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HUD 232 Program Raises Lending Threshold for Portfolio Corporate Credit Review

Update Allows Existing Owner/Operators an Additional $100+ Million of Borrowing Capacity Before Added Layer of HUD Review and Debt Service Reserve Requirements

The Department of Housing and Urban Development (HUD) revised its Corporate Credit Review (CCR) process for portfolios utilizing FHA Section 232 programs to finance residential care facilities. Updates were detailed in a mortgagee letter distributed on March 11, 2024. 

HUD previously required owners and operators of residential care portfolios with an aggregate unpaid mortgage amount of $90 million or greater to undergo a Portfolio Corporate Credit Review before applying for any additional loans. This applies to all acquisition, refinance, new construction, or substantial rehabilitation activity as well as any change in ownership and/or a change in control of borrower or operator. Section 232(a)(7) rate modifications are exempt from CCR requirements. 

Effective April 10, 2024, identity-of-interest borrowers/operators can grow their portfolios to 0.6% of the total HUD/FHA Section 232 portfolio – equivalent to $193.8 million based on HUD's $32.3 billion portfolio balance on September 30, 2023 (HUD fiscal year end 2023) – before requiring a CCR. If a borrower only owns the real estate associated with transactions, the threshold rises to $323 million.

Summary of Corporate Credit Review Threshold Criteria Changes 
Prior Criteria for CCR Revised Criteria for CCR

(UPB utilized for purposes of thresholds will be set annually in conjunction with HUD’s fiscal year (FY) and is the total UPB for all insured 232 mortgages as of the end of the prior FY. Portfolio UPB size at the end of HUD FY 2023 was $32.3 billion.)

CCRs take 90 days or more to complete, which adds additional time to the HUD/FHA financing process. In addition to the added timing, once deals are approved under a CCR, all additional deals require a mortgage reserve fund of several months, adding costs to the transaction.

In addition to the increased thresholds, borrowers in good standing are now able to obtain up to $50 million in additional Section 232 financing within 18 months of their last portfolio closing without additional CCR requirements. 

Reach out to Erik Lindenauer, President - FHA Lending or Michael Gehl, Chief Investment Officer - FHA Lending, with any questions.