Revisions to the Hospital Mortgage Insurance Program, 1750-1771 [05-49]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 70, Number 6 (Monday, January 10, 2005)]
[Proposed Rules]
[Pages 1750-1771]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-49]



[[Page 1749]]

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Part II





Department of Housing and Urban Development





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24 CFR Parts 200 and 242



Revisions to the Hospital Mortgage Insurance Program; Proposed Rule

Federal Register / Vol. 70, No. 6 / Monday, January 10, 2005 / 
Proposed Rules

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200 and 242

[Docket No. FR-4927-P-01; HUD-2004-0011]
RIN 2502-AI22


Revisions to the Hospital Mortgage Insurance Program

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the regulations governing the 
Federal Housing Administration (FHA) mortgage insurance program for 
hospitals. The rule would update and incorporate some earlier 
provisions that currently are not published as part of the FHA 
regulations. Further, the rule would add new provisions to make them 
consistent with current industry practices. The rule also would codify 
the relevant regulations that address hospital mortgage insurance in 
one part, and therefore make the regulations more user-friendly.

DATES: Comment Due Date: March 11, 2005.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-0500. Interested persons may also submit 
comments electronically through either:
     The Federal eRulemaking Portal at: https://
www.regulations.gov; or
     The HUD electronic Web site at: https://www.epa.gov/
feddocket. Follow the link entitled ``View Open HUD Dockets.'' 
Commenters should follow the instructions provided on that site to 
submit comments electronically.
    Facsimile (FAX) comments are not acceptable. In all cases, 
communications must refer to the docket number and title. All comments 
and communications submitted will be available, without revision, for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Copies are also available for inspection and downloading 
at https://www.epa.gov/feddocket.

FOR FURTHER INFORMATION CONTACT: Christopher D. Boesen, Director, 
Office of Insured Health Care Facilities, Department of Housing and 
Urban Development, Room 9224, 451 Seventh Street, SW., Washington, DC 
20410-8000; telephone (202) 708-0599 (this is not a toll-free number). 
Hearing- and speech-impaired persons may access this number through TTY 
by calling the Federal Information Relay Service at 800-877-8339 (this 
is a toll-free number).

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 242 of the National Housing Act (the Act), codified at 12 
U.S.C. 1715z-7 (section 242), most recently amended in 2003 by the 
Hospital Mortgage Insurance Act of 2003 (Pub. L. 108-91, approved 
October 3, 2003) (HMI Act), authorizes HUD to insure mortgages on 
hospitals in accordance with the terms of the section and upon such 
conditions as HUD may prescribe. The purpose of the law is to ``assist 
the provision of urgently needed hospitals for the care and treatment 
of persons who are acutely ill or who otherwise require medical care 
and related services of the kind customarily furnished only (or most 
effectively) by hospitals.'' (See 12 U.S.C. 1715z-7(a).) Another aspect 
of the statutory purpose is to encourage programs to provide 
comprehensive health care, including outpatient and preventive care as 
well as hospitalization. In the case of public hospitals, the statute 
is designed to encourage programs to provide health care services to 
all members of a community regardless of ability to pay. (See 12 U.S.C. 
1715z-7(f).)
    The statute defines the hospitals that are eligible for insurance 
as those that: (a) Provide community service for inpatient medical care 
of the sick or injured, including obstetrical care; (b) have not more 
than 50 percent of their total patient days customarily assignable to 
the specified categories of convalescent rest, drug and alcoholic, 
epileptic, mentally deficient, nervous and mental health, and 
tuberculosis, with the exception, introduced in the 2003 amendment, of 
critical access hospitals; and (c) are a public facility, proprietary 
facility, or facility of a private nonprofit corporation or 
organization. The statute encourages programs that are undertaken to 
provide essential health care services to all members of a community 
regardless of ability to pay. (See 12 U.S.C. 1517z-7(f).) The 2003 
exception to the 50 percent patient day requirement for critical access 
hospitals lasts until 2006; HUD is to report to Congress no later than 
July 31, 2006, on the effect of the exception for critical access 
hospitals on section 242 hospital mortgage insurance and on the General 
Insurance Fund. (See 12 U.S.C. 1715z-7(b).)
    The statute authorizes mortgage insurance for new and rehabilitated 
hospitals, including equipment. The insured mortgage may involve a 
principal obligation of up to 90 percent of the estimated replacement 
cost of the property or project, including equipment to be used in the 
operation of the hospital when the proposed improvements are completed 
and the equipment is installed and systems to conserve energy where the 
Secretary determines that the systems will be cost-effective. The 
Secretary may exercise regulatory control over the mortgagor's charges 
and methods of financing, corporate entity, capital structure, and rate 
of return. (See 12 U.S.C. 1715z(d)(1)-(2).)
    The statute provides for HUD to take steps to ensure that a 
hospital supported by HUD mortgage insurance is properly established 
and responds to a real need. As to hospital operation, HUD must 
require, before insuring, that satisfactory evidence be provided that 
the hospital will be located in an area with reasonable minimum 
standards of licensure and methods of operation of hospitals. HUD also 
must require a satisfactory assurance that such standards will be 
applied and enforced with respect to the hospital for which mortgage 
insurance is being sought. (See 12 U.S.C. 1715z(d)(4)(A).)
    As to need, the revised statute requires that HUD establish the 
means for determining the need for, and feasibility of the hospital if 
the State does not have an official procedure for making this 
determination. If the State does have a procedure, HUD must require 
that the procedure be followed and documented and that need has ``also 
been established under this procedure.'' (See 12 U.S.C. 1715z-7(d)(4).) 
HUD therefore contemplates that in cases where the State has a 
procedure, both the State procedure and HUD's criteria for determining 
need must be followed, which has been the historical practice. The need 
documentation provision was changed in the 2003 revision made by the 
HMI Act. Prior to that revision, the statute had provided that where 
the State has no procedure for assessing need, the State commission 
must conduct an independent study following certain procedures and 
standards.
    The statute also contains some technical provisions regarding 
mortgage insurance. Section 242(d)(5) of the Act, 12 U.S.C. 1715z-
7(d)(5), places restrictions on mortgage insurance under part 242 on 
mortgages that back Government National Mortgage Association (GNMA) 
securities. The statute provides that in the case where

[[Page 1751]]

