[Federal Register Volume 59, Number 228 (Tuesday, November 29, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-29362] [[Page Unknown]] [Federal Register: November 29, 1994] _______________________________________________________________________ Part XI Department of Housing and Urban Development _______________________________________________________________________ Office of the Assistant Secretary for Housing-Federal Housing Commissioner _______________________________________________________________________ 24 CFR Part 232 Assisted Living Facilities Under Section 232; Final Rule DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of the Assistant Secretary for Housing-Federal Housing Commissioner 24 CFR Part 232 [Docket No. R-94-1695; FR-3374-F-02] RIN 2502-AF89 Assisted Living Facilities Under Section 232 AGENCY: Office of the Assistant Secretary for Housing-Federal Housing Commissioner, HUD. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: This rule amends HUD regulations to implement statutory authority to insure assisted living facilities for the care of frail elderly persons. The authorizing statute is section 511 of the Housing and Community Development Act of 1992. The rule also expands current regulations to include the refinancing of conventional (non-FHA insured) nursing homes, intermediate care facilities, assisted living facilities or board and care homes under section 232, pursuant to section 223(f) of the National Housing Act, and to insure additions to such projects. Finally, the rule makes certain conforming changes required by the Housing and Community Development Act of 1992 and makes other minor technical changes that remove ambiguities or reflect long- standing Departmental policy. EFFECTIVE DATE: December 29, 1994. FOR FURTHER INFORMATION CONTACT: Linda D. Cheatham, Director, Office of Insured Multifamily Housing Development, 451 Seventh Street, SW, Washington, DC 20410-0500, telephone: (202) 708-3000; the telecommunications device for the deaf (TDD) telephone number is (202) 708-4594. (These are not toll-free numbers.) SUPPLEMENTARY INFORMATION: I. Background Currently, under section 232 of the National Housing Act (NHA), and the accompanying regulations at 24 CFR part 232, the Department insures mortgages for nursing homes, intermediate care facilities, and board and care homes. Section 511 of the Housing and Community Development Act of 1992 (Pub. L. 102-550, approved October 28, 1992) (1992 HCD Act) amends section 232 to also authorize FHA mortgage insurance for ``assisted living facilities.'' In compliance with section 511, this rule revises HUD regulations at 24 CFR part 232 to make assisted living facilities for the care of the frail elderly eligible for mortgage insurance. Under the NHA and this rule, the term ``assisted living facility'' means a public facility, proprietary facility, or facility of a private nonprofit corporation that: (1) Is licensed and regulated by the State (or if there is no State law providing for such licensing and regulation by the State, by the municipality or other political subdivision in which the facility is located); (2) Makes available to residents supportive services to assist the residents in carrying out activities of daily living such as bathing, dressing, eating, getting in and out of bed or chairs, walking, going outdoors, using the toilet, laundry, home management, preparing meals, shopping for personal items, obtaining and taking medications, managing money, using the telephone, or performing light or heavy housework, and which may make available to residents home health care services, such as nursing and therapy; and (3) Provides separate dwelling units for residents, each of which may contain a full kitchen or bathroom, and includes common rooms and other facilities appropriate for the provision of supportive services to residents of the facility. Under the NHA and this rule, the term ``frail elderly'' has the same meaning as that term has in section 802(k) of the Cranston- Gonzalez National Affordable Housing Act (NAHA). Section 802(k)(8) defines ``frail elderly'' as meaning an elderly person who is unable to perform at least three activities of daily living adopted by the Secretary. (The term ``elderly person'' means a person who is at least 62 years of age. The term ``activity for daily living'' in turn means an activity regularly necessary for personal care and includes bathing, dressing, eating, getting in and out of bed and chairs, walking, going outdoors, and using the toilet.) An assisted living facility may be free-standing, or part of a complex that includes a nursing home, an intermediate care facility, a board and care facility or any combination of the above. However, in compliance with section 511 of the 1992 HCD Act, this rule does not authorize mortgage insurance for an assisted living facility unless the Secretary determines that the level of financing acquired by the mortgagor and any other resources available for the facility are sufficient to ensure that the facility contains dwelling units and facilities for the provision of supportive services; the mortgagor provides satisfactory assurances that no dwelling unit in the facility will be occupied by more than one person without the consent of all such occupants; and the appropriate state licensing agency for the state, municipality or other political subdivision in which the facility is or is to be located provides adequate assurances that the facility will comply with any applicable standards and requirements for such facilities. Section 511 of the 1992 HCD Act also amends section 223(f) of the NHA. In accordance with section 511, this rule authorizes the refinancing of an existing assisted living facility. This rule also expands the section 232 program to include the refinancing of conventionally financed projects under