American Trust Corporation

FHA Insurance Programs Section 242 - Mortgage Insurance for Hospitals and Critical Access Hospitals

Program: Section 242 provides a loan commitment through FHA from the U.S. Department of Housing and Urban Development (HUD)/Department of Health and Human Services (HHS) on behalf of hospital borrowers nationwide. All Section 242 applications are processed and approved by the Office of Insured Health Care Facilities (OIHCF) in HUD’s Washington, DC headquarters, with technical support and guidance from HHS. Section 242 is available to Hospitals of all sizes nationwide, however HUD also has made it a top priority to increase the availability of Section 242 insurance to Critical Access Hospitals (CAH) which are generally defined as being: (i) limited in size to 15 beds, except swing bed facilities which may have up to 25 beds; (ii) located 35 miles or more from another hospital (15 miles in mountainous terrain or in areas having only secondary roads); (iii) located in rural areas or classified rural/urban areas; (iv) a provider of 24 hour emergency and nursing services.

Purpose: Provides mortgage insurance in connection with New Construction, Substantial Rehabilitation, Modernization, Remodeling, Equipment and Expansions, or Refinances that involve accessing at least 20% in new money proceeds.

Eligible Borrowers: Acute care hospitals with no more than 50% of adjusted patient days attributable to the following services: chronic convalescence and rest, drug and alcoholic, epileptic, nervous and mental, mental deficiency, and tuberculosis. Through the end of the project and for two fiscal years thereafter, it must be anticipated that the adjusted patient days for the above services will not exceed 50%.

Maximum Term: 25 years

Maximum Loan: 90% LTV

Liability: Non-Recourse

FHA Application Fees: 0.3% of the loan amount ($3.00 per $1,000)

Inspection Fee: For new construction or substantial rehabilitation, an inspection fee of 0.5% ($5.00 per $1,000 of the loan amount or costs associated with the rehab) is required

Mortgage Insurance Premium: 0.5% of the outstanding loan amount

Interest Rate: Subject to market conditions, based on the 10-Year Treasury

Funding: Qualifies for government guaranteed mortgage-backed securities, direct placement or may be used to credit enhance tax-exempt bonds

Availability: Nationwide

Timing: Processing can be completed within 120 days from submission of an accepted application

Additional Section 242 Program Requirements:
If a State has a Certificate of Need (CON) process, a CON must already be issued or pending. The borrower must grant the FHA-insured lender a first mortgage on the entire hospital, including all appurtenances such as parking lots, physical plants, etc. (Note: Exceptions may include leased equipment, offsite property, capital associated with affiliations, etc.) The borrower agrees to make monthly payments into a Mortgage Reserve Fund that will build to a balance equal to one year of debt service after five years and two years of debt service after 10 years.
Over the last three full fiscal years, the average operating margin of the facility must have been equal to or greater than 0.00 and the average debt service coverage ratio equal to or greater than 1.25. CAH facilities may calculate this margin as if they had been receiving cost-based reimbursements. For CAH-designated hospitals, the simple test is to calculate the operating margins for the past three years as if the facility had been receiving CAH reimbursement rates for that period time, even if they had not actually received it. Projects that appear financially sound are invited to submit a full application for mortgage insurance processing. Information requested for the Preliminary Information and Pre-Application discussion includes: (i) a copy of the Hospital’s CAH designation, (ii) Loan Request Description and Justification, with Cost Estimates and (iii) Historical and Pro-forma Financial Statements. In addition, if it is available, a copy of the most recent Medicare Cost Report and audited financials are helpful.
Davis Bacon prevailing wage requirements apply to New Construction and Substantial Rehabilitation projects.

In its pre-qualifying review, American Trust Corporation will estimate both the loan amount and the fees and costs associated with the transaction. Actual loan amounts and actual fees and expenses may vary from the pre-qualifying estimates. A pre-qualifying estimate is not a commitment to make a loan.

