July 31, 2021

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Mortgage News

FHA Adopts SOFR For Adjustable-Rate Reverse Mortgages, Drops LIBOR

According to the letter, with the consent of the borrower, mortgages can set the expected average mortgage rate and the mortgage margin at the same time prior to the loan completion date, or simultaneously the expected average mortgage rate and the mortgage margin on the loan completion date.

“Changes in the bond rate charged on a floating-rate mortgage must reflect either changes in the 30-day average SOFR or changes in the average weekly yield for US Treasuries, adjusted for a constant term of one year. Unless otherwise noted in this section, each Changes in the notation correspond to the upward and downward change in the index, with the exception that the index value must not be less than zero “, so the letter.

Regarding LIBOR pipeline loans, the letter states that mortgages can use the 30 day average SOFR for annually adjustable HECMs where the HECM will close on or after May 3, 2021, provided the 10-year CMT is used to determine the expected average mortgage rate. Mortgages need to adjust their mortgage documents to meet the requirements of the letter.

“For all HECMs, the index value used to determine the rate must not be below zero. If the current index for an adjustable interest rate HECM falls below zero, the current index for calculating the interest rate is considered to be zero Note of the borrower,” according to the letter.

Click here to learn more about the FHA’s introduction of SOFR for HECMs.