The U.S. Department of Housing and Urban Development (HUD) issued its final rule removing the London Interbank Offered Rate (LIBOR) as an approved index for adjustable interest rate mortgages (ARMs), and replacing LIBOR with the Secured Overnight Financing Rate (SOFR) as a Secretary-approved index for newly originated forward ARM. The final rule also codifies HUD’s removal of LIBOR and approval of SOFR as an index for newly-originated home equity conversion mortgages (HECM) ARMs, and establishes “a spread-adjusted SOFR index as the Secretary-approved replacement index to transition existing forward and HECM ARMs off LIBOR.” Additionally, the final rule makes several clarifying changes and establishes a 10 percentage points maximum lifetime adjustment cap for monthly adjustable rate HECMs.
HUD plans to publish a Mortgagee Letter to implement the requirements of the final rule. The final rule is effective March 31, 2023. To view the HUD final rule in its entirety, please visit the links below.
Federal Register Vol. 88, No. 40
Adjustable Rate Mortgages: Transitioning From LIBOR to Alternate Indices