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Freddie Mac Announced New Seismic Policy

Freddie Mac announced its new seismic risk policy for multifamily seller/servicers to follow...

...on April 24, 2013. Mark Field, Underwriter for the Targeted Affordable Group, summarized the new procedures on April 24, 2013. The policy will be officially released in the April 30, 2013 Guide update and will go into effect for all reports ordered on or after June 1, 2013.

Overview of Forthcoming Freddie Mac Seismic Policy

In general, the changes are not dramatic and are generally consistent with the requirements of CMBS lenders, life company lenders, and Fannie Mae. Freddie Mac's policies will recognize ASTM E2026-07 "Standard Guide for Seismic Risk Assessment of Buildings" and ASTM E2557, the most recent seismic risk assessment standards. The changes will bring the Freddie Mac seismic policy in closer alignment with the recommended practice in ASTM E2557.

Mr. Field announced that Freddie Mac will use the Scenario Expected Loss (SEL) as their primary expression of seismic risk, which is consistent with the recommendations of ASTM E2557. The SEL will be measured against the longtime industry standard of 20%. This is good for borrowers and lenders as the SEL is lower than the SUL.

By the way, instead of using the term Probable Maximum Loss (PML), Freddie will be shifting towards the term Seismic Risk Assessment (SRA)—these words are generally interchangeable.

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