section 223(f) of the National Housing Act. Section 409 of the Housing and Community Development Act of 1987 amended section 223(f) of the NHA to cover such refinancing of the debt of an existing nursing home, existing intermediate care facility, or existing board and care facility (collectively referred to as ``residential care facility''), or any combination of the above. However, after section 409 of the Housing and Community Development Act of 1987 was enacted, the Department limited its implementation to existing FHA-insured residential care facilities. (See August 31, 1988 Federal Register at 53 F.R. 33735). HUD's decision not to implement section 409 in its entirety was based on the fact that HUD had no experience in underwriting existing residential care facilities. By limiting the insurance for refinanced transactions to currently FHA- insured projects with a known track record (annual inspections, availability of audited financial statements, etc.), the Department could more adequately protect the General Insurance Fund. However, the House Conference Report for the NAHA (H.R. 101-943, 101st Cong. 2d Sess, at 524) emphasizes Congress's intent that the Department fully implement section 409 to include conventional (non-FHA insured) projects. Accordingly, the Department is now expanding the program to include mortgages for the purchase and refinancing of existing, conventionally financed residential care facilities under section 232 pursuant to section 223(f). To implement other statutory changes, this rule makes projects consisting of an addition to an existing (non-FHA insured) nursing home, board and care facility, intermediate care facility, or assisted living facility eligible for mortgage insurance under section 232 of the NHA. Also, the rule increases the loan-to-value ratio for private nonprofit mortgagors from 90 percent to 95 percent, and makes certain conforming changes with respect to fire safety equipment for assisted living facilities. This rule also makes a number of technical amendments to part 232. Specifically, it moves the definition of substantial rehabilitation from Sec. 232.902(b) to the definitional section of the regulations (Sec. 232.1), and revises the definition of substantial rehabilitation to reflect the requirement that rehabilitation must involve two or more major building components. The current wording ``more than one building component'' could be erroneously interpreted. Also, the word ``additions'' is removed from the definition of substantial rehabilitation. The placement of ``additions'' in Sec. 232.902(b) of the existing regulations has caused confusion because it incorrectly suggests that the cost of an addition to an existing building can be used in calculating the 15 percent of value criterion. The term ``additions,'' as used in Sec. 232.902(b) was intended to mean an addition of a new project element in a residential care facility, such as a whirlpool bath, safety railing, etc. The Department wants to emphasize that these revisions to the definition of substantial rehabilitation do not reflect a policy change, but are technical changes which reflect the Department's long-standing administrative policy. Finally, the rule increases the loan-to-value ratio for private nonprofit mortgagors from 85 percent to 90 percent for the purchase or refinance of a residential care facility which does not involve substantial rehabilitation. II. Public Comment on Proposed Rule On February 3, 1994, the Department published a proposed rule (59 FR 5157) entitled ``Assisted Living Facilities Under Section 232''. A total of 22 written comments were received from the public on this proposal. What follows is a listing of the significant issues raised, or recommendations made, in these comments along with HUD's response to each. 80 Percent Medicaid Payor Requirement Five commenters noted that current regulations for new construction and substantial rehabilitation of nursing homes under section 232 require that 80 percent of all beds be underwritten at Medicaid bed rates. They argued that, while this requirement may be appropriate when projecting potential bed mix for a proposed nursing home, HUD should not use the same requirement for an existing property. The commenters argue that many nursing homes are economically sound with a private-pay population of much more than 20 percent. They therefore suggest that, when underwriting the refinancing of an occupied nursing home, the Department assumes that the payor mix remains as it is presented. If HUD artificially assumes an 80 percent Medicaid payor rate, it will artificially lower the property's income and may produce an artificially reduced and unworkable first mortgage. The commenters argue that a major reason for expanding current regulations to include the refinancing of existing conventionally financed nursing homes and related facilities for the elderly is to reduce the unnecessarily high cost of borrowing from conventional conduits and Real Estate Investment Trusts (REITs). A reduction in borrowing cost can help reduce the overall cost of health care in this country but unnecessarily conservative underwriting assumptions will work to thwart this goal. HUD's Response The processing provision relative to the use of 80-85 percent of the Medicaid rate contained in the administrative instructions is not regulatory, and thus it is not part of the rule. In establishing the maximum mortgage amount, HUD uses the 80-85 percent of the actual or average Medicaid rate. This may reduce the maximum amount of mortgage that HUD will insure since the project's income will be based upon Medicaid rates. However, it is a conservative approach necessary to protect the general insurance fund. If HUD had to take back the mortgage, there would be a stable income stream to meet the debt service requirements. This does not