[Federal Register Volume 59, Number 228 (Tuesday, November 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29362]


[[Page Unknown]]

[Federal Register: November 29, 1994]


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Part XI





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner



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24 CFR Part 232




Assisted Living Facilities Under Section 232; Final Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner

24 CFR Part 232

[Docket No. R-94-1695; FR-3374-F-02]
RIN 2502-AF89

 
Assisted Living Facilities Under Section 232

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule amends HUD regulations to implement statutory 
authority to insure assisted living facilities for the care of frail 
elderly persons. The authorizing statute is section 511 of the Housing 
and Community Development Act of 1992. The rule also expands 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 232, pursuant to 
section 223(f) of the National Housing Act, and to insure additions to 
such projects. Finally, the rule makes certain conforming changes 
required by the Housing and Community Development Act of 1992 and makes 
other minor technical changes that remove ambiguities or reflect long-
standing Departmental policy.

EFFECTIVE DATE: December 29, 1994.

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 (Pub. L. 102-550, approved October 28, 1992) (1992 HCD Act) 
amends section 232 to also authorize FHA mortgage insurance for 
``assisted living facilities.'' In compliance with section 511, this 
rule revises HUD regulations at 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 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 rule, the term ``frail elderly'' has the 
same meaning as that term has 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 ``elderly person'' means a person who is at least 
62 years of age. The term ``activity for daily living'' in turn 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 rule does 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 rule authorizes the 
refinancing of an existing assisted living facility. This rule also 
expands the section 232 program to include the refinancing of 
conventionally financed 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 such refinancing of 
the debt of an existing nursing home, existing intermediate care 
facility, or 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 limited its implementation to 
existing FHA-insured residential care facilities. (See August 31, 1988 
Federal Register at 53 F.R. 33735). 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, conventionally financed residential care facilities under 
section 232 pursuant to section 223(f).
    To implement other statutory changes, this rule makes 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. Also, the rule increases the loan-to-value ratio for private 
nonprofit mortgagors from 90 percent to 95 percent, and makes certain 
conforming changes with respect to fire safety equipment for assisted 
living facilities.
    This rule also makes a number of technical amendments to part 232. 
Specifically, it moves the definition of substantial rehabilitation 
from Sec. 232.902(b) to the definitional section of the regulations 
(Sec. 232.1), and revises 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.
    Also, the word ``additions'' is 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, the rule increases 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. Public Comment on Proposed Rule

    On February 3, 1994, the Department published a proposed rule (59 
FR 5157) entitled ``Assisted Living Facilities Under Section 232''. A 
total of 22 written comments were received from the public on this 
proposal. What follows is a listing of the significant issues raised, 
or recommendations made, in these comments along with HUD's response to 
each.

80 Percent Medicaid Payor Requirement

    Five commenters noted that current regulations for new construction 
and substantial rehabilitation of nursing homes under section 232 
require that 80 percent of all beds be underwritten at Medicaid bed 
rates. They argued that, while this requirement may be appropriate when 
projecting potential bed mix for a proposed nursing home, HUD should 
not use the same requirement for an existing property.
    The commenters argue that many nursing homes are economically sound 
with a private-pay population of much more than 20 percent. They 
therefore suggest that, when underwriting the refinancing of an 
occupied nursing home, the Department assumes that the payor mix 
remains as it is presented. If HUD artificially assumes an 80 percent 
Medicaid payor rate, it will artificially lower the property's income 
and may produce an artificially reduced and unworkable first mortgage.
    The commenters argue that a major reason for expanding current 
regulations to include the refinancing of existing conventionally 
financed nursing homes and related facilities for the elderly is to 
reduce the unnecessarily high cost of borrowing from conventional 
conduits and Real Estate Investment Trusts (REITs). A reduction in 
borrowing cost can help reduce the overall cost of health care in this 
country but unnecessarily conservative underwriting assumptions will 
work to thwart this goal.

