FHFA calls on Federal Home Loan Banks to cut LIBOR investments

The Federal Housing Finance Agency (FHFA) instructed 11 Federal Home Loan Banks to stop buying LIBOR-based investments.

LIBOR, used as the base rate that represents more than a trillion dollars of adjustable-rate commercial and multifamily mortgages, will expire at the end of 2021.

In a letter, FHFA wrote that the banks should no longer enter into all other LIBOR-based transactions involving advances, debt, derivatives, or other products as of March 31, 2020. The agency also wrote that it would continue to size up the impact of LIBOR-based transactions on all regulated entities during the transition.

“This is an important step in the transition away from LIBOR to a more robust reference rate,” said FHFA Director Mark Calabria. “Beginning this process immediately and providing clear timelines will help the Federal Home Loan Banks manage the risks associated with LIBOR in the most safe and sound manner possible.”

In June, the Mortgage Bankers Association’s LIBOR Outreach Committee found that not all commercial and multifamily companies were working towards the transition away from LIBOR at the same pace.

Jamie Woodwell, vice president of commercial real estate research at MBA, said that most firms are taking some steps but are waiting for regulators and industry-bodies to make decisions before they take certain actions.