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BETHESDA, MD-In December 2008 with little fanfare or formality, Walker & Dunlop closed a $9.9 million loan with the US Department of Housing and Urban Development, secured by a 172-bed skilled nursing facility called Regal Heights in Hockessin, DE. There was nothing out of the ordinary with this transaction – it was at 85% LTV and had a debt cover of 1.96x — other than the fact that it closed within weeks. It was one of the very first loans to close under HUD’s LEAN program, a streamlined application process.

HUD had been moving in this direction for at least a year, Steve Ervin, SVP and Group Head of FHA Finance at Walker & Dunlop, tells GlobeSt.com. The timing – the process’ introduction in the depth of the recession and credit crunch – was somewhat happenstance and most fortuitous. “As capital has dried up everywhere else, new borrowers are inundating HUD with loan requests. This program is easing a little of strain.” GlobeSt.com spoke with Ervin, who’s worked extensively with the agency both pre and post LEAN, about the new program.

GlobeSt.com: From your perspective as a financial intermediary, how has HUD’s changes helped or hurt borrowers?

Ervin: HUD has done a lot to streamline lending processes. The most dramatic is the HUD LEAN process. This began in 2007. The LEAN program was fashioned after Six Sigma and focuses on risked based underwriting as opposed to procedural underwriting. It created a streamlined review process that helps HUD focus on where the risks really are.

GlobeSt.com: In practical terms what does this mean?

Ervin: Before the LEAN process it took 211 days for a health care loan to close from the time it was submitted. Our first LEAN transaction, in December 2008, took about a month to close. And it could have closed sooner but the client held off because he was waiting for interest rates to move. HUD was ready to close within a week.

GlobeSt.com: From what you say about the timing this wasn’t a program implemented specifically to deal with the credit crisis.

Ervin: This is something HUD wanted to do anyway, but the credit crisis hastened it. HUD is starting to see an awful lot of portfolio borrowers who have short-term debt or five year CMBS paper. Those loans are coming due in the next five years. HUD is starting to get a wave of request from borrowers like this.

GlobeSt.com: Does it have the capacity to deal with this volume?

Ervin: One major capacity issue is the staffing question. That has a lot of do with how quickly HUD can move loans through the process. It is actively working to expand this group. That is a dramatic turnaround from previous years when HUD was losing staff in the field offices.

GlobeSt.com: It sounds like Walker & Dunlop is making a bigger play for this piece of the multifamily market.

Ervin: Yes that is true. The merger with Column Guaranteed has a lot to do with that. That was one of its areas of expertise. So now we are substantially expanding into nursing homes.

GlobeSt.com: Can you tell me more about that pipeline?

Ervin: We are actively working on several applications for HUD-financed nursing homes. It’s in excess of $250 million.

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