Monthly Archives: March 2018

About to be Audited ? E-Exams are Here !

By Sharif Mahdavian

In the wake of the last decade’s mortgage crisis, state and federal regulators looked to technology to help address the need for more comprehensive mortgage loan reviews. Determining whether an individual loan or a lender’s total production complied with applicable laws and regulations was no small feat. Examiners had to sift through piles of documents to extract data points relevant to various rules. Without technology, reviewing 100 percent of a lender’s production was clearly impractical.

The creation of the National Cooperative Agreement for Mortgage Supervision a decade ago was a major step in improving cooperation and coordination among state regulators. Model examination guidelines developed by the cooperative allowed the use of automated technology for examiners to enable comprehensive loan audits, rather than sample-based manual reviews.

Automated Compliance Tools Regulators Are Using

The electronic examination (e-Exam) process is now being used for both single and multi-jurisdictional examinations. Today, the vast majority of jurisdictions have utilized the e-Exam process.

This platform and the e-Exam format provides users with comprehensive reporting far beyond what is available through manual processes. In addition to federal and state high-cost tests, tests for TRID and QM status can be returned virtually instantaneously. Tests are tailored not only to specific lending guidelines, such as those for the government sponsored entities (GSEs), but also for originator license type.

The Compliance Evolution

Recent announcements from the Consumer Financial Protection Bureau (CFPB) suggest “regulation by enforcement” is going away in favor of a more collaborative environment in which there will be formal rulemaking on which financial institutions can rely. And it acknowledges the current state of play: lenders do not want to violate applicable rules, and regulators want to foster compliant lending.

For regulators, the results of e-Exams can uncover systematic difficulties that lenders face and provide guidance as to which regulations need greater clarification. The existing (and hopefully soon to be corrected) TRID “black hole” is a prime example. In the current rule, well-intentioned lenders cannot amend closing disclosures when acting in good faith if the initial closing disclosure was issued too early. Last August, the CFPB proposed an amendment that will allow creditors to reset tolerances by providing a closing disclosure, including any corrected disclosures, within three business days of receiving information sufficient to establish that a reason for revision applies. The CFPB has sought extensive comments on the proposed fix, but, at the time of this writing, a finalized amendment has yet to be issued.

Another prime example is per diem interest regulations. In California, four of the top 10 non-bank lenders were fined more than $13 million in the last year and a half for violating the state’s per diem interest rule. Today, the automated compliance tool can not only allow regulators to test for such violations, but also enables lenders to test for permissible per diem limits and correct any variances before they become violations.

In addition, automated compliance testing with advanced tools can provide information not only on what limits have been exceeded, but what specific fees, disclosures, or delivery timing sequencing have caused a potential violation. This testing translates into lenders being able to make complaint restitution when appropriate and alter processes to avoid future problems.

 

Source: http://www.mortgagecompliancemagazine.com/technology/past-present-future-e-exams/

How to Tighten Timelines and Streamline the Mortgage Origination Process

Thirty years ago, mortgage origination was a simple process. An application was taken at the local savings and loan branch, documents were prepared within 48 hours, sent to a title company with a note to close, and then the entire deal was sealed within days with a congratulatory handshake to the happy new homeowner.

What once took less than a week to complete now takes approximately 50 days—with plenty of hoops for lenders to jump through. In today’s environment, lenders are responsible for complex data management and hundreds of active compliance regulations, with steep fines if they get it wrong.

To succeed in an environment of increasingly narrow margins, broad competition, and ever-more complex regulation, lenders must take a methodical approach to loan origination, adding dynamic, optimized workflow technology. This need for compliance, data, technology, and management to exist within the same ecosystem is greater than ever. The good news is that, in an increasingly digital world, achieving such operational control is becoming more manageable. Best-in-class solutions are crossbred compliance management systems (CMSs) built by software engineers and maintained by a team of experts well versed in financial law and regulatory compliance knowledge.

For an industry that has been slow to adapt, this emergence of sustainable, smart, and reliable digital compliance ecosystems fosters an environment that can effectively improve the way the industry manages regulatory changes. These expertise-fueled solutions empower financial institutions to respond with agility to the ever-growing regulatory landscape. Alleviating the burden of managing the overwhelming compliance infrastructure frees lenders to focus on profitability and look to the future, instead of over their shoulders.

