[Federal Register Volume 59, Number 228 (Tuesday, November 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29362]
[[Page Unknown]]
[Federal Register: November 29, 1994]
_______________________________________________________________________
Part XI
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
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24 CFR Part 232
Assisted Living Facilities Under Section 232; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Part 232
[Docket No. R-94-1695; FR-3374-F-02]
RIN 2502-AF89
Assisted Living Facilities Under Section 232
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This rule amends HUD regulations to implement statutory
authority to insure assisted living facilities for the care of frail
elderly persons. The authorizing statute is section 511 of the Housing
and Community Development Act of 1992. The rule also expands current
regulations to include the refinancing of conventional (non-FHA
insured) nursing homes, intermediate care facilities, assisted living
facilities or board and care homes under section 232, pursuant to
section 223(f) of the National Housing Act, and to insure additions to
such projects. Finally, the rule makes certain conforming changes
required by the Housing and Community Development Act of 1992 and makes
other minor technical changes that remove ambiguities or reflect long-
standing Departmental policy.
EFFECTIVE DATE: December 29, 1994.
FOR FURTHER INFORMATION CONTACT: Linda D. Cheatham, Director, Office of
Insured Multifamily Housing Development, 451 Seventh Street, SW,
Washington, DC 20410-0500, telephone: (202) 708-3000; the
telecommunications device for the deaf (TDD) telephone number is (202)
708-4594. (These are not toll-free numbers.)
SUPPLEMENTARY INFORMATION:
I. Background
Currently, under section 232 of the National Housing Act (NHA), and
the accompanying regulations at 24 CFR part 232, the Department insures
mortgages for nursing homes, intermediate care facilities, and board
and care homes. Section 511 of the Housing and Community Development
Act of 1992 (Pub. L. 102-550, approved October 28, 1992) (1992 HCD Act)
amends section 232 to also authorize FHA mortgage insurance for
``assisted living facilities.'' In compliance with section 511, this
rule revises HUD regulations at 24 CFR part 232 to make assisted living
facilities for the care of the frail elderly eligible for mortgage
insurance.
Under the NHA and this rule, the term ``assisted living facility''
means a public facility, proprietary facility, or facility of a private
nonprofit corporation that:
(1) Is licensed and regulated by the State (or if there is no State
law providing for such licensing and regulation by the State, by the
municipality or other political subdivision in which the facility is
located);
(2) Makes available to residents supportive services to assist the
residents in carrying out activities of daily living such as bathing,
dressing, eating, getting in and out of bed or chairs, walking, going
outdoors, using the toilet, laundry, home management, preparing meals,
shopping for personal items, obtaining and taking medications, managing
money, using the telephone, or performing light or heavy housework, and
which may make available to residents home health care services, such
as nursing and therapy; and
(3) Provides separate dwelling units for residents, each of which
may contain a full kitchen or bathroom, and includes common rooms and
other facilities appropriate for the provision of supportive services
to residents of the facility.
Under the NHA and this rule, the term ``frail elderly'' has the
same meaning as that term has in section 802(k) of the Cranston-
Gonzalez National Affordable Housing Act (NAHA). Section 802(k)(8)
defines ``frail elderly'' as meaning an elderly person who is unable to
perform at least three activities of daily living adopted by the
Secretary. (The term ``elderly person'' means a person who is at least
62 years of age. The term ``activity for daily living'' in turn means
an activity regularly necessary for personal care and includes bathing,
dressing, eating, getting in and out of bed and chairs, walking, going
outdoors, and using the toilet.)
An assisted living facility may be free-standing, or part of a
complex that includes a nursing home, an intermediate care facility, a
board and care facility or any combination of the above. However, in
compliance with section 511 of the 1992 HCD Act, this rule does not
authorize mortgage insurance for an assisted living facility unless the
Secretary determines that the level of financing acquired by the
mortgagor and any other resources available for the facility are
sufficient to ensure that the facility contains dwelling units and
facilities for the provision of supportive services; the mortgagor
provides satisfactory assurances that no dwelling unit in the facility
will be occupied by more than one person without the consent of all
such occupants; and the appropriate state licensing agency for the
state, municipality or other political subdivision in which the
facility is or is to be located provides adequate assurances that the
facility will comply with any applicable standards and requirements for
such facilities.
Section 511 of the 1992 HCD Act also amends section 223(f) of the
NHA. In accordance with section 511, this rule authorizes the
refinancing of an existing assisted living facility. This rule also
expands the section 232 program to include the refinancing of
conventionally financed projects under section 223(f) of the National
Housing Act. Section 409 of the Housing and Community Development Act
of 1987 amended section 223(f) of the NHA to cover such refinancing of
the debt of an existing nursing home, existing intermediate care
facility, or existing board and care facility (collectively referred to
as ``residential care facility''), or any combination of the above.
