Did HUD bail out HOA’s by bringing back Single Unit Approval?

I’ve looked at and spoken with over ten thousand condominium associations the last eight years regarding FHA approval.  In 2010, when HUD got rid of spot approval(aka Single Unit Approval) and made Approval a requirement, me and the few competitors I have collectively thought  that good times had arrived.  We certainly figured that many associations would seek and get the approval and our small industry was about to get big.

This is not what happened.  Even though approval was now a requirement, less condo associations sought the approval.   This would defy logic:  The government requires it and less of it happens?  Do less of you wear your seat belt now that it is a requirement?

Over the years, I heard the following reasons out of the mouths of board members explaining why they did not want FHA approval:

  • We don’t want any of those FHA people=illegal and violates dozens of housing laws.
  • If we get FHA approval, we will have section 8=completely untrue.
  • FHA borrowers are more likely to not pay their assessment=absurd, baseless and violates many housing laws.
  • FHA approval brings down property values=yeah, more demand lowers the value of something.
  • FHA buyers only put 3% down=the minimum down is 3.5% but the national down payment is 6%.(sidebar:  Fannie and Freddie has 3% down payment condo loans but you never hear about HOA’s wanting to keep them out).

I’ve heard these and more baseless statements made unfortunately by board members, who were tasked with making the most important decisions about the association. It was the falling number of approved condos that promoted the powers that be to pass the law to bring back the program that eliminated the necessity of approval. It is a certainty that Single Unit Approval will result in a large increase in FHA lending in condominium.

I have been asked innumerable times for my opinion as to why so few HOA’s seek the approval.  The reason so few condos sought the approval is that by and large, since 2010, the condominium market nationwide has been robust.  There were enough cash and conventional buyers that no one had to pay attention to the 30% demand that are FHA buyers.  Now this is changing…

The Case Schiller affordability index is at its historic low, high end markets such as Aspen, Manhattan, South Beach Florida are seeing sales crater 50%, rates are rising and are expected to keep rising, Gary Keller of Keller Williams stated he sees a market correction in 2017, and there are more open house signs lining street corners than at any time in recent memory.

This market and paradigm shift is going to cause sellers have to now value and market to ALL buyers if they don’t want the property to sit.  They are going to finally realize this economic law:

If demand goes up, and supply stays the same, PRICE rises.

So now, in a slowing market, all buyers matter.  And now with the implementation of Single Unit Approval, the clueless and discriminating board members will no longer be able to harm the values of their neighbors by refusing and frustrating the process of approval previously required.  Those owners and FHA buyers own HUD and their elected officials and big wet kiss!

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