The U.S. Department of Housing and Urban Development has issued a final rule on the Federal Housing Administration's Section 242 Hospital Mortgage Insurance Program, which will expand how acute-care hospitals can refinance and acquire low-interest loans.
Section 242 allows acute-care hospitals — ranging from large teaching institutions to critical access hospitals — to obtain low-interest, highly rated mortgages for remodeling, expansions, equipment purchases and other specific measures.
The final rule amends the Section 242 program — Section 242/223(f) — so that hospitals without FHA-insured mortgages can access loans or refinance through the program without requiring new construction or renovation as part of the transaction. HUD officials said the goal of the rule is "to assist those hospitals saddled with unexpectedly high interest rates and where refinancing is urgently needed for the hospital to continue to remain open and adequately serve its surrounding community."
Here are some major provisions of HUD's final rule:
• Effective March 7, 100 percent of a mortgage amount within Section 242 can be used for refinancing, with less than 20 percent of the loan proceeds used for construction and equipment.
• Any non-profit, for-profit and/or government-owned hospital is eligible as long as at least 50 percent of the hospital's adjusted patient days or revenues are attributable to acute-care services.
• HUD expects the new program will result in a $1.26 million transfer per year per healthcare facility (and also estimates 10 hospitals use the Section 242 program per year).
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