However, after section 409 of the Housing and Community Development
Act of 1987 was enacted, the Department limited its implementation to
existing FHA-insured residential care facilities. (See August 31, 1988
Federal Register at 53 F.R. 33735). HUD's decision not to implement
section 409 in its entirety was based on the fact that HUD had no
experience in underwriting existing residential care facilities. By
limiting the insurance for refinanced transactions to currently FHA-
insured projects with a known track record (annual inspections,
availability of audited financial statements, etc.), the Department
could more adequately protect the General Insurance Fund.
However, the House Conference Report for the NAHA (H.R. 101-943,
101st Cong. 2d Sess, at 524) emphasizes Congress's intent that the
Department fully implement section 409 to include conventional (non-FHA
insured) projects. Accordingly, the Department is now expanding the
program to include mortgages for the purchase and refinancing of
existing, conventionally financed residential care facilities under
section 232 pursuant to section 223(f).
To implement other statutory changes, this rule makes projects
consisting of an addition to an existing (non-FHA insured) nursing
home, board and care facility, intermediate care facility, or assisted
living facility eligible for mortgage insurance under section 232 of
the NHA. Also, the rule increases the loan-to-value ratio for private
nonprofit mortgagors from 90 percent to 95 percent, and makes certain
conforming changes with respect to fire safety equipment for assisted
living facilities.
This rule also makes a number of technical amendments to part 232.
Specifically, it moves the definition of substantial rehabilitation
from Sec. 232.902(b) to the definitional section of the regulations
(Sec. 232.1), and revises the definition of substantial rehabilitation
to reflect the requirement that rehabilitation must involve two or more
major building components. The current wording ``more than one building
component'' could be erroneously interpreted.
Also, the word ``additions'' is removed from the definition of
substantial rehabilitation. The placement of ``additions'' in
Sec. 232.902(b) of the existing regulations has caused confusion
because it incorrectly suggests that the cost of an addition to an
existing building can be used in calculating the 15 percent of value
criterion. The term ``additions,'' as used in Sec. 232.902(b) was
intended to mean an addition of a new project element in a residential
care facility, such as a whirlpool bath, safety railing, etc. The
Department wants to emphasize that these revisions to the definition of
substantial rehabilitation do not reflect a policy change, but are
technical changes which reflect the Department's long-standing
administrative policy.
Finally, the rule increases the loan-to-value ratio for private
nonprofit mortgagors from 85 percent to 90 percent for the purchase or
refinance of a residential care facility which does not involve
substantial rehabilitation.
II. Public Comment on Proposed Rule
On February 3, 1994, the Department published a proposed rule (59
FR 5157) entitled ``Assisted Living Facilities Under Section 232''. A
total of 22 written comments were received from the public on this
proposal. What follows is a listing of the significant issues raised,
or recommendations made, in these comments along with HUD's response to
each.
80 Percent Medicaid Payor Requirement
Five commenters noted that current regulations for new construction
and substantial rehabilitation of nursing homes under section 232
require that 80 percent of all beds be underwritten at Medicaid bed
rates. They argued that, while this requirement may be appropriate when
projecting potential bed mix for a proposed nursing home, HUD should
not use the same requirement for an existing property.
The commenters argue that many nursing homes are economically sound
with a private-pay population of much more than 20 percent. They
therefore suggest that, when underwriting the refinancing of an
occupied nursing home, the Department assumes that the payor mix
remains as it is presented. If HUD artificially assumes an 80 percent
Medicaid payor rate, it will artificially lower the property's income
and may produce an artificially reduced and unworkable first mortgage.
The commenters argue that a major reason for expanding current
regulations to include the refinancing of existing conventionally
financed nursing homes and related facilities for the elderly is to
reduce the unnecessarily high cost of borrowing from conventional
conduits and Real Estate Investment Trusts (REITs). A reduction in
borrowing cost can help reduce the overall cost of health care in this
country but unnecessarily conservative underwriting assumptions will
work to thwart this goal.
HUD's Response
The processing provision relative to the use of 80-85 percent of
the Medicaid rate contained in the administrative instructions is not
regulatory, and thus it is not part of the rule. In establishing the
maximum mortgage amount, HUD uses the 80-85 percent of the actual or
average Medicaid rate. This may reduce the maximum amount of mortgage
that HUD will insure since the project's income will be based upon
Medicaid rates. However, it is a conservative approach necessary to
protect the general insurance fund. If HUD had to take back the
mortgage, there would be a stable income stream to meet the debt
service requirements. This does not mean that the facility must change
its payor mix to be eligible for mortgage insurance. The Medicaid
provisions currently apply to new construction and substantial
rehabilitation. The Department is in the process of determining what
parameters will be used in the administrative instructions for
establishing the maximum mortgage amount for existing non-HUD insured
projects. The 80 percent Medicaid rule does not apply to board and care
homes and assisted living facilities.
