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Welcome to the HUD Hospital Mortgage Insurance Program's Pre-Screening tool. The tool is designed to enable hospitals, lenders, and consultants to understand the Hospital Program's Statutory and Regulatory requirements, and to provide guidance about your project's eligibility for the Program.

Please enter summary data below. Depending on your responses, you will be asked to answer additional questions to help gauge your project's eligibility for financing through HUD.

For each question, please click on the information icon for valuable background and guidance.

Hospital Type:
Hospital Status:

Loan Type:
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The Section 242 program is designed for acute care hospitals that are planning a construction project. While hospitals are allowed to refinance debt with proceeds from a Section 242 financing, in order to qualify for Section 242, at least 20% of the mortgage amount must be used for a construction project.

If the hospital is planning a project that includes close to 80% refinancing, and you're not sure whether it qualifies for Section 242 or Section 223(f), we encourage you to read the Section 242 Preliminary Review Template in Appendix 3 of our Handbook or to contact a staff member for more information.

Click here for more information

The Section 242 program is designed for acute care hospitals that are planning a construction project. While hospitals are allowed to refinance debt with proceeds from a Section 242 financing, in order to qualify for Section 242, at least 20% of the mortgage amount must be used for a construction project.

If the hospital is planning a project that includes close to 80% refinancing, and you're not sure whether it qualifies for Section 242 or Section 223(f), we encourage you to read the Section 242 Preliminary Review Template in Appendix 3 of our Handbook or to contact a staff member for more information.

Click here for more information

The Section 241 program is designed for hospitals that already have an existing loan that was funded through the Section 242 program.

Click here for more information

The Section 223f program is designed for acute care hospitals that need to refinance existing debt. In order to qualify for Section 223(f), at least 80% of the mortgage amount must be used to refinance debt.

If the hospital is planning a project that includes close to 80% refinancing, and you're not sure whether it qualifies for Section 242 or Section 223(f), we encourage you to read Section 242 Preliminary Review Template in Appendix 3 of our Handbook or to contact a staff member for more information.

Click here for more information

The Section 223f program is designed for acute care hospitals that need to refinance existing debt. In order to qualify for Section 223(f), at least 80% of the mortgage amount must be used to refinance debt.

If the hospital is planning a project that includes close to 80% refinancing, and you're not sure whether it qualifies for Section 242 or Section 223(f), we encourage you to read Section 242 Preliminary Review Template in Appendix 3 of our Handbook or to contact a staff member for more information.

Statutory Requirements

Are 50% or more of the hospital's total patient days attributable to acute care services?
Select N/A if you chose "Section 241" under Loan Type
Click here for more information

For Section 242 and 223(f):

The hospital mortgage insurance program is designed for acute care hospitals. OHF uses the patient day calculation to determine whether the hospital is an acute care facility. If more than 50 percent of the hospital's patient days are in ineligible categories (described below), the hospital will not qualify for the Section 242 Program.

Patient days assignable to chronic convalescent and rest, drug and alcoholic, epileptic, mentally deficient, mental, nervous and mental, and/or tuberculosis are ineligible patient days. Included in the ineligible patient day category are patient days attributable to skilled nursing, intermediate care, convalescent care, rehabilitation, and psychiatric care.

For Hospitals that provide a significant level of outpatient services, OHF allows applicants to use an adjusted patient day calculation to determine eligibility. This adjustment may help hospitals meet the patient day calculation in the event that they provide a high volume of outpatient services or narrowly fail the test.

Critical Access Hospitals are exempt from the patient day requirement. If your proposal is for a Critical Access Hospital, this requirement does not apply. Please click "yes" when answering "Are 50% or more of the hospital’s total patient days attributable to acute care services".

For assistance calculating the patient day test using the adjusted patient day calculation, please view Appendix 1 of the Handbook 4615.1 PDF. Please also click here for an excel version of the spreadsheet Excel spreadsheet.

For Section 241:

The Hospital Mortgage Insurance Program is designed for acute care hospitals. OHF uses the patient day calculation to determine whether the hospital is an acute care facility. If more than 50 percent of the hospital's patient days are in ineligible categories (described below), the hospital will not qualify for the program.

Patient days assignable to chronic convalescent and rest, drug and alcoholic, epileptic, mentally deficient, mental, nervous and mental, and/or tuberculosis are ineligible patient days. Included in the ineligible patient day category are patient days attributable to skilled nursing, intermediate care, convalescent care, rehabilitation, and psychiatric care.

