MBA Releases Lender Disclosure Template for ARM Borrowers Ahead of LIBOR Sunset
With discontinuation of the London Interbank Offered Rate likely ahead, the Mortgage Bankers Association yesterday released a disclosure template for residential mortgage lenders to share with consumers interested in applying for an adjustable-rate mortgage.
“As the industry moves closer to a potential sunset of LIBOR, MBA is taking the lead to help its members communicate to consumers how the switch to a new index would affect them if they choose a LIBOR-indexed adjustable-rate mortgage product,” said Pete Mills, MBA Senior Vice President of Residential Policy and Member Services. “The disclosure template is one of the many ongoing steps that MBA is taking well in advance to ensure a smooth transition away from LIBOR.”
MBA’s disclosure template (https://www.mba.org/advocacy-and-policy/residential-policy-issues/federal-banking-laws-and-regulations/reference-rate-reform-(libor)) is designed to inform potential ARM borrowers about LIBOR’s future and the possible changes to their monthly payment that could occur if their loan ends up tied to a new, alternative published index. When an index rate, such as LIBOR, is no longer available during the term of a loan, in most circumstances a borrower’s interest rate and monthly payment will also change. The disclosure also stresses that any index changes will not affect most other terms of an ARM, including the maximum interest rate paid during the life of the loan or the timing of any rate reset.
LIBOR is the leading reference rate for adjustable-rate single-family mortgages in the U.S. The UK’s Financial Conduct Authority, the body responsible for regulating LIBOR, has made clear that the publication of LIBOR is not guaranteed beyond 2021 (https://www.fca.org.uk/news/speeches/the-future-of-libor).
MBA members will have access to an editable version of the disclosure template to make any adjustments to it, including adding their own company branding. In the coming months, MBA will develop and release a separate disclosure template intended for lenders to share with consumers with existing ARMs that are already indexed to LIBOR.
LIBOR is also used as the base rate for more than $1 trillion of adjustable-rate commercial and multifamily mortgages. Earlier this week, MBA’s Commercial/Multifamily LIBOR Outreach Committee released a survey of commercial and multifamily real estate finance firms’ plans for the transition away from LIBOR. More information can be found at https://www.mba.org/2019-press-releases/june/mba-survey-on-libor-transition-finds-a-mix-of-preparation-and-uncertainty-among-commercial-and-multifamily-real-estate-firms.