Loan-to-Value Ratio
Five commenters support the Department's proposal to distinguish
between the underwriting of projects owned by profit-motivated and
nonprofit entities. They note, however, that existing facilities
involve fewer construction and leasing risks than the FHA-insured loan
programs for new construction which have more liberal underwriting
standards. Consequently, they recommend that HUD permit loans to cover
acquisition or refinancing costs up to 90 percent of value for profit-
motivated borrowers and up to 95 percent of value for nonprofit
borrowers. Similarly, some commenters also recommend that profit-
motivated and nonprofit borrowers be limited to maximum loans supported
by no more than 90 percent and 95 percent of net income, respectively.
HUD's Response
HUD has determined the loan-to-value for nonprofits for refinance
or acquisition to be 90 percent of HUD's estimate of value. For profit-
motivated mortgagor entities, the value limit shall not be in excess of
85 percent of HUD's estimate of the project. This limitation is the
same as the long-standing requirement for section 207/223(f) existing
rental housing projects. The maximum debt service mortgage limitation
will be 85 percent of net projected project income with the nonprofit
amount at 90 percent.
Licensure Requirements
Six commenters noted that the proposed rule defines assisted living
facilities, in relevant part, as ``a public facility, proprietary
facility, or facility of a private nonprofit corporation that is used
for the care of the frail elderly, and that: (1) is licensed and
regulated by the State or if there is no State law providing for such
licensing and regulation by the State, by the municipality or other
political subdivision in which the facility is located.''
These commenters observed that many states and localities do not
have licensure requirements or regulations for assisted living or board
and care facilities and in such cases it would be helpful to know what
documents would be acceptable to HUD in allowing project financing to
go forward.
One commenter recommended that language should be added to the rule
stating that section 232 will insure the financing of all features not
specified in this rule, but required by state licensure. If, for
example, a particular state's licensure requirement mandates complete
kitchens in each resident's unit, this feature should be covered under
the section 232 insurance program.
HUD's Response
Section 511 of the 1992 HCD Act requires licensure and regulation
by the appropriate State agency (or if there is no state law providing
for state licensure and regulation, by the municipality or other
political subdivision in which the facility is located). HUD requires
that the State comply with section 1616(e) of the Social Security Act
(Keys Amendment) for both board and care homes and assisted living
facilities. This means that there is an agency that is responsible for
licensure and standards. Licensure implies that the facility is
authorized to operate in the State. Standards involve monitoring
activities such as inspection for compliance and enforcement. HUD
understands that State regulations differ from State to State.
Therefore, HUD is flexible with respect to the existing State
regulations for board and care homes and assisted living facilities, as
long as such facilities meet the basic HUD requirements. In today's
rule, assisted living facility units may contain full kitchens,
kitchenettes, no kitchens or a combination depending on the design and
market. HUD will strive to accommodate the State's regulations whenever
possible without jeopardizing underwriting standards and other
requirements. In order for an assisted living facility to be endorsed
for mortgage insurance, it must be in compliance with all applicable
Federal, State and local laws.
One Person Occupancy Issue
Three commenters urged HUD to clarify Sec. 232.7(b) of the proposed
rule so that the resident consent requirement with respect to multiple
occupancy is only required with respect to the dwelling unit in
question. Under the proposed rule, some occupants of an assisted living
facility might believe that the consent of all project residents is
required, a standard virtually impossible to meet.
HUD's Response
The Department agrees that this provision requires clarification.
The final rule has been changed to reflect the requirement that only
the consent of the occupant(s) of the dwelling unit subject to the
multiple occupancy is needed to authorize the multiple occupancy. The
regulatory text in Sec. 232.7(b) of today's final rule reads, ``[n]o
dwelling unit in the facility will be occupied by more than one person
without the consent of all occupant(s) of such dwelling unit.''
Facility Requirements
Section 232.39 of the proposed rule requires that each assisted
living facility have a central kitchen and group dining facilities.
Eight commenters suggested that HUD modify this requirement so that
each facility either have a central kitchen or demonstrate its capacity
to provide hot meals to all residents. Such a modification would enable
facilities to utilize outside catering services or food service
provision from a near-by facility or institution. These commenters
believe this flexibility could be particularly beneficial to those
facilities serving low- and moderate-income residents.
Some of these commenters also made similar comments in connection
with the full bathroom requirement in Sec. 232.39 of the proposed rule.
