The Mortgage Bankers Association has released two templates servicers can use to communicate with borrowers regarding the end of Libor and its replacement with another variable rate mortgage index.
This is a follow-up to a June 2019 form created for mortgage lenders to advise clients with newly emerging ARMs. This form explains how a change in your credit index would affect you if Libor is officially discontinued.
Most versions of Libor are not expected to be released by the end of this year, including one week and two month settings in US dollars. The remaining US dollar iterations have been extended by 18 months.
This only affects loans that are already in the service providers' portfolios, as Fannie Mae, Freddie Mac and Ginnie Mae no longer allow products with a Libor index for the securitization of futures transactions for mortgages.
With the new templates, servicers can point out the change at an early stage. Both are changeable; One is structured as a notice to the borrower while the other is formatted as a letter. They have similar wording explaining the situation to borrowers, with a space in the letter for servicers to include contact information for their businesses so borrowers can ask questions.
The documents also contain links to the Consumer Handbook on Adjustable Rate Mortgages and the New York Federal Reserve Bank's Alternative Rate Reference Committee page.
The New York Fed notes that ARRC's preferred replacement for Libor is the Secured Overnight Financing Rate. However, a number of smaller banks expressed concern about the obligation to use SOFR and instead expressed an Ameribor preference, published by the American Financial Exchange.
Last month, New York passed law mandating SOFR for contracts that do not require Libor replacement and allayed concerns about using a zombie tariff. At the federal level there are calls for similar measures.