What to Know About New Fannie and Freddie Radon Guidelines

Buyers purchasing or financing multifamily properties with Freddie Mac and Fannie Mae loan programs will soon face new radon testing requirements. The new requirements, which are set to impact loan applications received after June 30, are designed to ensure that hazardous radon levels in multifamily properties are detected more accurately.

Understanding these changes will be important to those looking to pursue agency financing. But it’s not without nuance, says Adam Bower, project manager at EBI Consulting, and it’s important to take these into consideration when looking at the impact of the new rules, and for having safer buildings.

The significant changes to understand

First, the biggest rule change: for agency loan applications received after June 30, 25% of ground contact units require testing for radon, up from 10%. And while this does represent a significant increase, Bower notes that exceptions exist, such as properties with no ground-contact residential units.

“A property with a parking garage on the first floor, for example, would be an exception because you’re meeting that ‘no residential units on ground floor’ condition,” says Bower.

Bower also notes there are different testing requirements depending on what state you are in.  Many states have specific radon testing requirements that would need to be followed.  For example, a state with regulations may require that 100% of ground contact units be tested, which would need to be done regardless of Freddie’s and Fannie’s new rules.  If none of the testing exceptions are applicable (such as no residential units on the ground floor), testing is required; and in select regulated states, this means that testing will need to include 100% of ground contact units.

Potential impacts of the changes

According to Bower, the increased cost will have the most significant impact on property ownership / borrowers. “When we’re testing 25% versus 10% of ground-contact floor units, a price difference exists,” says Bower. “But it also requires owners to access more tenant space, which can sometimes be challenging.”

Despite the increased expense, more stringent testing requirements could move property owners closer to identifying the true presence of radon, according to a recent study published in the Journal of Public Health Management & Practice.

“There was a three-year study that looked at radon levels in multifamily housing to determine if the testing performed at a site was sufficient to identify elevated radon levels,” says Bower. “It found a 58% chance of missing elevated radon when only 10% of ground-contact units were tested and a 38% chance of missing elevated radon when testing 25% of ground-contact units.”

The evolution of future guidelines is unknown, but Bower believes it’s likely to move toward more testing, not less. He recommends working with an expert such as EBI Consulting who will be familiar with the regulatory review process and can help owners stay compliant with existing and future changes.

“We’ve completed hundreds if not thousands of Fannie and Freddie projects,” says Bower. “We are positioned to handle radon testing all over the country and assist with all environmental services needed to meet current agency regulations.”

Note: The information in this piece reflects current guidelines from Fannie Mae and Freddie Mac. However, FHFA clarifications are expected in the near future.

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