The company's LIBOR Transition HomeSafe program will allow borrowers to refinance an existing loan and replace it with a new one that is designed to avoid the potential risks associated with the upcoming discontinuation of the London Interbank Offered Rate (LIBOR).
The current LIBOR benchmark, which is set by banks trading in the London interbank lending market, is used to determine the interest rate for a variety of consumer mortgage products, including adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs). With the expiration of LIBOR in 2021, Freddie Mac seeks to make the transition away from this index easier for consumers by offering a new set of products that are tailored to meet the needs of borrowers in the LIBOR transition period.
Under HomeSafe, borrowers can refinance an existing loan and receive a fixed-rate for the remaining term or choose a Loan Administration System (LAS) loan in order to benefit from lower monthly payments, longer terms, and added flexibility. LAS loans are adjustable-rate mortgages that are pegged to the Secured Overnight Financing Rate or SOFR, an alternative to LIBOR. This rate, which is based on overnight repurchase transactions between primary dealers and money market funds, is expected to continue over the next few years and is therefore seen as a more sustainable index for interest rates.
For those who are already locked into a LIBOR-linked loan, Freddie Mac has also unveiled the Rate Security Program (RSP). Through RSP, existing LIBOR-based loans can be secured with a fixed-rate for up to seven years, giving homeowners the assurance that their interest rate will not change regardless of LIBOR changes during that time.
Overall, Freddie Mac's recent initiatives are aimed at providing more stability and security for homeowners in the uncertain times ahead. With the impending end of LIBOR, the company is working to ensure that its customers are prepared by offering them the opportunity to finance their existing mortgages at more sustainable interest rates. HomeSafe and RSP both provide additional options for borrowers who want to reduce their exposure to the volatility of the London interbank lending market while still enjoying the benefits of Freddie Mac's loan services.
This article was contributed on Dec 21, 2023