HUD requires a private nonprofit organization or public facility 
mortgagor to provide cash money in excess of the amount of the 
mortgage, the mortgagor shall be entitled to use a letter of credit 
instead of cash. In such an event, mortgage proceeds may be advanced to 
the mortgagor prior to any demand being made on the letter of credit. 
(See 12 U.S.C. 1715z-7(d)(6).)
    The statute also gives HUD authority to approve a partial release 
of lien for any insured section 242 mortgage. Accordingly, if a 
hospital wanted to dispose of some of its equipment or some surplus 
property, for example, the lien as to those particular items could be 
released under such terms and conditions as HUD may prescribe. (See 12 
U.S.C. 1715z-7(e).)
    The statute makes applicable certain provisions of section 207 of 
the Act, 12 U.S.C. 1713, entitled ``Rental Housing Insurance.'' These 
applicable provisions are the following sections: 1713(d) (Premium, 
appraisal, and inspection charges); 1713(e) (Adjusted premium charges 
on payment of a mortgage prior to the maturity date); 1713(g) (Payment 
of insurance after default); 1713(h) (Certificate of claim and division 
of excess proceeds); 1713(i) (Debentures); 1713(j) (Form and amounts of 
debentures); 1713(k) (Acquisition of property by conveyance or 
foreclosure); 1713(l) (Handling and disposal of property; settlement of 
claims); and 1713(n) (Default and the rights of parties).
    HUD's current regulations for hospital mortgage insurance 
authorized by section 242, codified in 24 CFR part 242, are extremely 
brief and rely mostly on cross-references to the general regulatory 
provisions applicable to Federal Housing Administration (FHA) programs, 
codified in 24 CFR part 200, and the multifamily housing mortgage 
insurance regulations codified in 24 CFR part 207. The only statutory 
provisions that are reflected in the current part 242 regulations are 
the licensing provisions of 12 U.S.C. 1715z(d)(4)(A) (see 24 CFR 242.2) 
and the provisions on eligible hospitals at 12 U.S.C. 1715z(d) (see 24 
CFR 242.3).
    The last detailed stand-alone regulation for part 242 insurance was 
codified in the April 1, 1995, edition of the Code of Federal 
Regulations (CFR). Where relevant, part II of this preamble entitled 
``This Notice of Proposed Rulemaking'' will reference those prior 
regulations.

II. This Notice of Proposed Rulemaking (NPRM).

    Overall, this NPRM provides more detailed regulations for hospital 
mortgage insurance than either the current streamlined 24 CFR part 242, 
or the detailed section that existed prior to the 1996 edition of the 
CFR. Experience has shown that certain sections of the 1995 regulations 
are still pertinent to the program, while changes in the hospital 
industry, including the increase in applicants for insurance and new 
forms of ownership including mergers and physician participation, 
require some changes. This regulation proposes new details, described 
below, which respond to HUD's actual experience with hospital mortgage 
insurance and to changes in the hospital industry, which have 
dramatically increased every year.
    The hospital mortgage insurance is a unique program (the section 
242 program), unlike the multifamily housing programs in many respects. 
It is believed to be more helpful to the public to include all the 
necessary material in a single part, rather than relying heavily on 
cross-references to the general provisions at 24 CFR part 200. 
Therefore, this NPRM proposes to take a comprehensive approach.
    There has been an overall increase in applications for insurance 
and preapplication contacts. Often, these section 242 applicants are 
new and inexperienced in this program, requiring greater guidance from 
HUD for mortgagees and greater regulatory supervision of mortgagors. 
This regulation provides this greater level of guidance. In addition, 
this regulation provides for a preapplication procedure whereby issues 
and problems can be addressed early in the process, or an application 
that has deficiencies can be identified early in the process before an 
applicant expends substantial resources on preparing it.

Changes to Part 200

    This NPRM proposes to remove references to the hospital program 
from 24 CFR part 200 so that users of the regulation can find 
everything they need in one location and to avoid unnecessary 
repetition. Specifically, 24 CFR 200.24 and 200.25 are revised to 
remove references to 24 CFR part 242, and 24 CFR 200.40 is revised to 
remove material concerning application and commitment fees that would 
be contained entirely in 24 CFR part 242.

Proposed Part 242

Subpart A--General Eligibility Requirements
    In accordance with the more detailed guidance being provided in 
this regulation, this NPRM proposes to introduce an expanded section on 
pertinent definitions in proposed 24 CFR 242.1. Among the more 
significant definitions that would be added are definitions for 
affiliate; hospital, which essentially tracks the statutory definition 
in 12 U.S.C. 1715z-7(b)(1); personalty, which includes hospital 
equipment and which in many cases will be covered by the insured 
mortgage; preliminary review letter, a proposed new element to assist 
in the application process; surplus cash; debt service coverage ratio; 
and working capital. The definition section would also include 
definitions of a variety of other commonly used terms related to 
mortgage insurance.
    The definition of ``hospital'' differs from the definition in the 
1995 and earlier versions of the regulation primarily by adding the 
exemption for critical access hospitals to the 50 percent-of-patient-
days cap on certain forms of care (chronic convalescent and rest, drug 
and alcoholic, epilepsy, mentally deficient, mental and nervous, and 
tuberculosis). This critical access hospital exemption was introduced 
in 2003, and sunsets on July 31, 2006 (see HMI Act).
    Proposed section 242.2 makes explicit that HUD has an obligation to 
protect the soundness of the mortgage insurance fund. Therefore, this 
NPRM proposes to require as an overall principle that HUD seek to avoid 
defaults and claims for insurance and promote the program's financial 
self-sufficiency and actuarial soundness.
    Proposed section 242.3 is similar to 24 CFR 242.2 from the 1995 
stand-alone regulation (24 CFR 242.2, April 1, 1995 edition) (1995 
regulation), and reflects the overall purpose of the statute to 
encourage comprehensive health care (see 12 U.S.C. 1715z-7(f)). This 
NPRM proposes to add an additional sentence to emphasize the intent to 
insure mortgages for public and certain nonpublic hospitals that serve 
a public purpose by providing a substantial amount of care to those who 
have no ability, or limited ability, to pay.
    A number of sections in proposed subpart A establish basic 
eligibility requirements. Sections 242.4, 242.5, 242.6, 242.7, and 
242.10 relate, respectively, to eligible hospitals, eligible 
mortgagees, property requirements, maximum mortgage amounts, and 
eligible mortgagors. Similar material is contained in the 1995 
regulation; this proposed rule would reorganize this material more 
logically at the beginning of the rule. The maximum mortgage amount is 
up to 90 percent of the estimated replacement cost, is statutory (see 
12 U.S.C. 1715z-7(d)(2)), and has not changed since the 1995 
regulation, where the analogous

