HUD LEAN Processing Guidelines

The HUD LEAN Processing program has strict guidelines. Below are some of the most important requirements for qualifying properties:

• Physical Examination of the Property: A third-party specialist evaluates the facility’s physical plant and systems to highlight capital improvement items and develop a reserve schedule. HUD does not place limits on facilities but does consider factors such as functional obsolescence and estimated useful life. If a property has extensive physical needs, it may qualify for the HUD 232 substantial rehabilitation program.
• Compliance and Care Record: Includes state surveys and CMS (Centers for Medicare & Medicaid Services) ratings for skilled nursing facilities and assisted living facilities.
• Formal Incident Reporting: HUD requires a formal software-based incident-reporting risk-management system for all facilities insured under the HUD 232 program (in-house or third-party).
• Credit-related Factors: HUD examines the potential borrowers’ credit history, financial stability, relevant experience, and previous HUD/FHA participation.
• Owner/ Operator History and Experience: HUD also looks at the status of other facilities held or managed by the operator, mortgagor, and other principals. HUD borrowers can be single-facility owners or operators, but they must show a history of successful ownership and operation.
• Quality of Candidates: HUD seeks outstanding candidates for the HUD 232 loans program. Applicants must show a combination of experience and financial commitment. For new construction loans, the requirements are much more strict than for loans on existing facilities. HUD especially examines owner capitalization and financial strength.
• Special Review: For larger portfolios, HUD has special review requirements and requires master leases for three or more properties with the same ownership.
• Specific HUD Requirements: Certain conditions and requirements may apply to individual properties which don’t apply to all HUD 232 financing projects. For example, HUD requires ADA compliance and has specific requirements for properties located in floodplains.
• Interim Financing: Some borrowers may benefit from bridge loans to stabilize the facility's operations immediately after the purchase transfer of management.

In addition to all the above, FHA 232 senior housing financing projects must submit annual operational audits operations to both HUD and their lender. Also, owners/operators can distribute surplus cash twice annually. For some facilities, full or partial compliance with ADA and UFAS requirements may be required. Additionally, healthcare facilities must maintain adequate liability insurance.

Related Questions

What is HUD LEAN processing?

HUD LEAN Processing is a streamlined method of processing HUD 232 applications developed in 2008 based on Toyota’s model of operations. The goal is increased efficiency of the FHA 232 application process by reducing waste. The main changes over the previous method are:

• Standardized checklists, certifications, statements of work for third-party work, and lender templates for the application package.
• Standardized punch-lists used by HUD staff in underwriting.
• The removal of duplicate and unnecessary portions of the application process and requirements.
• Revised third-party appraisal requirements. Lean appraisals are market appraisals eliminating the need to use HUD forms.
• No proprietary earnings carve out.

What are the requirements for HUD LEAN processing?

The HUD LEAN process has instituted changes in order to reduce approval times, including:

• Forms, including lender templates, certifications, and other documentation, are standardized
• In most cases, duplicate forms and submissions are not required
• LEAN applications are not submitted by borrowers; instead, they are submitted by lenders directly to the OCRF (HUD's Office of Residential Care Facilities)
• HUD LEAN processing does not require propriety earning carve-outs

For more information, please see the following sources:

• apartment.loans/posts/what-is-hud-loan-processing
• www.multifamily.loans/hud-232-lean-loans
• apartment.loans/hud-lean-loan-processing

What documents are needed for HUD LEAN processing?

For HUD LEAN processing, documents needed include lender templates, certifications, and other documentation. These forms are standardized and in most cases, duplicate forms and submissions are not required. The LEAN applications are not submitted by borrowers; instead, they are submitted by lenders directly to the OCRF (HUD's Office of Residential Care Facilities).

For more information, please refer to the following sources:

• What is HUD LEAN Processing?
• HUD 232 LEAN Loans
• HUD LEAN Loan Processing

What is the timeline for HUD LEAN processing?

The HUD LEAN program is a streamlined method of processing HUD 232 applications that can significantly reduce processing times. According to HUD 232 LEAN Loans, some HUD 232 loans can take as little as 4 months to close. Additionally, according to Terms, Qualifications, and Guidelines, LEAN transactions for FHA 232 loans usually take four to six months from application to closing. The processing time varies depending on a number of factors including the application’s complexity and the receipt of required information.

What are the benefits of HUD LEAN processing?

The main benefits of HUD LEAN processing are:

• Standardized checklists, certifications, statements of work for third-party work, and lender templates for the application package.
• Standardized punch-lists used by HUD staff in underwriting.
• The removal of duplicate and unnecessary portions of the application process and requirements.
• Revised third-party appraisal requirements.
• No proprietary earnings carve out.

The HUD LEAN program has been able to significantly reduce processing times, resulting in some HUD 232 loans taking as little as 4 months to close.