HUD's Response

    The processing provision relative to the use of 80-85 percent of 
the Medicaid rate contained in the administrative instructions is not 
regulatory, and thus it is not part of the rule. In establishing the 
maximum mortgage amount, HUD uses the 80-85 percent of the actual or 
average Medicaid rate. This may reduce the maximum amount of mortgage 
that HUD will insure since the project's income will be based upon 
Medicaid rates. However, it is a conservative approach necessary to 
protect the general insurance fund. If HUD had to take back the 
mortgage, there would be a stable income stream to meet the debt 
service requirements. This does not mean that the facility must change 
its payor mix to be eligible for mortgage insurance. The Medicaid 
provisions currently apply to new construction and substantial 
rehabilitation. The Department is in the process of determining what 
parameters will be used in the administrative instructions for 
establishing the maximum mortgage amount for existing non-HUD insured 
projects. The 80 percent Medicaid rule does not apply to board and care 
homes and assisted living facilities.

Loan-to-Value Ratio

    Five commenters support the Department's proposal to distinguish 
between the underwriting of projects owned by profit-motivated and 
nonprofit entities. They note, however, that existing facilities 
involve fewer construction and leasing risks than the FHA-insured loan 
programs for new construction which have more liberal underwriting 
standards. Consequently, they recommend that HUD permit loans to cover 
acquisition or refinancing costs up to 90 percent of value for profit-
motivated borrowers and up to 95 percent of value for nonprofit 
borrowers. Similarly, some commenters also recommend that profit-
motivated and nonprofit borrowers be limited to maximum loans supported 
by no more than 90 percent and 95 percent of net income, respectively.

HUD's Response

    HUD has determined the loan-to-value for nonprofits for refinance 
or acquisition to be 90 percent of HUD's estimate of value. For profit-
motivated mortgagor entities, the value limit shall not be in excess of 
85 percent of HUD's estimate of the project. This limitation is the 
same as the long-standing requirement for section 207/223(f) existing 
rental housing projects. The maximum debt service mortgage limitation 
will be 85 percent of net projected project income with the nonprofit 
amount at 90 percent.

Licensure Requirements

    Six commenters noted that the proposed rule defines assisted living 
facilities, in relevant part, as ``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.''
    These commenters observed that many states and localities do not 
have licensure requirements or regulations for assisted living or board 
and care facilities and in such cases it would be helpful to know what 
documents would be acceptable to HUD in allowing project financing to 
go forward.
    One commenter recommended that language should be added to the rule 
stating that section 232 will insure the financing of all features not 
specified in this rule, but required by state licensure. If, for 
example, a particular state's licensure requirement mandates complete 
kitchens in each resident's unit, this feature should be covered under 
the section 232 insurance program.

HUD's Response

    Section 511 of the 1992 HCD Act requires licensure and regulation 
by the appropriate State agency (or if there is no state law providing 
for state licensure and regulation, by the municipality or other 
political subdivision in which the facility is located). HUD requires 
that the State comply with section 1616(e) of the Social Security Act 
(Keys Amendment) for both board and care homes and assisted living 
facilities. This means that there is an agency that is responsible for 
licensure and standards. Licensure implies that the facility is 
authorized to operate in the State. Standards involve monitoring 
activities such as inspection for compliance and enforcement. HUD 
understands that State regulations differ from State to State. 
Therefore, HUD is flexible with respect to the existing State 
regulations for board and care homes and assisted living facilities, as 
long as such facilities meet the basic HUD requirements. In today's 
rule, assisted living facility units may contain full kitchens, 
kitchenettes, no kitchens or a combination depending on the design and 
market. HUD will strive to accommodate the State's regulations whenever 
possible without jeopardizing underwriting standards and other 
requirements. In order for an assisted living facility to be endorsed 
for mortgage insurance, it must be in compliance with all applicable 
Federal, State and local laws.

