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

Mar 12, 2021
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A headshot of Navi Persaud
Director of Events

Learn more about the FHA's adoption of SOFR for HECMs. 

The Federal Housing Administration revealed that the Home Equity Conversion Mortgage program will be dropping the London Interbank Offered Rate index for adjustable-rate HECMs, according to a report from Reverse Mortgage Daily. In it's place, the FHA will adopt the Secured Overnight Financing Rate, according to a recently published Mortgagee Letter.
 
According to the letter, mortgagees, with the agreement of the borrower, may simultaneously lock in the expected average mortgage interest rate and the mortgagee’s margin prior to the date of loan closing or simultaneously establish the expected average mortgage interest rate and the mortgagee’s margin on the date of loan closing.
 
"Changes in the Note rate charged on an adjustable interest rate mortgage must correspond either to changes in the 30-day average SOFR or to changes in the weekly average yield on U.S. Treasury securities, adjusted to a constant maturity of one year. Except as otherwise provided in this section, each change in the Note rate must correspond to the upward and downward change in the index, except that the index value shall not be less than zero," according to the letter. 
 
As for LIBOR pipeline loans, the letter states that mortgagees may use the 30-Day Average SOFR for annually adjustable HECMs where the HECM will close on or after May 3, 2021, provided that the 10-Year CMT is used to determine the expected average mortgage interest rate. Mortgagees must conform their mortgage documents to satisfy the requirements of the letter. 
 
"For all HECMs, the index value used to determine the Note rate must not be below zero. In the event the current index for an adjustable interest rate HECM falls below zero, the current index will be deemed to be zero for purposes of calculating the borrower’s Note rate," according to the letter.
 
Click here to learn more about the FHA's adoption of SOFR for HECMs. 
About the author
A headshot of Navi Persaud
Director of Events
Navi Persaud is Director of Events at NMP.
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Mar 12, 2021
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