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					                                                                                                                                           Friday,
                                                                                                                                           January 29, 2010




                                                                                                                                           Part III

                                                                                                                                           Department of
                                                                                                                                           Housing and Urban
                                                                                                                                           Development
                                                                                                                                           24 CFR Part 242
                                                                                                                                           Federal Housing Administration (FHA):
                                                                                                                                           Hospital Mortgage Insurance Program—
                                                                                                                                           Refinancing Hospital Loans; Proposed
                                                                                                                                           Rule
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                                                     4964                     Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules

                                                     DEPARTMENT OF HOUSING AND                               the development of a final rule that will              are available for inspection and
                                                     URBAN DEVELOPMENT                                       codify in regulation FHA’s refinancing                 downloading at http://www.regulations.
                                                                                                             authority for hospitals.                               gov.
                                                     24 CFR Part 242                                         DATES: Comment Due Date: March 30,                     FOR FURTHER INFORMATION CONTACT:
                                                     [Docket No. FR–5334–P–01]                               2010.                                                  Roger E. Miller, Director, Office of
                                                                                                             ADDRESSES: Interested persons are                      Insured Health Care Facilities, Office of
                                                     RIN 2502–AI74                                                                                                  Housing, Department of Housing and
                                                                                                             invited to submit comments regarding
                                                                                                             this rule to the Regulations Division,                 Urban Development, 451 7th Street,
                                                     Federal Housing Administration (FHA):                                                                          SW., Washington, DC 20410–8000;
                                                     Hospital Mortgage Insurance                             Office of General Counsel, Department
                                                                                                             of Housing and Urban Development,                      telephone number 202–708–0599 (this
                                                     Program—Refinancing Hospital Loans                                                                             is not a toll-free number). Hearing- and
                                                                                                             451 7th Street, SW., Room 10276,
                                                     AGENCY: Office of the Assistant                         Washington, DC 20410–0500.                             speech-impaired persons may access
                                                     Secretary for Housing—Federal Housing                   Communications must refer to the above                 this number through TTY by calling the
                                                     Commissioner, HUD.                                      docket number and title. There are two                 Federal Information Relay Service at
                                                                                                             methods for submitting public                          800–877–8339 (this is a toll-free
                                                     ACTION: Proposed rule.
                                                                                                             comments. All submissions must refer                   number).
                                                     SUMMARY: This rule proposes to revise                   to the above docket number and title.                  SUPPLEMENTARY INFORMATION:
                                                     the regulations governing FHA’s Section                    1. Submission of Comments by Mail.
                                                     242 Hospital Mortgage Insurance                                                                                I. Background—The Section 242
                                                                                                             Comments may be submitted by mail to
                                                     Program (Section 242 program) for the                                                                          Hospital Mortgage Insurance Program
                                                                                                             the Regulations Division, Office of
                                                     purpose of codifying, in regulation,                    General Counsel, Department of                            Section 242 of the National Housing
                                                     FHA’s implementation of its authority                   Housing and Urban Development, 451                     Act (12 U.S.C. 1715z–7) authorizes FHA
                                                     that allows hospitals to refinance                      7th Street, SW., Room 10276,                           to insure mortgages to finance the
                                                     existing loans, without requiring such                  Washington, DC 20410–0500.                             construction or rehabilitation of public
                                                     refinancing to take place only in                          2. Electronic Submission of                         or private nonprofit and propriety
                                                     conjunction with the expenditure of                     Comments. Interested persons may                       hospitals, including for major movable
                                                     funds for construction or renovation,                   submit comments electronically through                 equipment, as well as to refinance
                                                     which is the existing program                           the Federal eRulemaking Portal at                      existing debt. Section 242 of the
                                                     requirement. The current downturn in                    http://www.regulations.gov. HUD                        National Housing Act (NHA) provides
                                                     the economy, which has reduced the                      strongly encourages commenters to                      this authority to FHA to: (1) Assist in
                                                     availability of private financing, has not              submit comments electronically.                        maintaining the availability of hospitals
                                                     only adversely affected the housing                     Electronic submission of comments                      needed for the care and treatment of
                                                     industry, but has had a serious impact                  allows the commenter maximum time to                   persons who are acutely ill or who
                                                     on hospitals across the Nation. At a time               prepare and submit a comment, ensures                  otherwise require medical care and
                                                     when the demand for health care                         timely receipt by HUD, and enables                     related services of the kind customarily
                                                     services is on the rise, the lack of access             HUD to make them immediately                           furnished only (or most effectively) by
                                                     to capital has made it difficult for                    available to the public. Comments                      hospitals (see 12 U.S.C. 1715z–7(a)); and
                                                     hospitals to obtain financing for facility,             submitted electronically through the                   (2) encourage the provision of
                                                     equipment, and technology needs, as                     http://www.regulations.gov Web site can                comprehensive health care, including
                                                     well as to meet obligations on existing                 be viewed by other commenters and                      outpatient and preventive care, as well
                                                     debt. By expanding FHA’s Hospital                       interested members of the public.                      as hospitalization. In the case of public
                                                     Mortgage Insurance Program to allow for                 Commenters should follow the                           hospitals, Section 242 of the NHA
                                                     refinancing of existing debt without                    instructions provided on that Web site                 (Section 242) is designed to encourage
                                                     conditioning such refinancing on new                    to submit comments electronically.                     programs to provide health care services
                                                     construction or renovation, HUD                                                                                to all members of a community
                                                                                                               Note: To receive consideration as public
                                                     believes it can contribute to alleviating               comments, comments must be submitted                   regardless of ability to pay. (See 12
                                                     financial stress on hospitals and                       through one of the two methods specified               U.S.C. 1715z–7(f).)
                                                     maintaining the availability of hospitals               above. Again, all submissions must refer to               Entities that are insured under FHA’s
                                                     in many communities. This refinancing                   the docket number and title of the rule.               Section 242 program include health-care
                                                     authority is specifically for the                         No Facsimile Comments. Facsimile                     facilities that range in size from large
                                                     refinancing of non-FHA-insured loans of                 (FAX) comments are not acceptable.                     urban teaching hospitals to small rural
                                                     hospitals. Hospitals currently insured                    Public Inspection of Public                          hospitals, and critical access hospitals
                                                     under FHA’s Section 242 program may                     Comments. All properly submitted                       (hospitals with 25 beds or less that have
                                                     refinance under the National Housing                    comments and communications                            received designation as such by states
                                                     Act.                                                    submitted to HUD will be available for                 and the U.S. Department of Health and
                                                        In order to allow eligible hospitals                 public inspection and copying between                  Human Services). To be eligible for
                                                     seeking to refinance debt the                           8 a.m. and 5 p.m. weekdays at the above                mortgage insurance under the Section
                                                     opportunity to immediately apply for a                  address. Due to security measures at the               242 program, facilities must be properly
                                                     refinanced loan under the Section 242                   HUD Headquarters building, an advance                  licensed, provide primarily acute
                                                                                                                                                                    patient care, and be able to demonstrate
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                                                     program, FHA proceeded to implement                     appointment to review the public
                                                     this authority by notice issued on July                 comments must be scheduled by calling                  the need for the project. Key program
                                                     1, 2009, and, as subsequently revised by                the Regulations Division at 202–708–                   criteria include a maximum loan-to-
                                                     a January 2010 notice. This proposed                    3055 (this is not a toll-free number).                 value of 90 percent and a loan term of
                                                     rule provides the regulatory format for                 Individuals with speech or hearing                     25 years.1
                                                     such implementation and seeks                           impairments may access this number                       1 More information about HUD’s Section 242
                                                     comment on the implementation.                          through TTY by calling the Federal                     program can be found at: http://portal.hud.gov/
                                                     Comments received in response to this                   Information Relay Service at 800–877–                  portal/page?_pageid=73,1826910&_dad=portal&_
                                                     rule will be taken into consideration in                8339. Copies of all comments submitted                 schema=PORTAL.