In the unusual event that a hospital with an existing HUD-insured financing no longer meets the patient day rule, OHF has exceptions to the rule. If the hospital is designated as a Critical Access Hospital, and originally qualified for Section 242 financing based on the patient day exemption for Critical Access Hospitals, then it does not need to demonstrate compliance with the patient day rule to qualify for a supplemental financing. If this is the case, please click "Yes" above.

For Hospitals that provide a significant level of outpatient services, OHF allows applicants to use an adjusted patient day calculation to determine eligibility. This adjustment may help hospitals meet the patient day calculation in the event that they provide a high volume of outpatient services or narrowly miss the 50% benchmark using acute inpatient days.

Critical Access Hospitals are exempt from the patient day requirement. If your proposal is for a Critical Access Hospital, this requirement does not apply. Please click "yes" when answering "Are 50% or more of the hospital’s total patient days attributable to acute care services".

For assistance calculating the patient day test using the adjusted patient day calculation, please view Appendix 1 of the Handbook 4615.1 PDF. Please also click here for an excel version of the spreadsheet Excel spreadsheet.

If you do not have a PDF reader, you may download Adobe Reader in order to view Appendix 1.
If you do not have Microsoft Excel, you may download Excel Viewer from Microsoft in order to view the worksheet.

Can you demonstrate Market Demand for this hospital?
Select N/A if you chose "Section 241" under Loan Type

Click here for more information

Existing hospitals

For 242 and 223(f):

In order to meet Section 242 statutory requirements, the hospital must meet HUD's "Market Demand" test. HUD evaluates market demand for the hospital through an analysis of the hospital's service area definition, its historical utilization, occupancy, forecasted population growth, competitor data, and other factors.

While we perform a rigorous review of market demand for each deal, it is rare that an existing hospital fails to meet HUD's Market Demand test. Typically, a hospital that records a positive operating margin and maintains a significant or stable level of admissions is able to demonstrate Market Demand.

For the purpose of Pre-Screening for hospital mortgage insurance, HUD assumes that the hospital meets the Market Demand test if it is an existing hospital (as opposed to a start-up, "greenfield" facility).

If the hospital is currently operating (as opposed to a start-up, "greenfield" facility), click "Yes" above.

For 241:

This question does not apply for a 241 loan. Select "N/A".

Start-Up Facilities:

Due to the complexity of start-up facilities, OHF can not Pre-Qualify "greenfield" hospitals for mortgage insurance.

In order to meet Section 242 statutory requirements, start-up facilities must meet OHF's "Market Demand" test. OHF evaluates the market demand for the proposed hospital through an analysis of the hospital's service area definition, its historical utilization, occupancy, forecasted population growth, competitor data, and other factors. HUD also considers factors outlined in the Regulation (need to provide list or link).

OHF performs a rigorous review of "Market Demand" for start-up facilities (ie "greenfield" facilities). Generally, Section 242 insurance may support start-up hospitals only if existing hospital capacity or services are clearly not adequate to meet the needs of the population in the service area. Section 242 mortgage insurance will support start-up hospitals only if HUD determines that the Lender has provided a compelling justification that the market area is underserved by existing hospitals and the new facility will correct this deficiency.

OHF also performs a rigorous review of the proposed hospital and ownership group's financial qualifications. Most critically, OHF evaluates whether the ownership group has enough initial operating capital to cover 6 months to a year of operating expenses prior to collecting revenues for patient services. For more information on the factors OHF evaluates when reviewing proposals for start-up facilities, please view the "Start-Up Supplement to the Preliminary Review Template (provide link).

HUD has successfully insured start-up facilities. Most often, start-up facilities that have obtained HUD financing and achieved operating stability have been supported by large, regional healthcare systems, have been sized appropriately for their market, and meet OHF's rigorous "Market Demand" test.

If you are proposing mortgage insurance for a start-up facility, please review the Start-Up Supplement to the Preliminary Review Template (provide link), and then contact OHF's Director of Underwriting.

Does the hospital have the ability to grant a mortgage, according to organizational or formation documents?
Click here for more information

For Section 242, 223f, and 241:

To be eligible for the hospital mortgage insurance program, HUD requires that the lender have a first lien position on real estate.