The key lies in finding the right tool that combines most, if not all, compliance management and delivery needs into a single CMS. As regulation continues to impact the financial services industry with a near-constant cycle of updates, new regulations, and processes, the pressure compresses down to the finance and compliance professionals. In addition to existing job responsibilities, the mortgage banking industry at large balances a myriad of siloed tools that slow them down and lead to decreased productivity across the board.

Today’s comprehensive CMS solutions, however, are designed to keep institutions safe, cost-effective, and on pace with regulators in one seamless platform.

 

Source: http://www.themreport.com/daily-dose/03-12-2018/navigating-mortgage-ecosystem

CFPB Launches 2018 HMDA LAR Formatting Tool

The LAR Formatting Tool is intended to help financial institutions, typically those with small volumes of covered loans and applications, to create an electronic file that can be submitted to the HMDA Platform.

Filers will not need to use the LAR Formatting Tool if they are able to format their HMDA data into a pipe delimited text file by using, for example, vendor HMDA software, the financial institution’s current Loan Origination Software (LOS), or applications such as Microsoft® Access® or Excel® that may be used for data entry and formatting.

Please review Section 2 of the HMDA Tools Instructions guide prior to downloading the tool.

Download the HMDA 2017 LAR Formatting Tool

Download the HMDA 2018 LAR Formatting Tool

Source : https://www.consumerfinance.gov/data-research/hmda/lar-formatting-tool

FFIEC Issues 2018 Guide to HMDA Reporting

A Guide to HMDA Reporting: Getting It Right! will assist you in complying with the Home Mortgage Disclosure Act (HMDA) as implemented by the Consumer Financial Protection Bureau’s Regulation C, 12 CFR Part 1003 (Regulation C). The purpose of this Guide is to provide an easy-to-use summary of certain key requirements. This Guide does not provide detailed information about the HMDA submission process, or file, data, and edit specifications. Information about those topics may be found on the FFIEC’s Resources for HMDA Filers website, available at www.consumerfinance.gov/data-research/hmda/for-filers and www.ffiec.gov/hmda/. The Foreword and Summary of Requirements sections of the Guide were developed by the Federal Financial Institutions Examination Council (FFIEC) — the Board of Governors of the Federal Reserve System (Board), the CFPB the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the State Liaison Committee (SLC) — and the U.S. Department of Housing and Urban Development (HUD). The appendices include, in addition to Regulation C and its Official Interpretations, certain HMDA compliance materials developed and issued exclusively by the CFPB and not by the FFIEC or its other member agencies. Financial institutions may wish to consult and rely upon additional compliance resources that their Federal supervisory agencies may offer. Contact information for each agency is available in Appendix H. This edition of the Guide incorporates the amendments made to HMDA in the DoddFrank Act. 1 The Dodd-Frank Act amended HMDA, transferring rulewriting authority to the Bureau and expanding the scope of information that must be collected, reported, and disclosed under HMDA, among other changes. In October 2015, the Bureau issued the 2015 HMDA Final Rule implementing the Dodd-Frank Act amendments to

Regulation C. 2 On August 24, 2017, the Bureau issued a final rule further amending Regulation C to make technical corrections and to clarify and amend certain requirements adopted by the 2015 HMDA Final Rule.3 The 2015 HMDA Final Rule modified the types of institutions and transactions subject to Regulation C, the types of data that institutions are required to collect, and the processes for reporting and disclosing the required data.4 The Summary of Requirements reviews HMDA’s purposes and data collection, reporting, and disclosure requirements. It provides a high level summary of:  The institutions covered by Regulation C.  The transactions covered by Regulation C.  The information that covered institutions are required to collect, record, and report.  The requirements for reporting and disclosing data. This Guide is not a substitute for HMDA or Regulation C. Regulation C and its official interpretations (also known as the commentary) are the definitive sources of information regarding their requirements. Regulation C is available in Appendix F and G of this Guide and at www.consumerfinance.gov/regulatory-implementation/hmda/.