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section is 24 CFR 242.27. Eligible activities are the same as stated in 
the 1995 regulation in 24 CFR 242.12, ``Eligible hospitals,'' and 
include the new construction or substantial rehabilitation or 
replacement of a hospital (see 12 U.S.C. 1715z-7(d)). The section on 
``eligible mortgagees'' simply clarifies that the requirements in 24 
CFR part 202 apply, and is similar to 24 CFR 242.25 from the 1995 
regulation. The property requirements are the same as found in the 1995 
regulation at 24 CFR 242.87 and provide assurance of long-term 
ownership.
    Proposed 24 CFR 242.8, ``Standards for licensure and methods of 
operation,'' implements 12 U.S.C. 1715z(d)(4)(A). The same material was 
contained within a larger section dealing with certification 
requirements in the 1995 regulation at 24 CFR 242.5.
    Proposed 24 CFR 242.10, ``Eligible mortgagors,'' is similar to 
242.23 of the 1995 regulations. The proposed rule would give greater 
specificity to the types of for-profit mortgagors that would be 
eligible, specifically excluding joint ventures, natural persons, and 
general partnerships. These entities are specifically excluded because 
of an increased exposure to liability caused by the continuity problems 
which can arise with these specific entities. HUD needs assurance that 
the hospital will remain in existence for the duration of the insured 
mortgage loan and that the mortgagor will not be engaging in other 
business activities that could affect the ability of the mortgagor to 
make timely payment under the terms of the insured loan.
    Proposed 24 CFR 242.9, ``Physician ownership,'' is a new provision 
that is designed to recognize the reality of increased physician 
participation in the ownership of hospitals, within certain limits. 
Under current HUD Handbook guidelines, ``a proposal in which the 
mortgagor is controlled in any manner by the professionals practicing 
in the hospital will not be eligible.'' (Handbook 4615.1, ``Mortgage 
Insurance for Hospitals,'' ] 1-4(b).) HUD has been administratively 
waiving this prohibition under certain conditions. These are: a 
determination that the proposed mortgagor will be at low risk for 
violations of regulations of the Department of Health and Human 
Services and other Federal and State regulations governing kickbacks; 
self-referrals; and other issues that could increase the risk of 
default. HUD proposes to codify this standard for approval of physician 
ownership in the new regulation.
    Proposed 242.11, ``Regulatory compliance required,'' would set an 
eligibility criterion that hospitals be in substantial compliance with 
government regulations. Hospitals under investigation would generally 
not be eligible for the program, unless the Commissioner determines 
that the investigation is minor in nature, that is, unlikely to result 
in substantial liability or otherwise harm the creditworthiness of the 
hospital.
    Proposed 242.13, ``Parents and affiliates,'' recognizes the 
increase in mergers, affiliations, and multi-provider systems in the 
hospital industry. This section gives HUD express authority to take 
actions to mitigate the insurance risks posed by these arrangements.
    Proposed 242.14, ``Mortgage reserve fund,'' adapts the reserve 
requirements to current industry conditions. The Section 242 program 
long required that the mortgagor contribute to a depreciation reserve 
fund, and in some cases, contribute additional reserve funds. The 
depreciation reserve fund was designed for the era when insurers 
reimbursed hospitals for their costs, including capital costs. The fund 
was available in the later years of the mortgage to provide cash flow 
to the hospital as depreciation and interest expense declined. Also, 
the fund was available to help the hospital through unexpected cash 
flow difficulties at any time during the mortgage term. With the shift 
from cost reimbursement to reimbursement by case, the rationale for the 
depreciation reserve fund is no longer valid. However, a reserve fund 
is still needed to provide a cushion in times of financial difficulty 
to help the hospital and the Commissioner avoid mortgage defaults. 
Beginning in 2000, hospitals coming into the program were required to 
maintain a Mortgage Reserve Fund (MRF) instead of a depreciation 
reserve fund and hospitals with existing insured mortgage loans were 
permitted to convert their depreciation reserve fund to an MRF if they 
met certain conditions. The contribution requirements of the MRF are 
lower than those for the depreciation reserve fund. The language in 
Sec.  242.14 permits variation in fund requirements on a case-by-case 
basis, especially for critical access hospitals and others that receive 
partial cost-based reimbursement.
    Finally, proposed 24 CFR 242.15 provides that some preexisting 
long-term debt may be refinanced under the Section 242 program; 
however, the ``hard costs'' of construction and equipment must 
represent at least 20 percent of the total mortgage amount. The types 
of loans that may be refinanced under this provision may or may not be 
HUD-insured.
Subpart B--Application Procedures and Commitments
    Proposed 24 CFR 242.16, ``Applications,'' includes new material 
along with elements of the application procedures that have been in 
place in the program. For example, the requirement that the approval 
process entails a determination of market need in proposed Sec.  
242.16(a) is statutory (12 U.S.C. 1715z-7(d)(4)(B)) and also was found 
in the 1995 regulation in Sec.  242.3(a). Both proposed Sec.  242.16(c) 
on the application fee and Sec.  242.16(d) on filing are unchanged from 
Sec. Sec.  242.3(b) and 242.3(c) of the 1995 regulation.
    The NPRM also proposes some important new elements in the 
application procedure. In many cases, these are codifications of 
procedures the Department is currently using.
    The rule proposes, at 24 CFR 242.16(a)(1)(ii), a list of relevant 
factors in determining market need. These factors include matters such 
as the service area definition; current and projected future 
population; the occupancy rates of the applicant and competing 
hospitals; outpatient volume; and other factors related to assessing 
the need for the hospital and the services it would provide in the 
area. These factors are to be addressed, as applicable. This is in 
addition to the State's procedure, if any, for determining market need. 
In cases where the State has such a procedure, the State's procedure 
must be followed prior to application submission (proposed 24 CFR 
242.16(a)(1)(i)), and HUD's own determination of need must also be 
made. Also, the rule clarifies that for start-up hospitals or major 
expansions, it generally must be demonstrated that existing hospital 
capacity or services are not adequate to meet the needs of the 
population in the service area.
    The NPRM would also change long-standing policy for operating 
margin and financial feasibility. These standards are necessary to 
protect the soundness of the insurance fund. Proposed Sec.  
242.16(a)(2) would require a positive three-year aggregate operating 
margin, with discretion for HUD to find eligibility on the basis of a 
financial turnaround in the most recent year, and a debt service 
coverage ratio of 1.25 in the three most recent audited years, unless 
the Commissioner finds a financial turnaround, based on the audited 
financial data, resulting in a debt service coverage ratio of at least 
1.40 in the most recent year. Proposed Sec.  242.16(a)(3) contains 
detailed factors for determining whether the project is financially 
feasible; that is, whether it will be able to meet its debt service

