GSEs to Use ARRC Concept Paper for Single-Family SOFR Index-based ARMs
Freddie Mac and Fannie Mae (GSEs), under the guidance of the Federal Housing Finance Agency (FHFA), intend to use the framework presented in a new paper by the Alternative Reference Rate Committee (ARRC) to modify existing ARM product requirements to enable the use of the Secured Overnight Financing Rate (SOFR) as the index.
The concept paper, “Option for Using SOFR in Adjustable Rate Mortgages”, describes a framework that is comparable to today’s ARM products based on the London Interbank Offered Rate (LIBOR) index and supports investor acceptance and consumer protections.
The ARRC will also issue a consultation paper proposing new trigger fallback language for newly-originated ARMs for voluntary adoption in the marketplace. Freddie Mac, with the approval of FHFA, plans to adopt the recommended language and will work with others in the industry to incorporate the recommended language in the uniform mortgage instruments and other legal documents as appropriate.
Freddie Mac will publish eligibility requirements for the purchase of SOFR-index-based ARMs before the end of 2021, which is when the Financial Conduct Authority cited as the possible time the LIBOR will no longer be available.
Our ARM products based on the SOFR index will be available once systems and processes have been put in place. We will communicate with our clients about our eligibility and purchase requirements for SOFR index-based ARMs well in advance of the implementation date to ensure you have enough time to prepare for these changes.