Freddie Mac is touting its readiness
to transition from using the London Interbank Offered Rate or LIBOR to the Secured
Overnight Financing Rate (SOFR) as a mortgage reference index. The end date for
LIBOR may be extended (yet again) from the end of 2021 to mid-2023, but Freddie
Mac says it remains committed to prepare for a final transition as soon as
SOFR, which was specifically
developed to replace LIBOR, is a broad measure of the cost of borrowing cash
overnight collateralized by Treasury securities. Because, unlike LIBOR, it is
collateralized, its rate tends to be lower. Over the last month it has ranged
between 0.05 and 0.09 percent. The New York Fed publishes the SOFR on its website
each business day.
The company said it has made
significant progress in support of the move to the SOFR. It has enabled single-family
lenders to start underwriting SOFR-indexed adjustable-rate mortgages (ARMs) and
seller/servicers to sell and securitize them. In
November it began purchasing and securitizing those ARMs. Earlier it announced
that December 31, 2020 would be the last date for LIBOR-indexed ARM purchases
for mortgages originated on or before September 30, 2020. The company will
continue developing liquidity in SOFR-based products.
“Freddie Mac’s 2020 actions continued
to prepare us for the future cessation of LIBOR,” said Freddie Mac Interim
President Mike Hutchins, executive sponsor of the company’s LIBOR transition
effort. “This was a complex project across the firm with an aggressive set of
Freddie Mac also worked with the
Federal Housing Finance Agency (FHFA), Fannie Mae and other parties and participated
on the Alternative Reference Rates Committee (ARRC) and its working groups on
SOFR development and on transition issues.
“As an active member of the ARRC and
many of its subcommittees, we worked with the industry to understand how
different conventions of overnight SOFR can be used in our products and
offerings,” said Ameez Nanjee, Vice President, Asset Liability Management and
Freddie Mac’s official representative to the ARRC.
Other steps the company has taken or
will take include:
- Quoting SOFR-indexed Multifamily Loans, with $647
million funded to date, and more than $11.2 billion in the firm pipeline.
- Ending issuance of LIBOR-indexed floating rate
unsecured debt that matures beyond the end of 2021
- Issuing more than $144 billion in SOFR-indexed debt to
- Launching SOFR-indexed Collateralized mortgage obligations
(CMOs) with $1.2 billion of issuance to date and announcing the end of
- Launching SOFR-indexed Small Business Loans with $1.2
billion in the pipeline.
- Settling the first SOFR-based Single-Family Credit Risk
Transfer transaction, a $1.1 billion real estate
mortgage investment conduit (REMIC).
The company said
it will share additional information about its transition efforts and
milestones once the parties in the United Kingdom finalize their plans for
ending the LIBOR.