[Congressional Record (Bound Edition), Volume 147 (2001), Part 9]
[Extensions of Remarks]
[Page 12631]
[From the U.S. Government Publishing Office, www.gpo.gov]



          FHA-INSURED HOSPITAL CONVERSION AND REINVESTMENT ACT

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, June 28, 2001

  Mr. LaFALCE. Mr. Speaker, today I am introducing the ``FHA-insured 
Hospital Conversion and Reinvestment Act.'' This legislation authorizes 
HUD to reinvest profits from FHA loan insurance programs, including 
those for health care, in FHA-insured hospitals.
  The Department of Housing and Urban Development (HUD) insures 
billions of dollars of loans for hospitals under the FHA Section 242 
hospital loan program. According to the Administration's fiscal year 
2002 budget, FHA hospital and health care loan insurance programs are-
projected to make a profit for federal taxpayers of some $32 million 
next year. In addition, all FHA loan programs combined will make a 
profit of over $2.7 billion next year for the federal taxpayer.
  Currently, all of these FHA profits are used to increase the federal 
budget surplus. The legislation I am introducing today would authorize 
HUD to use some of these profits generated by FHA to pro-actively 
assist FRA-insured hospitals, either for the purpose of converting 
excess hospital capacity to related health care use or for the purpose 
of paying debt service for FHA-insured hospitals.
  Conversion of excess capacity helps the hospital which converts and 
the community it serves. It allows better use of hospital space in a 
way that is more responsive to the needs of the local community. 
Conversion also improves the ability of all hospitals in the local area 
to meet community health needs by reducing over-capacity and allowing 
some flexibility in the use to which the existing infrastructure can be 
put. Under my proposed legislation, conversion of excess hospital 
capacity is authorized for a range of purposes, including supportive 
housing for the elderly, assisted living, and nursing home beds--health 
care needs that may be more substantial for many communities than in-
hospital care.
  The authority under by legislation to use FHA surplus to pay debt 
service for FHA-insured hospitals is intended to safeguard FHA's pre-
existing investment. Such use is contingent on a determination by HUD 
that such assistance would reduce the risk of default and loss on the 
FHA-insured loan, and would improve the financial soundness of the 
hospital assisted. This new authority has the effect of giving HUD 
similar loss mitigation tools to those it currently has with respect to 
single-family and multi-family FHA-insured loans.
  Congress has long recognized that pro-active loss mitigation is of 
financial benefit to the FHA insurance fund. For example, HUD gives 
wide latitude to servicers of FHA-insured single-family loans to 
restructure debt, including making partial claims, in order to 
forestall foreclosures. This can be financially advantageous to the FHA 
fund, since foreclosures typically create a much larger loss to the 
fund.
  The ability to conduct loss mitigation with respect to hospital loans 
is further complicated by the fact that many FHA-insured hospital loans 
are structured as public bond offerings. This makes it very difficult 
to restructure loans, without calling the bonds. Allowing HUD to 
advance funds to pay debt service obviates the need to call bonds, 
while allowing HUD to pro-actively address looming financial problems, 
and avert foreclosure.
  This legislation would help FHA-insured hospitals nationwide, but 
would be of particular benefit to hospitals within the state of New 
York, which has one of the highest percentages of FHA-insured hospitals 
nation-wide.
  Hospitals within our state have adapted to a wide range of 
challenges, including Medicare cuts, squeezed reimbursement rates from 
private insurers, and the transition to a de-regulated environment. 
Community hospitals, with their lack of access to capital, face 
particular challenges. The least we can do is reinvest profits from 
federal hospital loans in the hospitals which have generated these 
profits.
  This legislation does precisely that. I urge Congress to adopt it and 
would welcome the support of my colleagues.

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