Alternative Reference Rates Committee’s Secured Overnight Financing Rate (SOFR) ARM Framework
Today, the Alternative Reference Rates Committee (ARRC) published a whitepaper titled Options for Using SOFR in Adjustable-Rate Mortgages outlining a framework for the use of the Secured Overnight Financing Rate (SOFR) for newly originated consumer residential ARM products in advance of the possible cessation of LIBOR at the end of 2021.
Fannie Mae (FNMA/OTCQB) is pleased with the progress the industry is making to ensure it is prepared for a market where the LIBOR index may not exist. The whitepaper and framework demonstrate the potential solutions that exist as a replacement for LIBOR, and reflect input from ARRC members, including Fannie Mae and Freddie Mac, lenders, investors, servicers, and consumer advocates. The framework outlined in the whitepaper is comparable to today’s existing ARM structure and seeks to offer a product that is attractive to both investors and consumers while providing appropriate consumer protections.
Though the transition to SOFR is voluntary, Fannie Mae will use the framework to develop a SOFR-indexed ARM product for new originations in advance of the possible termination of LIBOR, leading the way for industry, consumers, and financial markets. Fannie Mae expects to make an ARM product based on overnight SOFR available once systems and processes have been put in place to accommodate the new index. We will provide reasonable notice in advance of the offering to our lenders and will communicate complete details about any new product(s).
Fannie Mae is committed to working with ARRC members and other mortgage participants to ensure a successful transition from LIBOR.
Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/fanniemae.