Additionally, this Guide is not a substitute for the requirements for filing the reportable data. The Filing Instructions Guide is the definitive source for information regarding the filing requirements and is available at www.consumerfinance.gov/dataresearch/hmda/for-filers. 5 Feedback The FFIEC welcomes suggestions for changes or additions that might make this Guide more helpful. Write to: FFIEC, 3501 Fairfax Drive Room B-7081a Arlington, VA 22226 Send an e-mail to: GettingItRightGuide@cfpb.gov Questions If, after reviewing the resources in this Guide, you have a question regarding a specific provision of the regulation, or have questions about how to file HMDA data, please email HMDAHELP@cfpb.gov with your specific question, identifying the filing year you are referencing, and, when applicable, the section(s) of the regulation related to your question. You can also submit the inquiry online using the form available at

hmdahelp.consumerfinance.gov. The information you provide will permit the Consumer Financial Protection Bureau to process your request or inquiry. You may also contact your appropriate Federal HMDA reporting agency (see Appendix H to this Guide.)

Source: https://www.ffiec.gov/hmda/pdf/2018guide.pdf

Are Banking Regulations About to Ease ?

A Senate bill with bipartisan support would significantly ease the regulatory burden placed on banks by Dodd-Frank legislation passed during the Obama administration following the 2008 financial crisis, The Washington Post reports.

The bill, which is favored by Republicans but also has more than a dozen Democratic supporters, aims to provide relief to midsize and regional banks. The bill’s supporters say Dodd-Frank unfairly lumps smaller banks in with the largest financial institutions, making it difficult or impossible for them to survive.

What is Dodd-Frank?

The Dodd-Frank Wall Street Reform and Consumer Protection Act, named after former Sen. Christopher Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), serves two purposes: Regulate the financial industry to prevent major collapses like the one in 2008, and protect consumers from abusive lending practices.

The 2008 financial crisis occurred largely due to risky investments that started at the local level and got sold up the chain.

Local mortgage brokers offered subprime home loans to consumers at high-risk of default, and those loans were sold to larger firms and subsequently bundled in bonds and sold worldwide.

When large numbers of homeowners defaulted, the bonds, and other assets based on the bonds, collapsed.

Dodd-Frank made it more difficult for banks to use these unstable financial products by increasing supervision and making mortgage lending rules more strict, created the Consumer Financial Protection Bureau to protect borrowers, and created a system for the orderly dissolution of a large failed financial company.

Why would that be rolled back?

Some feel that Dodd-Frank was an overreaction to the financial crisis, and that the resulting regulations have crippled small- and mid-size financial institutions, punishing them for the mistakes of Wall Street.

Sen. Jon Tester (D-Mont.) said the regulations have caused banks in his state to go out of business, and said this bill helps out midsize and regional banks without letting Wall Street off the hook.

“The Main Street banks, community banks and credit unions didn’t create the crisis in 2008, and they were getting heavily regulated,” Tester said according to The Washington Post. “There’s not one thing in this bill that gives Wall Street a break.”

What would the bill do?

The bill would exempt financial companies with assets between $50 billion and $250 billion from the Federal Reserve scrutiny mandated by Dodd-Frank. Only banks with more than $250 billion in assets, of which there are fewer than 10, would receive the highest level of regulatory scrutiny.

What’s the argument against this bill?

Critics say that Dodd-Frank has been successful in preventing financial crises, and that even partial repeals of the law carelessly increase the risk that another collapse could take place.

“On the 10th anniversary of an enormous financial crash, Congress should not be passing laws to roll back regulations on Wall Street banks,” Sen. Elizabeth Warren (D. Mass.) said. “The bill permits about 25 of the 40 largest banks in America to escape heightened scrutiny and to be regulated as if they were tiny little community banks that could have no impact on the economy.”

What are the chances of the bill passing?

The bill has a good chance of getting the necessary 60 votes in the Senate because of the significant Democratic support.

The House has passed a bill already that would roll back Dodd-Frank even further. But, Senate Democrats have expressed resistance to significant changes to the Senate bill, which could make reconciliation with the House bill more difficult.

Update on Fair Lending in Mortgage Originations

The Senate is poised to pass a bill this week that would weaken the government’s ability to enforce fair-lending requirements, making it easier for community banks to hide discrimination against minority mortgage applicants and harder for regulators to root out predatory lenders.

The sweeping bill would roll back banking rules passed after the 2008 financial crisis, including a little-known part of the Dodd-Frank Act requiring banks and credit unions to report more detailed lending data so abuses could be spotted.