If the hospital does not own the real estate in fee simple, and is only able to grant a mortgage on a leasehold interest, then the hospital may still qualify for mortgage insurance if the term of the lease is at least 99 years (or 50 years, with the option to renew at least 49 years). If this is the case with your proposal, however, the proposal can not be Pre-Screened. Please contact the Hospital Program’s Underwriting Director (paul.a.giaudrone@hud.gov) for more details.

Using Net Book value to approximate the replacement cost of the hospital's net property, plant, and equipment, is the Loan-to-Value (LTV) less than or equal to 90%?
Click here for more information

For Section 242 and 223f:

Hospitals must demonstrate no more than a 90 percent LTV ratio to be eligible for FHA mortgage insurance.

LTV is calculated using this formula:

LTV = (Total Proposed Mortgage Amount) / (Total Estimated Replacement Cost)

Total Estimated Replacement Cost includes all Project Costs (including cost of issuance), the value of any land or property, plant, and equipment (PPE) that is to be purchased for the Project, and the net book value of the hospital's PPE (based on the hospital's latest audited financial statement).

For assistance calculating LTV, please use the LTV Worksheet available here Excel spreadsheet

If, based on your calculations within the attached worksheet, the hospital meets the LTV requirement, click "Yes" above.

For Section 241:

Hospitals must demonstrate no more than a 90 percent LTV ratio to be eligible for FHA mortgage insurance.

LTV is calculated using this formula:

LTV = (Total Proposed Mortgage Amount) / (Total Estimated Replacement Cost)

Total Estimated Replacement Cost includes all Project Costs (including cost of issuance), the value of any land or property, plant, and equipment (PPE) that is to be purchased for the Project, and the net book value of the hospital's PPE (based on the hospital's latest audited financial statement).

The Total Proposed Mortgage Amount includes not only the proposed mortgage, but the unpaid principal balances of the hospital's existing HUD-insured loans.

For assistance calculating LTV, please use the LTV Worksheet available here Excel spreadsheet

If, based on your calculations within the attached worksheet, the hospital meets the LTV requirement, click "Yes" above.

?Can a hospital "Pre-qualify" if it needs an appraisal to meet LTV?

Yes, as long as they understand they must submit an appraisal at the app phase, and that the appraisal must support LTV.

If you do not have Microsoft Excel, you may download Excel Viewer from Microsoft in order to view the worksheet.

If "No", if the hospital does not meet LTV using the net book value of PPE, and net PPE understates the value of the property, LTV may be met by providing an appraisal. The appraisal must be prepared by a qualified health care appraiser approved by HUD and licensed in the State in which the hospital is located. The appraisal must be prepared in accordance with OHF guidelines. In your professional opinion, will the hospital meet HUD's 90% LTV requirement with an appraisal?
 

Regulatory Requirements

Does the entity that owns the hospital also operate the hospital?
Select N/A if you chose "Section 241" under Loan Type
Click here for more information

For all sections (242, 223(f), 241)

Some hospitals (typically for-profit facilities) are owned by one entity, but leased to an experienced operator who is responsible for the day-to-day operations of the facility. Unfortunately, OHF prohibits structures where the owner (Mortgagor) of the real estate leases the hospital to an operator. While a separate owner/operator structure is common in other HUD programs, the Section 242 program typically serves not-for-profit borrowers where the owner and operator are the same entity.

Notwithstanding this prohibition, any proposal in which leasing of the entire facility is a factor due to state law prohibitions against the mortgaging of health care facilities by state entities shall be considered on a case-by-case basis. While these proposals may not be Pre-Screened, you may contact the Hospital Program's Underwriting Director (paul.a.giaudrone@hud.gov) for more information

If the owner and operator are the same entity, click "Yes" above.

If there is a construction component to the project, has construction started?
Select N/A if you chose "Section 223(f) (no construction)" under Loan Type
Click here for more information

For Sections 242, 223f, and 241

OHF permits varying levels of site preparation and construction activity to occur prior to application submission, and between application submission and loan closing. Such construction activity is permitted, in certain cases, because it is to the advantage of the proposed Mortgagor to begin construction prior to loan closing.

However, in order to qualify for financing through HUD's hospital program, no construction activity or site preparation may be performed without obtaining HUD's approval first. If construction or site preparation has commenced, unfortunately the project will not qualify for hospital mortgage insurance.

