Fannie Mae and Freddie Mac have recently announced changes to their adjustable rate mortgage (ARM) loan policies due to the expected discontinuance of the London Interbank Offered Rate (LIBOR) index in 2021. These changes have made in consultation with the Federal Housing Finance Agency and are effective immediately.
On May 17, 2019, Fannie Mae announced in Lender Letter LL-2019-05 that all LIBOR ARM loans must be purchased or securitized by Fannie Mae no later than six months from the first payment date of the loan. Their June Selling Guide update will modify the current policy that allows for the acquisition of seasoned ARM loans (older than 12 months) on a negotiated basis. Going forward, Fannie Mae will not purchase or securitize any LIBOR ARM loans older than six months on a “flow” or negotiated basis. Fannie Mae does note that the new policy does not impact their acquisition of newly originated LIBOR ARM loans that are seasoned six months or less; they will continue to purchase and securitize such loans. Fannie Mae also notes that the new policy also does not affect their ability to purchase fully-guaranteed securities traded in the secondary market that are backed by LIBOR ARM loans, regardless of seasoning or issuance date.
Likewise, on May 17, 2019, Freddie Mac announced in Bulletin 2019-10 that they will no longer purchase LIBOR ARM loans with settlement dates more than six months after the note date. Freddie Mac notes that they will continue to purchase newly originated LIBOR ARM loans while they work with the industry on a LIBOR index transition plan. Freddie Mac’s Loan Selling Advisor® will be updated by May 21, 2019 to reflect this change, and their ARM loan eligibility requirements in Guide Section 4401.3 and Guide Exhibit 17S. Available Mortgage Products will be updated to reflect this policy change in a future Guide Bulletin.
Compliance Systems will continue to support LIBOR index ARM plans until further notice from Fannie Mae and Freddie Mac.