Scrutiny of HUD-Backed Loans to Nursing Homes Increases Amid COVID-19

A federal lending program for nursing homes and other senior care facilities is once again under the microscope, with Barron’s reporting last week that Washington has backed financing for “dozens of poorly run nursing homes.”

The U.S. Department of Housing and Urban Development (HUD)’s Section 232 programSection 232 provides mortgage insurance for long-term care facilities, guaranteeing approximately $4.4 billion in loans for fiscal 2020, an increase of more than 60% compared with fiscal 2015, according to the article.

Even before the COVID-19 pandemic, HUD had already begun to take a harder line on its underwriting and approval process after a record default by the Rosewood Care Centers portfolio, according to several lenders speaking at the 2020 eCap health care conference.


“What Rosewood did, in HUD’s mind — it’s a 180. Anything that was a gray area, or not as heavily investigated — those days are long gone,” Joshua Rosen, senior vice president and managing director at HUD lender Walker & Dunlop, said at the time. “If you’re a one-star building, if you have survey issues, if the abuse tag is up — a bridge lender may not put the stop sign on you. [With HUD] I don’t want to say it’s a non-starter, but it’s a very difficult, comprehensive process to get those deals done today.”

In the wake of the Rosewood default, many lenders active in the space noted that HUD financing is one of the few reliable capital sources for those looking to make long-term investments in nursing homes, with low interest rates and a non-recourse feature that prevents borrowers from going “underwater” on the loan — with the federal government covering the difference.

Out of about 260 skilled nursing facilities that received loans backed by HUD in fiscal 2020, four were candidates for the “special focus facility” program, a list of facilities from the Centers for Medicare & Medicaid Services (CMS) that designates SNFs with long-running patterns of health and safety violations. Candidates for the list are under consideration for SFFF designation, and CMS provides updates to the list of candidate facilities, as well as to the SFF list itself, automatically as of January 2021. SFF candidates are categorized on a separate public list, which CMS updates automatically; when a facility graduates from the SFF designation, a building from the candidate list takes its place.


The New York Times, which publicized the Rosewood default in 2019, also identified 74 SFF candidate facilities that received federally backed loans in the same year.

According to the Barron’s deep dive, more than a third of the 260 facilities to receive HUD-backed loans in 2020 had “recent regulatory issues serious enough to merit citations for putting residents in immediate jeopardy, fines of over $10,000, Medicare payment suspensions, flags for abuse, or the lowest one-star quality rating from CMS.”

Advocates argued to Barron’s that more oversight of the money given to nursing homes is needed, with a particular focus on who runs the facilities.

“If you’re providing terrible care, maybe we shouldn’t be giving you mortgage insurance,” Toby Edelman, senior policy attorney at the Center for Medicare Advocacy, said.

In a statement, HUD told Barron’s that its Office of Residential Care Facilities has kept improving the reporting process for financial information and the timely use of financial data from SNF operators, in addition to securing risk-mitigation recommendations from an outside contractor.

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