Bill Tryon Bill Tryon

ASTM International recently updated the E2026 Standard Guide and E2557 Standard Practice, the industry standards for assessing seismic risk to buildings.  Updates to E2557 make some parts of the 2026 Guide mandatory, require a more detailed review of drawings for many assessments, and, in many cases, will require site observations to be completed by a licensed engineer who satisfies specific experience requirements detailed in the revised standard.

The key motivation behind the update was increased quality and consistency of reports.  However, some of these changes will also increase the time and cost to complete reports, and will require borrowers to provide site access to yet another consultant for evaluation of the collateral.

Importantly, while the new standards more narrowly identify criteria for the evaluation of seismic risks, adoption is not mandatory and customization of scope remains an option.  It is still possible to perform assessments to the old standard, though development of a customized scope of work might be a better long term option (for more, see here). How have agency lenders chosen to respond to the new E2026-16a Standard Guide and E2557-16a Standard Practice?

How Have Standards Been Adopted Across the Agency Space?

In addition to impacts to cost, ASTM’s requirement for an engineer with seismic experience to visit properties has limited the pool of qualified assessors, resulting in longer turn-around times for Probable Maximum Loss studies performed under the new standards. Since HUD already requires a more detailed seismic evaluation under ASCE 41-13, their requirements have not been impacted. Fannie Mae and Freddie Mac are planning revisions to address the new requirements.

Until then, Freddie Mac has advised that their own requirements for the qualifications of the field assessor will remain in effect.  Fannie Mae has indicated that they will continue to accept reports prepared in accordance with prior standards (E2557-07) until officially revised requirements are published. Based on recent conversations, Fannie Mae also appears likely to allow for less stringent requirements for site reconnaissance.

The new agency seismic landscape

Of course, the broader seismic risk landscape has changed significantly in the last year or so.  Freddie Mac and Fannie Mae both previously updated their seismic policies (see here and here).  In addition to that, new seismic retrofit regulations have been introduced and the USGS recently included man-made earthquakes on their seismic hazard map.

We recently hosted an in-depth webinar on how these changes impact lenders and investors, which is available on demand until the end of September.   Click here to watch it today!


UPDATE:  Since the publication of this blog, Freddie Mac updated its Seller / Servicer guide to incorporate the most current ASTM Standard Guide E2026-16a and ASTM Standard Practice E2557-16a.  Effective immediately, all engagements requiring a Seismic Risk Assessments made through their conventional and Small Balance Loan (SBL) financing programs must adhere to the recently updated ASTM standard.  For more information, read this blog.