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obligations over the life of the mortgage that is proposed to be 
insured. Among the factors included are a current debt service coverage 
ratio of 1.25 or higher and a projected debt service coverage ratio of 
1.40 or higher, and a balance sheet that shows the resources to 
withstand a short period of net operating losses without jeopardizing 
financial viability.
    Because of the overall increase in applications for the Section 242 
program, and an increase in the number of new applicants, the rule 
would codify in Sec.  242.16(a)(4) the preliminary review process that 
HUD has used in recent years. This process is designed to forestall 
problems and provide guidance to applicants early in the process. The 
preliminary review is performed at the request of a hospital, a 
hospital's financial consultant, or a HUD-approved lender for the 
purpose of identifying any factor that would likely cause an 
application to be rejected before the applicant spends substantial 
resources on the application. The applicant submits a preliminary 
information package to the Commissioner, and, on that basis, the rule 
proposes that the Commissioner would issue a preliminary review letter 
stating either that the application would likely result in a rejection, 
or that there appears to be no bar to proceeding to the next step in 
the application process. The rule specifies that this latter 
determination is not to be construed to imply that the application will 
necessarily be approved.
    If a finding is made of probable rejection, the applicant may not 
seek another preliminary review for one year from the date of 
notification, unless the Commissioner grants an exception based on a 
determination that the circumstances which led to the conclusion of a 
likely rejection have changed. If a finding is made that the 
application may go forward, the complete application should be 
submitted within one year from the date of notification, or a new 
preliminary review may be required.
    Section 242.16(a)(5) provides that the next step in the application 
process is a preapplication meeting between the applicant and HUD. The 
result of this meeting will be either a determination that there is no 
bar to further process, or that there are issues that must be resolved 
before an application should be submitted.
    The remainder of Sec.  242.16 contains administrative components of 
application processing. Section 242.16(b) specifies the application 
contents. Section 242.16(e) provides that only technically complete 
applications will be processed and that the Commissioner, upon 
determination that an application is complete, issue a Completeness 
Letter to the applicant stating that the application is complete. 
Completeness letters generally are endeavored to be issued three weeks 
from the date that the application is determined to be complete. 
Section 242.16(f), ``Application review,'' gives the Commissioner broad 
discretion to consider any relevant factors in determining whether to 
grant an application, to solicit the advice of experts within and 
outside of government, and to request additional information from the 
applicant. At a minimum, HUD will consider eligibility, market need, 
financial feasibility, and compliance with applicable regulations. 
Section 242.16(f) also states that the Commissioner will render a 
decision within 12 months of the date of the completeness letter, 
unless the Commissioner for good cause extends the period of review. 
The review period could also be shorter than 12 months, depending 
generally on when the necessary information and materials are received 
and on the completeness of the materials.
    The remainder of subpart B concerns commitments to insure the 
mortgage. Much of this portion of the regulation--including inspection 
fees (proposed Sec.  242.18); fees in increases in commitments prior to 
endorsement (Sec.  242.19(a)) and increases between initial and final 
endorsement (Sec.  242.19(b)); reopening of expired commitments (Sec.  
242.20); refund of fees (Sec.  242.21); adjusted and reduced mortgage 
amounts (Sec.  242.23(a) and (b))--are similar to the analogous 
sections in the 1995 regulations. In other cases, technical changes are 
proposed. For example, where the 1995 regulations provide that 
insurance on advances may be made, this proposed rule would require 
such insurance on advances and specifies that they reflect the mortgage 
amount, interest rate, mortgage term, date of commencement of 
amortization, and other requirements (proposed Sec.  242.17(a)). The 
proposed regulation would also change the term of the commitment from 
180 days stated in the 1995 regulation to 90 days, subject to 
extensions not to exceed 180 days (proposed Sec.  242.17(c)).
    There are also proposed changes from the 1995 provisions to the 
lender's maximum fees and charges (proposed Sec.  242.22) to include a 
3\1/2\ percent permanent financing fee, and technical changes to 
regulations dealing with the Commissioner's discretion to evaluate the 
amount of cash equity that any mortgagor must supply, as well as 
discretion as to whether a nonprofit or public entity mortgagor may use 
a letter of credit in lieu of cash. (See proposed Sec.  242.23(c).) The 
latter section requires that the loan-to-value ratio not exceed 90 
percent, although it may be less than 90 percent. In no case may the 
equity contribution be proceeds from a loan. Finally, proposed Sec.  
242.24 would give the Commissioner discretion to evaluate, on a case-
by-case basis, the amount of working capital that must be available to 
the new hospital at the commencement of operations. Minimum working 
capital is required to ensure that hospitals, especially new hospitals, 
have sufficient operating cash on hand pending the receipt of income 
from operations. Generally, the working capital shall not be borrowed 
funds, unless the Commissioner determines that there are offsetting 
financial strengths to compensate for the risks associated with 
borrowing.
Subpart C--Mortgage Requirements
    Many of the requirements in this subpart are adopted without change 
from the 1995 regulations, and have been ongoing features of the 
program. This section of the preamble focuses on new or changed 
requirements proposed to be introduced in this NPRM. The following 
table shows the substantially equivalent sections:

                    Substantially Equivalent Sections
------------------------------------------------------------------------
             1995 Regulation                       Proposed rule
------------------------------------------------------------------------
242.31(a)................................  242.25(a)(1)
242.31(b)................................  242.25(b)
242.33(a)................................  242.26(a)
242.33(b)................................  242.26(b)
242.35...................................  242.27
242.37...................................  242.29
242.39...................................  242.30
242.41(a)................................  242.31(a)
242.41(b)................................  242.31(b)
242.51(b)................................  242.37(b)
242.51(b)(1).............................  242.37(b)(1)
242.51(b)(2).............................  242.37(b)(2)
------------------------------------------------------------------------

    Proposed Sec.  242.32 is a covenant against liens other than the 
insured mortgage, with an exception for other liens that the 
Commissioner may approve. This section codifies a policy that has been 
part of the standard regulatory agreement. In HUD mortgage insurance 
programs generally, the insured loan must have priority over other 
liens. Permitting the Commissioner to approve additional secondary 
liens for hospitals may enable hospitals to benefit from programs 
offered by the Department of Health and Human Services and States.
    The mortgage lien certifications proposed in Sec.  242.35 would add 
a new element to the 1995 equivalent section, 24 CFR 242.49, that is, a 
certification