One Person Occupancy Issue

    Three commenters urged HUD to clarify Sec. 232.7(b) of the proposed 
rule so that the resident consent requirement with respect to multiple 
occupancy is only required with respect to the dwelling unit in 
question. Under the proposed rule, some occupants of an assisted living 
facility might believe that the consent of all project residents is 
required, a standard virtually impossible to meet.

HUD's Response

    The Department agrees that this provision requires clarification. 
The final rule has been changed to reflect the requirement that only 
the consent of the occupant(s) of the dwelling unit subject to the 
multiple occupancy is needed to authorize the multiple occupancy. The 
regulatory text in Sec. 232.7(b) of today's final rule reads, ``[n]o 
dwelling unit in the facility will be occupied by more than one person 
without the consent of all occupant(s) of such dwelling unit.''

Facility Requirements

    Section 232.39 of the proposed rule requires that each assisted 
living facility have a central kitchen and group dining facilities. 
Eight commenters suggested that HUD modify this requirement so that 
each facility either have a central kitchen or demonstrate its capacity 
to provide hot meals to all residents. Such a modification would enable 
facilities to utilize outside catering services or food service 
provision from a near-by facility or institution. These commenters 
believe this flexibility could be particularly beneficial to those 
facilities serving low- and moderate-income residents.
    Some of these commenters also made similar comments in connection 
with the full bathroom requirement in Sec. 232.39 of the proposed rule.

HUD's Response

    In the final regulations, an assisted living unit may contain a 
kitchenette or a full kitchen, but is not required to do so. However, 
the facility must still provide space for a main kitchen and dining 
room. The facility must provide central dining to accommodate three 
meals per day. The facility may contract with another facility for food 
service. The meals may be catered and served in the dining room 
depending on the State licensure standard. If the facility proposes to 
contract catered meals and no central kitchen is desired, space for a 
central kitchen must still be provided in the event that HUD must 
foreclose and operate the facility.
    In regard to the full bathroom requirement in the proposed rule, 
HUD has changed Sec. 232.39 of the final rule to reflect the statutory 
provision that a full bathroom is an option, but not a requirement.

Section 202 and 221(d)(3) Elderly Projects

    One commenter suggested that the Department consider authorizing 
mortgage insurance for the addition of assisted living units to Section 
202 and Section 221(d)(3) elderly housing projects, provided that the 
existing indebtedness is refinanced as part of the transaction. This 
commenter argued that the resultant facilities would provide an 
internal feeder source for the new assisted living units, and would be 
the first facilities to offer a continuum of care for the lower-income 
elderly.

HUD's Response

    The Department has no statutory authority to do as the commenter 
suggested. The NHA provides separate requirements for elderly rental 
housing and residential health care facilities. A project eligible 
under one Section of the NHA (e.g. an elderly project under 
Sec. 221(d)(4)) would not necessarily qualify as an assisted living 
facility under section 232. Moreover, section 202 is implemented under 
the Housing Act of 1959 (not the NHA), and contains different statutory 
requirements.
    HUD currently has a continuum of care under the section 232 
program. The delivery of care includes skilled nursing facilities (sub-
acute care), intermediate care facilities (ICF/MR), board and care 
homes, and assisted living facilities. In addition, a day care center 
may be added if it is in conjunction with one of the above facilities.
    An assisted living facility and board and care home could be the 
logical place for the frail elderly who are currently residing in 
elderly housing that does not offer supportive services to individuals 
who need assistance with activities of daily living. Unfortunately, 
many state Medicaid payment systems do not pay for coverage that would 
offer continuity of care. Most section 232 board and care homes are 
market rate.