The bipartisan plan, which is expected to pass, would exempt 85% of banks and credit unions from the new requirement, according to a Consumer Financial Protection Bureau analysis of 2013 data.

The mortgage industry says the expanded data requirements are onerous and costly, especially for small lenders. But civil rights and consumer advocates say the information is critical to identifying troubling patterns that warrant further investigation by regulators.

“The data operates as a canary in the coal mine, functioning as a check on banks’ practices,” said Catherine Lhamon, chair of the U.S. Commission on Civil Rights. “The loss of that sunlight allows discrimination to proliferate undetected.”

For decades, banks have been required under the 1975 Home Mortgage Disclosure Act to report borrowers’ race, ethnicity and ZIP Code so officials could tell whether lenders were serving the communities in which they are located and identify racist lending practices such as redlining.

But discriminatory practices continued, with the financial industry disproportionately targeting black and Latino borrowers with subprime mortgages loaded with high fees and adjustable interest rates that skyrocketed after the stock market crashed in 2008.

“The experience of the financial crisis taught us that we really need to know more about the loan terms and conditions, not just a borrower’s race,” said Josh Silver, senior advisor at the National Community Reinvestment Coalition.

Lenders were supposed to start gathering extra information about borrowers’ ages and credit scores, as well as interest rates and other loan-pricing features in January.

Congress had charged the Consumer Financial Protection Bureau, an independent watchdog agency formed after the financial crisis, with collecting, analyzing and publishing the data. But White House budget director Mick Mulvaney, named the CFPB’s acting director last November, said the agency plans to reconsider the new requirements and that banks would not be penalized for data collection errors in 2018. He also stripped the bureau’s fair-lending office of its enforcement powers.

The Senate bill would repeal many of the new reporting requirements, exempting small lenders making 500 or fewer mortgages a year from the expanded data disclosure.

“Banks say they don’t treat borrowers differently, but the data shows a different story,” Sen. Catherine Cortez Masto (D-Nev.) said on the Senate floor Thursday. “Redlining remains a major problem for communities of color.”

A February report by the Center for Investigative Reporting showed that redlining persists in 61 metro areas — from Detroit and Philadelphia to Little Rock, Ark., and Tacoma, Wash. — even when controlling for applicants’ income, loan amount and neighborhood, according to its analysis of Home Mortgage Disclosure Act records.

Nevada saw the highest foreclosure rate for 62 straight months during the Great Recession, especially in minority communities, said Cortez Masto, a former state attorney general. More than 219,000 families lost their homes. Whole neighborhoods were hollowed out — with boarded-up homes, for-sale signs and empty lots dotting Las Vegas and Reno, she said.

“With everything we saw 10 years ago, I cannot now believe that we’re considering restricting access to this kind of data,” said Cortez Masto, who has introduced an amendment to preserve the expanded information. “I’ve seen what happens when you don’t have strong enough protections against housing discrimination.”

But 12 of her Democratic colleagues have co-sponsored the bill, which would be the most significant revision of banking rules since Dodd-Frank. Five more from the Senate Democratic caucus voted last week to advance the legislation. Sponsors of the financial regulation rollbacks include 2016 vice presidential candidate Tim Kaine (D-Va.), a former fair-housing lawyer. The bill’s supporters say they don’t think it would widen the door for discriminatory lending, arguing that mortgage data such as race and gender collected before Dodd-Frank would still be gathered.

The mortgage industry says the proposed deregulation would cut costs and help smaller community banks remain competitive, enabling them to make even more loans. The Mortgage Bankers Assn. estimates that expanded data would still be collected on 95% of loans.

“If you want to provide some regulatory relief, it makes sense to do it for these institutions that aren’t making a lot of loans,” said Mike Fratantoni, chief economist for the Mortgage Bankers Assn. “You’re not losing much in terms of your visibility into trends in the market.”

The problem with the former reporting requirements, advocates say, is that banks often blamed racial lending discrepancies on borrowers’ credit scores or other characteristics that were impossible to verify without additional reported data that lenders already collect as part of the mortgage application and underwriting process.

The rollback in reporting requirements would potentially hurt not only minority borrowers, but also older applicants and those living in rural communities and small towns that are disproportionately served by community banks, advocates say.