If construction or site preparation has started, please click "Yes" above.

Environmental

Is the hospital located in a Floodway or Coastal Barrier?
Click here for more information

For Sections 242, 241, 223(a)(7) or 223(f)

HUD divides its environmental review by whether the proposed activity is a critical or a non-critical action. A critical action means any activity for which even a slight chance of flooding might be too great because such flooding might result in a loss of life, injury to persons, or damage to property. Critical actions include activities that create, maintain or extend the useful life of those structures or facilities that are likely to contain occupants who may not be sufficiently mobile to avoid loss of life or injury during flood or storm events, such as hospitals or residential care facilities. All Section 242 new construction and substantial rehabilitation projects for hospitals are considered critical actions, as are Section 241 construction projects, and Sections 223(f) and 223(a)(7) refinancings.

HUD cannot insure any critical actions on property located in a floodway or coastal high hazard area. Coastal high hazard area is defined in 24 CFR 55.2 as an area subject to high velocity waters, including but not limited to hurricane wave wash or tsunamis, and will be designed on a Flood Insurance Rate Map as Zone V1-390, VE, or V. Floodways are that portion of the floodplain which is effective in carrying flow, where the flood hazard is generally the greatest, and where water depths and velocities are the highest. This is consistent with the FEMA definition of "regulatory floodways." If your project has any portion of the collateral for the mortgage located in a floodway or coastal high hazard area, the project is not eligible for HUD insurance.

If the project has any real estate located in a 100-year floodplain outside of the high hazard area (designated as Zone A or AE) or in an area between 100-500 year floodplain (Zone B, C, or shaded zone X on older maps), the project MAY be eligible. If the project is an already existing facility seeking a Section 242/223(f) loan, the property is insurable by HUD if it is located in a community in good standing under the National Flood Insurance Program. All other hospital projects located in a 100 or 500 year floodplain will be subject to the 8-step process in 24 CFR 55.20.

Note: The 8-step process will not be required for:

  • a project where an incidental portion is located in an adjacent floodplain if a) the construction and certain landscaping activities do not occupy or modify the 100 or 500 year floodplain, b) appropriate drainage is provided for the site and c) a covenant or restriction is put on the property to prevent future modifications in order to preserve the floodplain.
  • A Project for which FEMA has issued a letter of Map Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes the property from a FEMA designated floodplain OR a conditional LOMA or LOMR where HUD approval is subject to the requirements of the conditional LOMA or LOMR.

A survey of the property will likely show the applicable floodzone, as will most environmental Phase Ones that might exist for the property. You can also find out the floodmap for your property by viewing http://www.fema.gov/media-library-data/e2ddedff608bc2517fc8d529abde9e46/How+to+Find+Your+FIRM+and+Make+a+FIRMette.pdf PDF

More information on Floodzones can be found at http://www.fema.gov/floodplain-management/flood-zones.

If you do not have a PDF reader, you may download Adobe Reader in order to view the PDF.

Financials

Does the average Debt Service Coverage Ratio (DSCR) for the three most recent years meet HUD requirements?
Click here for more information

For Sections 242 and 241

Hospitals with an average debt service coverage ratio (DSC) above 1.25, calculated from the three most recent audited financial statements, are eligible for mortgage insurance. The formula for the debt service coverage ratio is below:

(Excess of Revenues Over Expenses) + Interest Expense + Depreciation Expense + Amortization Expense


Current Portion of Long-Term Debt (Prior Year, Including Capital Leases) + Interest Expense

The DSC is based upon the hospital's "excess of revenues over expenses" (or in the case of for-profit organizations, "net income") as it appears in the hospital's audited financial statements.

The calculations should exclude the operations of affiliates/subsidiaries/business lines that will not be collateral for the insured mortgage.

When the hospital's proposal includes refinancing existing debt with proceeds from the HUD-insured loan, HUD will use an estimate of projected interest rate(s) in lieu of the historical interest rate(s) when calculating the DSC ratio for prior periods. In cases where the projected interest rate is used, the hospital must demonstrate a 1.4x debt service coverage ratio.