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                                                                              Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules                                             4965

                                                        The regulations for the Section 242                  for hospitals is an action that could and              renovations, and/or equipment, the cost
                                                     program are codified in 24 CFR part                     should be taken at this time.                          of which is less than 20 percent of the
                                                     242. In 2005, HUD initiated rulemaking                                                                         mortgage amount. The statute makes a
                                                                                                             II. This Proposed Rule
                                                     to update the Section 242 program                                                                              distinction between ‘‘substantial
                                                     regulations and to bring them in                           This rule proposes to amend FHA’s                   rehabilitation,’’ which cannot be carried
                                                     conformity with current hospital                        recently updated Section 242                           out under Section 223(f) authority, and
                                                     financing practices of that time. Prior to              regulations (which were subject to                     the relatively less substantial work that
                                                     the initiation of the 2005 rulemaking,                  public comment) to provide for the                     is allowed under Section 223(f). For this
                                                     the regulations were last amended in                    regulatory codification of FHA’s                       reason, the definition of substantial
                                                     1995. (See proposed rule published on                   authority to refinance hospital debt                   rehabilitation was revised to make clear
                                                     January 10, 2005, at 70 FR 17250.) That                 under Section 223(f), without                          the difference between the work
                                                     rulemaking resulted in final regulations                conditioning the refinancing on new                    performed in a Section 242 project (20
                                                     being promulgated on November 28,                       construction or renovation. The Section                percent or more of the mortgage
                                                     2007. (See final rule published on                      223(f) refinancing authority as a                      amount) and the work allowed in
                                                     November 28, 2007, at 72 FR 67524.)                     component of the Section 242 program                   connection with a refinance mortgage
                                                     Although HUD has long had the                           is referred to as the Section 242/223(f)               under Section 223(f) (under 20 percent
                                                     authority, under section 223(f) of the                  program. This refinancing authority is                 of the mortgage amount). Since the
                                                     NHA,2 to provide for refinancing of                     for hospitals without FHA-insured                      revision to the definition of ‘‘substantial
                                                     hospital debt without conditioning such                 loans. Hospitals with FHA-insured                      rehabilitation’’ includes a reference to
                                                     refinancing on new construction or                      loans are eligible for refinancing of debt             ‘‘hard costs,’’ HUD added this definition
                                                     renovation, and HUD has implemented                     (without conditioning refinancing on                   for clarity purposes.
                                                     this authority for multifamily rental                   new construction or renovation) under
                                                     housing and health care facilities, HUD                 section 223(a)(7) of the NHA.                          Eligibility for Insurance and Transition
                                                     has not implemented this authority for                  Specifically, the amendments proposed                  Provision (Section 242.4)
                                                     hospitals. To date, it has been HUD’s                   by this rule would modify the                            This rule expands eligibility for
                                                     view that private capital to help                       regulations in 24 CFR part 242, as                     insurance to include ‘‘refinancing of the
                                                     hospitals refinance debt was sufficiently               described in this section of the                       capital debt of an existing hospital
                                                     available, and that the demand for this                 preamble, to reflect the authority                     pursuant to section 223(f) of the NHA
                                                     type of refinancing was not as great as                 already implemented by notice that                     (Section 242/223(f)).’’
                                                     was the need for financing for new                      allows for refinancing without the
                                                                                                             necessity for new construction or                      Limitation on Refinancing of Existing
                                                     construction, renovation and
                                                                                                             renovation. As noted earlier in this                   Indebtedness (Section 242.15)
                                                     rehabilitation, and equipment
                                                     purchases.                                              preamble, FHA proceeded to implement                      This rule adds a new paragraph (b) to
                                                        Since HUD initiated rulemaking to                    this authority by notice issued on July                § 242.15 to provide that, in the case of
                                                     update its Section 242 program                          1, 2009, and, as subsequently revised by               a loan insured under Section 242/223(f),
                                                     regulations, the availability of credit has             a January 2010 notice, which can be                    there is no requirement for hard costs.
                                                     rapidly declined. Just as HUD has                       found at http://www.hud.gov/offices/                   However, if there are hard costs, such
                                                     initiated programs and initiatives to                   adm/hudclips/notices/hsg/files/09-                     costs must total less than 20 percent of
                                                     assist troubled homeowners, through                     05hsgn.doc. All regulations in 24 CFR                  the total mortgage amount.
                                                     this rule, HUD believes it can provide                  part 242 would be applicable to Section
                                                                                                                                                                    Applications (Section 242.16)
                                                     relief to hospitals that are experiencing               242/223(f) refinancing—those proposed
                                                     increased debt-services costs. A report                 to be modified by this rule and those not                 The rule amends § 242.16(a)(2) to
                                                     issued by the American Hospital                         modified by this rule.                                 make certain amendments to the
                                                     Association on January 6, 2009,                                                                                regulatory provisions concerning
                                                                                                             Definitions (Section 242.1)                            financial eligibility of hospitals seeking
                                                     describes the financial problems facing
                                                     hospitals and health care facilities                       This proposed rule adds a definition                refinancing under Section 242/223(f).
                                                     today, and recommends actions that                      of ‘‘hard costs’’ to mean the costs of the             The proposed rule would establish
                                                     could be undertaken to alleviate the                    construction and equipment, including                  threshold requirements designed to
                                                     financial stress on hospitals. One of                   construction-related fees such as                      determine the need of the hospital for
                                                     those recommendations is for FHA to                     architect and construction manager fees.               refinancing that would not be available
                                                     implement its authority in section 223(f)               The rule amends the definition of                      through other sources, and to screen out
                                                     of the NHA (Section 223(f)) to refinance                ‘‘substantial rehabilitation’’ to provide              hospitals that would have little or no
                                                     existing hospital debt. (See http://                    that it includes ‘‘cases where the hard                chance of having a formal application
                                                     www.aha.org/aha/content/2009/pdf/                       costs of construction and equipment are                approved, based on their financial
                                                     090106-economic-recovery-mo.pdf.)                       equal to or greater than 20 percent of the             performance. HUD specifically seeks
                                                     HUD has considered this                                 mortgage amount.’’                                     comments on these threshold
                                                     recommendation and has determined                          While Section 242 is principally a                  requirements.
                                                     that implementing the refinance                         construction program, HUD has allowed                     To receive consideration for Section
                                                     authority in section 223(f) of the NHA                  up to 80 percent of the mortgage amount                224/223(f) refinancing, the hospital
                                                                                                             to be used for refinancing, provided that              must meet two financial thresholds.
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                                                       2 Section 223(f)(1) provides that ‘‘Notwithstanding   at least 20 percent is used for                        First, the hospital must have a 3-year
                                                     any of the provisions of this Act, the Secretary is     construction and/or equipment. In                      aggregate operating margin of at least 0
                                                     authorized, in his discretion, to insure under any      determining how to address the issue of                percent and a 3-year average debt
                                                     section of this title a mortgage executed in
                                                     connection with the purchase or refinancing of an       repairs, renovations, and/or equipment                 service coverage ratio of at least 1.4.
                                                     existing multifamily housing project or the             in a Section 242/223(f) case, which is                 Also, the proposed rule provides that
                                                     purchase or refinancing of existing debt of an          directed solely to refinancing debt, HUD               the hospital must demonstrate that its
                                                     existing hospital (or existing nursing home, existing
                                                     assisted living facility, existing intermediate care
                                                                                                             decided that, for Section 242/223(f)                   financial health depends upon
                                                     facility, existing board and care home, or any          refinancing, it would allow loan                       refinancing its existing capital debt and
                                                     combination thereof).’’ (12 U.S.C. 1715n(f).)           proceeds to be used for repairs,                       that it provides an essential service to


