The decision by the Department of Housing and Urban Development to add additional staff to speed up the application process for its Section 232 program was welcomed by the senior housing industry, but the support didn’t come easily. In fact, obtaining the support of the agency has been a work in progress as far back as 2009.
Looking at the big picture, the decision to add additional staff to accommodate the program should have been a no brainer.
During a time when the Federal Housing Administration’s single family programs’ capital levels are below the minimum capital requirements established by Congress, the agency dragged its feet in providing additional resources to the Section 232 program—which is cash flow positive according to the latest budget from the Office of Management and Budget.
As a result, a backlog of applications for senior housing facilities developed, and the agency received intense criticism from both sides of the aisle in Congress.
“The Committee is very concerned about the increasing length of time necessary to complete processing for Section 232 applications,” said a Congressional Research Report from the House of Representatives dated July, 2010. ”As private financing has become increasingly difficult to secure, FHA has been a reliable source for the construction and refinancing of units for elders, particularly those in need of supportive services.”
During fiscal year 2010, the timeline for getting an application through FHA’s LEAN processing model continued to increase, despite Congress providing more staff for FHA in response to the increased workload. “This is not due to lack of staff, but rather a misallocation of staff,” said the report.
The House’s Transportation, Housing and Urban Development (THUD) Committee on Appropriations, and Related Agencies also directed FHA to transfer 25 qualified underwriters into the Office of Insured Healthcare Facilities to ease the workload within 30 days of enactment of the bill.
“These staff must be trained on the LEAN processing model and qualified to assist in reducing the backlog of applications in a timely manner,” said the THUD report.
The Senate’s THUD Committee agreed with the House assessment, noting in a CRS report that additional funding provided to HUD would help manage the demand for the Section 232 program. “The funding provided will enable HUD to increase staff within the Office of Insured Healthcare Facilities. This staff is important to efficiently managing its programs, while reducing any risk related to increased business,” said the report.
In response to the requests from Congress, HUD tells SHN that additional staffing slots were provided to the Office of Healthcare Programs.
“Jobs were advertised and selections were made by January 2011, but only seven slots were filled prior to the hiring freeze caused by the Continuing Resolution funding HUD’s budget,” said a spokesperson for HUD. “Additional hires have been made starting in April, and jobs re-advertised where selectees were no longer available.”
The agency said the hiring of these additional staffers as well as an additional allocation of FY 2011 staff should enable OHP to handle submission volume. “The contract personnel is used to work through the backlog that has built up in the meantime,” said the agency.
According to data from HUD, the number of applications comes in at 555 during fiscal year 2011, with 380 currently waiting to be assigned to an underwriter.
Change of Management Could Be A Shift in Favor of Senior Housing
Last year, David Stevens, who was Commissioner of FHA at the time, made it clear to senior housing lobbyists and industry leaders during a meeting in Washington, D.C. that the backlog of Section 232 applications wasn’t a top priority. In response to the growing backlog applications, Stevens suggested the agency make the program less attractive, according to sources present at the meeting.
“[Stevens' comment] demonstrated a serious need for Congress to get involved on behalf of facilities, lenders and ultimately residents of long-term care facilities,” says Christopher Boesen, a lobbyist for Capital Funding Group. “Stevens’ position was that FHA’s resources should be deployed to single-family and only after Olver’s language appeared and House and Senate Appropriations Committee staffers called him on the carpet did that attitude change.”
It’s clear there was frustration among others at FHA, “one staffer quipped that Stevens needed to learn that he was responsible for all of FHA, not just single-family,” he says.
When asked about Steven’s desire to make the program less attractive, HUD said that guidelines for the program were made somewhat more restrictive at the initiative of the OHP through the LEAN application processing model.
“These changes were made to mitigate risk and reflect the Department’s default and claim experience,” said HUD. ”The volume of submitted transactions increased dramatically subsequent to these changes, so they did not have the effect of reducing demand, but rather limited the risk profile of the submissions.”
With Stevens leaving to become the Chief Executive of the Mortgage Bankers Association in May, the remaining staff at HUD do not share Stevens’ opinion on the importance of the program.
“Program staff knew how serious the problem was and were trying to address it, they just weren’t being given the tools to do so,” says Boesen. “I think the health care program staff were almost as frustrated as the applicants.”
In addition to the contract recently put out for bidding, HUD tells SHN the agency has hired 15 this fiscal year and another 13 more are on the way. Despite HUD not meeting the number of staff requested by Congress, Boesen says things could be turning for the better.
“The hope is that the contract can eliminate the backlog and the new hires can prevent one from building up again,” he says.
With the backlog of applications hopefully being worked through in the near future, the industry is continuing to work with the agency to improve other areas. Jeffrey A. Davis, Chairman of Cambridge Realty Capital Companies says a task force is looking into ways to streamline the closing document process. Of special concern is the time-consuming final review that occurs after a firm commitment already has been made to the lender and borrower.
“Senior management at HUD appropriately views the extra 90 days this can take as unacceptable, and is working with the industry to affect improvements in this area,” he said.