If the hospital does not meet the DSC criterion, but has undergone a financial turnaround that has resulted in a DSC of 1.4x in the most recent year, the hospital may be eligible for Section 242 mortgage insurance. This exception to the DSC criterion requires that the hospital demonstrate a 1.4x DSC in the most recent year (as demonstrated in the most recent audited financial statements) at the time of application and that the hospital demonstrate two years of improved debt service coverage (as demonstrated by two audits) at the time of HUD's commitment to insure.

For assistance calculating the DSC ratio, please use the Operating Margin and DSC Worksheet available here Excel spreadsheet.

If, based on your calculations, the hospital meets the DSC requirement, please click "Yes" above.

For Section 223(f)

Hospitals with an average debt service coverage ratio (DSC) above 1.4x, calculated from the three most recent audited financial statements, are eligible for mortgage insurance. The formula for the debt service coverage ratio is below:

(Excess of Revenues Over Expenses) + Interest Expense + Depreciation Expense + Amortization Expense


Current Portion of Long-Term Debt (Prior Year, Including Capital Leases) + Interest Expense

The DSC is based upon the hospital's "excess of revenues over expenses" (or in the case of for-profit organizations, "net income") as it appears in the hospital's audited financial statements.

The calculations should exclude the operations of affiliates/subsidiaries/business lines that will not be collateral for the insured mortgage.

When the hospital's proposal includes refinancing existing debt with proceeds from the HUD-insured loan, HUD will use an estimate of projected interest rate(s) in lieu of the historical interest rate(s) when calculating the DSC ratio for prior periods. In cases where the projected interest rate is used, the hospital must demonstrate a 1.4x debt service coverage ratio.

If the hospital does not meet the DSC criterion, but the hospital's performance in one of the three years used in the calculation was affected by exceptional, one-time events that substantially altered financial performance, you may calculate the three-year average DSC by omitting the unusual year, and substituting the fourth historical year's results.

For assistance calculating the DSC ratio, please use the Operating Margin and DSC Worksheet available here Excel spreadsheet.

If, based on your calculations, the hospital meets the DSC requirement, please click "Yes" above.

If you do not have Microsoft Excel, you may download Excel Viewer from Microsoft in order to view the worksheet.

Is the three-year aggregate operating margin greater than or equal to 0?
Click here for more information

For Sections 242 and 241

Hospitals with an aggregate operating margin of greater than 0.00 percent, when calculated from the three most recent audited financial statements, are eligible for mortgage insurance. The formula for the aggregate operating margin is below:

Operating Income(Year 1) + Operating Income(Year 2) + Operating Income(Year 3)


Total Operating Revenue(Year 1) + Total Operating Revenue(Year 2) + Total Operating Revenue(Year 3)

Operating revenue is the revenue from the core patient care operations of the hospital. It includes revenues from the provision of patient care, transfers from temporarily restricted accounts that are used for current operating expenses, and patient-related activities such as the operation of the cafeteria and parking facilities. OHF's calculation of operating revenue excludes sources of revenue (contributions, grants, and investment income) that are not reliable sources of future revenue. Operating income equals operating revenue minus operating expenses.

The calculations should exclude the operations of affiliates/subsidiaries/business lines that will not be collateral for the insured mortgage.

When the hospital's proposal includes refinancing existing debt with proceeds from the HUD-insured loan, HUD will use an estimate of projected interest rate(s) in lieu of the historical interest rate(s) when calculating the operating margin for prior periods.

If the hospital does not meet the Operating Margin criterion, but has undergone a financial turnaround that has resulted in a positive operating margin in the most recent year, the hospital may be eligible for hospital mortgage insurance. This exception to the Operating Margin criterion requires that the hospital demonstrate a positive operating margin in the most recent year (as demonstrated in the most recent audited financial statements) at the time of application and that the hospital demonstrate two years of positive operations (as demonstrated by two audits) at the time of HUD's commitment to insure.

For assistance calculating the operating margin, please use the Operating Margin and DSC Worksheet available here Excel spreadsheet.

If, based on your calculations, the hospital meets the operating margin requirement, please click "Yes" above.

