FHA Okays LIBOR Index for ARMs, Reverses

For the first time, Federal Housing Administration lenders now have the option of using the one-year London interbank offered rate as an index for FHA adjustable-rate and reverse mortgages, according to a final rule.The final rule, which has an Oct. 12 effective date, also allows reverse mortgage lenders to use the one-month LIBOR or the one-month constant maturity Treasury index for monthly adjustments of FHA Home Equity Conversion Mortgages. "While FHA expects that the market will determine the degree of usage of the LIBOR indices, the existing constant maturity Treasury indices will remain acceptable for 1-, 3-, 5-, 7-, and 10-year forward ARMs and for HECM ARMs," according to a mortgagee letter. LIBOR is commonly used on several conventional and subprime ARM products.