mean that the facility must change its payor mix to be eligible for mortgage insurance. The Medicaid provisions currently apply to new construction and substantial rehabilitation. The Department is in the process of determining what parameters will be used in the administrative instructions for establishing the maximum mortgage amount for existing non-HUD insured projects. The 80 percent Medicaid rule does not apply to board and care homes and assisted living facilities. Loan-to-Value Ratio Five commenters support the Department's proposal to distinguish between the underwriting of projects owned by profit-motivated and nonprofit entities. They note, however, that existing facilities involve fewer construction and leasing risks than the FHA-insured loan programs for new construction which have more liberal underwriting standards. Consequently, they recommend that HUD permit loans to cover acquisition or refinancing costs up to 90 percent of value for profit- motivated borrowers and up to 95 percent of value for nonprofit borrowers. Similarly, some commenters also recommend that profit- motivated and nonprofit borrowers be limited to maximum loans supported by no more than 90 percent and 95 percent of net income, respectively. HUD's Response HUD has determined the loan-to-value for nonprofits for refinance or acquisition to be 90 percent of HUD's estimate of value. For profit- motivated mortgagor entities, the value limit shall not be in excess of 85 percent of HUD's estimate of the project. This limitation is the same as the long-standing requirement for section 207/223(f) existing rental housing projects. The maximum debt service mortgage limitation will be 85 percent of net projected project income with the nonprofit amount at 90 percent. Licensure Requirements Six commenters noted that the proposed rule defines assisted living facilities, in relevant part, as ``a public facility, proprietary facility, or facility of a private nonprofit corporation that is used for the care of the frail elderly, and that: (1) is licensed and regulated by the State or if there is no State law providing for such licensing and regulation by the State, by the municipality or other political subdivision in which the facility is located.'' These commenters observed that many states and localities do not have licensure requirements or regulations for assisted living or board and care facilities and in such cases it would be helpful to know what documents would be acceptable to HUD in allowing project financing to go forward. One commenter recommended that language should be added to the rule stating that section 232 will insure the financing of all features not specified in this rule, but required by state licensure. If, for example, a particular state's licensure requirement mandates complete kitchens in each resident's unit, this feature should be covered under the section 232 insurance program. HUD's Response Section 511 of the 1992 HCD Act requires licensure and regulation by the appropriate State agency (or if there is no state law providing for state licensure and regulation, by the municipality or other political subdivision in which the facility is located). HUD requires that the State comply with section 1616(e) of the Social Security Act (Keys Amendment) for both board and care homes and assisted living facilities. This means that there is an agency that is responsible for licensure and standards. Licensure implies that the facility is authorized to operate in the State. Standards involve monitoring activities such as inspection for compliance and enforcement. HUD understands that State regulations differ from State to State. Therefore, HUD is flexible with respect to the existing State regulations for board and care homes and assisted living facilities, as long as such facilities meet the basic HUD requirements. In today's rule, assisted living facility units may contain full kitchens, kitchenettes, no kitchens or a combination depending on the design and market. HUD will strive to accommodate the State's regulations whenever possible without jeopardizing underwriting standards and other requirements. In order for an assisted living facility to be endorsed for mortgage insurance, it must be in compliance with all applicable Federal, State and local laws. One Person Occupancy Issue Three commenters urged HUD to clarify Sec. 232.7(b) of the proposed rule so that the resident consent requirement with respect to multiple occupancy is only required with respect to the dwelling unit in question. Under the proposed rule, some occupants of an assisted living facility might believe that the consent of all project residents is required, a standard virtually impossible to meet. HUD's Response The Department agrees that this provision requires clarification. The final rule has been changed to reflect the requirement that only the consent of the occupant(s) of the dwelling unit subject to the multiple occupancy is needed to authorize the multiple occupancy. The regulatory text in Sec. 232.7(b) of today's final rule reads, ``[n]o dwelling unit in the facility will be occupied by more than one person without the consent of all occupant(s) of such dwelling unit.'' Facility Requirements Section 232.39 of the proposed rule requires that each assisted living facility have a central kitchen and group dining facilities. Eight commenters suggested that HUD modify this requirement so that each facility either have a central kitchen or demonstrate its capacity to provide hot meals to all residents. Such a modification would enable facilities to utilize outside catering services or food service provision from a near-by facility or institution. These commenters believe this flexibility could be particularly beneficial to those facilities serving low- and moderate-income residents. Some of these commenters also made