Application Fee: $2,500 non-refundable inspection/loan processing fee payable to American Trust Corporation with the loan application, will be credited to origination fee at closing

Origination Fee: 1%

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	FHA Insurance Programs Section 242 - Mortgage Insurance for Hospitals and Critical Access Hospitals Program: Section 242 provides a loan commitment through FHA from the U.S. Department of Housing and Urban Development (HUD)/Department of Health and Human Services (HHS) on behalf of hospital borrowers nationwide. All Section 242 applications are processed and approved by the Office of Insured Health Care Facilities (OIHCF) in HUD’s Washington, DC headquarters, with technical support and guidance from HHS. Section 242 is available to Hospitals of all sizes nationwide, however HUD also has made it a top priority to increase the availability of Section 242 insurance to Critical Access Hospitals (CAH) which are generally defined as being: (i) limited in size to 15 beds, except swing bed facilities which may have up to 25 beds; (ii) located 35 miles or more from another hospital (15 miles in mountainous terrain or in areas having only secondary roads); (iii) located in rural areas or classified rural/urban areas; (iv) a provider of 24 hour emergency and nursing services. Purpose: Provides mortgage insurance in connection with New Construction, Substantial Rehabilitation, Modernization, Remodeling, Equipment and Expansions, or Refinances that involve accessing at least 20% in new money proceeds. Eligible Borrowers: Acute care hospitals with no more than 50% of adjusted patient days attributable to the following services: chronic convalescence and rest, drug and alcoholic, epileptic, nervous and mental, mental deficiency, and tuberculosis. Through the end of the project and for two fiscal years thereafter, it must be anticipated that the adjusted patient days for the above services will not exceed 50%. Maximum Term: 25 years Maximum Loan: 90% LTV Liability: Non-Recourse FHA Application Fees: 0.3% of the loan amount ($3.00 per $1,000) Inspection Fee: For new construction or substantial rehabilitation, an inspection fee of 0.5% ($5.00 per $1,000 of the loan amount or costs associated with the rehab) is required Mortgage Insurance Premium: 0.5% of the outstanding loan amount Interest Rate: Subject to market conditions, based on the 10-Year Treasury Funding: Qualifies for government guaranteed mortgage-backed securities, direct placement or may be used to credit enhance tax-exempt bonds Availability: Nationwide Timing: Processing can be completed within 120 days from submission of an accepted application Additional Section 242 Program Requirements: If a State has a Certificate of Need (CON) process, a CON must already be issued or pending. The borrower must grant the FHA-insured lender a first mortgage on the entire hospital, including all appurtenances such as parking lots, physical plants, etc. (Note: Exceptions may include leased equipment, offsite property, capital associated with affiliations, etc.) The borrower agrees to make monthly payments into a Mortgage Reserve Fund that will build to a balance equal to one year of debt service after five years and two years of debt service after 10 years. Over the last three full fiscal years, the average operating margin of the facility must have been equal to or greater than 0.00 and the average debt service coverage ratio equal to or greater than 1.25. CAH facilities may calculate this margin as if they had been receiving cost-based reimbursements. For CAH-designated hospitals, the simple test is to calculate the operating margins for the past three years as if the facility had been receiving CAH reimbursement rates for that period time, even if they had not actually received it. Projects that appear financially sound are invited to submit a full application for mortgage insurance processing. Information requested for the Preliminary Information and Pre-Application discussion includes: (i) a copy of the Hospital’s CAH designation, (ii) Loan Request Description and Justification, with Cost Estimates and (iii) Historical and Pro-forma Financial Statements. In addition, if it is available, a copy of the most recent Medicare Cost Report and audited financials are helpful. Davis Bacon prevailing wage requirements apply to New Construction and Substantial Rehabilitation projects. In its pre-qualifying review, American Trust Corporation will estimate both the loan amount and the fees and costs associated with the transaction. Actual loan amounts and actual fees and expenses may vary from the pre-qualifying estimates. A pre-qualifying estimate is not a commitment to make a loan. Application Fee: $2,500 non-refundable inspection/loan processing fee payable to American Trust Corporation with the loan application, will be credited to origination fee at closing Origination Fee: 1%
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		Global Financing Solutions Short Term Commercial Float to Fixed Small Loan Programs Hard Money Loans Credit Tenant Financing Mezzanine Multifamily Office Health Care Financing Hotel & Resort Financing Auto, Marine & Equipment Financing Mobile Home Park FHA & Fannie Mae Products Self Storage Retail Industrial SBA Programs Factoring and Business Finance Small and Rural Hospital Finance


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