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                                                     4966                     Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules

                                                     the community in which it operates.                     with respect to a Section 242/223(f)                   and other requirements pertaining to the
                                                     This demonstration is met by providing                  mortgage, HUD will always consider                     mortgage.3
                                                     documentation of the following:                         market need in the preliminary                            Section 242.17(a) provides for
                                                        (1) If the hospital were no longer in                threshold requirement phase, as                        insurance of advances in cases where
                                                     operation, the community in which it                    discussed in § 242.16(a)(4).                           there is a need for advances to fund
                                                     presently operates would suffer from                                                                           construction activities and the purchase
                                                     inadequate access to an essential service                  The importance of market need varies
                                                                                                                                                                    of equipment. This is the case in Section
                                                     that the hospital presently provides;                   from case to case. For example, an in-
                                                                                                                                                                    242 projects and Section 242 projects
                                                        (2) There are few alternative                        depth review of market need might not                  pursuant to Section 241. However, in
                                                     affordable financing vehicles available                 be necessary for a hospital with                       Section 242 projects pursuant to Section
                                                     to the hospital; and                                    historically strong utilization and                    223(f), the circumstances of each case
                                                        (3) The hospital meets three of the                  financial statistics that is seeking a pure            will determine whether the commitment
                                                     following seven criteria: (i) The                       refinancing or a refinancing with minor                will be for insurance of advances or
                                                     proposed refinancing would reduce the                   repairs. However, an in-depth review is                insurance upon completion. In a pure
                                                     hospital’s total operating expenses by at               likely needed in the case of a hospital                refinancing, or a refinancing with minor
                                                     least 0.25 percent; (ii) the interest rate              that is using close to 20 percent of the               repairs, renovations, and/or equipment
                                                     of the proposed refinancing would be at                 mortgage proceeds (the maximum                         that the hospital can fund from its
                                                     least 0.5 percentage points less than the               allowed under Section 242/223(f)) for                  operations and cash reserves, there is no
                                                     interest rate on the debt to be                         construction and equipment in order to                 need for advances and the commitment
                                                     refinanced; (iii) the interest rate on the              expand the services it provides to the                 will be for insurance upon completion.
                                                     debt that the hospital proposes to                                                                             However, if a significant portion of the
                                                                                                             public in a competitive market area.
                                                     refinance has increased by at least one                                                                        mortgage proceeds (subject to the 20
                                                                                                             Other examples of cases where a study
                                                     percentage point at any time since                                                                             percent limitation) is to be used for
                                                     January 1, 2008, or is very likely to                   may not be needed are geographically
                                                                                                             remote critical access hospitals and sole              repairs, renovations, and/or equipment,
                                                     increase by at least one percentage point                                                                      and the hospital cannot fund these from
                                                     within one year of the date of                          community provider hospitals. These
                                                                                                             designations by Centers for Medicare                   its own cash, then the commitment may
                                                     application; (iv) the hospital’s annual                                                                        provide for insurance of advances.
                                                     total debt service is in excess of 3.4                  and Medicaid Services are strong
                                                     percent of total operating revenues,                    indicators of market need. HUD will                    Inspection Fee (Section 242.18)
                                                     based on its most recent audited                        consider the characteristics of each case
                                                                                                                                                                      This rule amends § 242.18 to provide
                                                     financial statement; (v) the hospital has               in determining whether the study must                  that in the case of mortgages insured
                                                     experienced a withdrawal of its credit                  address market need.                                   under Section 242/223(f), the inspection
                                                     enhancement facility, or the lender                        In addition to the amendment to                     fee shall be paid at endorsement, as
                                                     providing its credit enhancement                        § 242.16(b)(5), this rule amends                       described in the amendments to
                                                     facility has been downgraded, or the                    § 242.16(b)(3) to require that, in                     § 242.39, as discussed below.
                                                     hospital can demonstrate that one of the                applications for Section 242/223(f)                      In the traditional Section 242
                                                     events is imminent; (vi) the hospital is                                                                       program, the inspection fee is generally
                                                                                                             refinancing, the applicant must provide
                                                     party to overly restrictive or onerous                                                                         50 basis points on all loans. This fee
                                                                                                             a description of any repairs,
                                                     bond covenants; or (vii) there are other                                                                       covers such activities as review of
                                                                                                             renovations, and/or equipment to be
                                                     circumstances that demonstrate that the                                                                        architectural plans and specifications,
                                                                                                             financed with mortgage proceeds, and
                                                     hospital’s financial health depends                                                                            and periodic inspection as the
                                                     upon refinancing its existing capital                   how those repairs, renovations, and/or
                                                                                                             equipment will affect the hospital. The                construction gets under way. For
                                                     debt.                                                                                                          applicants seeking refinancing only, an
                                                        The inclusion of these threshold                     rule amends § 242.16(b)(6) to provide
                                                                                                             that the required architectural plans and              inspection fee that would involve
                                                     factors to determine hospitals eligible                                                                        generally no more than a site visit by
                                                     for consideration for Section 242/223(f)                specifications are not required of an
                                                                                                             application for Section 242/223(f)                     HUD architects and engineers will not
                                                     refinancing is designed to assure that                                                                         exceed 10 basis points on the loan.
                                                     HUD is assisting those hospitals that                   mortgage insurance, except when
                                                     merit serious consideration based on                    requested by HUD. This rule also                       Maximum Mortgage Amounts and Cash
                                                     their financial strength and on need—                   amends § 242.16(d) to provide that an                  Equity Requirements (Section 242.23)
                                                     theirs and that of the communities in                   application for Section 242/223(f)                       One of the more significant
                                                     which they serve.                                       mortgage insurance shall be on an                      amendments made to the regulations in
                                                        In offering this new insurance                       approved FHA form, submitted jointly                   24 CFR part 242 is made to § 242.23, to
                                                     product, and as the proposed threshold                  by an approved mortgagee and the                       establish the maximum mortgage
                                                     requirements may reflect, HUD is taking                 prospective mortgagor.                                 amounts and cash equity amounts for
                                                     a conservative approach intended to                                                                            mortgages insured under Section 242/
                                                     attract those hospital applicants that                  Commitments (Section 242.17)
                                                                                                                                                                    223(f).
                                                     already meet the minimum operating                         This rule amends § 242.17(a)                          The rule adds a new paragraph (b) to
                                                     margin and debt-service coverage ratios                                                                        § 242.23 to provide that, in addition to
                                                                                                             (Issuance of Commitment) to add a new
                                                     required for application approval under                                                                        meeting the requirements of § 242.7
                                                                                                             paragraph (a)(2) to provide that in the
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                                                     the current Section 242 program.                                                                               (which addresses maximum mortgage
                                                        The rule amends § 242.16(b)(5) to                    case of an application for Section 242/
                                                     provide that the study of market need                   223(f) mortgage insurance where
                                                                                                                                                                       3 Note that since there is an existing paragraph
                                                     may not be required, subject to HUD’s                   advances are not needed for funding any
                                                                                                                                                                    (a)(2) in § 242.17, the existing paragraph ((a)(2)) and
                                                     discretion, for an application for Section              repairs, renovations, or equipment, a                  the paragraphs that follow will be redesignated
                                                     242/223(f) mortgage insurance. In most                  commitment for insurance upon                          accordingly). This rule amends § 242.17(b) (Type of
                                                     cases, however, HUD does require this                   completion shall include the mortgage                  Commitment) to provide that in the case of a
                                                                                                                                                                    commitment for Section 242/223(f) insured
                                                     study. Although HUD may determine                       amount, interest rate, mortgage term,                  refinancing, at HUD’s discretion the commitment
                                                     not to require a study of market need                   date of commencement of amortization,                  may provide for insurance upon completion.



