"If it's an acquisition, buyers are having those mold studies done," said Steve Shumake, vice president at L.J. Melody & Co., Houston, Texas. "Lenders are not necessarily requiring them unless the property condition report [PCR] indicates visible signs of mold. At that point, it's a trigger to order a third-party mold study."  

The Mold Report testing tools from American Home Laboratories, Inc, have mold detection kits ranging from $25 to $400 for consumers. Meanwhile, a third-party certified mold inspector could cost anywhere from $2,000 to $3,500 for an inspection report.

One commercial real estate underwriter mentioned an application for a 100,000 square-foot building in which a borrower reported finding mold. The structural report could cost around $3,500, but a mold search could add on another $1,000 to the borrower bringing the total to $4,500 that the borrower would need to pay until he or she can receive the loan proceeds.

"They have mold throughout the building so they'll have to remediate the mold," the underwriter said. "To have it done right, they need to have chemical suits on to do it. It's expensive."

Although lenders want to remediate the mold, there is no ongoing plan to keep the mold away--yet. But Shumake said that even though mold detection tools used by property owners do not make any difference in underwriting at this time, they could be a factor in the future.

"If we keep having all these mold claims and all this litigation, it could be a factor," Shumake said. "But right now, lenders are not really focused on that."

Industry analysts say that mortgage lenders are primarily concerned with structural damage mold causes to multifamily housing or a single-family home, its potential health hazards and the insurance associated with mold.

Some environmentalists might compare mold to radon as a toxic hazard in residences, but most industry analysts say that mold might be the bigger issue because it is more expensive to mitigate than radon.

However, few lenders are asking for thorough checks of mold and all lenders require radon tests, said Wally Reid, vice president at L.J. Melody.

"They're making people check for radon and have been for awhile now," Reid said. "[Mold] is new."

But a number of lawsuits have led insurance companies to raise premiums in homeowners insurance and, in some areas, homeowners insurance has become unavailable. Multifamily lenders have been concerned about mold for the past couple of years, and servicers continue to grapple with insurance issues from mold.

Officials at the Centers for Disease Control and Prevention (CDC) said that reliable sampling for mold can be expensive, and "standards for judging what is and what is not an acceptable or tolerable quantity of mold have not been established."

CDC officials pointed out that a physical inspection of the contaminated area is necessary to determine results within each unique structure. Also, inspectors need to consider the building’s characteristics and the factors that led to the present condition.

CDC officials said that if property owners pay for environmental sampling on mold, they should ask the consultants who do the work about the criteria for interpreting the test results before the work starts. The consultants should tell a property owner in advance their procedures and the possible recommendations they will make based on the sampling results.

Mold is mostly found in summer cottages, as well as single-family homes and multifamily properties in coastal states, such as California, Texas and Florida. But mold has emerged in less water-laden locales, including a high-end condominium in Washington, D.C., and in Minnesota, during a flood from July of last year.

In Minnesota, the Federal Emergency Management Agency (FEMA), the Minnesota Division of Emergency Management, and the Minnesota Department of Health wanted homeowners to be aware of potential health risks of mold, and pointed out specific characteristics of the fungus.
Unlike radon, homeowners are able to see mold and smell an earthy or musty odor, FEMA said in a report released last year. Some homeowners could find mold under water-damaged surfaces, or behind walls, but discoloration and cracking walls are other signs of mold, FEMA said.

FEMA also reported that when wood becomes soaked it could warp when it dries and cause walls to crack or become weaker. Mold can become a problem in the house if there is enough moisture to allow mold to thrive and multiply. Dampness from flooding can get in walls, carpets, and wood. This moisture provides an excellent environment for mold to multiply. Mold is especially attracted to paper products such as wallboard used in many homes.

In addition to mold detection units, homeowners, tenants and landlords could reduce mold growth by reducing the humidity, lowering the temperature of the home or unit, and ventilating bath and cooking areas, FEMA officials said. Also, owners should avoid installing carpet in kitchens and bath.
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ABC Properties LLC, New York, sold the property to Praedium and its operating partner, Nicholas Bienstock of Savanna Partners. Praedium teamed up with Savanna Partners in the past to acquire Three Enterprise Drive, an industrial property located in Newburgh, N.Y.