[[Page 1754]]

that the security agreement and Uniform Commercial Code (UCC) financing 
statements establish a first lien on the personalty of the mortgagor. 
``Personalty'' would be defined in this regulation as well.
    The 1995 regulations generally grant a prepayment privilege except 
in the case of mortgage loans that have been funded by the issuance and 
sale of bonds or bond anticipation notes (24 CFR 242.51(a) and (c)), in 
which case the mortgage may contain a prepayment restriction. Proposed 
Sec.  242.37(a), however, would allow the Commissioner to establish 
additional exceptions to the prepayment privilege. Proposed Sec.  
242.37(c) would allow for prepayment restrictions in the case of bond 
funding as in the 1995 regulation, as well as where the mortgage 
secures GNMA mortgage-backed securities, in those cases where the 
statute allows such mortgages to be insured under this part (see 
Section 242(d)(5) of the Act, 12 U.S.C. l715z-7(d)(5) for the 
restrictions on insuring mortgages that are used to collateralize GNMA 
securities). Proposed Sec.  242.37(d) would provide that in the event 
of a default, the Commissioner could override any prepayment penalty in 
order to facilitate a refinancing of the property to avoid a claim on 
the insurance fund.
    There is a change from the 1995 regulations in the area of late 
charges. Where the 1995 regulation imposed a limitation on the amount 
of late charges, the proposed rule would be flexible in this area, 
allowing the Commissioner to establish the terms and conditions for 
late charges. (Compare 24 CFR 242.52 of the 1995 regulation with 
proposed Sec.  242.38.) This aligns the current rule with HUD's 
regulations in other insurance programs on this subject, as codified in 
24 CFR 200.88.
Subpart D--Endorsement for Insurance
    The proposed sections on endorsement for insurance essentially 
track similar requirements in 24 CFR part 200. This proposed rule would 
add to those typical insurance provisions specific requirements as to 
the application of cost savings in proposed Sec. Sec.  242.41(b) and 
242.43. These requirements for the application of cost savings codify 
current program practice.
Subpart E--Construction
    Proposed Sec. Sec.  242.44 through 242.53 would establish 
construction standards for the hospital mortgage insurance program. 
Proposed Sec.  242.44 would codify as the minimum standard the 
Guidelines for Construction and Equipment of Hospital and Medical 
Facilities published by the American Institute of Architects, which is 
the standard currently being used in the program.
    Proposed Sec.  242.45 would codify the practice of approving, for 
good cause shown and with the concurrence of the Commissioner, early 
commencement of work; that is, commencement of certain preliminary work 
before the commitment to insure the mortgage. In such cases, the 
inspection fee must be prepaid before the commencement of the early 
work. Section 242.45 also makes clear the fact that no preliminary site 
work may be started prior to HUD doing an environmental review under 24 
CFR part 50 and indicating its approval of the proposed work.
    Proposed Sec.  242.46, ``Insured advances--building loan 
agreement,'' and 242.47, ``Insured advances for building components 
stored off-site,'' would simply recodify similar sections of the 1995 
regulations. (See Sec. Sec.  242.53 and 242.54 of the 1995 
regulations.) Proposed Sec.  242.46 would provide for progress payments 
during construction. Proposed Sec.  242.47 would allow for insured 
advances for building components stored off-site if certain 
requirements are met. On-site storage must be impractical because of 
size or weight or the threat of weather damage or other adverse 
conditions at the site. This section also contains certain storage and 
labeling requirements, and places responsibility for storage, 
transportation, and insurance of the components on the general 
contractor.
    Proposed Sec.  242.48 would provide for insurance of ``long lead 
items,'' that is, items for which an interim payment is needed in order 
to insure the timely production and delivery to the project site of the 
item. This provision for such items is a codification of existing 
program practice.
    Proposed Sec.  242.49 would provide that the Commissioner may 
require the mortgagor to make a deposit of cash or securities. The 
Commissioner may also permit the use of a letter of credit instead of 
cash or securities. This provision would be similar to 24 CFR 242.55 of 
the 1995 regulation, the primary difference being that if a letter of 
credit is used, it must be issued by an institution with a Standard & 
Poor's rating of AA or equivalent.
    Proposed Sec.  242.50, ``Funds and finances--off-site utilities and 
streets'' would recodify 24 CFR 242.59 of the 1995 regulations. This 
section requires assurance of completion of off-site public utilities 
and streets except in cases where a municipality or other local 
governmental body agrees to install streets and utilities without cost 
to the mortgagor.
    Proposed Sec.  242.51 provides for assurances of completion in the 
form of surety bonds, and would abbreviate 24 CFR 242.61 of the 1995 
regulation to remove references to Hill-Burton grants and costs of less 
than $500,000. It is HUD's experience that these elements are not 
needed for hospitals now applying for loans. The section also provides 
that its requirements are a minimum, and that the mortgagee may require 
more stringent sureties of completion. Proposed Sec.  242.52, 
``Construction contracts,'' would require the mortgagor to enter into a 
construction contract with a builder selected by competitive bidding 
procedures. Proposed Sec.  242.52(b) would allow for such a contract to 
take a variety of forms, including a lump sum contract; a construction 
management contract with a guaranteed maximum price, the final costs of 
which are subject to a certification acceptable to the Commissioner; a 
design-build contract; or such other contract as the Commissioner may 
approve. This section would differ from a similar section of the 1995 
regulation by not providing for a waiver of competitive bidding, and by 
expanding the types of contracts that may be used (formerly, only a 
lump sum contract was allowed). By doing so, the rule would allow for a 
wider variety of participants who may wish to use a variety of 
contracting methods.
    Proposed Sec.  242.53 would require that contracts relating to 
construction of the project not be made with any firm that has been 
found to be ineligible to participate by HUD or the Department of 
Labor. These restrictions on ineligible contractors are similar to 
those found in 24 CFR 242.71 of the 1995 regulation, with an additional 
provision prohibiting identity of interest contracts, as determined by 
the Commissioner, between the applicant and the general contractor.
Subpart F--Nondiscrimination and Wage Rates
    Proposed Sec. Sec.  242.54 and 242.55 would reference the basic 
nondiscrimination and Davis-Bacon wage rate requirements applicable to 
this program as well as the special requirement for payment of overtime 
to laborers and mechanics that applies to this program under section 
212 of the Act.
Subpart G--Regulatory Agreement, Accounting and Reporting, and 
Financial Requirements
    Proposed Sec. Sec.  242.56-242.93 would primarily focus on improved 
HUD supervision of the insured mortgagor, as well as on administrative 
provisions