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                                                                              Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules                                             4967

                                                     amounts applicable to all mortgages                     Insurance Endorsement (Section 242.39)                 242 for certificates, studies, and
                                                     insured under the Section 242                                                                                  statements have been met.
                                                     program) 4, if the existing hospital debt                  This rule amends § 242.39 to divide
                                                                                                             this section into two main parts. The                  III. Corresponding Implementation
                                                     is to be refinanced by the insured                                                                             Notice
                                                     mortgage (i.e., without a change in                     existing section is designated as
                                                     ownership or with the hospital sold to                  paragraph (a) and entitled ‘‘New                          As noted earlier in this preamble, in
                                                     a purchaser who has an identity of                      Construction/Substantial                               an effort to immediately address the
                                                     interest, as defined by the FHA                         Rehabilitation.’’ New paragraph (b),                   lack of adequate private financing
                                                     Commissioner, with the seller), the                     entitled ‘‘Section 242/223(f)                          available to hospitals, HUD issued a
                                                     maximum mortgage amount must not                        Refinancing,’’ provides that in cases that             notice on July 1, 2009, as recently
                                                     exceed the cost to refinance the existing               do not involve advances of mortgage                    amended in January 2010, which can be
                                                     indebtedness.                                           proceeds, endorsement shall occur after                found at http://www.hud.gov/hudclips/,
                                                                                                             all relevant terms and conditions have                 that implemented FHA’s longstanding
                                                        The rule provides that the existing                  been satisfied, including, if applicable,              refinance authority under section 223(f)
                                                     indebtedness will consist of the                        completion of any repairs, renovations,                of the NHA to hospitals. The issue of the
                                                     following items, the eligibility and                    and/or equipment, or upon assurance                    availability of hospitals and other health
                                                     amounts of which must be determined                     acceptable to the FHA Commissioner                     care facilities in communities is one of
                                                     by the FHA Commissioner: (1) The                        that all required repairs will be                      the important health care issues to be
                                                     amount required to pay off the existing                 completed by a date certain following                  addressed. With an aging population,
                                                     indebtedness; (2) reasonable and                        endorsement. New paragraph (b)                         and health care demands on the rise,
                                                     customary legal, organization, title, and               provides that in cases where advances                  hospitals need access to capital to
                                                     recording expenses, including                           of mortgage proceeds are used to fund                  expand and improve facilities,
                                                     mortgagee fees under § 242.22; (3) the                  repairs, renovation, and/or equipment,                 technology, and equipment. Without
                                                     estimated costs, if any, of repairs,                    endorsement shall occur as described in                access to capital, hospitals and facilities
                                                     renovation, and/or equipment totaling                   § 242.39(a) immediately above for new                  will close or needed improvements in
                                                     less than 20 percent of the mortgage                    construction/substantial rehabilitation.               facility, technology, and equipment will
                                                     amount; and (4) architect’s and                                                                                not be addressed.
                                                     engineer’s fees, municipal inspection                   Labor Standards (Section 242.55)                          While HUD recognizes that all
                                                     fees, and any other required                                                                                   financing needs of the hospitals and
                                                                                                                This rule amends § 242.55(c) to reflect
                                                     professional or inspection fees.                                                                               health-care facilities will not be
                                                                                                             that the labor standards referenced in
                                                                                                                                                                    addressed by extending to hospitals,
                                                        The rule also provides in the new                    that regulatory section are applicable to
                                                                                                                                                                    through the Section 242 program, the
                                                     paragraph (b) added to § 242.23, that, in               a refinancing loan under section 223(f)
                                                                                                                                                                    refinancing authority of Section 223(f)
                                                     addition to meeting the requirements of                 of the NHA.
                                                                                                                                                                    of the NHA, HUD believes that through
                                                     § 242.7, if mortgage proceeds are to be
                                                                                                             Eligibility of Refinancing Transactions                the action taken initially in the
                                                     used for an acquisition, the maximum
                                                                                                             (Section 242.91)                                       implementing notice of July 1, 2009, as
                                                     mortgage amount must not exceed the                                                                            amended in January 2010, and by
                                                     cost to acquire the hospital, which will                  This rule amends § 242.91 to                         following through with this rulemaking,
                                                     consist of the following items, the                     consolidate the existing section into a                it may be able to contribute to
                                                     eligibility and amounts of which must                   new paragraph (a), and to add a new                    alleviating the financial stress faced by
                                                     be determined by the FHA                                paragraph (b) that provides that a                     many hospitals today. Additionally, the
                                                     Commissioner: (1) The actual purchase                   mortgage given to refinance the debt of                action taken is consistent with HUD’s
                                                     price of the land and improvements or                   an existing hospital under Section 242                 statutory purpose under Section 242,
                                                     HUD’s estimate (prior to repairs,                       of the NHA may be insured pursuant to                  which includes assisting in the
                                                     renovation, and/or equipment                            Section 223(f) of the NHA. The new                     availability of needed hospitals for the
                                                     replacement) of the fair market value of                paragraph (b) also provides that a                     care and treatment of persons who are
                                                     such land and improvements,                             mortgage may be executed in                            acutely ill or who otherwise require
                                                     whichever is the lesser; (2) reasonable                 connection with the purchase or                        medical care and related services of the
                                                     and customary legal, organization, title,               refinancing of an existing hospital                    kind customarily furnished only (or
                                                     and recording expenses, including                       without substantial rehabilitation. In                 most effectively) by hospitals.
                                                     mortgagee fees under § 242.22; (3) the                  addition, the new paragraph (b)                           HUD determined that with minimal
                                                     estimated costs, if any, of repairs,                    provides that the FHA Commissioner                     amendments to its regulations in 24 CFR
                                                     renovation, and/or equipment totaling                   shall prescribe such terms and                         part 242 (recently the subject of public
                                                     less than 20 percent of the mortgage                    conditions as the Commissioner deems                   comment and revised, in part, in
                                                     amount; and (4) architect’s and                         necessary to assure that: (1) The                      response to such comment), HUD could
                                                     engineer’s fees, municipal inspection                   refinancing is employed to lower the                   commence receiving applications for
                                                     fees, and any other required                            monthly debt-service costs (taking into                Section 242/223(f) mortgage insurance,
                                                     professional or inspection fees.                        account any fees or charges connected                  and that is what the July 1, 2009,
                                                        Because § 242.23 already has a                       with such refinancing) of such existing                implementing notice allowed.
                                                     paragraph (b), the existing paragraph (b)               hospital; (2) the proceeds of any                         Although HUD determined to proceed
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                                                     and the paragraphs that follow will be                  refinancing will be employed only to:                  to implement, through notice, the
                                                     redesignated accordingly.                               retire (a) the existing indebtedness; (b)              Section 223(f) refinancing authority for
                                                                                                             pay for repairs, renovation, and/or                    hospitals, HUD recognizes the value and
                                                       4 Section 242.7 (24 CFR 242.7) provides: ‘‘The        equipment totaling less than 20 percent                importance of public input in
                                                     mortgage shall involve a principal obligation not in    of the mortgage amount; and (c) pay the                determining final policy and developing
                                                     excess of 90 percent of HUD’s estimate of the           necessary cost of refinancing on such                  final application and review procedures.
                                                     replacement cost of the hospital, including the
                                                     equipment to be used in its operation when the
                                                                                                             existing hospital; (3) such existing                   It has always been HUD’s strategy to
                                                     proposed improvements are completed and the             hospital is economically viable; and (4)               supplement its implementing notice
                                                     equipment is installed.’’                               the applicable requirements of Section                 with a proposed rule that would solicit