"This investment is attractive to us due to the strong current return from solid tenants with long-term leases in place," said Philip Tager, director in the acquisitions group at Pradium. "Additionally, there is upside potential through the lease-up of vacant space, and we expect that this asset will attract other quality tenants looking for distribution space in this market area.”

Meanwhile, The Praedium Group has also acquired the Richland Centre retail  property in North Richland Hills, Texas for $17.8 million. Praedium, with local operating partner Westmount Realty Capital, paid $77 per square foot for the retail property.

Richland Centre, built in 1994 on 21 acres, has five single-story retail buildings totaling 230,000 square feet.  The power center is 89 percent leased, primarily housing large-format home furnishing stores. 

"This was an opportunity to acquire an asset that offered strong current cash flow and additional upside through the lease-up of two vacant spaces,” Tager said. 

Tenants at the property include national credit retailers such as Ross Dress-for-Less, Barnes & Noble and Oshman’s Super Sports. 
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FCRA Hearings Before the Senate and House
The House Financial Services Committee and Senate Banking Committee continue their efforts toward amending Fair Credit Reporting Act (FCRA) reauthorization legislation.

On July 9, the House Financial Services Committee held another FCRA hearing focusing on H.R. 2622, the Fair and Accurate Credit Transactions Act of 2003 [pdf]. As we have reported, H.R. 2622 is a bipartisan bill that largely reflects the priorities for FCRA reauthorization outlined by the Bush Administration. Among other things, the bill would reauthorize FCRA in its current form and contains provisions to further protect consumers from identity theft. MBA expects the subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises and full Financial Services Committee to consider H.R. 2622 on July 16 and July 23, respectively.

A key witness at Wednesday's hearing was Federal Trade Commission Chairman Timothy Muris, who affirmed the FTC's support for reauthorization and the proposals presented by the Bush Administration last week. However, Muris also offered two suggestions for amending FCRA that would strengthen consumer protection. The first would require "information furnishers," such as lenders, to examine any errors found by consumers and to stop reporting any inaccuracies. The second would alter the requirements of employers when they investigate employees.

On July 10, the Senate Banking Committee held its fourth hearing on FCRA reauthorization, which focused on whether FCRA should be amended to ensure the accuracy of consumer information contained in credit reports. Representatives from consumer advocates, industry, and regulators presented their very different opinions on the subject which Committee Chairman, Senator Richard Shelby, R-Ala., will take into account while crafting the bill he plans to introduce on FCRA reauthorization in September.

MBA continues to press for the reauthorization of the seven key preemptions contained in FCRA that allow affiliate sharing of consumer information.

For more information, please contact Mary Jo Sullivan at 202/557-2859 (mary_sullivan@mbaa.org) or Renee Rappaport at 202/557-2758 (renee_rappaport@mbaa.org).

Congressional Action on FLSA
On July 10, Rep. George Miller, D-Calif., introduced an amendment to the Labor, Health and Human Services Appropriations bill that would have prevented the Labor Department from promulgating its rule updating regulations on overtime pay under the Fair Labor Standards Act (FLSA). MBA has been an active proponent of the overtime changes, since they have the potential to clear-up the confusion surrounding the applicability of the administrative employee exemption to loan officers. 

MBA helped shape the rule through its comments and advocacy efforts. In the face of Rep. Miller's amendment, which was considered “make-or-break” for the rule, MBA's lobbying team swung into action and lobbied heavily against the amendment as part of a coalition that included the U.S. Chamber of Commerce, National Retail Federation, and the National Restaurant Association. MBA lobbied targeted lawmakers, e-mailed key Capitol Hill staff, and engaged MBA members to speak with their elected representatives.  After heated debate, largely along party lines, the House last night defeated the amendment by a close 213-210 vote.

Although the FLSA rule has cleared the House of Representatives, the Senate promises to pose an equal threat to Labor's ability to promulgate it. MBA is spearheading an effort to ensure the rule's safety in that chamber.

For more information, please contact Erick Gustafson at 202/557-2913 (erick_gustafson@mbaa.org).

