The Mortgage Bankers Association has published two templates for servicers to use for borrower communications regarding the end of Libor and its replacement with another adjustable-rate mortgage index.
These are a follow-up to a June 2019 form created for mortgage lenders to use to advise clients with newly originated ARMs, which explains about how a change in their loan index would affect them once Libor is formally discontinued.
Most versions of Libor are expected to cease publication at the end of this year, including the one-week and two-month U.S. dollar settings. The remaining U.S. dollar iterations received an 18-month extension.
This only affects loans already in servicers' portfolios as Fannie Mae, Freddie Mac and Ginnie Mae are no longer allowing Libor-indexed products into forward mortgage securitizations.
The new templates let servicers provide an early warning regarding the change. Both are modifiable; one is structured as a notice to borrowers, while the other is formatted as a letter. They have similar wording explaining the situation to borrowers, with the letter including a space for servicers to insert contact information for their companies for borrowers to call with questions.
The documents also contain links to the Consumer Handbook on Adjustable Rate Mortgages and to the New York Federal Reserve Bank's Alternative Reference Rates Committee page.
The New York Fed notes that ARRC's preferred replacement for Libor is the Secured Overnight Financing Rate. But a number of smaller banks expressed concern over being required to use SOFR, and instead expressed a preference Ameribor, published by the American Financial Exchange.
Last month, New York passed legislation mandating SOFR for contracts that do not call for a Libor replacement, easing concerns regarding having to use a zombie rate. There are calls for similar action on a federal level.