HUD's Response
In the final regulations, an assisted living unit may contain a
kitchenette or a full kitchen, but is not required to do so. However,
the facility must still provide space for a main kitchen and dining
room. The facility must provide central dining to accommodate three
meals per day. The facility may contract with another facility for food
service. The meals may be catered and served in the dining room
depending on the State licensure standard. If the facility proposes to
contract catered meals and no central kitchen is desired, space for a
central kitchen must still be provided in the event that HUD must
foreclose and operate the facility.
In regard to the full bathroom requirement in the proposed rule,
HUD has changed Sec. 232.39 of the final rule to reflect the statutory
provision that a full bathroom is an option, but not a requirement.
Section 202 and 221(d)(3) Elderly Projects
One commenter suggested that the Department consider authorizing
mortgage insurance for the addition of assisted living units to Section
202 and Section 221(d)(3) elderly housing projects, provided that the
existing indebtedness is refinanced as part of the transaction. This
commenter argued that the resultant facilities would provide an
internal feeder source for the new assisted living units, and would be
the first facilities to offer a continuum of care for the lower-income
elderly.
HUD's Response
The Department has no statutory authority to do as the commenter
suggested. The NHA provides separate requirements for elderly rental
housing and residential health care facilities. A project eligible
under one Section of the NHA (e.g. an elderly project under
Sec. 221(d)(4)) would not necessarily qualify as an assisted living
facility under section 232. Moreover, section 202 is implemented under
the Housing Act of 1959 (not the NHA), and contains different statutory
requirements.
HUD currently has a continuum of care under the section 232
program. The delivery of care includes skilled nursing facilities (sub-
acute care), intermediate care facilities (ICF/MR), board and care
homes, and assisted living facilities. In addition, a day care center
may be added if it is in conjunction with one of the above facilities.
An assisted living facility and board and care home could be the
logical place for the frail elderly who are currently residing in
elderly housing that does not offer supportive services to individuals
who need assistance with activities of daily living. Unfortunately,
many state Medicaid payment systems do not pay for coverage that would
offer continuity of care. Most section 232 board and care homes are
market rate.
Three Year Requirement
The proposed rule states that (1) the project must not require
substantial rehabilitation and (2) three years must have elapsed from
the date of completion of construction or substantial rehabilitation of
the project, or from the beginning of occupancy, whichever is later, to
the date of application for insurance.
One commenter believes that this ``three year requirement'' needs
clarification since it is not uncommon for existing projects that were
originally constructed several years ago to subsequently add a modest
number of beds. In many such instances, the cost of adding these beds
would not be a major expenditure (compared to the total project value).
As currently proposed, the rule is unclear as to whether it is possible
to process a section 223(f) application for a project that has added
additional beds within three years of the application date.
Another commenter urged the Department to modify both its section
223(f) multifamily mortgage program and this rule by replacing the
requirement that eligible existing rental housing projects be at least
three years old with a requirement that projects must have achieved an
occupancy level that produces enough income to pay all expenses,
including debt service. Such a change would end the exclusion of sound
and worthwhile projects from the section 223(f) program.
HUD's Response
The section 207/223(f) program for purchase and refinance of
existing rental projects requires that projects be completed for at
least three years. This has been carried over to the Section 232/223(f)
program. The three year rule in a section 223(f) refinance transaction
means that the project must be in operation for at least three years
after completion of construction or substantial rehabilitation prior to
filing an application. For section 232 projects, this would include any
additions.
Definition of Frail Elderly
Six commenters argued that the rule's definition of a frail elderly
person as one unable to perform at least three activities of daily
living is unduly restrictive. They recommended that the requirement be
changed either to: (1) Reduce the daily activities from three to one,
(2) rely on state licensure to provide assurance that the program will
not be used to refinance other types of facility, or (3) instead of
requiring that a person be ``unable to perform'' certain activities
provide that the person ``may require assistance with'' certain
activities.
HUD's Response
The definition of ``frail elderly'' is statutory. It is included in
section 802(k) of NAHA. HUD does not have the authority to decrease the
number of activities of daily living (ADL) for assisted living
projects. Board and care homes are not limited to the frail elderly
population and may be used for other types of occupants, such as
developmentally disabled persons who are unable to perform one or two
activities of daily living.
Age and Disability Qualifications; Income Qualifications
One commenter stated that assisted living facilities should be
considered a need driven product, and for this reason, market
feasibility should focus on the population aged 75 or older
experiencing problems with one or more ADLs. The Senate Aging
Committee, the Administration on Aging, and the Health Care Financing
Administration all publish statistics on the percentage of elderly
persons aged 75 or older that experience problems with one or more
ADLs. This methodology for quantifying the number of age- and
disability-qualified elderly in a particular market area may
underestimate the number of qualified individuals by excluding younger
persons with physical or cognitive impairments. Nevertheless, the
commenter believes it is a sound method for quantifying the primary
market, and would require only slight adjustments to account for usage
by younger physically or mentally impaired persons. Such a method would
rarely result in positive feasibility determinations for projects in
excess of 100 units.
