Late last month, Cambridge Realty Capital Companies arranged an $8.6 million HUD Lean loan to refinance the Riverside Nursing Center. Riverside is a 180-bed skilled nursing care facility in Dayton, Ohio. The loan was arranged using the HUD Section 232 pursuant to Section 223(f) funding program. Cambridge underwrote the transaction. When it comes to senior housing and healthcare lending, Cambridge is consistently ranked a leader, particularly for FHA-insured HUD loans. Cambridge is known as an authority on HUD loans and has reported that the Interest Rate Reduction Program for HUD mortgage loans is gaining momentum with borrowers in the senior housing and healthcare sector.

Two years ago, HUD rolled out a program offering an interest rate modification plan for senior housing and healthcare borrowers seeking to refinance their existing HUD mortgage loans. The program has since been gaining converts, “but some qualified borrowers still don’t realize that HUD’s Interest Rate Reduction (IRR) program exists. Or they are unaware of the substantial amounts of time, money, and energy that can be saved using this modification program to refinance an existing HUD loan,” Cambridge Realty Capital Vice President Katie Trice explains. Trice says that HUD’s IRR program is targeted toward borrowers who are motivated to lower the interest rate on their existing HUD loan. The program is a complement to the HUD 232/223(a)(7) program – the primary funding vehicle used to refinance existing HUD loans. Trice says that the IRR program is the right fit when the borrower is solely interested in a reduction of their interest rate. There is no application fee, and the program helps the borrower save on legal fees and title insurance coverage. The loan is even quick to close- almost always in a matter of just a few weeks.

HUD’s IRR program was initially offered exclusively to borrowers with distressed loans. Its scope was expanded when HUD realized that the majority of loan applications under this program were intended to reduce the borrowers’ interest rates. “A memo from HUD in April 2013 informed borrowers that the IRR program could be used as an alternative to refinancing an existing HUD223(f) or 232/223(a)(7) loan. Only the borrower’s existing HUD lender can provide an IRR modification,” explained Trice. Cambridge founder and Chairman Jeffrey A. Davis views HUD’s IRR as a win-win situation for all parties involved. This is because “reduced interest rates increase cash flow for the borrower. And the reduction makes HUD loans that much more secure for lenders.”

The program also helps borrowers save on legal fees. Cambridge estimated that the legal fees involved for the (a)(7) programs will on average cost about $25,000, compared with $2,000 for the IRR modification program. The IRR program also comes with a savings on title insurance, as this is not required. For the (a)(7) program, title insurance can run approximately $15,000. The application fee and 0.5 percent mortgage insurance premium are also waived. All in all, the HUD IRR program involves a substantial cost savings for senior housing and healthcare borrowers. If your senior housing or healthcare community is considering refinancing a HUD loan, contact the experts at Cambridge Realty Capital.

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