. 30). Seniors Housing Business asked Josh Rosen, a senior vice president for Capital One Multifamily, to weigh in on some of the market dynamics at play in this niche space.

Seniors Housing Business: What’s driving the uptick in deal activity in the HUD Lean 232 program?

Rosen: Borrowers are starting to get nervous as the long-awaited interest rate rise begins to take form. Many borrowers that were taking a “wait-and-see” approach realize that the interest rate market appears to have bottomed out and that they could miss the boat if they don’t climb aboard now and begin the process to refinance their existing debt.

SHB: What's your outlook for total volume in fiscal year 2017 for the mortgage insurance program?

Rosen: I expect the volume of loans closed through the HUD Lean program will continue to rise. In addition to the “mom and pop” and regional providers, the REITs and larger public companies have recently shown an interest in the program. As the market as a whole begins to shift, some of the larger providers have now begun to see a benefit in long-term, fixed-rate financing.

SHB: What factors have impacted deal volume positively or negatively across the HUD Lean mortgage insurance program to this point in fiscal 2017?

Rosen: Interest rates as well as a renewed approach toward increasing managed care and revamping the entire Medicare system do nothing but increase HUD’s viability and importance in the marketplace. For the HUD Lean program, this is all positive. Borrowers can’t afford to live off of continuous short-term loans and are looking for long-term options. The only current available source in the skilled nursing facility world is HUD.

SHB: Are there any possible wild cards that could impact deal volume for all of fiscal 2017?

Rosen: Potential changes or repeal of the Affordable Care Act would create significant short- and long-term ripple effects that would impact deal volume.

SHB: Since its inception in July 2008, the HUD Lean mortgage insurance program has evolved. Can you explain to our readers some of the milestones or key developments in the program's evolution in your view and how that’s impacted borrowers over time?

Rosen: One of the most significant milestones, which was unveiled over the past few months, has been the option to submit a HUD application without the previously required two years of debt seasoning. While there remain very specific criteria in order to qualify for this new option (such as lower loan-to-value constraints), the option alone has given borrowers much more flexibility in terms of their approach to replacing their current capital stack as well as acquiring new assets in their portfolio.

— Matt Valley

More News