Following the recommendation of the Federal Reserve Board, Fannie Mae and Freddie Mac (the “GSEs”) published servicing notices on January 25, 2023, confirming that the Secured Overnight Financing Rate (“SOFR”) index will be the replacement index used for servicing legacy single-family adjustable-rate mortgage loans originated with a London Interbank Offered Rate (“LIBOR”) index.
As previously announced, the LIBOR index will no longer be published after June 30, 2023. At that time, the GSEs will transfer LIBOR-index contracts to the SOFR index administered by the CMD Group Benchmark Administration, LTD and published by Refinitiv Limited.
The GSEs have been using the SOFR index for new ARM loans but had not confirmed a replacement for existing LIBOR index adjustable-rate mortgages until now. Since 2020, the GSE uniform notes have contained standard index replacement language which states, “If the index is no longer available, the Note Holder will choose a new index which is based upon comparable information.” Servicers will be responsible for providing affected borrowers a written notice identifying the replacement index before the applicable adjustment period.
The following indexes have been identified:
- 1-month SOFR (1M CME Term SOFR) plus Transition Tenor Spread Adjustment will replace 1-month LIBOR index
- 6-month SOFR (6M CME Term SOFR) plus Transition Tenor Spread Adjustment will replace 6-month LIBOR index
- 12-month SOFR (12M CME Term SOFR) plus Transition Tenor Spread Adjustment will replace the 1-year LIBOR index