Three Year Requirement

    The proposed rule states that (1) the project must not require 
substantial rehabilitation and (2) 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.
    One commenter believes that this ``three year requirement'' needs 
clarification since it is not uncommon for existing projects that were 
originally constructed several years ago to subsequently add a modest 
number of beds. In many such instances, the cost of adding these beds 
would not be a major expenditure (compared to the total project value). 
As currently proposed, the rule is unclear as to whether it is possible 
to process a section 223(f) application for a project that has added 
additional beds within three years of the application date.
    Another commenter urged the Department to modify both its section 
223(f) multifamily mortgage program and this rule by replacing the 
requirement that eligible existing rental housing projects be at least 
three years old with a requirement that projects must have achieved an 
occupancy level that produces enough income to pay all expenses, 
including debt service. Such a change would end the exclusion of sound 
and worthwhile projects from the section 223(f) program.

HUD's Response

    The section 207/223(f) program for purchase and refinance of 
existing rental projects requires that projects be completed for at 
least three years. This has been carried over to the Section 232/223(f) 
program. The three year rule in a section 223(f) refinance transaction 
means that the project must be in operation for at least three years 
after completion of construction or substantial rehabilitation prior to 
filing an application. For section 232 projects, this would include any 
additions.

Definition of Frail Elderly

    Six commenters argued that the rule's definition of a frail elderly 
person as one unable to perform at least three activities of daily 
living is unduly restrictive. They recommended that the requirement be 
changed either to: (1) Reduce the daily activities from three to one, 
(2) rely on state licensure to provide assurance that the program will 
not be used to refinance other types of facility, or (3) instead of 
requiring that a person be ``unable to perform'' certain activities 
provide that the person ``may require assistance with'' certain 
activities.

HUD's Response

    The definition of ``frail elderly'' is statutory. It is included in 
section 802(k) of NAHA. HUD does not have the authority to decrease the 
number of activities of daily living (ADL) for assisted living 
projects. Board and care homes are not limited to the frail elderly 
population and may be used for other types of occupants, such as 
developmentally disabled persons who are unable to perform one or two 
activities of daily living.

Age and Disability Qualifications; Income Qualifications

    One commenter stated that assisted living facilities should be 
considered a need driven product, and for this reason, market 
feasibility should focus on the population aged 75 or older 
experiencing problems with one or more ADLs. The Senate Aging 
Committee, the Administration on Aging, and the Health Care Financing 
Administration all publish statistics on the percentage of elderly 
persons aged 75 or older that experience problems with one or more 
ADLs. This methodology for quantifying the number of age- and 
disability-qualified elderly in a particular market area may 
underestimate the number of qualified individuals by excluding younger 
persons with physical or cognitive impairments. Nevertheless, the 
commenter believes it is a sound method for quantifying the primary 
market, and would require only slight adjustments to account for usage 
by younger physically or mentally impaired persons. Such a method would 
rarely result in positive feasibility determinations for projects in 
excess of 100 units.
    The commenter also suggested that, in determining the income-
eligible population for a proposed assisted living facility with a 
given monthly rental charge, the Department should take into account 
that elderly persons who are driven by need to move into such a 
facility are willing to spend up to 65 percent of their income for the 
monthly charge. The traditional affordability standard of ``30 percent 
of income for rent'' does not apply, as the rental charge would include 
shelter, meals, and additional supportive services. Also, it is quite 
common that family members will provide financial support for relatives 
in assisted living facilities. This further supports the argument that 
income eligibility should be established on the basis of the 65-
percent-of-income-for-rent standard.

HUD's Response

    The Department does not get involved in income eligibility nor does 
the program include a 30-percent-of-income-for-rent standard. From an 
underwriting standpoint, the processing takes into consideration the 
demographics, licensed facilities, level of competition, rates, 
physical settings, service component, occupancy, income sources, type 
of clientele, staffing and location. HUD market analysis considers the 
type of project and the services offered.
    In addition to the above, the Department looks at the developer's 
expertise in developing, operating and managing board and care homes 
and assisted living facilities. The experience and qualifications of 
the mortgagor entity will be reviewed along with the sponsor's 
marketing plan. It was HUD's intention that assisted living facilities 
would be of modest design and not appeal to the limited market as 
luxury retirement projects. Assisted living facilities are not designed 
to provide comprehensive nursing care.