“Lending discrimination is occurring in real time, and we have to have the tools to be able to address it,” said Vanita Gupta, who headed the Justice Department’s civil rights division during the Obama administration and now is the president of the Leadership Conference on Civil and Human Rights. “It’s not just happening in the context of big banks, it’s also happening in community banks and credit unions.”

CFPB Regulations and Your Compliance Management System

PERSON OF THE WEEK: New rules from the Consumer Financial Protection Bureau (CFPB) require that all mortgage lenders maintain compliance management systems (CMS) – which is not, as some people think, software but rather a set of practices and policies that ensure a lender is meeting regulatory compliance in all areas of federal consumer financial law.

Essentially, a CMS is a plan for how a lender will meet compliance. The plan’s structure is relative to the lender’s business model. And the plan must change as regulations change, are reinterpreted, or as the lender’s business model changes.

Continuity’s software platform is used to automate as many parts of a lender’s CMS as possible – or, put another way, as many parts as the lender wishes – but its purpose is to do so holistically. Among its key features and capabilities is its ability to house hundreds of pre-built procedures spanning dozens of program areas.

It includes procedures for examination areas including consumer compliance, BSA/AML, lending operations, deposit operations, and Community Reinvestment Act and Fair Lending compliance, and also contains a large collection of risk assessments including BSA, Fair Lending, electronic banking, identify theft, and more.

Such tools have become critical in order for lenders to effectively meet compliance because they aid greatly when to comes time for a compliance audit. Because a majority of the tasks associated with compliance are automated and tracked by the platform, it provides a powerful tool for delivering compliance data to examiners.

Such tools also have also enabled lenders to take a much more holistic approach to compliance. So much so, they have led to the development of what Continuity calls the “Unified Compliance Management System” (UCMS) model.

To learn more about this new model, MortgageOrb recently interviewed Pam Perdue, chief regulatory officer and executive vice president for Continuity.

Q: What is this “holistic” approach to regulatory compliance we are starting to hear about?

Perdue: The holistic approach relies on adopting the UCMS model, which allows lenders to quickly adapt to and implement any type of regulatory change. Whether those changes come from the outside, such as the recent HMDA implementation deadline, or are internal adjustments, like the addition of an office or a shift in key personnel, applying the UCMS model ensures nothing falls through the cracks.

An effective CMS includes the preventive, detective and corrective controls a lender needs to have in place. It’s “unified” because everything is in one place, and thought about as part of a process and an integrated framework, rather than scattered on disparate systems with various owners and vague accountability.

The UCMS model starts when a change occurs. First comes an understanding of the risk that a new regulation poses to the organization, then adapting its policies to comply. After re-evaluating organizational policies, building new or updating existing procedures is critical. Implementing technology upgrades and providing training for employees impacted by the regulation comes next. Finally, ensuring that monitoring and audit programs have incorporated the new or revised standards completes the change cycle.

Executing this step-by-step process not just helpful when a new regulation is issued, it promotes efficiency throughout the compliance function. Even if no changes to the rule occur, lenders need to preserve evidence that they have done their best to ensure compliance, in case they encounter future regulatory or legal challenges about their performance. A solid CMS is essential to a lender’s ability to defend itself against allegations or accusations of wrongdoing, whether the source is a single angry consumer, a regulator on the warpath or a group of hungry class-action plaintiffs.

In addition, being able to work backward through the cycle when something goes wrong, is helpful at ensuring thorough remediation. Doing so exposes lapses in monitoring or training that may have occurred, or places where system upgrades may have been to blame. Inspecting procedures and policies to see where they may have contributed to weaknesses in execution ensures the root causes for deficiencies are properly identified and addressed. Again – nothing falls through the cracks using the UCMS Model.

Q: What are some of the common mistakes in lenders’ approaches to regulatory compliance?

Perdue: Common mistakes we see over and over again fall into three categories: over-reliance on one or a few staff; failure to embed compliance into business processes; and lack of standardized compliance processes.

Many lenders exhibit a very disjointed, almost haphazard, approach to managing compliance. These lenders often rely on one or a few mid-level executives to answer for the organization’s compliance program, instead of involving all of upper management to help to build a culture of compliance. Furthermore, placing the entire burden of regulatory interpretation and application in the hands of a select few increases the risk that something will be overlooked or misinterpreted along the way.