Additional Legislation Resulting From Freddie Management Shake-up
Rep. Edward Royce, R-Calif., a member of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, is expected to introduce a bill soon that would combine the regulators for Freddie Mac and Fannie Mae (Office of Federal Housing Enterprise Oversight - OFHEO) and the Federal Home Loan Banks (Federal Housing Finance Board - FHFB) and place the regulator under the Treasury Department. This legislation rivals H.R. 2575 [pdf], introduced by Rep Richard Baker, R-La., chairman of the Financial Services subcommittee on capital markets, insurance and government sponsored enterprises. H.R. 2575 would reform only OFHEO, and not FHFB. Under Baker's bill, OFHEO would be merged with the Office of Thrift Supervision (part of the Treasury Department) and renamed the Office of Housing Finance Supervision.

The House and Senate have scheduled hearings next week on the GSE oversight issue.  On July 16, the subcommittee will hold a hearing on H.R. 2575. On July 17, the Senate Banking Committee will hold a hearing on oversight of GSE accounting practices.

For more information, please contact Chris Harrington at 202/557-2863 (christine_hahrrington@mbaa.org).

FHA Single Family Loan Limit Adjustment Act of 2003
Rep. Barney Frank, D-Mass., is expected to introduce a bill that would put FHA's single family mortgage limits at 100 percent of an area's median home price and eliminate the current ceiling for high-cost areas equal to 87 percent of the Fannie Mae/ Freddie Mac national loan limits. 

Currently, FHA's mortgage limits are tied to 95 percent of an area's median home price and cannot exceed 87 percent of the conforming limits. Frank’s bill would retain the 48 percent floor for mortgage limits. On July 9 Frank sent a letter  to fellow members of Congress asking for their co-sponsorship. In the letter, Frank states his belief that raising the limits would better serve middle-income borrowers in expensive markets and actually generate additional revenues for the Treasury.

MBA has consistently supported raising the single family FHA mortgage limits and, along with our industry partners, will be closely monitoring the progress of this legislation.

For more information, please contact Tim Doyle at 202/557-2860 (tim_doyle@mbaa.org) or Renee Rappaport at 202/557-2758 (renee_rappaport@mbaa.org).
 
Regulatory Affairs

TRIA Rule
On July 7, the Treasury Department issued a final rule [pdf] as part of its effort to implement the Terrorism Risk Insurance Act of 2002 (TRIA). MBA worked closely with the Bush Administration to secure passage of TRIA and has maintained ongoing written and oral communication with Treasury in an effort to help guide its implementation efforts in a manner favorable to MBA members. Throughout this process, MBA has commented on Treasury's proposed $5 million threshold needed to activate federal reinsurance stating that many commercial properties are valued under $5 million dollars and need to be protected from acts of terrorism.

MBA is pleased that the final rule issued this week consists of a favorable interpretation of the $5 million loss threshold rule.  The rule provides for TRIA coverage of individual policyholders if a single act of terrorism results in aggregate insured losses in excess of $5 million. 

The rule also confirms that one-to-four-family rental properties are covered by the federal terrorism program.

For more information, please contact Erick Gustafson at 202/557-2913 (erick_gustafson@mbaa.org) or Leanne Tobias at 202/557-2840 (leanne_tobias@mbaa.org).

New Jobs at Treasury
The Treasury Department announced this week that Peter Fisher, under secretary for domestic finance has resigned effective October 10. The Bush Administration has nominated Kenneth Leet, managing partner at Goldman Sachs, to fill the position. Unlike Fisher, Leet has no political or regulatory experience and some have already begun to speculate on how forceful he will be on such issues as the GSEs.

The Bush Administration also nominated Susan Schwab to be deputy treasury secretary. Schwab would be the first woman to hold Treasury's number two job. For the past eight years, Schwab has been the dean of the University of Maryland's School of Public Affairs. However, she has extensive political and regulatory experience and was a Commerce Department official in the first Bush Administration.

(Kurt Pfotenhauer is MBA's senior vice president of government affairs.)
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Upcoming Events/Reports:
--July 14: MBA Three-Year Economic Forecast
--July 16: MBA Weekly Application Survey
--July 16: Consumer Price Index, Bureau of Labor Statistics
--July 16: Housing Marketing Index, National Association of Home Builders
--July 17: Housing Starts and Building Permits, Bureau of the Census
--July 21: Leading, Coincident and Lagging Indexes, The Conference Board
--July 25: Existing Home Sales, National Association of Realtors
--July 26: New Home Sales, Commerce Department
--July 31: Gross Domestic Product, Bureau of Economic Analysis
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