February 6, 2020 - On February 5th, the FHFA, Fannie Mae and Freddie Mac took the next steps toward LIBOR transition in the Adjustable Rate Mortgage (ARM) market. Specifically, they announced that i) they have updated ARM notes and riders to include ARRC LIBOR fallback language, ii) by year-end 2020, they will no longer acquire LIBOR ARMs and will be retiring all LIBOR ARM plans later this year, iii) they anticipate they will start accepting SOFR ARMs during the second half of 2020, and iv) they have several ARM plans that use an index based on a 30-day average of SOFR. In effect, this basically shifts the new issue LIBOR ARM market to a SOFR ARM market later this year.
The Alternative Reference Rates Committee (“ARRC”) – and the LSTA, for what it’s worth – are supportive of these efforts. We recognize that LIBOR will end sometime (likely shortly) after December 31, 2021. We recognize the importance of actions such as accepting hardwired fallbacks (like other asset classes) and reducing reliance on LIBOR in credit agreements. The LSTA is on the ARRC, co-chairs the ARRC’s Business Loans Working Group, and hosts a weekly LIBOR Q&A Call for LSTA Members at 3PM (ET) on Mondays.