A second common mistake is thinking of compliance as an added step. Viewing compliance as a “necessary evil” relegates it to always being an afterthought. The most effective organizations embed the compliance work steps into their processes for originating, funding and servicing loans, so that it is just another step in doing business. Not only does this combination tend to streamline the workflow, it also promotes better compliance outcomes.

Third is standardization. Many lenders have built their compliance programs around the misconception that merely checking the right boxes for individual regulations is enough. Lenders following this reactionary approach to each new regulation tend to have costly and time-intensive practices, since compliance is treated differently each time, and is often not integrated seamlessly throughout the organization. This type of “reactionary” approach relies on time-consuming manual processes that, even if they are accurate, may deliver compliance at too high of a cost.

Consistently applying the unified CMS model reduces the time, energy and expense – as well as the hassle and worry – over addressing and implementing regulatory or other types of change. A poorly executed compliance program can expose the lenders to penalties and the loss of borrowers’ trust.

Q: Since passage of the Dodd-Frank Act, lenders and servicers have had to ramp up staff hiring to keep up with regulatory compliance. Has that helped or has it created a new set of issues?

Perdue: Hiring more people seems like an easy and obvious solution to capacity challenges. However, a peek beneath the surface reveals that adding new staff creates its own series of challenges and constraints.

Of course, there are the obvious distractions of recruitment: finding qualified, competent people in a highly competitive marketplace and given any applicable geographic constraints. But beyond this – and especially during busy periods – training new hires distracts key staff from their own work.

Even though more people may lessen the overall burden over time, these human resources are expensive financially and psychologically up-front, because they consume others’ time. I have observed that combining the right technology and key staff yields a more effective compliance management system than just staff alone. When lenders embrace the idea – however wrong it is – that the only solution to a capacity problem is to add staff, then they have effectively ensured the problem will persist in perpetuity.

Why? Because they have not actually made processes more efficient or outcomes more accurate. Adding technology forces the standardization of consistent and repeatable approaches, which can really ramp up operations in a lean and effective way.

Why You Should Learn About HUD 232 Loans

There are about 75 million people in the baby-boomer generation and about 3 million of them will reach retirement age each year for the next two decades. Many may eventually end up in a senior-housing facility, such as an assisted-living, memory-care or skilled-nursing home.

A commercial mortgage broker advising the owner of a senior-housing facility about financing should know the industry is strong in terms of profitability and that the broker can play a key role in assuring excellent financing terms. The U.S. Department of Housing and Urban Development (HUD) 232 loan program, for example, offers what many believe to be one of the best health care financing vehicles for both refinances and new-construction loans.

The HUD 232 223(f) program is for refinance and acquisition loans, but is most readily used on a refinance. The lending constraints on 223(f) refinancing include the greater of 80 percent loan-to-value (LTV) or 100 percent of the total cost of refinancing the existing debt, and a minimum 1.45 debt-service coverage ratio (DCSR), which is usually based on a 35-year term.

With HUD — more aptly the Federal Housing Administration (FHA) under HUD — insuring a loan for up to 35 years, value is created based on a cash-on-cash equation and an internal-rate-of-return model, and ultimately the amount of net cash flow an owner can take home. In fact, it may be wise to explore two amortization schedules, one using a 30-year loan term and one using a 35-year term.

New rules

The amount of upfront savings using a 35-year term loan are staggering. Throw in the fact that rates on HUD/FHA loans are often 75 to 100 basis points lower than other conventional financing, and you’ve added substantial value with additional dollars your clients can put toward the bottom line, just by advising them on the correct program.

The HUD 232 loan term and amortization are based on a property-condition report. A rule of thumb is that the term of the loan can be up to 75 percent of the remaining useful life of the property. Therefore, the loan term can be up to 35 years so long as the remaining useful life of the property is 47 years. With capital improvements, the useful life of the property also can be extended.

In order to maintain credibility and add value to the process, mortgage brokers should understand what condition their client’s property is in for its vintage, and what is needed to extend the asset’s useful life. Oftentimes, these improvements can bolster the marketability and performance of the property, raising its value.

