Is Mold a New Crisis?

Mr. Johnson is executive director, Environmental Education Foundation and a United Nations Environmental, Health & Safety consultant. This viewpoint is an excerpt from an article prepared by the EEF about how mold litigation is affecting lenders. For additional information, please visit www.enviro-ed.org.

'No one likes to talk about mold. Yet it is quickly becoming a multibillion-dollar problem for bankers and other industries that support the real estate sector, it has become topic "A" in many states. It is a problem that will get worse before it gets better. In 2001 alone, mold cost insurance underwriters more than $1.3 billion, with that number predicted to go up in ensuing years. And now bankers are feeling its toxic effects in ever increasing dollar amounts.

The Environmental Educational Foundation, a national 501(c)(3) charity dedicated to developing and disseminating information regarding environmental hazards and "bridging the gap" between industry professionals, financial institutions, owners or prospective buyers, as well as to the public generally, has taken a hard look at the ramifications of this emerging crisis.

Industries such as mortgage lending, insurance, real estate and construction, as well as the legal profession will each feel mold's impact in one form or another. Mold holds the potential to become the next asbestos, so certain industries must get smart about it immediately.

Mold is a naturally occurring fungus that's been around since the dawn of time. It was not an issue then of course, but the advent of enclosed structures occupied by humans has made it so. Many people are allergic to it, and won't purchase a home if its presence is detected - and there is an enormous uptick in testing for mold these days. Insurers are looking at remediation costs that in some states average more than $35,000 per cleanup, according to the Insurance Information Institute, and they are operating in an area where standards and practices are not well established, if at all. So many are quickly moving away from providing such coverage or limiting it for both commercial and residential buildings.

This presents some serious issues for lenders. As a prerequisite for underwriting a mortgage, many banks are now requiring mold insurance on real estate such as multifamily dwellings, where the stakes are high and potentially costly. But insurers are backing away from providing such coverage in the absence of standards and the escalating cost of remediation. New legislation and tort reform may yield the only remedies, but it's not helping the banks.

Noted Renata Harrison, a director of capital management in Fannie Mae's multifamily housing group, "Mold and its dollar impact on the multifamily housing market and beyond, is becoming a serious issue. We're seeing insurance exclusions on policies and rising litigation against builders. There are no federal or state standards for a tolerable level of mold, so this ...