Medicaid Reimbursement

    One commenter noted that many states are developing Medicaid waiver 
programs to provide reimbursement for care provided to low-income 
elderly residing in assisted living facilities. Currently, Medicaid 
reimbursement is only available for persons who are Medicaid-eligible 
and nursing home eligible (i.e., low-income persons who have problems 
with three or more ADLs), who will reside in licensed assisted living 
facilities. The commenter believes that the Department should take 
steps to ensure that the Section 232 program and state Medicaid waiver 
programs can be combined to finance affordable assisted living 
facilities. In particular, the commenter believes that the Department 
should consider waiving market feasibility tests for projects, or 
portions of projects, that have been certified for participation in the 
state's Medicaid waiver program.

HUD's Response

    Medicaid is a State administered program and HUD has no control 
over the State's reimbursement payment system. Each State budgets the 
amount of money to be spent on Medicaid and chooses the services that 
will be Medicaid eligible. In 1989, the State of Oregon chose to pay 
for assisted living services with Medicaid monies. Even if states 
adopted the Oregon plan, only a small portion of a particular project 
would be Medicaid certified. The resident would still have to be 
eligible for Medicaid based on medical need.
    The President's Health Security Act would retain current Medicaid 
nursing home benefits while making improvements in the home and 
community-based services for assisted living facilities. Due to high 
cost of nursing home care, the board and care home and assisted living 
facility may be less expensive and offer an alternative to nursing 
homes. States may request a State Medicaid waiver to use Medicaid 
monies for home and community-based services or implement a plan to use 
Medicaid monies to pay for residential care services. However, HUD 
still has a responsibility to ensure that insured projects are 
marketable and that the Department's interests are protected in the 
event of default.

III. Other Matters

A. Regulatory Flexibility Act

    The Secretary in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this rule, and in so doing 
certifies that this rule does not have a significant economic impact on 
a substantial number of small entities. Specifically, the 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 
was 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, at the time of development of the proposed rule. The Finding 
remains applicable to this final rule and 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 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 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 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 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 rule, as those policies and programs 
relate to family concerns.

F. Regulatory Agenda

    This rule is listed as item no. 1797 in the Department's Semiannual 
Agenda of Regulations published on November 14, 1994, (59 FR 57632, 
57655) in accordance with Executive Order 12866 and the Regulatory 
Flexibility Act.

G. 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 is amended as follows:
    1. The authority citation for 24 CFR part 232 continues to read as 
follows:

    Authority: 12 U.S.C. 1715b, 1715w, 1715z(9); 42 U.S.C. 3535(d).

    2. The heading of 24 CFR part 232 is 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 is amended by revising paragraph (j) and by adding 
new paragraphs (m), (n), (o), and (p) 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 Facility 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) Elderly person means a person who is at least 62 years of age.
    (o) Frail elderly person 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.
    (p) 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: roof structures; ceiling, wall, or floor 
structures; foundations; plumbing systems; heating and air conditioning 
systems; and electrical systems.
    4. A new Sec. 232.7 is added to the end of the undesignated center 
heading, ``APPLICATION AND CERTIFICATION'', in subpart A, to read as 
follows:

Subpart A--Eligibilitiy 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 occupant(s) of such dwelling unit; 
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 is 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 is 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) is added to read as follows:


Sec. 232.39  Construction standards.

* * * * *
    (c)(1) 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.
    (2) An assisted living unit may 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 areas for a central kitchen (adequate space, site and 
building layout) 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 is 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 Sec. 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 is 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 is 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 is amended by revising the introductory text of 
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 is 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 is 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 is 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 is 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 produces 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 is amended by revising the first sentence in 
the introductory text of paragraph (a), the first sentence in paragraph 
(b), and the first sentence in the introductory text of 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: November 21, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-29362 Filed 11-28-94; 8:45 am]
BILLING CODE 4210-27-P