PulsePoints

For the first time in many years, mortgage interest rates are at a historic low. This creates great opportunities for everyone, and especially for those in the senior housing and healthcare industry. Borrowers in the business should take the time to see how refinancing your facilities could save you a great deal of money.

When it comes to refinancing, no one does it better than Cambridge. We are the originators of the Signature Experience, which focuses on developing relationships, finding ideal capital structures and solutions, and closing and funding debt and equity financing transactions in a timely manner. We stand by this process to give our clients the most efficient experience. We are one of the most knowledgeable companies in the industry when it comes to HUD lending, as it is our specialty. So whether you are in need of conventional or government financing, we can help you.

In the past, working through the process to obtain HUD Section 232 senior housing/healthcare funding has been quite a balancing act between the interests of borrowers, lenders, and the government agency. Then the HUD Lean program was introduced as a way of streamlining the process and making it more uniform and user-friendly.  But even Lean requires borrowers and lenders to meet some demanding underwriting criteria.

However, for borrowers who have existing HUD 232 mortgage loans and are looking at refinancing to take advantage of today’s low rates, things have gotten a lot steadier.  HUD’s 223(a)(7) program is ideal for borrowers whose loans are beyond their lockout periods and are eligible for refinancing now.  Today’s lower rates equate to higher operating profits, and because the original loan amount can be fully refinanced under 223(a)(7), additional funds are available to be used for capital improvements.  Returning borrowers, considered to be at lower risk by HUD, can also move more quickly through the HUD pipeline if they meet the criteria to be put into the “Green Lane” for speedier processing.

Low rates and low risk mean that HUD’s 223(a)(7) program is quite popular, so if you are contemplating the refinance of your existing HUD 232 loan, know that Cambridge is here to help keep the process on an even keel!

We look at a lot of deals every month, but unfortunately, not all of them can close.  Yet it’s still important for us to keep track of the number of deals we see and their total dollar volume, since these monthly numbers give us a good indicator of the direction that the market is going.

During the first nine months of 2010, we have processed 207 loans totaling $2.5 billion, compared to the 231 loans totaling $3.3 billion that were processed during this same period in 2009.  This overall decrease in origination requests occurred because funding for more expensive new construction projects has been difficult to find in today’s tight credit market.

There are some bright spots, however. Origination requests for September this year were higher than September 2009, and the number of requests to refinance existing loans remains strong, thanks to low interest rates and the appeal of HUD financing.  We are optimistic that this trend will continue, but we’ll still keep a close eye on the loan requests we receive each month and also continue to find the best solutions to the financing needs of senior housing/healthcare owners and operators.

As we see it, bond prices and the economy behave a lot like entangled particles in quantum physics.  When the economy weakens and loses its forward momentum, bond yields move lower.  This causes bond prices to spin higher, in the opposite direction.  But the lower bond yields also lead to lower borrowing rates, which is what’s happening right now.

 Even though credit markets are still tight for anyone looking for a new construction or acquisition loan, these low rates should motivate senior housing/healthcare borrowers to refinance existing loans now.  There’s no telling how long this cycle might last or how long interest rates will remain at these historically low levels; September brought some gently encouraging reports on the economy and we remain optimistic that things are continuing to improve. So it doesn’t take physics–or rocket science—to see that refinancing your senior housing loan now is a “capital” idea!

Many people look at today’s historically low interest rates and think “refinance!” And single-family homeowners are not the only ones who can take advantage of this opportunity. Existing HUD healthcare loans can be refinanced, too, and the process is surprisingly more uniform and user-friendly than it used to be, thanks to HUD Lean.

The HUD 223(a)7 program provides a way to get these existing loans that are beyond the lockout period into the refinance queue so borrowers to take advantage of the low rates now.   Healthcare property owners can refinance the full, original loan amount, which makes additional funds available to use for capital improvements to the property.

HUD loans still require borrowers and lenders to provide the right documents and meet all the required loan criteria.  But for borrowers who have been through the process once already, things are a lot easier.  So it makes sense for healthcare owners to talk to an FHA-approved HUD lender (like Cambridge!) to learn how refinancing their existing loans can put more money back into their properties–and their pockets.

If economists at the Federal Reserve Board have it right, a return to economic normalcy is not in the cards anytime soon.

In the Dickensian picture painted by the Fed, unemployment remains high but the odds of inflation ramping out of control are low. Both household and business spending have been increasing, but international spillover from the European debt crisis is causing further contraction in the U.S. capital market. Says Jeff Davis,

From the perspective of senior housing/healthcare owners and investors, it is the best of times because interest rates are near historic lows and drifting lower. But tight credit markets remain problematic. The Fed is suggesting that it could take another five to seven years for the economy to work its way back to what passed for normalcy not long ago.

In the meantime, senior housing/healthcare owners may be well advised to consider a long-term financial strategy that is both patient and opportunistic. Although opportunities for funding new construction are limited, refinancing an existing loan using the new HUD Lean product should make sense to a growing number senior housing/healthcare owners.

For example, for borrowers who can take advantage, interest rates on HUD 232 LEAN loans are near rock bottom after drifting steadily lower in recent weeks.

HUD rates tend to move up and down based on developments in the U.S. government bond market. And rates on 10-year Treasury notes have been moving steadily lower, from 3.76 percent in April to 3.03 percent by mid-July, as investors forsook volatility in the stock market.

The recent plunge in the 10-year U.S. Treasury bond rate means senior housing and healthcare borrowers will be getting an even more attractive interest rate on their HUD LEAN mortgage loans in the weeks ahead, funding expert and Cambridge chairman Jeffery Davis observes.

According to Davis, interest rates for HUD 232 loans tend to mirror developments in the government bond market. In May, there was a significant 50 basis point drop in 10-year Treasury yields, from a high of 3.76 percent in April to 3.25 percent a month later.

Bond yields nudged up slightly in early June but remain well below highs for the current calendar year.

Jeff explains:

It’s not uncommon for volatility in the equities market to drive bond yields lower. The economic crisis in Europe, a disappointing job report and the calamitous oil spill in the Gulf all have investors on edge. Some worry that the U.S. economy could be headed for a double-dip recession, while others, including Fed Chairman Ben Bernanke, see a tepid recovery continuing but with stubbornly high unemployment. Whichever scenario unfolds, it’s unlikely that Treasury bond yields will be moving dramatically higher anytime soon.

Davis said the Cambridge staff is reminding senior housing and healthcare clients that rates for refinancing with the popular new HUD LEAN product are probably as low as they’re likely to get in the current.

Want to take advantage of these rates? Contact us.

Do you think interest rates will continue to drop? Or do yo agree that they’ve hit bottom for this cycle?