Lancaster Pollard, HUD LEAN Lending

Lancaster Pollard Reclaims Top Spot Among Seniors Housing HUD LEAN Lenders

by Jeff Shaw

For the second time in three years, Lancaster Pollard can lay claim to being the most active seniors housing lender in the U.S. Department of Housing and Urban Development’s LEAN mortgage insurance program. The Columbus, Ohio-based firm closed 65 loans totaling $531 million in fiscal year 2015 to earn the No. 1 ranking. (HUD’s fiscal year runs from Oct. 1 through Sept. 30.)

What’s more, Lancaster Pollard’s activity in the HUD LEAN program in FY 2015 was more than double that of its next closest competitors, both in number of loans closed and total loan amount.

Housing & Healthcare Finance LLC ranked as the No. 2 lender by dollar volume with a total loan amount of $264 million in FY 2015. Meanwhile, Capital Funding LLC recorded the second highest number of loans closed at 28.

Lancaster Pollard’s No. 1 ranking shouldn’t come as a surprise. During the past six fiscal years, the company has generated the largest volume of HUD LEAN activity with 461 loans closed totaling $3.4 billion. In FY 2013, it also recorded the highest loan production among lenders in the program with $811.7 million in loans closed.

Driving factors

The vast majority of Lancaster Pollard’s deal volume in FY 2015 stemmed from the FHA Section 232/223(f) program, which provides mortgage insurance for the refinancing or purchase of existing skilled nursing and assisted living communities. The 223(f) loans are new loans coming into the HUD program.

The refinancing of existing HUD loans, also known as 223(a)(7) loans, also helped boost lending totals, but to a lesser degree.

“With interest rates remaining below long-term historical averages throughout 2015, we were able to close 55 refinancings utilizing the FHA Section 232/223(f) and 223(a)(7) programs, reducing rates for our clients and better positioning them for the future,” says Kass Matt, president of Lancaster Pollard.

“In addition, we closed 10 loans through the FHA Section 232 and 241(a) programs that provided funds for new construction, expansion and substantial renovations, allowing our clients to improve their facilities to better serve their residents,” adds Matt.

Taking advantage of the 232/223(f) program, Lancaster Pollard recently provided The Village at Marymount, a nonprofit entity affiliated with the Sisters of St. Joseph of the Third Order of St. Francis, with a $17 million refinance loan

Located in Garfield Heights, Ohio, The Village at Marymount is a continuing care retirement community that consists of Villa St. Joseph, a 102-bed skilled nursing and 12-bed Alzheimer’s care facility; Marymount Place, a 104-unit assisted living facility; and Clare Hall, a long-term care facility that includes a newly renovated 10-bed inpatient hospital unit.

The $17 million loan features a low interest rate, carries a 35-year term, is non-recourse, has no financial covenants, and provides for approximately $171,000 in annual debt service savings as well as nearly $75,000 for repairs and improvements.

Victim of its own success?

A comparison of production data for the HUD LEAN mortgage insurance program over the past few years shows a sharp drop in deal volume over time. The program generated $2.7 billion in loan volume in FY 2015, a reduction of 35.7 percent compared with $4.2 billion in FY 2014 and 53.4 percent less than HUD’s record total of $5.8 billion in FY 2013.

“The prior year was so frothy.There were a lot of deals that got financed in a couple of big portfolios. This past year, I don’t think there were as many portfolios
that were refinanced,” says Erik Lindenauer, a director with Housing & Healthcare Finance, which ranked as the top HUD LEAN lender in FY 2014 with $748.4 million in loans closed.

“This past year was still a fabulous year by every count from a historical perspective. It just happened to be down from a grand slam,” adds Lindenauer.

The final figures show that 40 lenders closed loans within the HUD LEAN program during FY 2015, and the total number of loans closed was 291.

The rest of the story

Lindenauer says that the $264 million in loans closed by Housing & Healthcare Finance in FY 2015 doesn’t tell the whole story. The firm completed an additional $225 million in loan modifications during the year, but because loan modifications are not technically new loans the figures aren’t included in the final loan production figures.

A loan modification allows a borrower in the HUD LEAN program to take advantage of a lower interest rate, but all other terms of the existing loan remain the same. The borrower is not allowed to increase the loan balance. “We like the ease of the loan modification program. We felt that it was a big benefit to our borrowers, and so we opted to push them toward that program.”

Housing & Healthcare Finance anticipates a quick start out of the gate in FY 2016. The firm will close on about $175 million in loan commitments issued in late FY 2015. In short, Lindenauer is confident the company will exceed last year’s lending total of $264 million.

“Our pipeline remains strong, and we’re still seeing a lot of M&A activity,” says Lindenauer. “We’re also getting a lot more involved in the bridge loan space. Maybe a borrower has to close on a loan quickly and have it season a little bit before bringing that loan to HUD. We believe that we’re going to have a better year without the loan modifications.”

 — Matt Valley

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