similar comments in connection with the full bathroom requirement in Sec. 232.39 of the proposed rule. HUD's Response In the final regulations, an assisted living unit may contain a kitchenette or a full kitchen, but is not required to do so. However, the facility must still provide space for a main kitchen and dining room. The facility must provide central dining to accommodate three meals per day. The facility may contract with another facility for food service. The meals may be catered and served in the dining room depending on the State licensure standard. If the facility proposes to contract catered meals and no central kitchen is desired, space for a central kitchen must still be provided in the event that HUD must foreclose and operate the facility. In regard to the full bathroom requirement in the proposed rule, HUD has changed Sec. 232.39 of the final rule to reflect the statutory provision that a full bathroom is an option, but not a requirement. Section 202 and 221(d)(3) Elderly Projects One commenter suggested that the Department consider authorizing mortgage insurance for the addition of assisted living units to Section 202 and Section 221(d)(3) elderly housing projects, provided that the existing indebtedness is refinanced as part of the transaction. This commenter argued that the resultant facilities would provide an internal feeder source for the new assisted living units, and would be the first facilities to offer a continuum of care for the lower-income elderly. HUD's Response The Department has no statutory authority to do as the commenter suggested. The NHA provides separate requirements for elderly rental housing and residential health care facilities. A project eligible under one Section of the NHA (e.g. an elderly project under Sec. 221(d)(4)) would not necessarily qualify as an assisted living facility under section 232. Moreover, section 202 is implemented under the Housing Act of 1959 (not the NHA), and contains different statutory requirements. HUD currently has a continuum of care under the section 232 program. The delivery of care includes skilled nursing facilities (sub- acute care), intermediate care facilities (ICF/MR), board and care homes, and assisted living facilities. In addition, a day care center may be added if it is in conjunction with one of the above facilities. An assisted living facility and board and care home could be the logical place for the frail elderly who are currently residing in elderly housing that does not offer supportive services to individuals who need assistance with activities of daily living. Unfortunately, many state Medicaid payment systems do not pay for coverage that would offer continuity of care. Most section 232 board and care homes are market rate. Three Year Requirement The proposed rule states that (1) the project must not require substantial rehabilitation and (2) three years must have elapsed from the date of completion of construction or substantial rehabilitation of the project, or from the beginning of occupancy, whichever is later, to the date of application for insurance. One commenter believes that this ``three year requirement'' needs clarification since it is not uncommon for existing projects that were originally constructed several years ago to subsequently add a modest number of beds. In many such instances, the cost of adding these beds would not be a major expenditure (compared to the total project value). As currently proposed, the rule is unclear as to whether it is possible to process a section 223(f) application for a project that has added additional beds within three years of the application date. Another commenter urged the Department to modify both its section 223(f) multifamily mortgage program and this rule by replacing the requirement that eligible existing rental housing projects be at least three years old with a requirement that projects must have achieved an occupancy level that produces enough income to pay all expenses, including debt service. Such a change would end the exclusion of sound and worthwhile projects from the section 223(f) program. HUD's Response The section 207/223(f) program for purchase and refinance of existing rental projects requires that projects be completed for at least three years. This has been carried over to the Section 232/223(f) program. The three year rule in a section 223(f) refinance transaction means that the project must be in operation for at least three years after completion of construction or substantial rehabilitation prior to filing an application. For section 232 projects, this would include any additions. Definition of Frail Elderly Six commenters argued that the rule's definition of a frail elderly person as one unable to perform at least three activities of daily living is unduly restrictive. They recommended that the requirement be changed either to: (1) Reduce the daily activities from three to one, (2) rely on state licensure to provide assurance that the program will not be used to refinance other types of facility, or (3) instead of requiring that a person be ``unable to perform'' certain activities provide that the person ``may require assistance with'' certain activities. HUD's Response The definition of ``frail elderly'' is statutory. It is included in section 802(k) of NAHA. HUD does not have the authority to decrease the number of activities of daily living (ADL) for assisted living projects. Board and care homes are not limited to the frail elderly population and may be used for other types of occupants, such as developmentally disabled persons who are unable to perform one or two activities of daily living. Age and Disability Qualifications; Income Qualifications One commenter stated that assisted living facilities should be considered a need driven product, and for this reason, market feasibility should focus on the