In 2019 I wrote a blogpost entitled: LIBOR is going away in 2021- What Language Does Your Client’s Loan Contract Have? What About Clients with Existing LIBOR Indexed Loans?
In that blogpost I explained that LIBOR was scheduled to go away and the search was on for a replacement rate. The Alternative Reference Rates Committee (ARRC) was tasked with finding a replacement benchmark rate.
It also described suggested fallback language in newly created loans indexed to the LIBOR.
Now HUD has announced it is taking comment on its upcoming rule changes to forward (purchase) mortgages, HELOCs, and FHA Reverse Mortgages (HECM) loan indexing. They are moving away from LIBOR and toward SOFR (Secured Overnight Financing Rate).
Prior to 2007 HUD indexed to the CMT (Constant Maturity Treasury). In 2007, HUD allowed to index to either the CMT or the LIBOR. The CMT is a measure the Federal Reserve uses to evaluate bonds of varying maturities. It is a value given to a theoretical U.S. Treasury based on values from recent U.S. Treasury auction values.
On March 11, 2021 HUD issued Mortgagee Letter 2021-08 in which the removal of the LIBOR for HECMs, allows a comingling of the SOFR and CMT, and provided new model language for new HECM loans.
HUD is seeking public comment. The public comment period ends on Dec. 6, 2021.