Additionally, within the past year, HUD revamped the health care financing rules for 223(f). It’s now possible to take out equity from a property without carrying debt for a full two years. To be clear, HUD still does not directly provide cash-out loans, but it will allow less-seasoned debt refinances, and refinances of intermediate bridge loans.

Essentially, the new rules state that 60 percent LTV refinances will be allowed with less than two years of seasoned debt when less than 50 percent of the mortgage proceeds are used for the benefit of the project and repayment of seasoned debt. A 70 percent LTV refinance will be allowed with less than two years of seasoned debt when more than 50 percent of the mortgage proceeds are used for the benefit of the project and repayment of seasoned debt.

To receive a full 80 percent LTV loan, debt on the facility must be seasoned for a full two years and other 223(f) criteria must be met. Experienced owner-operators with multiple facilities are typically sitting on a portfolio that has a large amount of equity tied up in the assets, which can be recouped through HUD refinancing, if processed correctly and managed appropriately with the right lender.

Construction loans

The HUD 232 New Construction and Substantial Rehabilitation program also is an attractive financing option for health care property developers and owners with the requisite amount of experience and financial wherewithal. The HUD program allows for a new-construction loan for a profit-motivated entity that includes the following limits based on a maximum 40-year amortization period: up to 90 percent of replacement cost; 75 percent LTV for an assisted-living building and 80 percent for a skilled-nursing facility; and a 1.45 DSCR.

The HUD construction loan can take some time to close. It’s a construction loan with an interest-only period of typically 18 to 22 months that rolls into an amortizing loan upon cost certification.

As banks continue to get direction from regulators to reduce risk, they have reacted accordingly by limiting new-construction loans and/or leverage levels. This is making the HUD 232 construction-loan program more attractive every day, even with the challenge of time to close. It would be prudent to get together with a solid HUD 232 lender to understand the benefits and drawbacks of this program compared with traditional bank products.

•  •  •

Commercial mortgage brokers seeking to add value for their clients should contact a HUD expert to better understand the financing terms available for its various products, and help advise their clients on how to maximize the value of their properties in order to achieve the best financing execution.

America’s Most Important Whiskey Bars

Whiskey — like many spirits that rely on an element of craft — is experiencing a full-blown renaissance. As the number of small-batch distillers increases, it seems like whiskey-centric bars are popping up all over the country. This is a good thing for the drinking public. If your local saloon has an extensive whiskey collection, you’ll obviously get to try some truly unique whiskeys (without spending a mortgage payment on a bottle of Pappy Van Winkle).

But not all whiskey bars are created equal. That’s why we asked Michael Neff— a whiskey expert who has created bar programs for such notable spots as Holiday Cocktail Lounge, Ward III, and Rum House in NYC and Three Clubs in Hollywood — to tell us his choices for the most important whiskey bars in America.

It should be noted that Neff’s choices aren’t necessarily the bars that have the biggest whiskey lists or the most expensive selections. They’re also not bars that you would necessarily see on every round up of “best whiskey bars.” That’s because Michael took the time to dig deeper. In some cases mere geography is what makes a bar important. In another, it’s a well-known bar whose whiskey selection is often totally overshadowed by other elements that made it famous.

Far Bar (Los Angeles, CA)

“Far Bar is a gem. You would think that their location — in the heart of Little Tokyo on the outskirts of Downtown Los Angeles — would mean that they specialize in Japanese and other Pacific Riwhiskeyses, and you would be right. That said, they clearly have a healthy respect for whiskey in general, and their sprawling collection winds throughout the space.”

Dead Rabbit Grog & Grocery (New York, NY)

deadrabbitnyc It takes a lot of work to start the day looking like this picture. Work that begins with the night porters in the kitchen from 3am, before they move on to deep-cleaning all three floors of the building. The barback arrives at 8.30am and starts checking, filling, replenishing everything from the juice bottles (with freshly squeezed juice, of course) to the straw caddies and beer lines. Then at around 10am the bartender checks, fills and replenishes everything else – menus, till rolls, coasters. Eveything.
That takes her up to 11am, when she opens the doors – and welcomes the first customers to another day at the Dead Rabbit. Photo by @buda.photography

Whether or not this Downtown destination is the “Best Bar in the World” is a matter for debate. It is, however, a great joint and much celebrated for its cocktails. Their acclaim often overshadows the part that impresses me the most—their Irish whisky collection is unmatched. They clearly have a love of the spirit, and their international notoriety gives them access to bottles that normal humans can’t hope to taste on this side of the Atlantic.”