For Section 223(f)

Hospitals with an aggregate operating margin of greater than 0.00 percent, when calculated from the three most recent audited financial statements, are eligible for mortgage insurance. The formula for the aggregate operating margin is below:

Operating Income (Year 1) + Operating Income (Year 2) + Operating Income (Year 3)


Total Operating Revenue (Year 1) + Total Operating Revenue (Year 2) + Total Operating Revenue (Year 3)

Operating revenue is the revenue from the core patient care operations of the hospital. It includes revenues from the provision of patient care, transfers from temporarily restricted accounts that are used for current operating expenses, and patient-related activities such as the operation of the cafeteria and parking facilities. OHF's calculation of operating revenue excludes sources of revenue (contributions, grants, and investment income) that are not reliable sources of future revenue. Operating income equals operating revenue minus operating expenses.

The calculations should exclude the operations of affiliates/subsidiaries/business lines that will not be collateral for the insured mortgage.

When the hospital's proposal includes refinancing existing debt with proceeds from the HUD-insured loan, HUD will use an estimate of projected interest rate(s) in lieu of the historical interest rate(s) when calculating the operating margin for prior periods.

If the hospital does not meet the Operating Margin criterion, but the hospital's performance in one of the three years used in the calculation was affected by exceptional, one-time events that substantially altered financial performance, you may calculate the three-year aggregate Operating Margin by omitting the unusual year, and substituting the fourth historical year's results.

For assistance calculating the operating margin, please use the Operating Margin and DSC Worksheet available here Excel spreadsheet.

If, based on your calculations, the hospital meets the operating margin requirement, please click "Yes" above.

If you do not have Microsoft Excel, you may download Excel Viewer from Microsoft in order to view the worksheet.

Regulatory Requirements

Collateral

Is the hospital able to pledge all of its integral operational components to the Lender?
Click here for more information

For Sections 242 or 223(f)

The mortgaged property must include all of the hospital's integral operating components, and cover all of the property used in the operation of the entire hospital. This includes the assets and revenue-generating business lines, services, or subsidiaries necessary to operate the hospital, including off-site properties (such as clinics, MOBs, and physician practices). It also includes other major assets, such as equipment and accounts receivable.

OHF generally does not encourage asset exclusions from proposed mortgages. However, in the event that you propose an exclusion, OHF will evaluate the hospital's business case and rationale for that proposal. If the hospital plans on selling real estate in the near future, disposing of property as part of the normal course of business, or other acceptable rationale for an exclusion, HUD encourages you to discuss these plans up front so that accommodations acceptable to HUD can be built into your proposal.

Typically, HUD will exclude foundations, housing, or properties with environmental challenges from the mortgaged property. HUD will also consider excluding off-site properties, if the operations are not critical to the financial well-being of the hospital or if the book value of the property is low.

All property included in the collateral for the mortgage loan must be free and clear of liens, unless liens are approved by HUD. Therefore, all mortgages on real estate must be released using either cash or mortgage proceeds. If debt cannot be extinguished for whatever reason, it may not be eligible to be included in the mortgage.

Some government entities may not have the power to mortgage or lease their property outright. If that power cannot be granted, then the property cannot be included in the mortgage.

Finally, integral operating components may be within other entities within a system. Related entities may need to co-sign the mortgage or security agreement to pledge their assets in addition to the borrower's assets.

If there is nothing preventing the hospital from pledging integral operating components to the lender, such as legal inability to mortgage or an inability to refinance an existing mortgage, click "Yes".

For Section 241

The mortgaged property must include and cover all of the property used in the operation of the entire hospital. This includes the assets and revenue-generating business lines, services, or subsidiaries necessary to operate the hospital, including off-site properties (such as clinics, MOBs, and physician practices). It also includes other major assets, such as equipment and accounts receivable. For your proposed Section 241 loan, if the project will be located on real property not encumbered by the 242 mortgage, a first lien will be placed on property upon which the new 241 project will be located and a second lien on the other assets of the hospital. If the 241 project involves construction on land encumbered by the 242 mortgage, the 241 mortgage will be a second lien on the same collateral as the 242 project.

OHF generally does not encourage asset exclusions from proposed mortgages. However, in the event that you propose an exclusion, OHF will evaluate the hospital's business case and rationale for that proposal. If the hospital plans on selling real estate in the near future, disposing of property as part of the normal course of business, or other acceptable rationale for an exclusion, HUD encourages you to discuss these plans up front so that accommodations acceptable to HUD can be built into your proposal.

Typically, HUD will exclude foundations, housing, or properties with environmental challenges from the mortgaged property. HUD will also consider excluding off-site properties, if the operations are not critical to the financial well-being of the hospital or if the book value of the property is low.

