The Blindside: LIBOR Move Looms Ahead

The move away from the LIBOR was expected, the sudden deadline for HMBS was not

Last Monday Ginnie Mae, the government bond-insurer, declared the agency will no longer accept any mortgage-backed securities or MBSs attached to the LIBOR index. The policy effective date for HECM loans is January 1st, while traditional mortgage-backed securities restrictions go into effect January 21, 2021.

Our industry’s adoption of the LIBOR index began with d issued October 12, 2007. It permitted FHA to insure HECM loans using either a 1-year LIBOR index for annually adjustable loans and the 10-year swap rate for monthly-adjustable HECMs. By 2008 most lenders had switched to the new index.

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1 comment

The "Skeptical" Cynic September 25, 2020 at 3:53 pm

It is odd that so many were surprised about the announcement since the NRMLA issuers were supposedly in negotiations with Ginnie Mae, the Fed’s ARRC, and it appears ICE. Was this another case of a NRMLA committee starting the process too late? Was Ginnie Mae seeing no daylight in its negotiations or just what caused this “surprising announcement.”

Will SOFR be our next index or could it be CMT? CMT is already an acceptable FHA index for HECMs but it is less popular with investors than LIBOR and would no doubt provide lower premiums which would be currently offset to some degree by a higher lender margin since the current CMT interest rates are lower than the LIBOR interest rates.

Shannon did a great job researching for this vlog.


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