FHA removes LIBOR benchmark for adjustable-rate HECMs
On March 11, FHA issued Mortgagee Letter (ML) 2021-08 announcing changes for adjustable interest rate home equity conversion mortgages (HECMs) as the market transitions away from LIBOR. Among other things, ML 2021-08 (i) removes approval for using the LIBOR index for adjustable interest rate HECMs; and (ii) approves the use of the Secured Overnight Financing Rate (SOFR) index, permitting “mortgagees to commingle index types for newly originated annual adjustable interest rate HECMs when establishing the expected average mortgage interest rate using the U.S. Constant Maturity Treasury” and SOFR index. ML 2021-08 also states that LIBOR-based HECMs must close on or before May 3 to be eligible for FHA insurance.
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