The commenter also suggested that, in determining the income-
eligible population for a proposed assisted living facility with a
given monthly rental charge, the Department should take into account
that elderly persons who are driven by need to move into such a
facility are willing to spend up to 65 percent of their income for the
monthly charge. The traditional affordability standard of ``30 percent
of income for rent'' does not apply, as the rental charge would include
shelter, meals, and additional supportive services. Also, it is quite
common that family members will provide financial support for relatives
in assisted living facilities. This further supports the argument that
income eligibility should be established on the basis of the 65-
percent-of-income-for-rent standard.
HUD's Response
The Department does not get involved in income eligibility nor does
the program include a 30-percent-of-income-for-rent standard. From an
underwriting standpoint, the processing takes into consideration the
demographics, licensed facilities, level of competition, rates,
physical settings, service component, occupancy, income sources, type
of clientele, staffing and location. HUD market analysis considers the
type of project and the services offered.
In addition to the above, the Department looks at the developer's
expertise in developing, operating and managing board and care homes
and assisted living facilities. The experience and qualifications of
the mortgagor entity will be reviewed along with the sponsor's
marketing plan. It was HUD's intention that assisted living facilities
would be of modest design and not appeal to the limited market as
luxury retirement projects. Assisted living facilities are not designed
to provide comprehensive nursing care.
Medicaid Reimbursement
One commenter noted that many states are developing Medicaid waiver
programs to provide reimbursement for care provided to low-income
elderly residing in assisted living facilities. Currently, Medicaid
reimbursement is only available for persons who are Medicaid-eligible
and nursing home eligible (i.e., low-income persons who have problems
with three or more ADLs), who will reside in licensed assisted living
facilities. The commenter believes that the Department should take
steps to ensure that the Section 232 program and state Medicaid waiver
programs can be combined to finance affordable assisted living
facilities. In particular, the commenter believes that the Department
should consider waiving market feasibility tests for projects, or
portions of projects, that have been certified for participation in the
state's Medicaid waiver program.
HUD's Response
Medicaid is a State administered program and HUD has no control
over the State's reimbursement payment system. Each State budgets the
amount of money to be spent on Medicaid and chooses the services that
will be Medicaid eligible. In 1989, the State of Oregon chose to pay
for assisted living services with Medicaid monies. Even if states
adopted the Oregon plan, only a small portion of a particular project
would be Medicaid certified. The resident would still have to be
eligible for Medicaid based on medical need.
The President's Health Security Act would retain current Medicaid
nursing home benefits while making improvements in the home and
community-based services for assisted living facilities. Due to high
cost of nursing home care, the board and care home and assisted living
facility may be less expensive and offer an alternative to nursing
homes. States may request a State Medicaid waiver to use Medicaid
monies for home and community-based services or implement a plan to use
Medicaid monies to pay for residential care services. However, HUD
still has a responsibility to ensure that insured projects are
marketable and that the Department's interests are protected in the
event of default.
III. Other Matters
A. Regulatory Flexibility Act
The Secretary in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this rule, and in so doing
certifies that this rule does not have a significant economic impact on
a substantial number of small entities. Specifically, the rule expands
eligible projects for FHA mortgage insurance to include assisted living
facilities, and additions to existing projects, neither of which are
expected to have a significant economic impact on a substantial number
of small entities.
C. Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made in accordance with HUD regulations at 24 CFR part 50, which
implement section 102(2)(C) of the National Environmental Policy Act of
1969, at the time of development of the proposed rule. The Finding
remains applicable to this final rule and is available for public
inspection during regular business hours in the Office of General
Counsel, the Rules Docket Clerk room 10276, 451 Seventh Street, SW.,
Washington, DC 20410.
D. Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive order 12612, Federalism, has determined that the policies
contained in this rule will not have substantial direct effects on
states or their political subdivisions, or the relationship between the
Federal government and the states, or on the distribution of power and
responsibilities among the various levels of government. Specifically,
the rule is directed to owners of residential care facilities, and will
not impinge upon the relationship between the Federal Government and
State and local governments. As a result, the rule is not subject to
review under the order.
E. Executive Order 12606, The Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this rule does not have
potential for significant impact on family formation, maintenance, and
general well-being, and, thus, is not subject to review under the
order. No significant change in existing HUD policies or programs will
result from promulgation of this rule, as those policies and programs
relate to family concerns.
