What is it that HUD wants to know?
As climate change becomes a larger concern, HUD wants to understand how a borrower will address specific climate change events at their property. This applies to new construction or sub-rehab projects. HUD is looking for an evaluation of the climate change impact including the level of risk and degree of uncertainty and then the mitigants to be put in place to address those events. They want an analysis of both current and future risk.
Do you have an example of how this will work?
One example would be the current impact a property might face from heat wave. A developer or architect may suggest mitigating that climate risk by installing high-performing HVAC units, and dual-paned windows. They may include building orientation or additional shade structures to provide more shade during the summer months. The lender will include these mitigating factors when addressing the Very High or Relatively High climate risks identified for the property location. When addressing this item as a future risk, the lender will cite the ongoing maintenance required for the building elements involved in mitigating the risks.
Where does this climate risk information exist?
FEMA’s National Risk Index (NRI) is a great resource for determining current climate risk. It is an interactive map tool that shows the likelihood of almost 20 various climate change risk categories for each county down to the census tract. There are other sites like globalchange.gov which help identify future risks.
Can the lender and borrower use a city or county climate action plan for its mitigants?
Definitely. Mitigants from a city or county’s plan can and should be cited, however that is not enough. HUD wants the mitigants to be at the property level. If a property is in a state with a high risk of a heat wave, then the mitigant will need to be addressed in the underwriting for the specific property, and not simply what the municipality plans to do like opening cooling centers.
Is this set in stone?
Not quite. There are still many moving pieces. It is important for the MBA and the FHA lenders to have a seat at the table to work with HUD to create a smooth flowing approval process that meets HUD’s needs as well as those of the real estate community. BWE will keep advocating and we will update borrowers as we learn more.
For more information, please reach out to Kim at firstname.lastname@example.org.