[[Page 1755]]

necessary to run the program. Overall, HUD will exercise financial 
supervision over its insured mortgagors to minimize the risk to the 
insurance fund.
    Proposed Sec.  242.56 would provide for regulation by a Regulatory 
Agreement which can be flexible and include such clauses as the 
Commissioner deems necessary on a case-by-case basis. This section also 
makes clear that the mortgagor will be subject to continuing 
supervision by government agencies and their contractors and agents for 
the life of the insured loan. The purpose of this provision is to 
ensure financial soundness and prevent program abuse.
    Proposed Sec. Sec.  242.57 and 242.59 would restate, respectively, 
24 CFR 242.77 and 242.81 from the 1995 regulation. These sections 
require the mortgagor to maintain the property in good repair and allow 
for HUD to inspect the property, and the mortgagor's books and records, 
at reasonable times. In addition to these provisions, proposed Sec.  
242.58, ``Books, accounts, and financial statements,'' expands on the 
parallel 1995 regulation, 24 CFR 242.79, by specifying details of 
financial reports and when these reports must be filed with the 
Commissioner. This section also expands on the auditing requirements of 
the 1995 regulation. The purpose of these changes is to improve on the 
financial oversight of the mortgagor and reduce risk to the insurance 
fund.
    Proposed Sec.  242.61, ``Management,'' would provide that the 
Commissioner must approve any management contract for the hospital 
insured under this section. Furthermore, HUD could require that the 
principals of the mortgagor and key management employees could be 
removed, substituted, or terminated for cause by written request of the 
Commissioner. Experience has shown that there is a need to ensure 
appropriate management of hospitals insured under this program.
    Under proposed Sec.  262.64, all current and future property and 
equipment will become subject to the HUD-insured mortgage unless the 
Commissioner, for cause, approves otherwise. Given the importance of 
the security for the insured loan, proposed Sec.  242.62, ``Release of 
lien,'' and Sec.  242.65, ``Distribution of assets,'' would contain 
important concepts. Under Sec.  242.62, the mortgagor would not be able 
to dispose of any non-cash assets secured by the mortgage without the 
approval of the mortgage lender and the Commissioner. If such disposal 
of assets involves a partial release of the lien, the lender, subject 
to review by the Commissioner, must make a determination that the 
remaining lien is sufficient to cover the remaining property.
    Proposed Sec.  242.65 would provide for the distribution of assets, 
including surplus cash. Cash, to be considered surplus and available 
for distribution, must either meet the terms of the definition of 
``surplus cash'' in proposed 24 CFR 242.1 or be approved for 
distribution by the Commissioner. This section clarifies to whom 
distributions may occur.
    Two proposed sections would regulate affiliate transactions. 
Proposed Sec.  242.66 would prohibit transactions with affiliates 
except with prior written approval of the Commissioner. Proposed Sec.  
242.67 would prohibit acquisition, development, organization, or 
acquisition of a significant interest in any corporation, subsidiary, 
or affiliate other than those with which the mortgagor was affiliated 
with as of the date of application, without the prior written approval 
of the Commissioner.
Subpart H--Miscellaneous Requirements
    This subpart contains a number of requirements that do not fit 
under other categories of 24 CFR part 242. For example, Sec.  242.68 
refers to disclosure and verification of Social Security and Employer 
Identification numbers. Section 242.69 relates to fees for transfers of 
physical assets.
    Although the program has generally prohibited the leasing of an 
entire hospital, proposed Sec.  242.72 would permit leasing of the 
hospital in two limited instances. One is where there is a State law 
prohibition against State entity mortgaging of health care facilities. 
Another is where the Commissioner determines that leasing is necessary 
to reduce the risk of default by a financially troubled hospital with 
an existing loan under 24 CFR part 242.
    Proposed Sec.  242.73 provides for the waiver of eligibility 
requirements for insurance under the part of a mortgage assigned to the 
Secretary or acquired by the Secretary subsequent to a payment of 
claim. This provision would help to enable the Secretary to dispose of 
such mortgages after such assignment or acquisition, thereby recouping 
losses to the insurance fund.
    Proposed Sec. Sec.  242.74 (smoke detectors), 242.75 (title 
requirements), and 242.76 (title evidence) would restate, without 
substantive change, 1995 Sec. Sec.  242.87, 242.89, and 242.91, 
respectively. Proposed Sec.  242.77 would provide that the hospital 
must be free and clear of all liens other than the insured mortgage, 
except for certain categories of liens as the Commissioner may provide.
    Proposed Sec.  242.89, ``Supplemental loans,'' would provide for a 
loan or advance of credit for financing improvements or additions to a 
hospital covered by this part. This section implements section 241 of 
the Act (12 U.S.C. 1715z-6), for the hospital mortgage insurance 
program.
    Proposed Sec.  242.90, ``Eligibility of mortgages covering 
hospitals in certain neighborhoods,'' restates 24 CFR 242.94 from the 
1995 regulation. The purpose of this section is to provide for hospital 
care in older or declining neighborhoods, subject to certain 
conditions, such as ensuring that the area is reasonably viable and the 
mortgage is an acceptable risk.
    Proposed Sec.  242.91, ``Eligibility of refinancing transactions,'' 
restates 24 CFR 242.96 from the 1995 regulations. Proposed Sec. Sec.  
242.92 (minimum principal loan amount), 242.93 (amendment of 
regulations), and 242.94 (cross reference) restate 24 CFR 242.97, 
242.249, and 242.251 of the 1995 regulations, respectively.

Findings and Certifications

Information Collection Requirements
    The information collection requirements contained in this proposed 
rule are found in Sec. Sec.  242.8, 242.13, 242.16, 242.20, 242.25, 
242.33, 242.35, 242.40, 242.41, 242.42, 242.46, 242.52, 242.57, 242.58, 
242.61, 242.68, and 242.76. As discussed in the preamble of this rule, 
the information collection requirements in these sections are largely 
unchanged from those already in place for the Section 242 program, and 
found in the existing regulations in 24 CFR parts 200, 207 and 242, and 
documents such as form, HUD-92013-HOSP (Application for Hospital 
Project Mortgagee Insurance) and Mortgagee Letter 04-08 (issued 
February 23, 2004), which details the requirements for the market need 
study and financial feasibility study. The existing information 
collection requirements were approved by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520), and assigned OMB approval number 2502-0518.
    The existing information collections, which remain unchanged by 
this proposed rule, are found in the following sections: Sec. Sec.  
242.8 (requiring evidence that the hospital is located in a State or a 
political subdivision of a State with reasonable minimum standards for 
licensure and methods of operation), 242.13 (concerning financial and 
operational information about parents and affiliates), 242.20 
(concerning request for reopening

