There were recently two HUD mortgage defaults after Chicago nursing homes were a closed due to IDPH regulatory issues – another default on a far western suburban was due substantially to a lack of attention and resources. Partially in response to these defaults, HUD’s LEAN email blast of September 1, 2011 states that HUD mortgage insurance for nursing homes with mentally ill populations will not be approved except in “extraordinary circumstances” because of concerns that such loans pose a higher risk of default due to “inspection/regulatory regime weaknesses and concerns related to the stability of future funding sources”.  Early conversations (and some reading between the lines) seem to indicate that no loans of this nature will be approved, but in the event a borrower can convince HUD of such extraordinary circumstances, the lender must address the concerns raised and such a loan must contain “significant risk mitigation” by means of a lower than normal loan to value, higher than normal debt service coverage ratio and a long term debt service reserve, if needed.

 http://portal.hud.gov/hudportal/documents/huddoc?id=HUDLeanBlast090111.doc

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