population aged 75 or older experiencing problems with one or more ADLs. The Senate Aging Committee, the Administration on Aging, and the Health Care Financing Administration all publish statistics on the percentage of elderly persons aged 75 or older that experience problems with one or more ADLs. This methodology for quantifying the number of age- and disability-qualified elderly in a particular market area may underestimate the number of qualified individuals by excluding younger persons with physical or cognitive impairments. Nevertheless, the commenter believes it is a sound method for quantifying the primary market, and would require only slight adjustments to account for usage by younger physically or mentally impaired persons. Such a method would rarely result in positive feasibility determinations for projects in excess of 100 units. The commenter also suggested that, in determining the income- eligible population for a proposed assisted living facility with a given monthly rental charge, the Department should take into account that elderly persons who are driven by need to move into such a facility are willing to spend up to 65 percent of their income for the monthly charge. The traditional affordability standard of ``30 percent of income for rent'' does not apply, as the rental charge would include shelter, meals, and additional supportive services. Also, it is quite common that family members will provide financial support for relatives in assisted living facilities. This further supports the argument that income eligibility should be established on the basis of the 65- percent-of-income-for-rent standard. HUD's Response The Department does not get involved in income eligibility nor does the program include a 30-percent-of-income-for-rent standard. From an underwriting standpoint, the processing takes into consideration the demographics, licensed facilities, level of competition, rates, physical settings, service component, occupancy, income sources, type of clientele, staffing and location. HUD market analysis considers the type of project and the services offered. In addition to the above, the Department looks at the developer's expertise in developing, operating and managing board and care homes and assisted living facilities. The experience and qualifications of the mortgagor entity will be reviewed along with the sponsor's marketing plan. It was HUD's intention that assisted living facilities would be of modest design and not appeal to the limited market as luxury retirement projects. Assisted living facilities are not designed to provide comprehensive nursing care. Medicaid Reimbursement One commenter noted that many states are developing Medicaid waiver programs to provide reimbursement for care provided to low-income elderly residing in assisted living facilities. Currently, Medicaid reimbursement is only available for persons who are Medicaid-eligible and nursing home eligible (i.e., low-income persons who have problems with three or more ADLs), who will reside in licensed assisted living facilities. The commenter believes that the Department should take steps to ensure that the Section 232 program and state Medicaid waiver programs can be combined to finance affordable assisted living facilities. In particular, the commenter believes that the Department should consider waiving market feasibility tests for projects, or portions of projects, that have been certified for participation in the state's Medicaid waiver program. HUD's Response Medicaid is a State administered program and HUD has no control over the State's reimbursement payment system. Each State budgets the amount of money to be spent on Medicaid and chooses the services that will be Medicaid eligible. In 1989, the State of Oregon chose to pay for assisted living services with Medicaid monies. Even if states adopted the Oregon plan, only a small portion of a particular project would be Medicaid certified. The resident would still have to be eligible for Medicaid based on medical need. The President's Health Security Act would retain current Medicaid nursing home benefits while making improvements in the home and community-based services for assisted living facilities. Due to high cost of nursing home care, the board and care home and assisted living facility may be less expensive and offer an alternative to nursing homes. States may request a State Medicaid waiver to use Medicaid monies for home and community-based services or implement a plan to use Medicaid monies to pay for residential care services. However, HUD still has a responsibility to ensure that insured projects are marketable and that the Department's interests are protected in the event of default. III. Other Matters A. Regulatory Flexibility Act The Secretary in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed and approved this rule, and in so doing certifies that this rule does not have a significant economic impact on a substantial number of small entities. Specifically, the rule expands eligible projects for FHA mortgage insurance to include assisted living facilities, and additions to existing projects, neither of which are expected to have a significant economic impact on a substantial number of small entities. C. Environmental Impact A Finding of No Significant Impact with respect to the environment was 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, at the time of development of the proposed rule. The Finding remains applicable to this final rule and is available for public inspection during regular business hours in the Office of General Counsel, the Rules Docket Clerk room 10276, 451 Seventh Street, SW., Washington, DC 20410. D. Executive Order 12612, Federalism The General Counsel, as the Designated Official under section 6(a) of Executive order 12612, Federalism, has determined that the policies contained in