[[Page 1756]]

expired commitment), 242.25 (form of the mortgage), 242.33 (maintenance 
of adequate malpractice liability, fire, and extended coverage 
insurance on the property), 242.40 (form of mortgagee certificate), 
242.41 (concerning agreement precluding excess of mortgage proceeds 
over statutory limitations), 242.42 (mortgagor's certificate of actual 
cost), 242.46 (building loan agreement), 242.50 (assurances of 
completion of off-site public utilities and streets), 242,51 (assurance 
of completion of construction or rehabilitation where cost is more than 
$500,000), 242.52 (a contract for construction or rehabilitation of a 
hospital), 242.56 (execution of regulatory agreement), and 242.75 
(marketable title requirements), and 242.76 (evidence of title).
    The Department has estimated the total burden for the information 
collection currently in place for the Section 242 program, which 
includes the Application for Hospital Project Mortgage Insurance (HUD-
92013-HOSP), the market need and feasibility studies, and the 
requirements set forth in the regulations, as a total of 17,280 hours. 
This total is based on an estimate of 18 applicants a year and 960 
hours per response.
    The additional information collection set forth in this proposed 
rule can be found in the following regulatory sections. Several of 
these sections, such as 242.16 (the application requirements) contain 
the existing requirements, and these requirements have been expanded 
upon by the proposed rule, particularly with respect to the market need 
and feasibility study. In Sec.  242.16(a)(1)(ii), HUD proposes a list 
of additional relevant factors in determining market need, and Sec.  
242.16(a)(3) contains detailed factors for determining whether a 
project is financially feasible. Section 242.35 proposed to add to the 
existing mortgage lien certification a certification that the security 
agreement and UCC financing statements establish a first line on the 
personalty of the mortgagor. Section 242.58 expands upon the 
recordkeeping requirements currently in place. Section 242.61 provides 
for a management contract for the hospital and Sec.  242.68 requires a 
disclosure and verification of Social Security and employer 
identification numbers. The additional burden of the information 
collections in this proposed rule is estimated as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                                     Number of     average time      Estimated
                Section reference                    Number of     responses per        for         additional
                                                      parties       respondent      requirement    annual burden
                                                                                    (in hours)      (in hours)
----------------------------------------------------------------------------------------------------------------
Sec.   242.16...................................              18               1               5              90
Sec.   242.35...................................              18               1               2              36
Sec.   242.58...................................              18               1               1              18
Sec.   242.61...................................              18               1               3              54
Sec.   242.68...................................              18               1               1              18
                                                 -----------------
    Total Additional Annual Burden Presented by   ..............  ..............  ..............             216
     Proposed Rule..............................
    Total Estimated Annual Burden: 17, 280 hrs +  ..............  ..............  ..............          17,416
     216 hrs....................................
----------------------------------------------------------------------------------------------------------------

    The changed collection of information is being submitted to OMB for 
review and approval. In accordance with 5 CFR 1320.8(d)(1), HUD is 
soliciting comments from members of the public and affected agencies 
concerning this collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology; e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule no later than February 
9, 2005. This time frame does not affect the deadline for comments to 
the agency on the rule, however. Comments on information collection 
2502-0518 must refer to the proposed rule by name and docket number 
(FR-4927-P-01) and must be sent to:

Mark D. Menchik, HUD Desk Officer, Office of Management and Budget, New 
Executive Office Building, Washington, DC 20503, Fax number: (202) 395-
6947, E-mail: Mark--D.--Menchik@omb.eop.gov;
     and
Kathleen McDermott, Reports Liaison Officer, Office of Housing-Federal 
Housing Commissioner, Department of Housing and Urban Development, 451 
Seventh Street, SW., Room 9116, Washington, DC 20410-8000.

In accordance with the Paperwork Reduction Act, an agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a currently 
valid OMB control number.
Environmental Impact
    A Finding of No Significant Impact with respect to the environment 
for this rule 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 (42 U.S.C. 4332(2)(C)). The Finding of 
No Significant Impact is available for public inspection between 8 a.m. 
and 5 p.m. weekdays in the Regulations Division, Office of the General 
Counsel, Department of Housing and Urban Development, Room 10276, 451 
Seventh Street, SW., Washington, DC 20410-5000.
Unfunded Mandates Reform Act
    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
(UMRA) establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and on the private sector. This rule does not impose a 
Federal mandate on any State, local, or tribal government, or on the 
private sector, within the meaning of UMRA.

[[Page 1757]]

Regulatory Flexibility Act
    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities.
    There are no anti-competitive discriminatory aspects of the rule 
with regard to small entities, and there are not any unusual procedures 
that would need to be complied with by small entities. The rule revises 
the regulations under the mortgage insurance program for hospitals to 
update and improve the efficiency of the program.
    Therefore, the undersigned certifies that this proposed rule will 
not have a significant economic impact on a substantial number of small 
entities, and an initial regulatory flexibility analysis is not 
required.
    Notwithstanding the determination that this rule would not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites comments regarding less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.
Executive Order 13132, Federalism
    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule does not have federalism 
implications and does not impose substantial direct compliance costs on 
State and local governments nor preempt State law within the meaning of 
the Executive Order.
Regulatory Planning and Review
    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action'' as defined in 
section 3(f) of the order (although not an economically significant 
regulatory action under the order). Any changes made to this rule as a 
result of that review are identified in the docket file, which is 
available for public inspection in the Regulations Division, Office of 
the General Counsel, Room 10276, 451 Seventh Street, SW., Washington, 
DC 20410-0500.

List of Subjects in 24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, Housing standards, Lead 
poisoning, Loan programs--housing and community development, Mortgage 
insurance, Organization and functions (Government agencies), Penalties, 
Reporting and recordkeeping requirements, Social security, Unemployment 
compensation, Wages.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number is 14.128.

List of Subjects in 24 CFR Part 242

    Hospitals, Mortgage insurance, Reporting and record keeping 
requirements.

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR parts 200 and 242 to read as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

    1. Section 200.24 is revised to read as follows:


Sec.  200.24  Existing projects.

    A mortgage financing the purchase or refinance of an existing 
rental housing project under section 207 of the Act, or for refinancing 
the existing debt of an existing nursing home, intermediate care 
facility, assisted living facility, or board and care home, or any 
combination thereof, under section 232 of the Act, may be insured 
pursuant to provisions of section 223(f) of the Act and such terms and 
conditions established by the Commissioner.
    2. Section 200.25 is revised to read as follows:


Sec.  200.25  Supplemental loans.

    A loan, advance of credit or purchase of an obligation representing 
a loan or advance of credit made for the purpose of financing 
improvements or additions to a project covered by a mortgage insured 
under any section of the Act or Commissioner-held mortgage, or 
equipment for a nursing home, intermediate care facility, board and 
care home, assisted living facility, or group practices facility, may 
be insured pursuant to the provisions of section 241 of the Act and 
such terms and conditions established by the Commissioner.
    3. 24 CFR 200.40 is amended by revising paragraphs (c), (d), and 
(f) to read as follows:


Sec.  200.40  HUD fees.

