Tag Archives: FHA Single Unit Approval

Why is HUD taking so long to release FHA Single Unit Approval program?

Speed and efficiency have never been the hallmark of the Federal Government, so it should come as no surprise that HUD has yet to release the new condominium rules that would help forty thousand buyers and owners in its first year, many of whom are seniors in need of reverse mortgage liquidity.

In the spring of 2016, a bill entitled HR 3700 sailed through the House and Senate, and was signed into law in early summer by former President Obama. HR 3700 was primarily a housing bill, which included a provision to streamline the condominium lending rules and to bring back “Spot Approval”. Spot approval was an FHA condominium-lending program, which allowed FHA financing in a particular project that was not approved by HUD. This provision was included in the bill to increase the amount of FHA lending in condominium projects, which has dwindled since the program was shelved in 2010.

The approved legislation wound its way through the Office of Management and Budget, and was subsequently placed into the federal registry for public comment on the proposed rule change in September 2016. Since this development, absolutely nothing else has been accomplished. Crickets.

Spot approval, now renamed Single Unit Approval under the proposed rule change, would immediately help sellers who currently suffer from FOMO (Fear Of Missing Offers). The cost and time consumption that full project approval requires is a deal killer, plain and simple, and HUD knows this. Single Unit Approval would allow the lender to fund the loan without obtaining full project approval, subject to some minor limitations. It would also eliminate the need to convince the board to vote on the approval of the association since no actual approval would occur under this rule. This would allow FHA buyers to purchase in virtually all condominiums, instead of just the 8% that are currently HUD approved. What makes the delay all the more head scratching is that Spot Approval was a robust lending program from 1996 until 2010. This is not a new program that HUD is developing, but the re-release of an old one.

In May 2017, at the NAR midyear, HUD Secretary Ben Carson was asked about Single Unit Approval and he said “I can assure you that this rule has a very high priority and we’re excited to implement it”. Later in November, he stated that HUD was on the “backstretch of releasing the new condominium rules”. Here we are seven months later and still nothing. Seriously? We know Ben was busy picking out over-priced office furniture, but enough is enough. He must’ve been talking about the backstretch of the Pan American Highway.

The prime home buying season is approaching and rates are increasing. HUD needs to release the program its Secretary has been promising for over a year, and help the large pool of budget buyers and owners to eagerly take advantage of the many benefits of an FHA mortgage. The American Dream can be a reality for many more with this program reintroduction, and many Baby Boomers can get the income they need via Reverse Mortgage while more Millennials finally get the chance to be property owners. Do your job, HUD. The American public is waiting

What changes to the new FHA condo rule that establishes Single Unit Approval are we sure of?

For the past several years, NAR, MBA, NRMLA, and every minority home buying organization in the country, has been hammering away at HUD to bring back the FHA condominium loan program called “Spot Approval”. Spot Approval allowed FHA mortgages, for purchase or refinance, forward or reverse, in associations that were not certified and approved by HUD. Currently, a condominium must be approved and placed on the FHA roster for FHA mortgages to fund within them.

Not having to go through the consumptive time and cost of submitting the approval to HUD, and not having to work through the HOA board and property manager, makes condominium lending easier and therefore makes FHA purchases and refinances easier. The problem was HUD didn’t want to budge from their condominium lending requirements so the above mentioned entities brought the political pressure to bear in the form of sponsorship and passage of HR 3700. HR 3700 is a housing bill that includes changes to current HUD requirements and introduces condominium lending in associations that are not approved. Renamed “Single Unit Approval”, these changes will enable lenders to fund loans in unapproved associations once again. This is a big deal. It is estimated that over 100,000 condominium mortgages will fund under this new program in the first year. They don’t pass federal laws over my favorite color.

The program will begin with the same requirements as those for traditional HRAP/DELRAP FHA approval. Now while HUD has not published the lender requirements or the final rules, we do know several small differences will exist:

  1. Only condominiums with 5+ units are eligible for this program.
  2. Manufactured housing developments will not be eligible for this program.
  3. Only units in completed developments will qualify. This also includes units in phased developments where all declared phases are 100% complete.
  4. There is an established maximum possible units within any development that will be allowed to use this program. The range is set from 0-20%. Previously, Spot Approval was limited to 10%.
  5. Condominiums with adverse conditions are not eligible for this program (HUD has not specified what these conditions would be but could included previously rejected or withdrawn association, construction defect, environmental hazard, or fraudulent submission.
  6. Condominiums that are currently FHA approved are not eligible for the Single Unit Approval program.

Currently, only 9965 condominium associations are approved in the United States and its territories. There are estimated to be 170,000 condominium associations in the US. This is why the powers that be wanted the return of Spot Approval because the number of approved condominiums have dwindled from 24,000 to just 9965 today. Consequently, the number of FHA mortgages insured in condominiums has fallen to 32,000 in 2015 from over 100,000 in 2009.

