How to Analyze FHA-Insured Mortgage Hospital Bonds
Sylvan G. Feldstein, Ph.D. Director, Investment Department Guardian Life Insurance Company of America
Administered jointly with its partner, the Department of Health and Human Services, the Department of Housing and Urban Development’s Federal Housing Administration (FHA) hospital mortgage insurance program was enacted in 1968 under Section 242 of the National Housing Act and permits FHA to insure (FHA insurance) mortgages used to finance the construction, rehabilitation or replacement of hospitals. As of May 2007, the Section 242 program has allowed FHA to insure more than 350 mortgages, many of which were funded from the proceeds of tax-exempt revenue bonds (Bonds). As a result of the FHA mortgage loan insurance, Bond financings of this type have received the benefits of AA/AAA investment ratings. The New York Presbyterian Hospital, Montefiore Medical Center, the University of New Mexico, and the Medical University Hospital Authority of the Medical University of South Carolina are examples.
The Section 242 insurance program has experienced only a modest number of defaults and insurance claims since 1968, and as of May 2007, only two in the past 12 years. This chapter describes the security features provided by this program and outlines the questions the analyst should consider when determining the creditworthiness of tax-exempt revenue bonds when collateralized by FHA-insured mortgages. It should be noted that ...