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                                                     4968                     Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules

                                                     public comment and commence the                         margin and debt-service coverage ratios                assessment of costs and benefits, as set
                                                     process of development of a final                       required for application approval under                out in this section of the preamble, and
                                                     regulatory structure that will govern the               the current Section 242 program. The                   on the number of applications HUD
                                                     Section 242/223(f) refinancing                          rule is not structured to address all                  expects to receive upon implementation
                                                     authority. Before HUD issued its                        financing needs. The goal in                           of the Section 223(f) refinancing
                                                     companion proposed rule to the July 1,                  implementing HUD’s Section 223(f)                      authority, as further revised by the
                                                     2009, notice, HUD received informal                     refinancing authority for hospitals is to              January 2010 notice.
                                                     feedback from hospitals and hospital                    assist those hospitals saddled with
                                                                                                             unexpectedly high interest rates, and                  Information Collection Requirements
                                                     representative organizations that the
                                                     threshold requirements presented a                      where refinancing is urgently needed for                 The information collection
                                                     ‘‘refinancing only’’ bar that is too high.              the hospital to continue to remain open                requirements contained in this rule
                                                     In response to such feedback, HUD has                   and adequately serve its surrounding                   were reviewed by OMB under the
                                                     amended the threshold requirements,                     community. The primary beneficiaries                   Paperwork Reduction Act of 1995 (44
                                                     which, again, were designed to                          of this rule are the hospitals that receive            U.S.C. 3501–3520) and assigned OMB
                                                     determine refinancing need, but not                     an FHA-insured loan to refinance debt,                 Control Number 2502–0518. An agency
                                                     serve as a substitute for the insurance                 and, through such loan insurance, are                  may not conduct or sponsor, and a
                                                     eligibility requirements of the Section                 able to reduce their capital costs by                  person is not required to respond to, a
                                                     242 program. Those requirements and                     refinancing into a lower interest rate                 collection of information, unless the
                                                     standards remain in place. This                         loan through the proposed program. The                 collection displays a valid control
                                                     proposed rule, therefore, not only                      economic effect constitutes a transfer                 number.
                                                     solicits comment specifically on the                    from the public to hospitals that would
                                                                                                                                                                    Environmental Impact
                                                     threshold requirements presented in the                 not otherwise have been able to
                                                     companion notice and proposed to be                     refinance out of their current high-cost                  A Finding of No Significant Impact
                                                     codified by this rule, but on all other                 loans.                                                 (FONSI) with respect to the
                                                     aspects of the changes made to the                         HUD estimates that the average                      environment has been made in
                                                     Section 242 regulations to codify the                   decrease in the annual interest cost                   accordance with HUD regulations at 24
                                                     implementation of FHA’s Section 223(f)                  resulting from an eligible hospital’s                  CFR part 50, which implement section
                                                     refinancing authority for hospitals with                refinancing its current loan with an                   102(2)(C) of the National Environmental
                                                     non-FHA-insured loans. The final rule,                  FHA loan is 2 percentage points. After                 Policy Act of 1969 (42 U.S.C.
                                                     when issued and in effect, will apply to                the cost of the insurance premium is                   4332(2)(C)). The FONSI is available for
                                                     applications submitted for Section 242/                 deducted, the net benefit is 1.5                       public inspection between the hours of
                                                     223(f) refinancing authority following                  percentage points. The average loan size               8 a.m. and 5 p.m. weekdays in the
                                                     the effective date of the rule.                         from FHA’s construction loan portfolio                 Regulations Division, Office of General
                                                                                                             is $60 million, which is used as an                    Counsel, Department of Housing and
                                                     IV. Findings and Certifications                         estimate of the size of the principal of               Urban Development, 451 7th Street,
                                                     Regulatory Planning and Review                          loans to be refinanced. Assuming the                   SW., Room 10276, Washington, DC
                                                                                                             hospital’s current interest rate is 7.75               20410–0500. Due to security measures
                                                       The Office of Management and Budget                   percent, and it is refinanced down to                  at the HUD Headquarters building,
                                                     (OMB) reviewed this rule under                          5.75 percent (effectively 6.25 percent                 please schedule an appointment to
                                                     Executive Order 12866, Regulatory                       when the insurance premium is factored                 review the FONSI by calling the
                                                     Planning and Review. OMB determined                     in), the annual savings to the hospital                Regulations Division at 202–708–3055
                                                     that this rule is a ‘‘significant regulatory            would be $688,740.                                     (this is not a toll-free number).
                                                     action,’’ as defined in section 3(f) of the                The program has not been designed                   Individuals with speech or hearing
                                                     order (although not an economically                     for the entire industry of 5,000                       impairments may access this number
                                                     significant regulatory action under the                 hospitals. As noted earlier, the pool of               via TTY by calling the Federal
                                                     order). The docket file is available for                applicants is limited by the proposed                  Information Relay Service at 800–877–
                                                     public inspection in the Regulations                    threshold restrictions. Industry experts               8339.
                                                     Division, Office of General Counsel,                    have estimated that there would be a
                                                     Department of Housing and Urban                         lead time of approximately 3 months                    Unfunded Mandates Reform Act
                                                     Development, 451 7th Street, SW.,                       while hospitals and lenders organized                     The Unfunded Mandates Reform Act
                                                     Room 10276, Washington, DC 20410–                       their efforts and began to prepare                     of 1995 (2 U.S.C. 1531–1538) (UMRA)
                                                     0500. Due to security measures at the                   applications. After that (starting, in all             establishes requirements for federal
                                                     HUD Headquarters building, please                       likelihood, early in calendar year 2010),              agencies to assess the effects of their
                                                     schedule an appointment to review the                   they estimated that FHA would receive                  regulatory actions on state, local, and
                                                     docket file by calling the Regulations                  from 35 to 50 applications during the                  tribal governments and on the private
                                                     Division at 202–402–3055 (this is not a                 first year of the program. Assuming that               sector. This rule does not impose a
                                                     toll-free number). Individuals with                     the maximum of 50 applications are                     federal mandate on any state, local, or
                                                     speech or hearing impairments may                       received in the first year, that they                  tribal government, or on the private
                                                     access this number via TTY by calling                   arrive steadily during the year (4.17                  sector, within the meaning of UMRA.
                                                     the Federal Information Relay Service at                applications per month), and that the
                                                                                                                                                                    Regulatory Flexibility Act
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                                                     800–877–8339.                                           average time to process them to
                                                       This Section 242/223(f) program is                    commitment is 60 days, 10 months’                         The Regulatory Flexibility Act (5
                                                     specifically for the refinancing of non-                worth of applications received                         U.S.C. 601 et seq.) generally requires an
                                                     FHA loans. In offering this new                         (approximately 41) could receive                       agency to conduct a regulatory
                                                     insurance product, and as the proposed                  insurance commitments in 2010. The                     flexibility analysis of any rule subject to
                                                     threshold requirements reflect, HUD is                  economic impact would amount to                        notice and comment rulemaking
                                                     taking a conservative approach intended                 approximately $28.2 million annually.                  requirements, unless the agency certifies
                                                     to attract hospital applicants that                        In addition to commenting on the                    that the rule will not have a significant
                                                     already meet the minimum operating                      rule, HUD welcomes comment on its                      economic impact on a substantial


