FHFA to increase multi-family radon sampling requirements
The Federal Housing Finance Authority (FHFA) is considering increasing the radon sampling requirements for multi-family loans from Fannie Mae and Freddie Mac in accordance with the EPA’s voluntary consensus standards for radon testing and mitigation. On July 20, the FHFA hosted a listening meeting to receive feedback and feedback on issues related to multi-family testing and mitigation to inform the FHFA and business decision-making. Participants in the meeting included representatives from the medical field; health advocacy groups such as the American Lung Association and Cancer Survivors Against Radon; government agencies such as HUD, CDC and EPA; radon laboratories, various lenders and consultants; and representatives from multi-family housing organizations such as the Mortgage Bankers Association (MBA) and the National Multifamily Housing Council (NMHC). As the primary provider of due diligence services for Fannie Mae and Freddie Mac lenders, Partner Engineering and Science was in attendance, represented by Director of Strategy Bill Tryon. Tryon made a statement regarding the impact of the proposed changes on the multi-family due diligence process based on the partner’s experience and understanding of the costs and timing associated with testing and mitigation to recommended standards. by the EPA.
Radon test in multi-family properties
Radon is a radioactive gas naturally present in soil and water. Radon is invisible, odorless and tasteless. The only way to test for radon is to test. Long-term exposure to radon can have harmful effects on health. The risk and / or severity with which a person may be affected includes lifestyle factors, for example whether you are a smoker or a former smoker. The EPA estimates that radon exposure in the home is responsible for more than 20,000 lung cancer deaths each year.
Due to the health impacts associated with radon exposure, owners of multi-family properties as well as lenders perform tests to characterize the potential risk. Although the EPA recommends testing, most requirements for radon and professional radon monitoring are regulated at the state level. Additionally, state radon requirements vary and in some states only include single-family homes. Testing and mitigation of multi-family properties is often done to comply with lender policy or federally sponsored funding program guidelines during screening, such as properties funded by HUD loans.
What are the proposed improvements to the radon policy?
The FHFA led the improvement of radon policies for Freddie Mac and Fannie Mae by adopting the EPA-recommended voluntary consensus of ANSI / AARST standards. This includes testing 100% of ground contact areas as well as 10% of upper floors and also includes the use of a qualified radon professional. A radon professional qualified as per the ANSI / AARST definition has established national certification and license to practice or state certification, where applicable. In addition, the professional must be present during all on-site activities for the placement and recovery of radon detectors.
Currently, a radon assessment is not required for Fannie Mae loans. Testing is recommended for sites located in areas known to have higher occurrences of elevated radon levels, but the scope of sampling can be determined by a qualified environmental professional. For Freddie Mac loans, current standards require radon testing in 10% of ground floor units with a minimum of one unit per building.
How would the proposed radon policy improvements impact the lending process?
Increased sampling requirements will increase due diligence costs as well as lead times. In order to avoid industry-wide delays with inspections and reports, which can lead to loan closing delays, the FHFA needs to determine the best implementation process. This should include a clear timeline in which the policy will go into effect. To meet the growing demand for testing, environmental professionals will need time to obtain the training and licensure / certification required to become qualified radon professionals. In addition, mitigation recommendations are typically completed within 12 months of agency loan closing; however, an increased demand for qualified mitigation professionals may increase the time required to complete these installations, in addition to the time required for training and qualifications.
In December 2020, HUD adopted ANSI / AARST testing and mitigation standards in its Multifamily Accelerated Processing (MAP) guide. According to a March 31, 2021 letter to the FHFA from a coalition of multi-family stakeholder associations including MBA, NMHC and others, “This new revised sampling protocol revealed shortages in the ranks of trained radon professionals. run the test. This added additional time and cost to testing, as workers had to travel across the country to perform inspections. The increase in the number of properties that might be required to adopt this new protocol will undoubtedly exacerbate existing capacity issues. “
Rising costs and time to close loans from Fannie Mae and Freddie Mac could prompt borrowers to seek other financing opportunities.
What happens next?
We expect that the FHFA will indeed increase the sampling requirements; the question is what increase they will implement. Minimizing tenant exposure to radon is a priority, but opinions differ as to how much testing is considered reasonable risk tolerance based on current research and available data. The FHFA should consider the potential reduction in exposure versus the potential impact of increased sampling requirements across the lending spectrum, including borrowers, lenders, investors, syndicates and, of course, the tenants. The potential impact and risk tolerance vary for each of these stakeholders, adding complexity to the challenge of determining the appropriate test levels. The FHFA should also determine the best implementation process, whether the changes will take effect immediately or gradually, and whether to provide flexibility to allow sampling after loan closure. The FHFA analysis of the listening session transcript must take place until the end of the year. Therefore, we expect the FHFA to announce its findings and decision in the first or second quarter of 2022.
A video and transcript of the FHFA listening session on radon is available here.