F. Regulatory Agenda
This rule is listed as item no. 1797 in the Department's Semiannual
Agenda of Regulations published on November 14, 1994, (59 FR 57632,
57655) in accordance with Executive Order 12866 and the Regulatory
Flexibility Act.
G. The Catalog of Federal Domestic Assistance program number is 14.129.
List of Subjects in 24 CFR Part 232
Fire prevention, Health facilities, Loan programs--health, Loan
programs--housing and community development, Mortgage insurance,
Nursing homes, Reporting and recordkeeping requirements.
Accordingly, 24 CFR Part 232 is amended as follows:
1. The authority citation for 24 CFR part 232 continues to read as
follows:
Authority: 12 U.S.C. 1715b, 1715w, 1715z(9); 42 U.S.C. 3535(d).
2. The heading of 24 CFR part 232 is revised to read as follows:
PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE
FACILITIES, BOARD AND CARE HOMES, AND ASSISTED LIVING FACILITIES
3. Section 232.1 is amended by revising paragraph (j) and by adding
new paragraphs (m), (n), (o), and (p) to read as follows:
Sec. 232.1 Definitions.
* * * * *
(j) Project means a nursing home, intermediate care facility,
assisted living facility or board and care home, or any combination of
nursing home, intermediate care facility, assisted living facility or
board and care home, approved by the Commissioner under provisions
under this subpart. A project may include such additional facilities as
may be authorized by the Secretary for the nonresident care of elderly
individuals and others who are able to live independently but who
require care during the day.
* * * * *
(m) Assisted Living Facility means a public facility, proprietary
facility, or facility of a private nonprofit corporation that is used
for the care of the frail elderly, and that:
(1) Is licensed and regulated by the State or if there is no State
law providing for such licensing and regulation by the State, by the
municipality or other political subdivision in which the facility is
located;
(2) Makes available to residents supportive services to assist the
residents in carrying out activities of daily living such as bathing,
dressing, eating, getting in and out of bed or chairs, walking, going
outdoors, using the toilet, doing laundry, preparing meals, shopping
for personal items, obtaining and taking medications, managing money,
using the telephone, or performing light or heavy housework, and which
may make available to residents home health care services, such as
nursing and therapy;
(3) Provides separate dwelling units for residents, each of which
may contain a full kitchen or bathroom, and includes common rooms and
other facilities appropriate for the provision of supportive services
to residents of the facility.
(n) Elderly person means a person who is at least 62 years of age.
(o) Frail elderly person means an elderly person who is unable to
perform at least three activities of daily living. Activity of daily
living means an activity necessary on a regular basis for personal care
and includes bathing, dressing, eating, getting in and out of beds and
chairs, walking, going outdoors and using the toilet.
(p) Substantial rehabilitation consists of repairs, replacements
and improvements:
(1) The cost of which exceeds the greater of fifteen percent (15%)
of the Project's value after completion of all repairs, replacements,
and improvements; or
(2) That involve the replacement of two or more major building
components. For purposes of this definition, the term major building
component includes: roof structures; ceiling, wall, or floor
structures; foundations; plumbing systems; heating and air conditioning
systems; and electrical systems.
4. A new Sec. 232.7 is added to the end of the undesignated center
heading, ``APPLICATION AND CERTIFICATION'', in subpart A, to read as
follows:
Subpart A--Eligibilitiy Requirements
* * * * *
Application and Certification
* * * * *
Sec. 232.7 Additional requirements for assisted living facilities.
In the case of an assisted living facility, or any such facility
combined with any other home or facility, the Secretary shall not
insure any mortgage under this part unless:
(a) The Secretary determines that the level of financing acquired
by the mortgagor and any other resources available for the facility
will be sufficient to ensure that the facility contains the dwelling
units and facilities for the provision of supportive services in
accordance with Sec. 232.1(m);
(b) The mortgagor provides assurances satisfactory to the Secretary
that no dwelling unit in the facility will be occupied by more than one
person without the consent of all occupant(s) of such dwelling unit;
and
(c) The appropriate state licensing agency for the state,
municipality or other political subdivision in which the facility is or
is to be located provides such assurances as the Secretary considers
necessary that the facility will comply with any applicable standards
and requirements for such facilities.
5. Section 232.30 is revised to read as follows:
Sec. 232.30 Maximum mortgage amounts for new construction and
substantial rehabilitation.
The mortgage for a project involving proposed new construction or
substantial rehabilitation by a profit motivated mortgagor shall
involve a principal obligation not in excess of 90 percent of the
Commissioner's estimate of the value of the project, including
equipment to be used in the operation, when the proposed improvements
are completed and the equipment is installed. The mortgage for a
project involving proposed new construction or substantial
rehabilitation by a private nonprofit mortgagor shall involve a
principal obligation not in excess of 95 percent of such value,
including equipment.
