Fannie Mae to Develop New Adjustable-Rate Mortgage Product

Fannie Mae currently offers several adjustable-rate mortgage (ARM) plans tied to the London Interbank Offered Rate (LIBOR) index. It has been widely communicated that the LIBOR index may no longer be available after 2021 so Fannie Mae is set to develop an adjustable-rate mortgage (ARM) product that will be indexed to the Secured Overnight Financing Rate (SOFR).

In 2014, the Alternative Reference Rates Committee (ARRC), a group of private-market participants and official sector ex-officio members, was convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from LIBOR.  The group last week published a white paper, “Options for Using SOFR in Adjustable Rate Mortgages,” that is "intended to help illustrate a model of how market participants could use the [SOFR] in consumer closed-end, residential [ARM] products."

In its announcement, Fannie Mae noted the benefits of using SOFR to index and said it will develop the ARM product "after systems and processes have been put in place to accommodate the new index, and will provide reasonable notice in advance of the offering to [Fannie Mae's] lenders." It will release an updated Selling Guide once the new product is developed.