Letter to HUD on Adjustable Rate Mortgages: Transitioning From LIBOR to Alternate Indices

Lopa P. Kolluri
Principal Deputy Assistant Secretary
Office of Housing – Federal Housing Administration
U.S. Department of Housing and Urban Development
451 7th Street, SW
Washington, DC 20410

Dear Principal Deputy Assistant Secretary Kolluri:

The American Bankers Association (ABA), the Housing Policy Council (HPC), and the Mortgage Bankers Association (MBA) (collectively, the Associations) thank the U.S. Department of Housing and Urban Development (HUD) for issuing an advance notice of proposed rulemaking to accelerate the transition away from the use of LIBOR as an index for certain Federal Housing Administration (FHA)-insured loans.

HUD is considering a rule that would define a Secretary-approved replacement index for existing adjustable-rate mortgages (ARMs) and provide for a transition date consistent with the cessation of the LIBOR index. HUD proposes replacing the LIBOR index with the Secured Overnight Financing Rate (SOFR) interest rate index, along with a compatible spread adjustment to minimize any potential value transfer due to the replacement of LIBOR for legacy ARMs. HUD is seeking public comment on the appropriate means by which to facilitate the transition away from LIBOR for legacy loans and new originations.

The Associations and our collective members appreciate HUD’s efforts to assist lenders and servicers as they implement the necessary transition to alternate indices for FHA-insured ARMs. The transition away from the use of LIBOR is the result of long-running changes to the interbank lending markets underpinning LIBOR and decisions by a wide range of private institutions and domestic and foreign regulators to seek more stable alternatives to LIBOR, which in turn have impacts throughout the financial markets.

The thorough work to advance this effort, undertaken by representatives from the public, private, and non-profit sectors over several years, has been guided by the twin pillars of facilitating a smooth transition and minimizing value transfer as a result of the transition. With respect to FHA-insured lending and servicing, a successful transition for all parties, including consumers, requires adherence to these principles, as well as clear guidance that promotes compliance certainty and equitable outcomes.

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