    The following fees apply to mortgages to be insured under this 
part.
* * * * *
    (c) Application fee--conditional commitment. For a mortgage being 
insured under section 223(f) of the Act (12 U.S.C. 1715n), an 
application-commitment fee of $3 per thousand dollars of the requested 
mortgage amount shall accompany an application for conditional 
commitment.
    (d) Application fee--firm commitment: General. An application for 
firm commitment shall be accompanied by an application-commitment fee 
which, when added to any prior fees received in connection with 
applications for a SAMA letter or a feasibility letter, will aggregate 
$5 per thousand dollars of the requested mortgage amount to be insured. 
The payment of an application-commitment fee shall not be required in 
connection with an insured mortgage involving the sale by the 
government of housing or property acquired, held, or contracted 
pursuant to the Atomic Energy Community Act of 1955 (42 U.S.C. 2301 et 
seq.).
* * * * *
    (f) Fees on increases--in general. This section applies to all 
applications except applications involving hospitals, which are covered 
in 24 CFR part 242.
    (1) Increase in firm commitment before endorsement. An application, 
filed before initial endorsement (or before endorsement in a case 
involving insurance upon completion), for an increase in the amount of 
an outstanding firm commitment shall be accompanied by a combined 
additional application and commitment fee. This combined additional fee 
shall be in an amount which will aggregate $5 per thousand dollars of 
the amount of the requested increase. If an inspection fee was required 
in the original commitment, an additional inspection fee shall be paid 
in an amount computed at the same dollar rate per thousand dollars of 
the amount of increase in commitment as was used for the inspection fee 
required in the original commitment. When insurance of advances is 
involved, the additional inspection fee shall be paid at the time of 
initial endorsement. When insurance upon completion is involved, the 
additional inspection fee shall be paid before the date construction is 
begun or if construction has begun, it shall be paid with the 
application for increase.
    (2) Increase in mortgage between initial and final endorsement. 
Upon an application, filed between initial and final endorsement, for 
an increase in the

[[Page 1758]]

amount of the mortgage, either by amendment or by substitution of a new 
mortgage, a combined additional application and commitment fee shall 
accompany the application. This combined additional fee shall be in an 
amount which will aggregate $5 per thousand dollars of the amount of 
the increase requested. If an inspection fee was required in the 
original commitment, an additional inspection fee shall accompany the 
application in an amount not to exceed the $5 per thousand dollars of 
the amount of the increase requested.
    (3) Loan to cover operating losses. In connection with a loan to 
cover operating losses (see Sec.  200.22), a combined application and 
commitment fee of $5 per thousand dollars of the amount of the loan 
applied for shall be submitted with the application for a firm 
commitment. No inspection fee shall be required.
* * * * *

PART 242--MORTGAGE INSURANCE FOR HOSPITALS

    4. Part 242 is revised to read as follows:

PART 242--MORTGAGE INSURANCE FOR HOSPITALS

Subpart A--General Eligibility Requirements
Sec.
242.1 Definitions.
242.2 Program financial self-sufficiency.
242.3 Encouragement of certain programs.
242.4 Eligible hospitals.
242.5 Eligible mortgagees.
242.6 Property requirements.
242.7 Maximum mortgage amounts.
242.8 Standards for licensure and methods of operation.
242.9 Physician ownership.
242.10 Eligible mortgagors.
242.11 Regulatory compliance required.
242.13 Parents and affiliates.
242.14 Mortgage reserve fund.
242.15 Limitation on refinancing of existing indebtedness.
Subpart B--Application Procedures and Commitments
242.16 Applications.
242.17 Commitments.
242.18 Inspection fee.
242.19 Fees on increases.
242.20 Reopening of expired commitments.
242.21 Refund of fees.
242.22 Maximum fees and charges by mortgagee.
242.23 Adjusted and reduced mortgage amounts.
242.24 Working capital.
Subpart C--Mortgagee Requirements
242.25 Mortgage form and disbursement of mortgage proceeds.
242.26 Agreed interest rate.
242.27 Maturity.
242.28 Alllowable costs for consultants.
242.29 Payment requirements.
242.30 Application of payments.
242.31 Accumulation of accruals.
242.32 Covenant against liens.
242.33 Covenant for malpractice, fire and other hazard insurance.
242.35 Mortgage lien certifications.
242.37 Mortgage prepayment.
242.38 Late charge.
Subpart D--Endorsement for Insurance
242.39 Insurance endorsement.
242.40 Mortgagee Certificate.
242.41 Certification of cost requirements.
242.42 Certificates of actual cost.
242.43 Application of cost savings.
Subpart E--Construction
242.44 Construction standards.
242.45 Early commencement of work.
242.46 Insured advances--building loan agreement.
242.47 Insured advances for building components stored off-site.
242.48 Insured advances for certain equipment and long lead items.
242.49 Funds and finances: Deposits and letters of credit.
242.50 Funds and finances: Off-site utilities and streets.
242.51 Funds and finances: Insured advances and assurance of 
completion.
242.52 Construction contracts.
242.53 Ineligible contractors.
Subpart F--Nondiscrimination and Wage Rates
242.54 Nondiscrimination.
242.55 Labor standards.
Subpart G--Regulatory Agreement, Accounting and Reporting, and 
Financial Reporting
242.56 Form of regulation.
242.57 Maintenance of hospital facility.
242.58 Books, accounts, and financial statements.
242.59 Inspection of facilities by Commissioner.
242.61 Management.
242.62 Releases of lien.
242.63 Additional indebtedness and leasing.
242.64 Current and future property.
242.65 Distribution of assets.
242.66 Affiliate transactions.
242.67 New corporations, subsidiaries, affiliations, and mergers.
Subpart H--Miscellaneous Requirements
242.68 Disclosure and verification of Social Security and Employer 
Identification Numbers.
242.69 Transfer fee.
242.70 Fees not required.
242.72 Leasing of hospital.
242.73 Waiver of eligibility requirements for mortgage insurance.
242.74 Smoke detectors.
242.75 Title requirements.
242.76 Title evidence.
242.77 Liens.
242.78 Zoning, deed, and building restrictions.
242.79 Environmental quality determinations and standards.
242.81 Lead-based paint poisoning prevention.
242.82 Energy conservation.
242.83 Debarment and suspension.
242.84 Previous participation and compliance requirements.
242.86 Property and mortgage assessment.
242.87 Certifications.
242.89 Supplemental loans.
242.90 Eligibility of mortgages covering hospitals in certain 
neighborhoods.
242.91 Eligibility of refinancing transactions.
242.92 Minimum principal loan amount.
242.93 Amendment of regulations.
242.94 Cross-reference.

    Authority: 12 U.S.C. 1709, 1710, 1715b, and 1715u; 42 U.S.C. 
3535(d).