On February 5, 2020 FNMA announced the publication of revised ARM notes and riders which include fallback language recommended by the Alternative Reference Rates Committee (ARRC). FNMA encourages lenders to adopt this language immediately, with a mandatory usage date of June 1, 2020 for loans closed on or after that date (see FNMA LL-2020-01, available at: https://singlefamily.fanniemae.com/news-events).
In addition, FNMA has announced that, “to be eligible for delivery, all LIBOR ARMs must have application dates on or before Sep. 30, 2020” and that new SOFR ARM products will be available for delivery “during the second half of 2020”, though additional details will be unveiled about this plan “in the coming months.” Details revealed in this Lender Letter indicate that there will be 3-, 5-, 7-, and 10-year SOFR products, with reset periods of 6 months (3/6m, 5/6m, 7/6m, and 10/6m products).
Finally, FNMA “will cease purchasing CMT-indexed ARMs at some point during 2021.”
FHLMC has issued Bulletin 2020-1, which announces similar changes (see https://guide.freddiemac.com/app/guide/bulletin/2020-1). They have also announced that they are modifying the “lifetime floor” language in their ARM Notes and Riders by switching out the phrase “less than the Margin” with “less than _____.%” (even though the lifetime floor must still equal the margin). Also, they are retiring their Biweekly Note and Rider, since they will no longer purchase loans with a biweekly payment.
We are currently reviewing these changes to determine any impact to our document library and/or systems and evaluating any necessary changes. Any modifications we make will be announced on our website (https://compliance.docutech.com/).
TW 286956, 286961 and 286983