6. Section 232.32 is amended by revising the section heading, the
introductory paragraph, and paragraphs (b) and (c) to read as follows:
Sec. 232.32 Adjusted mortgage amount--substantial rehabilitation
projects.
In addition to the limitations of Sec. 232.30, a mortgage having a
principal amount computed in compliance with the applicable provisions
of this subpart, and which involves a project to be substantially
rehabilitated, shall be subject to the following additional
limitations:
* * * * *
(b) Property subject to existing mortgage. If the mortgagor owns
the project subject to an outstanding indebtedness, which is to be
refinanced with part of the insured mortgage, the maximum mortgage
amount shall not exceed:
(1) The Commissioner's estimate of the cost of the repair or
rehabilitation; plus
(2) Such portion of the outstanding indebtedness as does not exceed
90 percent (95 percent for a private nonprofit mortgagor) of the
Commissioner's estimate of the fair market value of such land and
improvements prior to the repair or rehabilitation; or
(c) Property to be acquired. If the project is to be acquired by
the mortgagor and the purchase price is to be financed with a part of
the insured mortgage, the maximum mortgage amount shall not exceed 90
percent (95 percent for a private nonprofit mortgagor) of:
(1) The Commissioner's estimate of the cost of the repair or
rehabilitation; and
(2) the actual purchase price of the land and improvements, but not
in excess of the Commissioner's estimate of the fair market value of
such land and improvements prior to the repair or rehabilitation.
7. In Sec. 232.39, a new paragraph (c) is added to read as follows:
Sec. 232.39 Construction standards.
* * * * *
(c)(1) An assisted living facility shall be one or more free-
standing structures (architecturally independent of any other
structure), an entity of an existing structure such as a board and care
home, or connected to a main building or identifiable separate portions
of one or more free-standing structures containing not fewer than five
residential efficiency, one-bedroom or two-bedroom units. Residential
unit means a separate apartment or unit for one or more persons.
(2) An assisted living unit may contain a full bathroom and may
contain a kitchenette or a full kitchen depending on the design and
market. A kitchen is not required in each unit; however, the facility
must have areas for a central kitchen (adequate space, site and
building layout) and group dining facilities. The assisted living
facility or designated portion of the structure shall not contain any
nursing home or intermediate care beds, but may contain board and care
beds. In addition, assisted living facilities must meet State and local
licensing requirements, governmental building codes, and other
occupancy standards.
8. A new Sec. 232.42a is added to subpart A to read as follows:
Sec. 232.42a Additions to existing projects.
A mortgage which covers an addition to an existing project is
eligible for insurance under this part, provided that, if there is a
mortgage on the existing project, such mortgage must be refinanced
under this part. The mortgage amount for an addition in all cases shall
be determined under Sec. 232.30. If the existing project requires
substantial rehabilitation then the mortgage amount for refinancing the
existing facility shall be determined under Secs. 232.30 and 232.32. If
the existing project does not require substantial rehabilitation then
the mortgage amount for refinancing the existing facility shall be
determined under Sec. 232.903. The resulting determination for the
mortgage on the addition and the resulting determination for the
refinanced mortgage on the existing project must be blended and both
the addition and the existing project must be subject to the same
mortgage.
9. Section 232.89 is revised to read as follows:
Sec. 232.89 Reduction in mortgage amount.
If the principal obligation of the mortgage exceeds 90 percent (95
percent for a private nonprofit mortgagor) of the total amount as shown
by the certificate of actual cost plus the value of the land (the cost
shown by the certificate of actual cost in rehabilitation cases), the
mortgage shall be reduced by the amount of such excess prior to final
endorsement for insurance.
10. Section 232.90 is amended by revising the section heading, the
introductory paragraph, and paragraphs (b) and (c) to read as follows:
Sec. 232.90 Substantial rehabilitation projects.
In the event the mortgage is to finance substantial rehabilitation,
the mortgagor's actual cost of the substantial rehabilitation may
include the items of expense permitted by new construction in
accordance with this part and the applicable cost certification
procedure described therein will be required; provided such mortgage
shall be subject to the following limitations:
* * * * *
(b) Property subject to existing mortgage. If the insured mortgage
is to include the cost of refinancing an existing mortgage acceptable
to the Commissioner, the amount of the existing mortgage or 90 percent
(95 percent for a private nonprofit mortgagor) of the Commissioner's
estimate of the fair market value of the land and existing improvements
prior to the repair or rehabilitation, whichever is the lesser, shall
be added to the actual cost of the repair or rehabilitation. If the
principal obligation of the insured mortgage exceeds the total amount
thus obtained, the mortgage shall be reduced by the amount of such
excess, prior to final endorsement for insurance.
