LIBOR-SOFR Transition

Under the guidance of the Federal Housing Finance Agency (FHFA) and in coordination with Freddie Mac, we intend to implement the following changes:

Fallback language recommended by the Alternative Reference Rate Committee (ARRC) for adjustable-rate mortgages (ARMs)

• The ARRC outlines the observable “triggers” that would signal an index for newly originated ARMs is no longer available and a waterfall to select a replacement index (“fallback language”).
• This recommended language will be incorporated into the uniform notes and other legal documents for ARMs, regardless of what index is used.

New SOFR-based index and ARM products

We plan to offer several new ARM productsbased on a Secured Overnight Financing Rate (SOFR) index for new originations, once we complete an evaluation of our internal processes and systems, and subject to FHFA's approval.

• The new index will be the 30-day average of the overnight SOFR. The Federal Reserve Bank of New York is working to publish averages of SOFR beginning in the first half of 2020.
• In 2020, we plan to communicate the final SOFR ARM plan details for whole loan and MBS execution, and the timeline for when lenders can begin originating and delivering.
• This does not affect our ability to purchase LIBOR ARMs and we are currently working on solutions to support the transition of legacy LIBOR ARMs to a replacement index.