What is the 242 mortgage insurance program?

Hospitals seeking credit can now make use of the federal government’s mortgage insurance program. This can be of immense help to the hospitals during this ongoing credit crunch. The FHA or Federal Housing Administration hospital mortgage insurance program is expected to insure as many as 366 mortgages amounting to USD$14.3 billion. This is 40 year old mortgage insurance program that the administration is trying to breathe life into to help the health care sector in the country.

How does it help hospitals?

• The program is also known as FHA Section 242 program. The mortgage insurance program allows borrowers to issue bond up to an equivalent of “AAA” or “AA” rating.

• Lower rates of interest are also another benefit that can be availed by the borrowers.

• In addition to a lower cost of borrowing, a repayment period of 25 years is an added advantage. This enables hospitals to address their debt problems better.

• If a particular hospital is planning to launch a new project, refinancing is an option that can also be availed provided 20% of the proceeds are used for the new project.

• The amount of debt that is insured under the Section 242 program has no limits.

• Hospitals get an opportunity to borrow 90% of the cash required for any project.

When does a hospital qualify for FHA’s hospital mortgage insurance program?

An average of 5 hospitals has been insured every year during the period 1995 to 2006. In order to avail FHA Section 242 Program, hospitals must satisfy the following criteria –

• The hospital should have a positive operating margin on an average

• The hospital should be deriving less than 50% of the revenues by treating patients with acute mental deficiency, alcohol and drug abuse, chronic convalescence, tuberculosis, mental deficiency, nervous deficiency, epilepsy etc.

• The debt-service coverage ratio for the last 3 years should exceed or be equal to 1.25

The 242 mortgage insurance program can be of great help and hospitals should avail the benefits when fresh credit has almost dried up and is uncertain in the financial markets under prevailing circumstances.