One thing to come out of the coronavirus crisis (among many things) has been record-low interest rates, with the 10-year Treasury yield falling as low as 0.318% on March 9 and the federal funds rate being cut to 0-0.25%. It has been in the federal government’s interest to maintain liquidity in the market, as much as possible, so how has that policy affected HUD lending in the senior care industry? We asked Michael Gehl of Housing & Healthcare Finance a few questions, and here are his answers:
1) First question is, is HUD still doing business?
Yes, HUD is still doing business, as you can imagine a number of people are working from home, which does create its challenges not just for HUD employees but all employees, but yes, HUD is doing business.
2) What precautions is HUD taking to still do due diligence? How has that changed the process for them, for lenders and for borrowers?
CMS is providing guidance regarding limitations on routine visits/surveys which do not directly involve HUD. As far as underwriting, HUD is also working with lenders to find alternative sources for information typically gained through on-site visits/inspections. We have seen third parties propose exterior inspection and photos, supplemented by a virtual video interior tour conducted by property staff via Skype or Face Time.
3) If your transaction was in the queue, what kind of delay can you expect?
As of now, the wait is still in line from where we were pre coronavirus, around 37 days in the queue for 223f loans.
4) Have interest rates lowered at all for HUD debt?
If you look where we were at the beginning of the year, rates were in the low 3% range. Where we are now, this a fluid situation. The 10 Year fell below 50 bps points, and HUD rates did dip below 3% for a very short period and bounced back up with the 10 Year coming back above 100 basis points. With all this dislocation, we have even seen one buyer of Ginnie Mae paper walk away from the market for a day, not bidding at all. There is still a bid in the market, but with such volatility, we are in a day-to-day situation.
5) As a lender, do you expect to see a surge or decline in refinancings?
As it pertains to (a)7s and loan modifications, absolutely, we have seen a dramatic increase in (a)7 and loan modification requests. As it pertains to regular way refinancing, the flow of business has been pretty consistent as of now.