this rule will not have substantial direct effects on states or their political subdivisions, or the relationship between the Federal government and the states, or on the distribution of power and responsibilities among the various levels of government. Specifically, the rule is directed to owners of residential care facilities, and will not impinge upon the relationship between the Federal Government and State and local governments. As a result, the rule is not subject to review under the order. E. Executive Order 12606, The Family The General Counsel, as the Designated Official under Executive Order 12606, The Family, has determined that this rule does not have potential for significant impact on family formation, maintenance, and general well-being, and, thus, is not subject to review under the order. No significant change in existing HUD policies or programs will result from promulgation of this rule, as those policies and programs relate to family concerns. F. Regulatory Agenda This rule is listed as item no. 1797 in the Department's Semiannual Agenda of Regulations published on November 14, 1994, (59 FR 57632, 57655) in accordance with Executive Order 12866 and the Regulatory Flexibility Act. G. The Catalog of Federal Domestic Assistance program number is 14.129. List of Subjects in 24 CFR Part 232 Fire prevention, Health facilities, Loan programs--health, Loan programs--housing and community development, Mortgage insurance, Nursing homes, Reporting and recordkeeping requirements. Accordingly, 24 CFR Part 232 is amended as follows: 1. The authority citation for 24 CFR part 232 continues to read as follows: Authority: 12 U.S.C. 1715b, 1715w, 1715z(9); 42 U.S.C. 3535(d). 2. The heading of 24 CFR part 232 is revised to read as follows: PART 232--MORTGAGE INSURANCE FOR NURSING HOMES, INTERMEDIATE CARE FACILITIES, BOARD AND CARE HOMES, AND ASSISTED LIVING FACILITIES 3. Section 232.1 is amended by revising paragraph (j) and by adding new paragraphs (m), (n), (o), and (p) to read as follows: Sec. 232.1 Definitions. * * * * * (j) Project means a nursing home, intermediate care facility, assisted living facility or board and care home, or any combination of nursing home, intermediate care facility, assisted living facility or board and care home, approved by the Commissioner under provisions under this subpart. A project may include such additional facilities as may be authorized by the Secretary for the nonresident care of elderly individuals and others who are able to live independently but who require care during the day. * * * * * (m) Assisted Living Facility means a public facility, proprietary facility, or facility of a private nonprofit corporation that is used for the care of the frail elderly, and that: (1) Is licensed and regulated by the State or if there is no State law providing for such licensing and regulation by the State, by the municipality or other political subdivision in which the facility is located; (2) Makes available to residents supportive services to assist the residents in carrying out activities of daily living such as bathing, dressing, eating, getting in and out of bed or chairs, walking, going outdoors, using the toilet, doing laundry, preparing meals, shopping for personal items, obtaining and taking medications, managing money, using the telephone, or performing light or heavy housework, and which may make available to residents home health care services, such as nursing and therapy; (3) Provides separate dwelling units for residents, each of which may contain a full kitchen or bathroom, and includes common rooms and other facilities appropriate for the provision of supportive services to residents of the facility. (n) Elderly person means a person who is at least 62 years of age. (o) Frail elderly person means an elderly person who is unable to perform at least three activities of daily living. Activity of daily living means an activity necessary on a regular basis for personal care and includes bathing, dressing, eating, getting in and out of beds and chairs, walking, going outdoors and using the toilet. (p) Substantial rehabilitation consists of repairs, replacements and improvements: (1) The cost of which exceeds the greater of fifteen percent (15%) of the Project's value after completion of all repairs, replacements, and improvements; or (2) That involve the replacement of two or more major building components. For purposes of this definition, the term major building component includes: roof structures; ceiling, wall, or floor structures; foundations; plumbing systems; heating and air conditioning systems; and electrical systems. 4. A new Sec. 232.7 is added to the end of the undesignated center heading, ``APPLICATION AND CERTIFICATION'', in subpart A, to read as follows: Subpart A--Eligibilitiy Requirements * * * * * Application and Certification * * * * * Sec. 232.7 Additional requirements for assisted living facilities. In the case of an assisted living facility, or any such facility combined with any other home or facility, the Secretary shall not insure any mortgage under this part unless: (a) The Secretary determines that the level of financing acquired by the mortgagor and any other resources available for the facility will be sufficient to ensure that the facility contains the dwelling units and facilities for the provision of supportive services in accordance with Sec. 232.1(m); (b) The mortgagor provides assurances satisfactory to the Secretary that no dwelling unit in the facility will be occupied by more than one person without the consent of all occupant(s) of such dwelling unit; and (c) The appropriate state licensing agency for the state, municipality or other political subdivision in which the facility is or is to be located provides such assurances as the Secretary considers necessary that the facility will comply with any applicable standards and requirements for such facilities. 