The recent turmoil in the bond insurance markets has reinforced the importance of the Federal Housing Assistance (FHA) mortgage insurance program in New York. Many tax-exempt hospitals across the country, including a limited number in New York, that sell their long-term debt in frequent auctions—known as "auction rate securities"—have experienced either dramatically increased interest rates or failed auctions in the past month. Many of those securities are backed by private bond insurance, and the recent exposure of bond insurance companies to sub-prime mortgages has left many buyers unwilling to purchase securities insured by these companies unless they are sold at very high interest rates. Hospitals with FHA insurance have limits on additional debt that have prevented them from participating in auction rate securities and, thus, have been protected from the recent turmoil.
     
The FHA, an agency within in the U.S. Department of Housing and Urban Development, provides essential mortgage insurance to assist hospitals and nursing homes with their capital development projects, especially in underserved communities. New York hospitals in particular have been reliant on the FHA program because the NYS Public Authority Control Board requires any health care project being issued through a NYS authority to obtain credit enhancement whenever the facility has a credit rating below "A" according to Moody's Investor Service and Standard and Poor's Corporation rating systems. While many facility issuers are investment-grade credits, they are required to obtain some form of credit enhancement, which results in lower interest rates and, thus, lower capital costs to participating institutions. 
     
For decades, the FHA's health care portfolio largely comprised New York institutions, although the agency has achieved its goal of expanding its business considerably to hospitals in other areas of the country in recent years. In fact, FHA has now insured more than 320 hospital mortgages in 42 states and Puerto Rico since its inception, with close to $1 billion in deals nationally in fiscal year 2006 alone. Notably, FHA officials have repeated reassurances to GNYHA that they continue to be interested in receiving new loan applications from New York–based institutions.