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Financial Services Law Insights and Observations


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  • ARRC releases transition guides for ARMs, private student loans referencing LIBOR

    Federal Issues

    On August 18, the Alternative Reference Rates Committee (ARRC) released reference rate transition guides for adjustable-rate mortgages (ARMs) and variable rate private student loans that reference LIBOR. Both guides are intended to support the transition from LIBOR to an alternative reference rate, such as the Secured Overnight Financing Rate (SOFR), and focus on LIBOR-based contracts that will continue to exist after LIBOR’s anticipated cessation at the end of 2021. The LIBOR ARM Transition Resource Guide and the LIBOR-Based Private Student Loan Transition Resource Guide cover key milestones, suggested readiness timeframes, transition risks, and stakeholder impacts, and include various resource guidance, tools, and templates to assist institutions in “fortify[ing] their products and support[ing] consumers’ transitions to SOFR.”

    Find continuing InfoBytes coverage on LIBOR here.

    Federal Issues ARRC LIBOR SOFR Of Interest to Non-US Persons Adjustable Rate Mortgage Student Lending

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  • District Court approves class settlement in mortgage tax action


    On January 15, the U.S. District Court for the Southern District of California granted final approval of a class action settlement between homeowners and a mortgage company to resolve allegations that the company violated the Internal Revenue Code by failing to report deferred mortgage interest from certain consumers with adjustable rate mortgages (ARM), which allegedly prevented consumers from fully benefiting from the mortgage tax credit. According to the approval order, the plaintiffs contended that “even though the accrued interest is added back to principal, the negative amortization is still interest that should have been reported” to the IRS. However, the order notes that the court previously rejected this theory in part, finding that 26 U.S.C. § 6050H “is ambiguous as to ‘how, whether and when’ such interest must be reported.” Furthermore, the order notes that in 2016 the company began investigating and reporting the negative amortization on loans received via transfer from other companies that allegedly failed to include the negative amortization in their data. These transferred loans, the company asserted, were the only instances where it failed to report negative amortization. Under the terms of the settlement, the company is required to provide amended mortgage interest statements to homeowners whose capitalized interest was incorrectly reported to the IRS for the 2016 through 2018 tax years.

    Courts Mortgages Settlement Class Action Adjustable Rate Mortgage IRS

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