All property included in the collateral for the mortgage loan must be free and clear of liens, unless liens are approved by HUD. Therefore, all mortgages on real estate must be released using either cash or mortgage proceeds. If debt cannot be extinguished for whatever reason, it may not be eligible to be included in the mortgage.

Some government entities may not have the power to mortgage or lease their property outright. If that power cannot be granted, then the property cannot be included in the mortgage.

Finally, integral operating components may be within other entities within a system. Related entities may need to co-sign the mortgage or security agreement to pledge their assets in addition to the borrower's assets.

If there is nothing preventing the hospital from pledging integral operating components to the lender, click "Yes".

Please note that if the hospital purchased or was gifted any real estate since the previous HUD financing closed, or if integral operating components were excluded in the original financing, this real estate may be required to be added to the collateral at initial endorsement of the new loan.

When determining whether to include this collateral, HUD considers the importance of the collateral to the continual functioning of the hospital. While HUD may have allowed an exclusion in the past, exclusions are not automatically granted for Section 241 loans.

Compliance

Is the Hospital in substantial compliance with federal and state regulations governing the operation and reimbursement of hospitals, including Stark and anti-kickback regulations?
Click here for more information

In order to be eligible for the Section 242 Program, the hospital must be in substantial compliance with federal and state regulations governing the operation and reimbursement of hospitals. If there are open and active federal and state investigations, including investigations related to Stark, fraudulent claims, or anti-kickback violations, HUD will perform a review of the facts and circumstances of the case when determining whether it is appropriate for the hospital and lender to submit an application for mortgage insurance.

If, to the best of your knowledge, the hospital is in substantial compliance with federal and state regulations, and there are no significant open and active investigations, please click "Yes" above.

Is the hospital accredited by the Joint Commission or does it have "deemed status"?
Click here for more information

In order to be eligible for mortgage insurance through HUD, the hospital must be accredited and/or have deemed status. Additionally, the hospital must participate in Medicare and Medicaid programs

Regulatory Requirements

Financing

If there is a refinancing component to the proposal or there is a construction component, wWas the debt to be refinanced originally used to purchase or construct a capital asset?
Select N/A if you chose "Section 242 (without Refinancing)" or "Section 241" under Loan Type
Click here for more information

The Hospital Mortgage Insurance Program was created to enable hospitals to acquire debt to fund construction projects and to allow hospitals to refinance capital debt. Capital debt means the outstanding indebtedness used for the construction, rehabilitation, or acquisition of the physical property and equipment of a hospital, including those financing costs approved by HUD.

In order to refinance capital debt with proceeds from a HUD mortgage, the Lender must provide documentation demonstrating that the debt was originally used to acquire capital assets. Documentation may include a sources and uses statement from the original financing or other materials.

Hospitals may not use mortgage proceeds to refinance debt that was used to fund operating expenses, nor use mortgage proceeds to pay operating expenses.

If the hospital is planning to use mortgage proceeds for a construction project or to refinance capital debt, please click "yes" above.

Was the construction funded by the debt to be refinanced through the Hospital Mortgage Insurance Program completed more than 2 years ago?
Select N/A if you chose "Section 242 (without Refinancing)" or "Section 241" under Loan Type
Click here for more information

HUD will only refinance debt associated with construction projects that were completed more than 2 years prior to the anticipated delivery of an application. Debt associated with structures completed fewer than two years prior to submission of the application is not eligible to be refinanced.

Please also note that HUD will not refinance debt for "pick-up projects", i.e. where construction is currently underway.

Are there limited comparable affordable financing vehicles available to the Hospital?
Select N/A if you chose "Section 242 (with Refinancing)", "Section 242 (without Refinancing)", or "Section 241" under Loan Type
Click here for more information

The Section 223(f) program was designed for hospitals that need to refinance capital debt. In order to qualify for the Section 223(f) program, the Hospital and Lender must consider the range of available refinancing options to the Hospital, and certify that there are limited affordable financing vehicles available to the hospital.

HUD recognizes that the Hospital and its financing team have a thorough understanding of the public and private financing options available to refinance its debt. For that reason, HUD relies on these entities to determine whether this criteria is met.

If, in your professional opinion, the Hospital has limited financing vehicles available that are both affordable and comparable to a Section 223f financing, please click "yes" above.

