Legacy LIBOR Non-Standard Note Review

The following applies to Fannie Mae LIBOR ARMs using Notes without standard index replacement language or language recommended by the Alternative Reference Rates Committee (ARRC) with interest rate adjustments based on a lookback date after June 30, 2023.

In anticipation of LIBOR cessation on June 30, 2023, servicers must complete a review of their LIBOR ARM Notes (“Notes”) that do not contain the index replacement language recommended by the ARRC in November 2019. Lender Letter LL-2020-01 emphasized the use of this recommended language, requiring sellers to use ARM Notes and riders with the ARRC replacement language for mortgages with Note dates on and after June 1, 2020.

Prior to this date, most Fannie Mae LIBOR ARM Notes contain standard index replacement language stating that, “If the Index is no longer available, the Note Holder will choose a new index which is based upon comparable information.”

However, some Notes may have either non-standard index replacement language or no index replacement language. Notes that are more likely to have non-standard language are anticipated to be:

  • Found in older origination vintages (pre-2009)
  • From transferor servicers who are no longer in business, or
  • Originated at a time when policies and procedures did not require the use of Uniform Notes with standard replacement index language.

In preparation for the transition to a new index, we encourage all servicers with LIBOR ARM Notes to review all such Notes and identify each variation of Notes that contain:

  • Non-standard index replacement language or no index replacement language, and/or
  • Language that may require servicing data changes as a result of the implementation of a replacement Index (e.g., changes to margin)

Servicers must contact their Fannie Mae Servicing Managers about any notes for loans they service with non-standard index replacement language or no replacement language as a result of their review. There may be operational or other impacts based on these non-standard documents.

Legacy LIBOR Replacement Index Update

The federal Adjustable Interest Rate (LIBOR) Act (“the Act”) requires the Board of Governors of the Federal Reserve System (Federal Reserve Board) to publish regulations identifying a Board-selected benchmark replacement based on SOFR. The Act provides that the Board-selected benchmark replacement will automatically apply to any contract that does not contain a fallback provision for LIBOR or contains a fallback provision that identifies neither a specific replacement index nor a person with authority to select a replacement index. The Act also provides a safe harbor for the use of the Board-selected benchmark replacement in contracts that allow a person to choose a replacement index.

We will share more information about the transition as it becomes available.

To learn more about the LIBOR transition, please visit our LIBOR Transition page, LIBOR FAQs, and LIBOR Playbook.