Assisted Living Facilities Under Section 232

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