Does the Hospital meet at least three of seven criteria indicating that it has a need to refinance its capital debt?
Select N/A if you chose "Section 242 (with Refinancing)", "Section 242 (without Refinancing)", or "Section 241" under Loan Type
Click here for more information

The Section 223(f) program was created to enable eligible non-portfolio hospitals to refinance existing capital debt without conditioning such refinancing on new construction or renovation. In order to meet eligibility requirements for Section 223(f) mortgage insurance, the hospital must demonstrate that its financial performance would be materially improved by the Section 223(f) refinancing, or it has a "need" to refinance its capital debt.

To measure the hospital's need to refinance, HUD developed 7 benchmarks or factors (criteria). Each of these factors, if met by the Hospital, indicates some need to refinance. Hospitals must meet at least 3 of these 7 criteria in order to demonstrate that its financial performance would be materially improved by the refinancing, and meet this requirement.

The criteria are as follows:

  1. THE PROPOSED REFINANCING WOULD REDUCE THE HOSPITAL'S TOTAL OPERATING EXPENSES BY AT LEAST 0.25 PERCENT
  2. THE INTEREST RATE OF THE PROPOSED REFINANCING WOULD BE AT LEAST 0.5 PERCENTAGE POINTS LESS THAN THE INTEREST RATE ON THE DEBT TO BE REFINANCED
  3. THE INTEREST RATE ON THE DEBT THAT THE HOSPITAL PROPOSES TO REFINANCE HAS INCREASED BY AT LEAST ONE PERCENTAGE POINT AT ANY TIME SINCE JANUARY 1, 2008, OR IS VERY LIKELY TO INCREASE BY AT LEAST ONE PERCENTAGE POINT WITHIN ONE YEAR OF THE DATE OF APPLICATION
  4. THE HOSPITAL'S ANNUAL TOTAL DEBT SERVICE IS IN EXCESS OF 3.4 PERCENT OF TOTAL OPERATING REVENUES, BASED ON ITS MOST RECENT AUDITED FINANCIAL STATEMENT
  5. THE HOSPITAL HAS EXPERIENCED A WITHDRAWAL OR EXPIRATION OF ITS CREDIT ENHANCEMENT FACILITY, OR THE LENDER PROVIDING ITS CREDIT ENHANCEMENT FACILITY HAS BEEN DOWNGRADED, OR THE HOSPITAL CAN DEMONSTRATE THAT ONE OF THESE EVENTS IS IMMINENT
  6. THE HOSPITAL IS PARTY TO COVENANTS ON ITS EXISTING FINANCING THAT ARE SUBSTANTIALLY MORE RESTRICTIVE THAN THE SECTION 242 MORTGAGE COVENANTS
  7. THERE ARE OTHER CIRCUMSTANCES THAT DEMONSTRATE THAT THE HOSPITAL'S FINANCIAL PERFORMANCEWOULD BE MATERIALLY IMPROVED BY REFINANCING ITS EXISTING CAPITAL DEBT

Because some of these criteria are qualitative or require an analysis of the debt to be refinanced, HUD acknowledges that the Hospital and its financing team are in the best position to gauge whether the criteria are met. Therefore, HUD relies on the Hospital and its financing team to make this determination.

However, if you are not sure whether the Hospital meets one or more of these criteria, or need help interpreting the criteria, please contact HUD for guidance (paul.a.giaudrone@hud.gov).

If, in your professional opinion, the Hospital meets three of the seven criteria outlined, please click "yes" above.

Will the proposed refinancing reduce the Hospital's monthly debt service costs?
Select N/A if you chose "Section 242 (with Refinancing)", "Section 242 (without Refinancing)", or "Section 241" under Loan Type
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In order to qualify for Section 223(f), the proposed refinancing must reduce the monthly debt service costs of the hospital. When evaluating the criteria, the Lender and Hospital should consider the HUD mortgage insurance premium and other annual expenses associated with the current financing. You should also exclude the portion of the proposed loan related to new construction, if a construction or equipment portion is proposed.

HUD relies on the Lender and Hospital to determine whether these criteria are met.

If you are not sure whether the Hospital meets one or more of these criteria, or need help interpreting the criteria, please contact HUD for guidance (paul.a.giaudrone@hud.gov).

If, in your professional opinion, the proposed refinancing will reduce the Hospital's monthly debt service costs, please click "yes" above.