On February 5, 2020, Fannie Mae and Freddie Mac (the “GSEs”) announced updates regarding adjustable-rate mortgage (“ARM”) products in anticipation of the transition away from the London Interbank Offered Rate (“LIBOR”). The GSEs have updated ARM notes and riders to include the fallback language recommended by the Alternate Reference Rates Committee (“ARRC”) on November 15, 2019. In the second half of 2020, the GSEs plan to introduce new ARM products that use an index based on a 30-day average of the Secured Overnight Financing Rate (“SOFR”).
Additionally, Freddie Mac Bulletin 2020-1 announced a change to the “lifetime floor” language in ARM notes and riders. Instead of stating that the interest rate will never be “less than the Margin,” the revised ARM notes and riders now state that the interest rate will never be “less than ____%.” Fannie Mae Lender Letter 2020-01 does not specifically mention this update, but the revised “lifetime floor” language is found on the Fannie Mae ARM model forms.
Important Dates:
- Updated forms including fallback language can be used immediately but are required for single-family Uniform ARM instruments closed on or after June 1, 2020.
- All LIBOR-based single-family ARMs must have loan application dates on or before September 30, 2020 to be eligible for GSE acquisition.
- GSEs will no longer acquire loans indexed to LIBOR and will be retiring all LIBOR ARM plans by the end of 2020.
DocMagic will be making updates to all applicable ARM notes and riders, starting with the most frequently used forms. A list of updated forms will be posted on the DocMagic website and provided in a weekly announcement. All relevant forms will be updated prior to the mandatory use date of June 1, 2020. DocMagic will be adding audits to all LIBOR-based loan plans indicating the index will soon be discontinued. Further information will be provided as it becomes available.
If you have any questions regarding this article, please contact DocMagic’s Compliance Department.