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                                                                              Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules                                             4969

                                                     number of small entities. The                           state law, unless the agency meets the                   4. In § 242.15, the existing text of this
                                                     amendments proposed by this rule will                   consultation and funding requirements                  section is redesignated as paragraph (a),
                                                     expand the availability of financing for                of section 6 of the Executive Order. This              and a new paragraph (b) is added to
                                                     hospitals and health care facilities, both              rule does not have federalism                          read as follows:
                                                     large and small, under FHA’s Section                    implications and does not impose
                                                     242 program, based on regulations that                  substantial direct compliance costs on                 § 242.15 Limitation on refinancing existing
                                                                                                                                                                    indebtedness.
                                                     were recently the subject of notice and                 state and local governments nor
                                                     comment. HUD defines a small hospital                   preempt state law within the meaning of                *      *     *     *     *
                                                     entity similar to the definition used by                the Executive Order.                                      (b) In the case of a loan insured under
                                                     the Health Care Financing                                                                                      Section 242/223(f), there is no
                                                                                                             List of Subjects in 24 CFR Part 242                    requirement for hard costs. However, if
                                                     Administration of the U.S. Department
                                                     of Health and Human Services: as a                        Hospitals, Mortgage insurance,                       there are hard costs, such costs must
                                                     hospital of 50 or fewer beds. As noted                  Reporting and recordkeeping                            total less than 20 percent of the total
                                                     earlier in this preamble, hospitals, large              requirements.                                          mortgage amount.
                                                     or small, currently receiving Section                     Accordingly, for the reasons described                  5. In § 242.16:
                                                     242-insured financing, large or small,                  in the preamble, HUD proposes to                          a. Paragraphs (a)(3) through (a)(5) are
                                                     are eligible for refinancing under section              amend 24 CFR part 242 to read as                       redesignated paragraphs (a)(4) through
                                                     223(a)(7) of the NHA. Currently, 21                     follows:                                               (a)(6), respectively;
                                                     (approximately 25 percent) of the                                                                                 b. New paragraph (a)(3) is added;
                                                     hospitals with Section 242-insured                      PART 242—MORTGAGE INSURANCE                               c. Newly redesignated paragraph
                                                     financing have 50 or fewer beds. HUD                    FOR HOSPITALS                                          (a)(6) introductory text is revised; and
                                                     has approached development of its                                                                                 d. Paragraphs (b)(3), (5), and (6) and
                                                                                                               1. The authority citation for 24 CFR
                                                     eligibility for section 223(f) refinancing                                                                     paragraph (d) are revised to read as
                                                                                                             part 242 is revised to read as follows:
                                                     to take into consideration criteria that                                                                       follows:
                                                                                                               Authority: 12 U.S.C. 1709, 1710, 1715b,
                                                     all hospitals, large or small, can meet.                                                                       § 242.16   Applications.
                                                                                                             1715n(f), and 1715u; 42 U.S.C. 3535(d).
                                                     The basis for FHA’s implementation of
                                                     its refinancing authority, as has been                    2. In § 242.1, definitions for ‘‘hard                   (a) * * *
                                                     discussed in this preamble, is to assist                costs’’ and ‘‘Section 242/223(f)’’ are                    (3) Threshold requirements—
                                                     hospitals that provide valuable services                added, and the definition of ‘‘substantial             refinancing candidates. For an
                                                     needed by the communities in which                      rehabilitation’’ is revised to read as                 application to be considered for
                                                     they are located, and for which other                   follows:                                               refinancing pursuant to Section 223(f), a
                                                     refinancing sources are not available.                                                                         hospital must meet the following
                                                                                                             § 242.1    Definitions.                                requirements in lieu of those described
                                                     HUD believes that the criteria presented
                                                     in this rule strikes the appropriate                    *      *     *     *     *                             in paragraph (a)(2) of this section:
                                                                                                                Hard costs means the costs of the                      (i) The hospitals must have an
                                                     balance.
                                                        Accordingly, it is HUD’s view that                   construction and equipment, including                  aggregate operating margin of at least 0
                                                     this rule will not have a significant                   construction-related fees such as                      percent, when calculated from the three
                                                     economic impact on a substantial                        architect and construction manager fees.               most recent annual audited financial
                                                     number of small entities, and an initial                *      *     *     *     *                             statements.
                                                     regulatory flexibility analysis is not                     Section 242/223(f) refers to a loan                    (ii) The hospitals must have an
                                                     required. However, as provided in                       insured under Section 242 of the Act                   average debt service coverage ratio of at
                                                     HUD’s analysis under Executive Order                    pursuant to Section 223(f) of the Act.                 least 1.4 when calculated from the three
                                                     12866 (Regulatory Planning and                          *      *     *     *     *                             most recent annual audited financial
                                                     Review), the impact of this rule on the                    Substantial rehabilitation means                    statements.
                                                     economy is not anticipated to be                        additions, expansion, remodeling,                         (iii) HUD may, at its discretion, recast
                                                     significant. This impact encompasses                    renovation, modernization, repair, and                 the operating margin and debt service
                                                     large and small hospital entities, and the              alteration of existing buildings,                      coverage ratio for prior periods by using
                                                     impact on small entities does not rise to               including acquisition of new or                        its estimate of the projected interest rate
                                                     a level of a significant economic impact                replacement equipment, in cases where                  in lieu of the historical interest rate(s).
                                                     on a substantial number of small                        the hard costs of construction and                        (iv) The hospital must demonstrate
                                                     entities; in this case, small hospitals.                equipment are equal to or greater than                 that its financial health depends upon
                                                        Notwithstanding HUD’s                                20 percent of the mortgage amount.                     refinancing its existing capital debt and
                                                     determination that this rule does not                   *      *     *     *     *                             that it provides an essential service to
                                                     have a significant economic impact on                      3. In § 242.4, the section heading and              the community in which it operates.
                                                     a substantial number of small entities,                 paragraph (a) are revised to read as                   This demonstration is met by providing
                                                     HUD specifically invites comments from                  follows:                                               documentation of the following:
                                                     all entities, including small entities,                                                                           (A) If the hospital were no longer in
                                                                                                             § 242.4    Eligible hospitals.                         operation, the community in which it
                                                     regarding less burdensome alternatives
                                                     to this rule that would meet HUD’s                        (a) The hospital to be financed with                 presently operates would suffer from
                                                     objectives as described in this preamble.               a mortgage insured under this part shall               inadequate access to an essential service
                                                                                                             involve the construction of a new
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                                                                                                                                                                    that the hospital presently provides;
                                                     Executive Order 13132, Federalism                       hospital, the substantial rehabilitation                  (B) There are few alternative
                                                        Executive Order 13132 (entitled                      (or replacement) of an existing hospital,              affordable refinancing vehicles available
                                                     ‘‘Federalism’’) prohibits an agency from                or the refinancing of the capital debt of              to the hospital.
                                                     publishing any rule that has federalism                 an existing hospital pursuant to Section                  (C) The hospital meets three of the
                                                     implications if the rule either imposes                 242/223(f), or the acquisition of an                   following seven criteria:
                                                     substantial direct compliance costs on                  existing hospital pursuant to Section                     (1) The proposed refinancing would
                                                     state and local governments and is not                  242/223(f).                                            reduce the hospital’s total operating
                                                     required by statute, or the rule preempts               *     *     *    *     *                               expenses by at least 0.25 percent;


