What is HUD LEAN?
The HUD LEAN program is a streamlined method of processing HUD 232 applications patterned after Toyota’s operational processes.
The U.S. Department of Housing and Urban Development (HUD) in Relation to HUD 232 Loans
The HUD LEAN program is a streamlined method of processing HUD 232 applications patterned after Toyota’s operational processes. This program has been able to significantly reduce processing times. As a result, some HUD 232 loans can take as little as 4 months to close.
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What is HUD LEAN and how does it work?
HUD LEAN is a streamlined method of processing HUD 232 applications patterned after Toyota’s operational processes. This program has been able to significantly reduce processing times. As a result, some HUD 232 loans can take as little as 4 months to close.
Some of the main "LEAN" changes over the previous method are:
- Standardized checklists, certifications, statements of work for third-party work, and lender templates for the application package.
- Standardized punch-lists used by HUD staff in underwriting.
- The removal of duplicate and unnecessary portions of the application process and requirements. For example, closing-related documents submitted with the Firm Application don’t need to be submitted later in the process as well.
- Revised third-party appraisal requirements. Lean appraisals are market appraisals eliminating the need to use HUD forms.
- No proprietary earnings carve out.
What are the benefits of HUD LEAN financing?
The HUD LEAN program is a streamlined method of processing HUD 232 applications patterned after Toyota’s operational processes. This program has been able to significantly reduce processing times, allowing some HUD 232 loans to close in as little as 4 months. Additionally, HUD LEAN financing offers extremely high leverage, with loan-to-cost ratios of up to 85% for market-rate properties, 87% for properties with an affordable housing component, and 90% for subsidized housing developments.
What types of projects are eligible for HUD LEAN financing?
HUD LEAN financing is available for a variety of projects, including healthcare facilities, nursing homes, assisted living facilities, and other multifamily and commercial real estate projects. According to HUD232.loans, the specific requirements for HUD LEAN processing include:
- Physical Property Exam: HUD requires that a third-party expert examine the property, determining the specific amount of replacement reserves that it will require. If significant work on the property is required, it may require a HUD 232 loan for substantial rehabilitation.
- Credit/Financial Check/Experience: HUD will examine a developer's credit history, financial health, and will look into any experience they have-- including any other facilities they own/operate (or have owned/operated).
- Formal Incident Reports: A formal, software-based incident reporting system is required for all properties using HUD 232 loans.
- Special Portfolio Reviews: If a borrower has three or more properties with the same ownership, HUD may order an additional review and may also require a master lease.
What are the requirements for HUD LEAN financing?
HUD 232 LEAN processing has specific requirements, including:
- Physical Property Exams: Third-party property exams are required in order to determine the condition of the property itself; for properties that may require a lot of repairs, a HUD 232 loan for substantial rehabilitation may be recommended.
- Credit Check: HUD/FHA will look at a borrower's credit history and financial experience to determine if they're a good fit for a HUD 232 loan.
- Developer Experience: HUD/FHA will also examine a developer's experience in the healthcare industry, especially the financial health of any healthcare properties that they currently own.
- Formal Incident Reports: HUD now requires that all properties using HUD 232 financing have a formal, software-based incident reporting system.
- Special Portfolio Reviews: For borrowers with more than one HUD 232-insured property, HUD may require a special review, and, for borrowers with three or more properties, HUD may require a master lease.
How can I apply for HUD LEAN financing?
You can apply for HUD LEAN financing by submitting an application to the Office of Residential Care Facilities (OCRF) through your lender. The application process is streamlined and typically follows five steps:
- Application submission
- Preliminary underwriting
- Due diligence measures and third-party verification
- Receipt of HUD firm commitment letter
- Finalization of loan documentation and closing
In 2021, the HUD 232 LEAN process has been further streamlined with standardized forms, no duplicate submissions, and no propriety earning carve-outs. For more information, please visit https://www.multifamily.loans/hud-232-lean-loans.