5. Section 232.30 is revised to read as follows: Sec. 232.30 Maximum mortgage amounts for new construction and substantial rehabilitation. The mortgage for a project involving proposed new construction or substantial rehabilitation by a profit motivated mortgagor shall involve a principal obligation not in excess of 90 percent of the Commissioner's estimate of the value of the project, including equipment to be used in the operation, when the proposed improvements are completed and the equipment is installed. The mortgage for a project involving proposed new construction or substantial rehabilitation by a private nonprofit mortgagor shall involve a principal obligation not in excess of 95 percent of such value, including equipment. 6. Section 232.32 is amended by revising the section heading, the introductory paragraph, and paragraphs (b) and (c) to read as follows: Sec. 232.32 Adjusted mortgage amount--substantial rehabilitation projects. In addition to the limitations of Sec. 232.30, a mortgage having a principal amount computed in compliance with the applicable provisions of this subpart, and which involves a project to be substantially rehabilitated, shall be subject to the following additional limitations: * * * * * (b) Property subject to existing mortgage. If the mortgagor owns the project subject to an outstanding indebtedness, which is to be refinanced with part of the insured mortgage, the maximum mortgage amount shall not exceed: (1) The Commissioner's estimate of the cost of the repair or rehabilitation; plus (2) Such portion of the outstanding indebtedness as does not exceed 90 percent (95 percent for a private nonprofit mortgagor) of the Commissioner's estimate of the fair market value of such land and improvements prior to the repair or rehabilitation; or (c) Property to be acquired. If the project is to be acquired by the mortgagor and the purchase price is to be financed with a part of the insured mortgage, the maximum mortgage amount shall not exceed 90 percent (95 percent for a private nonprofit mortgagor) of: (1) The Commissioner's estimate of the cost of the repair or rehabilitation; and (2) the actual purchase price of the land and improvements, but not in excess of the Commissioner's estimate of the fair market value of such land and improvements prior to the repair or rehabilitation. 7. In Sec. 232.39, a new paragraph (c) is added to read as follows: Sec. 232.39 Construction standards. * * * * * (c)(1) An assisted living facility shall be one or more free- standing structures (architecturally independent of any other structure), an entity of an existing structure such as a board and care home, or connected to a main building or identifiable separate portions of one or more free-standing structures containing not fewer than five residential efficiency, one-bedroom or two-bedroom units. Residential unit means a separate apartment or unit for one or more persons. (2) An assisted living unit may contain a full bathroom and may contain a kitchenette or a full kitchen depending on the design and market. A kitchen is not required in each unit; however, the facility must have areas for a central kitchen (adequate space, site and building layout) and group dining facilities. The assisted living facility or designated portion of the structure shall not contain any nursing home or intermediate care beds, but may contain board and care beds. In addition, assisted living facilities must meet State and local licensing requirements, governmental building codes, and other occupancy standards. 8. A new Sec. 232.42a is added to subpart A to read as follows: Sec. 232.42a Additions to existing projects. A mortgage which covers an addition to an existing project is eligible for insurance under this part, provided that, if there is a mortgage on the existing project, such mortgage must be refinanced under this part. The mortgage amount for an addition in all cases shall be determined under Sec. 232.30. If the existing project requires substantial rehabilitation then the mortgage amount for refinancing the existing facility shall be determined under Secs. 232.30 and 232.32. If the existing project does not require substantial rehabilitation then the mortgage amount for refinancing the existing facility shall be determined under Sec. 232.903. The resulting determination for the mortgage on the addition and the resulting determination for the refinanced mortgage on the existing project must be blended and both the addition and the existing project must be subject to the same mortgage. 9. Section 232.89 is revised to read as follows: Sec. 232.89 Reduction in mortgage amount. If the principal obligation of the mortgage exceeds 90 percent (95 percent for a private nonprofit mortgagor) of the total amount as shown by the certificate of actual cost plus the value of the land (the cost shown by the certificate of actual cost in rehabilitation cases), the mortgage shall be reduced by the amount of such excess prior to final endorsement for insurance. 