[Federal Register Volume 59, Number 23 (Thursday, February 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2466]
[[Page Unknown]]
[Federal Register: February 3, 1994]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 232
[Docket No. R-94-1695; FR-3374-P-01]
RIN 2502-AF89
Assisted Living Facilities Under Section 232
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.
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SUMMARY: This rule proposes to amend the regulations to implement
statutory authority to insure assisted living facilities for the care
of frail elderly persons, as authorized by section 511 of the Housing
and Community Development Act of 1992. This proposed rule would also
expand 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 223(f) of the
National Housing Act, and to insure additions to existing such
projects. Finally, this proposed rule would make conforming changes
required by the Housing and Community Development Act of 1992, and
would make minor technical changes to the regulations to remove
ambiguity and reflect long-standing Departmental policy.
DATES: Comments due date: April 4, 1994.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Rules Docket Clerk, room 10276, Office of
General Counsel, Department of Housing and Urban Development, 451
Seventh Street, SW., Washington, DC 20410-0500. Comments should refer
to the above docket number and title. A copy of each comment submitted
will be available for public inspection and copying between 7:30 a.m.
and 5:30 p.m. weekdays at the above address. Facsimile (FAX) comments
are not acceptable.
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, Public Law 102-550, approved October 28, 1992 (1992 HCD
Act), amends section 232 of the NHA by authorizing FHA mortgage
insurance for assisted living facilities. In compliance with section
511 of the 1992 HCD Act, this proposed rule would revise 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 proposed 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 proposed rule, the term ``frail elderly''
has the same meaning as the term 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 ``activity for daily living'' 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 proposed rule
would 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 proposed rule would authorize
the refinancing of an existing assisted living facility. This proposed
rule would also expand the section 232 program to include the
refinancing of conventional 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 the
refinancing of existing debt of an existing nursing home, existing
intermediate care facility, 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 only implemented section 409
for existing FHA-insured residential care facilities. (On August 31,
1988 (53 FR 33735), the Department added insurance for existing
residential care facilities that are currently FHA-insured.) 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 residential care facilities with non-FHA insured mortgages
under section 232 pursuant to section 223(f).
To implement further statutory changes, this proposed rule would
make 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. Moreover, this proposed rule would
increase the loan-to-value ratio for private nonprofit mortgagors from
90 percent to 95 percent, and would make conforming changes for fire
safety equipment for assisted living facilities.
In addition to statutory changes, this proposed rule would make
minor technical amendments to part 232. Specifically, this proposed
rule would move the definition of substantial rehabilitation from
Sec. 232.902(b) to the definitional section of the regulations (section
232.1), and revise 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.
Moreover, the word ``additions'' would be 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, this proposed rule would increase 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. Other Matters
A. Executive Order 12866
This proposed rule was reviewed by the Office of Management and
Budget (OMB) under Executive Order 12866, Regulatory Planning and
Review. Any changes made to the proposed rule as a result of that
review are clearly identified in the docket file, which is available
for public inspection in the office of the Department's Rules Docket
Clerk, room 10276, 451 Seventh Street SW., Washington DC.
B. Regulatory Flexibility Act
The Secretary in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so
doing certifies that this proposed rule does not have a significant
economic impact on a substantial number of small entities.
Specifically, the proposed 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
has been 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. The finding 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 proposed 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 proposed 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
proposed 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 proposed 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 proposed rule, as
those policies and programs relate to family concerns.
F. Regulatory Agenda
This proposed rule was listed as item no. 1510 in the Department's
Semiannual Agenda of Regulations published on October 25, 1993 (58 FR
56402, 56424) in accordance with Executive Order 12866 and the
Regulatory Flexibility Act.
G. Paperwork Reduction Act
The amendments that would be made to 24 CFR part 232 by this
proposed rule would not add any additional information collection
burden than that already approved by the Office of Management and
Budget under the Paperwork Reduction Act.
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 would be amended as follows:
1. The authority citation for 24 CFR part 232 would continue to
read as follows:
Authority: 12 U.S.C. 1715b, 1715w, 1715z(9); 42 U.S.C. 3535(d).
2. The title of 24 CFR part 232 would be 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 would be amended by revising paragraph (j) and by
adding new paragraphs (m), (n), and (o) 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 Facilities 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) Frail elderly persons 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.
(o) 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:
(i) Roof structures;
(ii) Ceiling, wall, or floor structures;
(iii) Foundations;
(iv) Plumbing systems;
(v) Heating and air conditioning systems; and
(vi) Electrical systems.
4. A new Sec. 232.7 would be added to the end of the undesignated
center heading, ``APPLICATION AND CERTIFICATION'', in subpart A, to
read as follows:
Subpart A--Eligibility 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 such occupants; 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 would be 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 would be 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) would be added as follows:
Sec. 232.39 Construction standards.
* * * * *
(c) 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. An
assisted living unit must 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 a
central kitchen 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 would be 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 section 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 would be 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 would be 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 would be amended by revising the introductory
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 would be 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 would be 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 would be 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 would be 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 would produce 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 would be amended by revising the first sentence
in the introductory paragraph (a), the first sentence in paragraph (b),
and the first sentence in the introductory 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: January 21, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 94-2466 Filed 2-2-94; 8:45 am]
BILLING CODE 4210-27-P