SOFR, or the Secured Overnight Financing Rate, is a mortgage reference index that was originally created as a superior alternative to LIBOR. The London Interbank Offered Rate has long been used by Freddie Mac as its index rate, but it tends to have a higher rate than SOFR because it is not collateralized. In fact, for most of November 2020, SOFR has hovered around .05 to .09 percent. The SOFR is published on business days on the New York Fed’s website.

Freddie Mac originally scheduled the final transition from LIBOR to SOFR for the end of 2020. This date was pushed back to the end of 2021, and the transition may even be delayed until the middle of 2023. Despite possible delays, Freddie Mac remains focused on following through with the transition.

In fact, it has already made considerable headway in proceeding with the transition. Over the last few months of 2020, Freddie Mac started permitting single-family mortgage lenders to underwrite adjustable-rate mortgages using the SOFR index. It also enabled mortgage loan servicers and sellers to sell and securitize these SOFR-indexed loans. In addition to initiating the purchase and securitization of the SOFR-indexed ARMs in November 2020, Freddie Mac stated that December 31, 2020 will mark the end of its purchases of LIBOR-indexed ARMs that were originated in the first three quarters of the year.

According to Freddie Mac, the company has made considerable headway in this complex project. It has worked in conjunction with Fannie Mae, the Federal Housing Finance Agency and others throughout this transition. In addition, Freddie Mac has made progress with the SOFR transition in the multifamily lending market and the small business loan market. Additional efforts have been made to cease LIBOR-indexed collateralized mortgage obligations, or CMOs, and to launch SOFR-indexed CMOs.

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