10. Section 232.90 is amended by revising the section heading, the introductory paragraph, and paragraphs (b) and (c) to read as follows: Sec. 232.90 Substantial rehabilitation projects. In the event the mortgage is to finance substantial rehabilitation, the mortgagor's actual cost of the substantial rehabilitation may include the items of expense permitted by new construction in accordance with this part and the applicable cost certification procedure described therein will be required; provided such mortgage shall be subject to the following limitations: * * * * * (b) Property subject to existing mortgage. If the insured mortgage is to include the cost of refinancing an existing mortgage acceptable to the Commissioner, the amount of the existing mortgage or 90 percent (95 percent for a private nonprofit mortgagor) of the Commissioner's estimate of the fair market value of the land and existing improvements prior to the repair or rehabilitation, whichever is the lesser, shall be added to the actual cost of the repair or rehabilitation. If the principal obligation of the insured mortgage exceeds the total amount thus obtained, the mortgage shall be reduced by the amount of such excess, prior to final endorsement for insurance. (c) Property to be acquired. If the mortgage is to include the cost of land and improvements, and the purchase price thereof is to be financed with part of the mortgage proceeds, the purchase price or the Commissioner's estimate of the fair market value of land and existing improvements prior to repair or rehabilitation, whichever is the lesser, shall be added to the actual cost of the repair or rehabilitation. If the principal obligation of the insured mortgage exceeds the applicable 90 percent (95 percent for a private nonprofit mortgagor) of the total amount thus obtained, the mortgage shall be reduced by the amount of such excess prior to final endorsement for insurance. 11. Section 232.500 is amended by revising the introductory text of paragraph (c)(1), and paragraph (d), to read as follows: Sec. 232.500 Definitions. * * * * * (c)(1) Fire safety equipment means equipment that is purchased, installed, and maintained in a nursing home, intermediate care facility, assisted living facility, or board and care home and that meets the following standards for the applicable occupancy: * * * * * (d) Fire safety loan means any form of secured or unsecured obligation determined by the Commissioner to be eligible for insurance under this subpart and, in the case of an assisted living facility or a board and care home, made with respect to such a home located in a State which the Secretary has determined is in compliance with the provisions of section 1616(e) of the Social Security Act. * * * * * 12. Section 232.505 is amended by revising paragraph (b) to read as follows: Sec. 232.505 Application and application fee. * * * * * (b) Filing of application. An application for insurance of a fire safety loan for a nursing home, intermediate care facility, assisted living facility or board and care home shall be submitted on an approved HUD form by an approved lender and by the owners of the project to the local HUD office. * * * * * 13. Section 232.615 is amended by revising paragraph (b) to read as follows: Sec. 232.615 Eligible borrowers. * * * * * (b) Also eligible as a borrower shall be a profit or nonprofit entity which owns an assisted living facility or board and care home for which HUD has determined that the installation of fire safety equipment is approvable under the definition contained in Sec. 232.500(c). 14. Section 232.901 is revised to read as follows: Sec. 232.901 Mortgages covering existing projects are eligible for insurance. A mortgage executed in connection with the purchase or refinancing of an existing project without substantial rehabilitation may be insured under this subpart pursuant to section 223(f) of the Act. A mortgage insured pursuant to this subpart shall meet all other requirements of this part except as expressly modified by this subpart. 15. Section 232.902 is revised to read as follows: Sec. 232.902 Eligible project. Existing projects (with such repairs and improvements as are determined by the Commissioner to be necessary) are eligible for insurance under this subpart. The project must not require substantial rehabilitation and three years must have elapsed from the date of completion of construction or substantial rehabilitation of the project, or from the beginning of occupancy, whichever is later, to the date of application for insurance. In addition, the project must have attained sustaining occupancy (occupancy that produces income sufficient to pay operating expenses, annual debt service and reserve fund for replacement requirements) as determined by the Commissioner, before endorsement of the project for insurance; alternatively, the mortgagor must provide an operating deficit fund at the time of endorsement for insurance, in an amount, and under an agreement, approved by the Commissioner. 16. Section 232.903 is amended by revising the first sentence in the introductory text of paragraph (a), the first sentence in paragraph (b), and the first sentence in the introductory text of paragraph (d) to read as follows: Sec. 232.903 Maximum mortgage limitations. * * * * * (a) Value limit. The mortgage shall involve a principal obligation of not in excess of eighty-five percent (85%) for a profit motivated mortgagor (ninety percent (90%) for a private nonprofit mortgagor) of the Commissioner's estimate of the value of the project, including major movable equipment to be used in its operation and any repairs and improvements. * * * * * * * * (b) Debt service limit. The insured mortgage shall involve a principal obligation not in excess of the amount that could be amortized by eighty-five percent (85%) for a profit motivated mortgagor (ninety percent (90%) for a private nonprofit mortgagor) of the net projected project income available for payment of debt service. * * * * * * * * (d) Project to be acquired--additional limit. In addition to meeting the requirements of paragraphs (a) and (b) of this section, if the project is to be acquired by the mortgagor and the purchase price is to be financed with the insured mortgage, the maximum amount must not exceed eighty-five percent (85%) for a profit motivated mortgagor (ninety percent (90%) for a private nonprofit mortgagor) of the cost of acquisition as determined by the Commissioner. * * * * * Dated: November 21, 1994. Nicolas P. Retsinas, Assistant Secretary for Housing-Federal Housing Commissioner. [FR Doc. 94-29362 Filed 11-28-94; 8:45 am] BILLING CODE 4210-27-P