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                                                     4970                     Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules

                                                        (2) The interest rate of the proposed                mortgage insurance, at HUD’s                           of this subpart. For applicants seeking
                                                     refinancing would be at least 0.5                       discretion, the study may not be                       refinancing only, an inspection fee that
                                                     percentage points less than the interest                required to address market need and, at                would involve a site visit by HUD
                                                     rate on the debt to be refinanced;                      HUD’s discretion, there may be no                      architects and/or engineers, or their
                                                        (3) The interest rate on the debt that               requirement for involvement of a                       review of a site visit report prepared by
                                                     the hospital proposes to refinance has                  certified accounting firm;                             the architects and/or engineers of the
                                                     increased by at least one percentage                      (6) Architectural plans and                          applicant hospital, will not exceed 10
                                                     point at any time since January 1, 2008,                specifications in sufficient detail to                 basis points on the loan.
                                                     or is very likely to increase by at least               enable a reasonable estimate of cost (not                8. In § 242.23, paragraphs (b) and (c)
                                                     one percentage within one year of the                   applicable to a Section 242/223(f)                     are redesignated as paragraphs (c) and
                                                     date of application;                                    application, except when architectural                 (d), respectively, and a new paragraph
                                                        (4) The hospital’s annual total debt                 plans and specifications are requested                 (b) is added to read as follows:
                                                     service is in excess of 3.4 percent of                  by HUD);
                                                     total operating revenues, based on its                                                                         § 242.23 Maximum mortgage amounts and
                                                                                                             *      *     *     *    *                              cash equity requirements.
                                                     most recent audited financial statement;                  (d) Filing of application. An
                                                        (5) The hospital has experienced a                   application for insurance of a mortgage                *       *    *     *    *
                                                     withdrawal or expiration of its credit                  on a project shall be submitted on an                     (b) Section 242/223(f) refinancing—
                                                     enhancement facility, or the lender                     approved FHA form, by an approved                      additional limit. (1) In addition to
                                                     providing its credit enhancement                        mortgagee and by the sponsors of such                  meeting the requirements of § 242.7, if
                                                     facility has been downgraded, or the                    project, to the FHA Office of Insured                  the existing hospital debt is to be
                                                     hospital can demonstrate that one of                    Health Care Facilities. An application                 refinanced by the insured mortgage (i.e.,
                                                     these events is imminent;                               for insurance of a mortgage pursuant to                without a change in ownership or with
                                                        (6) The hospital is party to overly                  Section 223(f) shall be submitted on an                the hospital sold to a purchaser who has
                                                     restrictive or onerous bond covenants;                  approved FHA form by an approved                       an identity of interest, as defined by the
                                                     and                                                     mortgagee and by the proposed                          FHA Commissioner, with the seller), the
                                                        (7) There are other circumstances that               mortgagor.                                             maximum mortgage amount must not
                                                     demonstrate that the hospital’s financial                                                                      exceed the cost to refinance the existing
                                                                                                             *      *     *     *    *
                                                     health depends upon refinancing its                                                                            indebtedness, which will consist of the
                                                                                                               6. In § 242.17, paragraphs (a)(2)
                                                     existing capital debt.                                                                                         following items, the eligibility and
                                                                                                             through (5) are redesignated as
                                                     *      *     *     *     *                                                                                     amounts of which must be determined
                                                                                                             paragraphs (a)(3) through (6), a new
                                                        (6) Preapplication meeting. The next                                                                        by the FHA Commissioner:
                                                                                                             paragraph (a)(2) is added, and paragraph
                                                     step in the application process is the                                                                            (i) The amount required to pay off the
                                                                                                             (b) is revised to read as follows:
                                                     preapplication meeting (this step is                                                                           existing indebtedness;
                                                     optional, at HUD’s discretion, in Section               § 242.17    Commitments.                                  (ii) Reasonable and customary legal,
                                                     242/223(f) cases). At HUD’s discretion,                   (a) * * *                                            organization, title, and recording
                                                     this meeting may be held at HUD                           (2) In the case of an application for                expenses, including mortgagee fees
                                                     Headquarters in Washington, DC, or at                   Section 242/223(f) insurance where                     under § 242.22;
                                                     another site agreeable to HUD and the                   advances are not needed for funding any                   (iii) The estimated costs, if any, of
                                                     potential applicant. The preapplication                 repairs, renovations, or equipment, a                  repairs, renovation, and/or equipment
                                                     meeting is an opportunity for the                       commitment for insurance upon                          totaling less than 20 percent of the
                                                     potential mortgagor to summarize the                    completion, reflecting the mortgage                    mortgage amount;
                                                     proposed project, for HUD to summarize                  amount, interest rate, mortgage term,                     (iv) Architect’s and engineer’s fees,
                                                     the application process, and for issues                 date of commencement of amortization,                  municipal inspection fees, and any
                                                     that could affect the eligibility or                    and other requirements pertaining to the               other required professional or
                                                     underwriting of the project to be                       mortgage that will be issued.                          inspection fees.
                                                     identified and discussed to the extent                  *     *     *     *     *                                 (2) In addition to meeting the
                                                     possible. Following the meeting, HUD                      (b) Type of commitment. The                          requirements of § 242.7, if mortgage
                                                     may:                                                    commitment will provide for the                        proceeds are to be used for an
                                                        (b) * * *                                            insurance of advances of mortgage funds                acquisition, the maximum mortgage
                                                        (3) A description of the project, the                during construction. In the case of a                  amount must not exceed the cost to
                                                     business plan of the hospital, and how                  commitment for Section 242/223(f)-                     acquire the hospital, which will consist
                                                     the project will further that plan, or, for             insured refinancing, at HUD’s discretion               of the following items, the eligibility
                                                     applications pursuant to Section 223(f),                the commitment may provide for                         and amounts of which must be
                                                     a description of any repairs,                           insurance upon completion.                             determined by the FHA Commissioner:
                                                     renovations, and/or equipment to be                     *     *     *     *     *                                 (i) The actual purchase price of the
                                                     financed with mortgage proceeds and                       7. Section 242.18 is revised to read as              land and improvements or HUD’s
                                                     how those repairs, renovations, and/or                  follows:                                               estimate (prior to repairs, renovation,
                                                     equipment will affect the hospital;                                                                            and/or equipment replacement) of the
                                                     *      *     *     *     *                              § 242.18    Inspection fee.                            fair market value of such land and
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                                                        (5) A study of market need and                          The commitment may provide for the                  improvements, whichever is less;
                                                     financial feasibility, addressing the                   payment of an inspection fee in an                        (ii) Reasonable and customary legal,
                                                     factors listed in paragraphs (a)(1)(ii),                amount not to exceed $5 per thousand                   organization, title, and recording
                                                     (a)(2), and (a)(3) of this section, with                dollars of the commitment. The                         expenses, including mortgagee fees
                                                     assumptions and financial forecast                      inspection fee shall be paid at the time               under § 242.22;
                                                     clearly presented, and prepared by a                    of initial endorsement. In the case of                    (iii) The estimated costs, if any, of
                                                     certified accounting firm acceptable to                 mortgages insured pursuant to section                  repairs, renovation, and/or equipment
                                                     HUD, except that in the case of an                      223(f), the inspection fee shall be paid               totaling less than 20 percent of the
                                                     application for Section 242/223(f)                      at endorsement, as described in § 242.39               mortgage amount;