Haymarket (Louisville, KY)

Great whiskey, particularly great bourbon, isn’t meant to be fancy. Whiskey has historically been a working-stiff’s drink, and bars like Haymarket are there to remind us of that. It has the eclectic feel of a fan-boy’s fantasy basement bar — coupled with an impressive collection of whiskey that spans the economic spectrum. It’s in Louisville, so bourbon prevails.”

We don’t talk about context enough when we talk about whiskey. The environment in which we drink can have an outsized impact on how we feel about what it is we’re drinking. Case in point. Blue Sky Bar is unusual in that it is a). attached to a Quizno’s franchise and b). located on the second level of Terminal A in the Denver airport. Their whiskey collection, however, rivals that of much fancier joints bragging trendier addresses, and their staff is knowledgeable and informed (if a bit surly with it).

The experience of choice and discovery makes any whiskey bar a joy to experience. Having that experience on a layover makes it that much more memorable.”

Delilah’s (Chicago, IL)

“You almost can’t create a bar that would be more perfect for me than Delilah’s. Part punk rock. Part dive. Cheeky and irreverent. And it sports one of the country’s most thorough and well-curated whiskey selections. Mike Miller is one of the great bar creators in the country, and I can’t think of anywhere else I would rather drink whiskey than his fantastic bar.”

“Reserve 101 is a study in picking something you love and doing that to the best of your ability. This unassuming little gem loves whiskey from top to bottom, and their commitment to the spirit is evident in everything they do. The collection of house-selected barrels is impressive, served by bartenders that are knowledgeable and hospitable in equal measures. Texas pride is the clear subplot—whiskey distilled in the Lone Star State is served with extra loving care.”

Poison Girl (Houston, TX)

If you’re detecting a theme in this list, Poison Girl will confirm your suspicion—whiskey bars that masquerade as punky dives hold a special place in my heart. Dark wood, surly regulars, broken pinball machines. A back patio that looks like a sculpture garden created from a pop culture graveyard. None of that distracts from an American whiskey-focused program that rivals almost anything I’ve seen outside of Kentucky.”

Mercury Bar (Omaha, NE)

“Part of opening a great spirits bar is curating your list with what you have available, and Mercury Bar is a great example of this. Nebraska doesn’t always get every spirit the country has to offer, and bars there can only sell what’s available in their state, which means that even their most thorough whiskey collections can’t match those in larger markets in terms of bottles on offer. The folks at Mercury combat this dearth of availability with passion for what they can get. Education is a focus, and they’ve curated a wonderful spirits list with an impressive selection of whiskey from around the world.”

Daddy-O (New York, NY)

“Daddy-O has been a staple in the West Village for over a decade, and it has quietly evolved into a legitimate whiskey destination. The back bar collection of bottles sprawls upward, with a surprising number of independent bottlings sprinkled throughout the stack seemingly at random. Whiskey features behind the bar, sure, but I’ve been to dinners there where every dish is modified to highlight a whiskey ingredient. A great experience that is past due for more attention.”

Gardiner Liquid Mercantile (Gardiner, NY)

“Nestled in the picturesque Hudson Valley, Gardiner Liquid Mercantile is a bit of a dark horse when you’re talking about whiskey bars. It operates under a very specific set of limitations—they can legally only serve spirits that are 100% produced in the state of New York. Aside from its very charming hand-made feel (it occupies the ground floor of a Victorian house), it has two things going for it: New York is starting to produce some very good and unique whiskeys, and the owner of this fine establishment is the great Gable Erenzo, of Hudson Whiskey fame.

“GLM is a great whiskey bar because it was built by a whiskey maker. The staff is incredibly well informed about what they like and what they sell, and if you’re lucky, you might end up sitting next to Gable or one of his cohorts at the bar. Engage one of them in a discussion about whiskey, and you will learn more than a lifetime of tasting mats and marketing material can ever teach you. That possibility alone is enough to make Gardiner Liquid Mercantile one of my favorite whiskey bars not just in the country, but anywhere at all.”

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