(c) Property to be acquired. If the mortgage is to include the cost
of land and improvements, and the purchase price thereof is to be
financed with part of the mortgage proceeds, the purchase price or the
Commissioner's estimate of the fair market value of land and existing
improvements prior to repair or rehabilitation, whichever is the
lesser, shall be added to the actual cost of the repair or
rehabilitation. If the principal obligation of the insured mortgage
exceeds the applicable 90 percent (95 percent for a private nonprofit
mortgagor) of the total amount thus obtained, the mortgage shall be
reduced by the amount of such excess prior to final endorsement for
insurance.
11. Section 232.500 is amended by revising the introductory text of
paragraph (c)(1), and paragraph (d), to read as follows:
Sec. 232.500 Definitions.
* * * * *
(c)(1) Fire safety equipment means equipment that is purchased,
installed, and maintained in a nursing home, intermediate care
facility, assisted living facility, or board and care home and that
meets the following standards for the applicable occupancy:
* * * * *
(d) Fire safety loan means any form of secured or unsecured
obligation determined by the Commissioner to be eligible for insurance
under this subpart and, in the case of an assisted living facility or a
board and care home, made with respect to such a home located in a
State which the Secretary has determined is in compliance with the
provisions of section 1616(e) of the Social Security Act.
* * * * *
12. Section 232.505 is amended by revising paragraph (b) to read as
follows:
Sec. 232.505 Application and application fee.
* * * * *
(b) Filing of application. An application for insurance of a fire
safety loan for a nursing home, intermediate care facility, assisted
living facility or board and care home shall be submitted on an
approved HUD form by an approved lender and by the owners of the
project to the local HUD office.
* * * * *
13. Section 232.615 is amended by revising paragraph (b) to read as
follows:
Sec. 232.615 Eligible borrowers.
* * * * *
(b) Also eligible as a borrower shall be a profit or nonprofit
entity which owns an assisted living facility or board and care home
for which HUD has determined that the installation of fire safety
equipment is approvable under the definition contained in
Sec. 232.500(c).
14. Section 232.901 is revised to read as follows:
Sec. 232.901 Mortgages covering existing projects are eligible for
insurance.
A mortgage executed in connection with the purchase or refinancing
of an existing project without substantial rehabilitation may be
insured under this subpart pursuant to section 223(f) of the Act. A
mortgage insured pursuant to this subpart shall meet all other
requirements of this part except as expressly modified by this subpart.
15. Section 232.902 is revised to read as follows:
Sec. 232.902 Eligible project.
Existing projects (with such repairs and improvements as are
determined by the Commissioner to be necessary) are eligible for
insurance under this subpart. The project must not require substantial
rehabilitation and three years must have elapsed from the date of
completion of construction or substantial rehabilitation of the
project, or from the beginning of occupancy, whichever is later, to the
date of application for insurance. In addition, the project must have
attained sustaining occupancy (occupancy that produces income
sufficient to pay operating expenses, annual debt service and reserve
fund for replacement requirements) as determined by the Commissioner,
before endorsement of the project for insurance; alternatively, the
mortgagor must provide an operating deficit fund at the time of
endorsement for insurance, in an amount, and under an agreement,
approved by the Commissioner.
16. Section 232.903 is amended by revising the first sentence in
the introductory text of paragraph (a), the first sentence in paragraph
(b), and the first sentence in the introductory text of paragraph (d)
to read as follows:
Sec. 232.903 Maximum mortgage limitations.
* * * * *
(a) Value limit. The mortgage shall involve a principal obligation
of not in excess of eighty-five percent (85%) for a profit motivated
mortgagor (ninety percent (90%) for a private nonprofit mortgagor) of
the Commissioner's estimate of the value of the project, including
major movable equipment to be used in its operation and any repairs and
improvements. * * *
* * * * *
(b) Debt service limit. The insured mortgage shall involve a
principal obligation not in excess of the amount that could be
amortized by eighty-five percent (85%) for a profit motivated mortgagor
(ninety percent (90%) for a private nonprofit mortgagor) of the net
projected project income available for payment of debt service. * * *
* * * * *
(d) Project to be acquired--additional limit. In addition to
meeting the requirements of paragraphs (a) and (b) of this section, if
the project is to be acquired by the mortgagor and the purchase price
is to be financed with the insured mortgage, the maximum amount must
not exceed eighty-five percent (85%) for a profit motivated mortgagor
(ninety percent (90%) for a private nonprofit mortgagor) of the cost of
acquisition as determined by the Commissioner.
* * * * *
Dated: November 21, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-29362 Filed 11-28-94; 8:45 am]
BILLING CODE 4210-27-P
