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Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) all have financial instruments that reference Intercontinental Exchange London Interbank Offered Rate (ICE LIBOR), the most widely used interest rate benchmark in the world. Since 2017, the Financial Conduct Authority, the United Kingdom-based regulator of LIBOR, has been warning market participants that it will stop compelling panel banks to submit LIBOR quotes beginning in 2022, which could result in a declaration that LIBOR is no longer representative of market activity.

FHFA serves as an ex officio non-voting member of the Alternative Reference Rates Committee (ARRC) established by the Federal Reserve Board and the New York Federal Reserve Bank to facilitate the migration away from LIBOR to the Secured Overnight Financing Rate (SOFR), the rate selected by ARRC as a more robust transactions-based replacement for LIBOR in the U.S. Fannie Mae, Freddie Mac, and the FHLBanks (through the FHLBank of New York) all serve as members of the ARRC.

FHFA is working with its regulated entities to monitor their exposure to LIBOR as they execute their transition plans away from LIBOR. The FHFA’s regulated entities (Fannie Mae, Freddie Mac, and the FHLBanks) are now regular issuers of SOFR-indexed debt.

Steps Taken

– FHFA worked with Fannie Mae and Freddie Mac to develop the parameters of a SOFR-based adjustable rate mortgage (ARM) and to develop more robust “fallback language” for ARMs that describe how a replacement rate would be selected in the event of the cessation of an ARM’s reference rate.

– Fannie Mae and Freddie Mac have ceased purchasing seasoned LIBOR-based ARMs maturing after 2021.

– Effective January 1, 2020, FHFA has prohibited the Banks from investing in products with maturities beyond Dec. 31, 2021.

– Effective June 30, 2020, the FHLBanks will cease entering into all other LIBOR transactions with maturities that extend beyond Dec. 31, 2021, with only very limited exceptions granted by FHFA. This date was extended from its original date of March 31, 2020, and this extension does not cover option-embedded products.

– On August 3, 2020, Fannie Mae started accepting whole loan and MBS deliveries of single-family adjustable-rate mortgage (ARM) loans indexed to the Secured Overnight Financing Rate (SOFR).​

Fannie Mae and Freddie Mac have launched  LIBOR transition websites that provide key resources for lenders and investors as the Enterprises transition away from LIBOR. 

Source: FHFA

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