In an effort to summarize the highlights of the LEAN Email Blasts that we receive, and rarely have time to review in a timely fashion, we at Pepper Hamilton are providing this quick synopsis of the latest LEAN update. Our aim is to provide pertinent information succinctly as a roadmap to the LEAN Email Blasts, not to replace the LEAN Email Blasts. We hope you find these summaries helpful. Here is a link to the complete February 25, 2015 LEAN Blast.

New Insurance Requirements for All Applications Received on or After November 1, 2014

As set forth in the Email Blasts of June 26, 2014September 5, 2014 and October 30, 2014, all applications received on or after November 1, 2014 must comply with the new insurance requirements set forth in the Handbook Section II, Production, Chapter 14.

A new column, updated monthly, that indicates which projects are subject to the new insurance requirements has been added to the “Account Executive Facility Assignments - Contact Listing.”

Calculation of Estimated Replacement Cost and Sample Lender Narrative Language for Property Insurance

As stated in Handbook 4232.1, Section II, Chapter 14.5, property insurance coverage must be 90% of the Estimated Replacement Cost, which should still be listed in the Project Capital Needs Assessment (PCNA) (identified as Insurable Value or Replacement Cost, not Replacement Cost New).

If the Estimated Replacement Cost is not provided in the PCNA, a report using valuation software, such as Marshall and Swift or a similar industry-recognized software, may be submitted.

The LEAN Blast also provided sample language for the Property Insurance section of the Lender Narrative.

Upcoming Implementation of Submittal of Quarterly Operator Financial Statements Through the Section 232 Health Care Portal

The Accountability Rule, published on September 7, 2012, established the requirement for quarterly operator financials on Section 232 properties but did not commence until further notice. On October 3, 2014, HUD issued aFederal Register Notice, which requires quarterly financial reporting for project fiscal years commencing on or after December 2, 2014.

Therefore, if the facility is on a calendar-year fiscal year, the new operator reporting requirements begin with the first quarter of calendar year 2015. For these projects, the first-quarter financials will be due at the end of May 2015 (60 days following the end of the first quarter).

The LEAN Blast details how the Operator Financial Final Rule is being implemented.

Operator Financial Statements Generally Need Not Be Audited

The requirement of operator financial statement submissions was set forth in the Accountability Rule (FR–5465–F–03), and the requirement is now at 24 C.F.R. 5801(c)(4). That provision states that, generally, operator financial statements may be operator-certified rather than audited. Please be advised that all operator financials, regardless of the regulatory agreement language, do not have to be audited except in a manner consistent with the Accountability Rule.

Increase in Reserve for Replacement Deposits to Avoid Mortgage Reductions

ORCF has increased the maximum amount that may be added — without having to obtain underwriter approval — to the initial deposits to the reserve for replacement account to avoid small mortgage reductions. The amount has been increased to $40,000. Requests for more than $40,000 will still include underwriter approval.

Updated Firm Application Checklists and Firm Commitments

ORCF has recently made minor edits and posted updated versions of the Firm Application Checklists for (a)(7)(f)and NC deals and the Firm Commitment for (a)(7)(f) and NC deals on the Section 232 Program website. The Firm Commitment edits involve, among other things, updating the list of attachments to address revised insurance requirements that became effective November 1, 2014.

Project Coordinators on Mortgagor Audited Financials Submitted Through FASS

ORCF reminds everyone that a project should have a minimum of two coordinators, one of whom should be the Owner, to receive the letters generated by HUD’s FASS regarding any findings or concerns that HUD may have.

Clarification on Quality Control Plans

In accordance with the Section 232 Handbook 4232.1, Section I, Chapter 2.9, Lender Quality Control Plans and Reviews are now in effect for Section 232. Low-volume Section 232 lenders may request a waiver for the QC Plan for 2014 only. All 232 lenders must comply beginning in 2015. Waiver requests should be sent to Mary Walsh, National Lender Relations Liaison.

New Issue Resolution Committee

ORCF has created a new process for addressing outstanding issues. After the initial review, any unresolved deficiencies will now be taken to an Issue Resolution Committee, which will work directly with lenders and the HUD underwriters to reach resolution.

Update on Regulatory Agreement Releases

Requests for releases of Regulatory Agreements for facilities with mortgages insured under Section 232 must be sent to for processing and/or response. Please contact Keisha L. Brooks, Deputy Assistant General Counsel, Office of General Counsel, Multifamily Division, at 202.402.5225.

If a facility has a HUD-held mortgage, requests for regulatory agreement releases must be sent to the Multifamily Notes Servicing Branch in HUD Headquarters and marked for the attention of Peggy Russo.

Updated Lender’s PreConstruction Conference Agenda

The Lender’s PreConstruction Conference Agenda has been updated to more clearly point out applicable HUD Handbook 4232.1 references.

The related Lender PreConstruction Conference Duties document is unchanged and still dated May 30, 2014.

Updated Statements of Work

The following Statements of Work have been updated:

ORCF Tips for Maximum Insurable Loan Calculation

The LEAN Blast provided a number of tips for submitting the Maximum Insurable Loan Calculation (MILC) - form HUD-92264A-ORCF.

CMS Changes to Five-Star Rating System

The Centers for Medicare and Medicaid Services (CMS) has announced several changes to the Five-Star Rating System to improve consumer information about the quality of nursing homes.

ORCF Webinar Presentation: April 1, 2015 Focus Is Owner/Operator Compliance Issues

ORCF will present a one-hour webinar at 2:00 p.m. EDT on April 1, 2015. The free webinar is hosted by the American Health Care Association/National Center for Assisted Living and will be open to everyone. Parties who wish to participate must register here.

Reminder for 232 New Construction Contracts

ORCF’s policy for Retainage Reduction Riders attached to executed HUD Construction Contracts must be in accordance with the policy found in new Handbook 4232.1, Section II – Production, Chapter 10.15.D. Note that the retainage amounts are different than the current Multifamily Housing policy, and Multifamily Housing Riders will not be accepted.