Under Spot Approval then, and Single Unit Approval now, the condominium has to be eligible. Obviously, HUD would not change guidelines to make it easier to obtain FHA mortgages when they won’t be reviewing the condominium and its governing and financial documents before hand. FHA is an insurance fund and as such, is most concerned about risk to it.

And they should. Condominium associations are diabolical, complex organisms that have to abide by both federal and state condominium law, and frequently don’t. Run by volunteer boards, they do what they want, not what they should. Much like the government, they love to kick the financial can down the street because there is no one there to prevent it.

But this program is going to be a boon to FHA lenders, borrowers, buyer and sellers. Many seniors will be able to obtain a reverse mortgage under the new guidelines because it enables them to bypass the HOA board and property manager, who are the enemies of approval. I can’t tell you the number of seniors I’ve spoken with over the years who needed a reverse for medical treatment who were unable simply because the board didn’t want any of “those people”. Those people being FHA buyers. Nauseating.

HUD has not released the final rule and lender requirements for public comment, but are expected to in the next couple of months. Apparently they are busy with the recent MI reduction and Ben Carson’s installation. Many reverse lenders already are marketing to condominium associations in anticipation of the new rule change. So lenders and agents, prepare yourselves. A new untapped market is about to emerge with 16 million more units soon to be FHA eligible.

Seniors are getting much needed relief with the introduction of Single Unit Approval

It has been a tough past seven years since the requirement that a condominium must get HUD approval was implemented.  No one was affected more so than senior citizens seeking a reverse Mortgage.  There are less than ten thousand associations in which seniors can obtain a reverse mortgage out of a whopping 170,000 HOA’s nationwide.

Single Unit Approval is going to be a huge boost to seniors seeking to obtain this very important retirement tool.  No longer will they have to wait for the board to meet (sometimes taking months) and give their blessing for FHA approval.  No longer will they have to deal with a passive or indifferent property manager who is too busy to help them.  Additionally, no longer will they have to shell out the $1,000 it costs to process and submit a HUD application!

I have spoken to hundreds of seniors over the past seven years regarding their need for both a reverse mortgage and the approval of their condominium, and their stories are heartbreaking.  Many had to sell their home and move because of their inability to make HUD approval happen, leaving them no other option to reasonably tap into their equity to obtain necessary cash flow.  With needs like hip replacements, cancer treatment, and money for their grandkids’ college fund, these seniors battled against laziness, various biases, and ineptitude, while also losing valuable time.  When they sold those properties, and purchased again with a reverse mortgage, 10% of their hard earned equity was wiped out.

Thirty-one percent of the persons living in a condominium are 62 or older, which indicates that a high concentration of seniors will benefit from Single Unit Approval.  This is why the reverse mortgage industry was behind HR 3700, the federal law that mandates Single Unit Approval.

HUD has done a nice job balancing their need to protect the insurance fund with the needs of seniors to estate plan with the new condo rule.  It also just might lead condominium associations to conduct themselves with more fiscal and operational savvy, so as to enable more seniors to avail themselves of one of the greatest retirement tools ever.

FHA condo buyers now are really going to get the chance to buy their dream home.

Imagine as a single family home purchaser, your agent says that they are going to show you homes in your price range this coming weekend.  You get all excited, go on Zillow, preview the dozens of places sure to be in your price range, imagining the joy of picking out new furniture and moving in.

The weekend arrives as does your agent, and off you go, looking at a few places, but you’re not really excited about any.  But you know there are dozens more to look at so you don’t despair.  That is until your agent drives you back home instead of to the next townhouse you know is on the market.  Welcome to the world of the FHA condo buyer.

Since only 6% of condominium associations are FHA approved, the FHA condo buyer can only look at and buy in 6% of the units listed for sale.  In many areas, the percentage is even smaller.
This sobering fact is why there is a silent wave of FHA condo buyers just waiting for the chance to look at all the properties on the market before making a decision on which to buy.

With the implementation of Single Unit Approval, FHA condo buyers will no longer be restricted to purchasing units in associations that are FHA approved. This landmark federal legislation opens up lending in communities that no longer have to go through the time-consuming and laborious process that is FHA approval, in most cases.

Whether the industry knows it or not, this new program is going to swell the number of purchases by buyers using FHA-insured mortgages by record numbers.  Every seller of a condominium should rejoice at the added value this demand increase will confer.  Real estate agents should be popping the champagne to celebrate that their FHA condo buyer actually is going to have, you know, many more choices!

Single Unit Approval might not seem like a small adjustment to current guidelines, but its effects are sure to be anything but small, on the number of FHA mortgages insured for purchase inside condominium associations.

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!