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                                                                              Federal Register / Vol. 75, No. 19 / Friday, January 29, 2010 / Proposed Rules                                                 4971

                                                       (iv) Architect’s and engineer’s fees,                 paragraph (a) of this section                          unexpired term of the existing mortgage,
                                                     municipal inspection fees, and any                      immediately above, for new                             except that the new mortgage may have
                                                     other required professional or                          construction/substantial rehabilitation.               a term of not more than 12 years in
                                                     inspection fees.                                        *     *     *    *      *                              excess of the unexpired term of the
                                                     *     *     *     *     *                                 10. In § 242.55, paragraph (c) is                    existing mortgage in any case in which
                                                       9. In § 242.39, the introductory text is              revised to read as follows:                            HUD determines that the insurance of
                                                     removed and paragraphs (a) and (b) are                                                                         the mortgage for an additional term will
                                                     revised to read as follows:                             § 242.55    Labor standards.                           inure to the benefit of the FHA
                                                                                                             *      *    *      *    *                              Insurance Fund, taking into
                                                     § 242.39   Insurance endorsement.                          (c) Each laborer or mechanic                        consideration the outstanding insurance
                                                       (a) New construction/substantial                      employed on any facility covered by a                  liability under the existing insured
                                                     rehabilitation. Initial endorsement of                  mortgage insured under this part (except               mortgage, and the remaining economic
                                                     the mortgage note shall occur before any                under 24 CFR 242.91(a), but including                  life of the property.
                                                     mortgage proceeds are insured, and the                  a supplemental loan under section 241                     (4) Minimum loan amount. The
                                                     time of final endorsement shall be as set               of the Act or a refinancing loan under                 mortgagee may not require a minimum
                                                     forth in paragraph (a)(2) of this section.              section 223(f) of the Act made in                      principal amount to be outstanding on
                                                       (1) Initial endorsement. The FHA                      connection with a loan insured under                   the loan secured by the existing
                                                     Commissioner shall indicate the                         this part) shall receive compensation at               mortgage.
                                                     insurance of the mortgage by endorsing                  a rate not less than one and one-half                     (b) A mortgage given to refinance the
                                                     the original mortgage note and                          times the basic rate of pay for all hours              debt of an existing hospital under
                                                     identifying the section of the Act and                  worked in any workweek in excess of 8                  Section 242 of the Act may be insured
                                                     the regulations under which the                         hours in any workday or 40 hours in the                under this subpart pursuant to Section
                                                     mortgage is insured and the date of                     workweek.                                              223(f) of the Act. The mortgage may be
                                                     insurance.                                              *      *    *      *    *                              executed in connection with the
                                                       (2) Final endorsement. When all                          11. Section 242.91 is revised to read               purchase or refinancing of an existing
                                                     advances of mortgage proceeds have                      as follows:                                            hospital without substantial
                                                     been made and all the terms and                                                                                rehabilitation. A mortgage insured
                                                     conditions of the commitment have                       § 242.91 Eligibility of refinancing                    pursuant to this subpart shall meet all
                                                     been met to HUD’s satisfaction, HUD                     transactions.
                                                                                                                                                                    other requirements of this part. The
                                                     shall indicate on the original mortgage                   (a) A mortgage given to refinance an                 FHA Commissioner shall prescribe such
                                                     note the total of all advances approved                 existing insured mortgage under Section                terms and conditions as the FHA
                                                     for insurance and again endorse such                    241 or Section 242 of the Act covering                 Commissioner deems necessary to
                                                     instrument.                                             a hospital may be insured under this                   assure that:
                                                       (3) Contract rights and obligations.                  subpart pursuant to Section 223(a)(7) of                  (1) The refinancing is employed to
                                                     The FHA Commissioner and the                            the Act. Insurance of the new,                         lower the monthly debt service costs
                                                     mortgagee or lender shall be bound from                 refinancing mortgage shall be subject to               (taking into account any fees or charges
                                                     the date of initial endorsement by the                  the following limitations:                             connected with such refinancing) of
                                                     provisions of the Contract of Mortgage                    (1) Principal amount. The principal                  such existing hospital;
                                                     Insurance stated in subpart B of part                   amount of the refinancing mortgage                        (2) The proceeds of any refinancing
                                                     207, which is hereby incorporated by                    shall not exceed the lesser of:                        will be employed only to retire the
                                                     reference into this part.                                 (i) The original principal amount of                 existing indebtedness; pay for repairs,
                                                       (b) Section 242/223(f) refinancing. (1)               the existing insured mortgage; or                      renovation, and/or equipment totaling
                                                     In cases that do not involve advances of                  (ii) The unpaid principal amount of                  less than 20 percent of the mortgage
                                                     mortgage proceeds, endorsement shall                    the existing insured mortgage, to which                amount; and pay the necessary cost of
                                                     occur after all relevant terms and                      may be added loan closing charges                      refinancing on such existing hospital;
                                                     conditions have been satisfied,                         associated with the refinancing                           (3) Such existing hospital is
                                                     including, if applicable, completion of                 mortgage, and costs, as determined by                  economically viable; and
                                                     any repairs, renovations, and/or                        HUD, of improvements, upgrading, or                       (4) The applicable requirements of
                                                     equipment, or upon assurance                            additions required to be made to the                   Section 242 for certificates, studies, and
                                                     acceptable to the FHA Commissioner                      property.                                              statements have been met.
                                                     that all required repairs will be                         (2) Debt service rate. The monthly
                                                     completed by a date certain following                   debt service payment for the refinancing                 Dated: December 19, 2009.
                                                     endorsement.                                            mortgage may not exceed the debt                       David H. Stevens,
                                                       (2) In cases where advances of                        service payment charged for the existing               Assistant Secretary for Housing—Federal
                                                     mortgage proceeds are used to fund                      mortgage.                                              Housing Commissioner.
                                                     repairs, renovation, and/or equipment,                    (3) Mortgage term. The term of the                   [FR Doc. 2010–1488 Filed 1–28–10; 8:45 am]
                                                     endorsement shall occur as described in                 new mortgage shall not exceed the                      BILLING CODE 4210–67–P
mstockstill on DSKB9S0YB1PROD with PROPOSALS2




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