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What are the Proposed Radon Policy Improvements?
The FHFA directed the improvement of radon policies for Freddie Mac and Fannie Mae through the adoption of 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 using a qualified Radon Professional. A qualified radon professional per the ANSI/AARST definition has established a national certification and state licensure or certification when applicable. Additionally, the professional must be present during all onsite activities for placement and retrieval 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 sampling scope may 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 Loan Process?
Increased sampling requirements will increase due diligence costs as well as turnaround time. In order to avoid industry-wide delay with inspections and reporting, which can cause loan closing delays, the FHFA must determine the best implementation process. This should include a clear timeline in which the policy will take effect. To fulfill the increased demand for testing, environmental professionals will need time to obtain training and required licensure/certification to become qualified radon professionals. Furthermore, mitigation recommendations are typically completed within 12 months of closing for agency loans; however, an increase in demand for qualified mitigation professionals may increase the required time to complete these installations, in addition to the time needed for training and credentials.
In December 2020, HUD adopted the ANSI/AARST testing and mitigation standards within their Multifamily Accelerated Processing (MAP) Guidance. According to a March 31, 2021 letter to the FHFA from a coalition of multifamily stakeholder associations including MBA, NMHC and others, “This new revised sampling protocol has exposed shortages in the ranks of trained radon professionals to execute the test. This has added additional time and costs to tests as workers have had to travel across the country to carry out inspections. Expanding the number of properties that may be required to adopt this new protocol will, undoubtedly, exacerbate existing capacity issues.”
Increased costs and closing times on Fannie Mae and Freddie Mac loans could drive borrowers to pursue other financing opportunities.
What Happens Next?
We expect that the FHFA will indeed increase sampling requirements; the question is how much of an 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. FHFA must consider the potential reduction in exposure against the potential impact of increased sampling requirements across the lending spectrum, including borrowers, lenders, investors, syndicators, and, of course, tenants. The potential impact and risk tolerance varies for each of these stakeholders, adding complexity to the challenge of determining appropriate test levels. FHFA must also determine the best implementation process, whether changes will take effect immediately or gradually, and whether to provide any flexibility to allow for sampling after the loan closes. FHFA analysis of the listening session transcript is to occur through the end of the year. Therefore, we expect FHFA to announce their 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.
Drew H. McCreery
Drew H. McCreery serves as Technical Director of Agency Services at Partner Engineering and Science, Inc., where he is responsible for the overall quality and consistency of Property Condition and Environmental reports associated with the Agency Lenders including Fannie Mae and Freddie Mac. Drew has over 20 years of experience providing project, engineering, and architectural consulting services focused on due diligence and construction management for clients around the country. He is a member of the American Institute of Architects and has a Bachelor of Architecture from California State Polytechnic University of Pomona. Drew frequently shares his deep knowledge of the policy, regulatory, and quality requirements as they pertain to the agency lending landscape through blogs, articles, and speaking engagements. He holds a BA in architecture from California State Polytechnic University of Pomona and pursued Architectural Studies at the National Technical University of Athens, Greece.
https://www.globest.com/2021/08/23/fhfa-to-increase-multifamily-radon-sampling-requirements/?slreturn=20210728173335
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