HUD issued an advanced notice of proposed rulemaking regarding adoption of a new index rate for FHA-insured adjustable rate mortgages (ARMs), as the previously-used London Interbank Offered Rate (LIBOR) is set to be discontinued.
FHA insures ARMs (including adjustable rate reverse mortgages), but requires that adjustments to the interest rate correspond to an index rate approved by the Secretary of HUD. Historically, this has been LIBOR, but LIBOR is set to be discontinued in phases starting after the end of 2021.
As described in the notice, HUD now seeks to determine which new rate to use going forward. HUD notes that it is strongly considering the Secured Overnight Financing Rate which is published by the Federal Reserve Bank of New York.
In addition to deciding on a new index rate, HUD is also considering how the transition will affect existing ARMs which have previously been adjusted based on LIBOR, and which in some cases may require the use of LIBOR in the governing mortgage documents. HUD will promulgate regulations to address the transition process, and seeks input on how to make the change as smooth as possible for existing loans.
Comments to address the issues raised in the notice are due by December 6, 2021.