A roster of over 34,000 floating-rate securities shifting from the London Interbank Offered Rate (LIBOR) to alternative benchmarks founded on the Secured Overnight Financing Rate (SOFR) has been published by Freddie Mac.
Over one trillion dollars’ worth of adjustable-rate commercial and multifamily mortgages rely on LIBOR as their underlying rate. Fannie Mae and Freddie Mac announced in 2019 that they would no longer purchase or issue certain securities that use LIBOR as a reference rate, opting instead for alternative benchmarks like SOFR. Although the cessation of LIBOR was originally planned for 2021, it was delayed until 2023 due to the complexity of the transition process.
Karen Pilewski, who serves as Senior Director and Lead for the implementation of Freddie Mac’s LIBOR transition, has stated that the company has taken a significant step forward in its years-long move from LIBOR to new reference rates based on SOFR. With the allocation of a fallback reference rate to each remaining Freddie Mac security indexed to LIBOR, investors can have greater assurance that their investments will make a smooth transition to the replacement index once LIBOR is discontinued.
The commencement of the transition will take place on July 1st, which is the day after the ICE Benchmark Administration stops publishing a representative rate for all remaining tenors of USD LIBOR.
According to the firm’s news release, the securities listed comprise Freddie Mac Participation Certificates, Giants, Collateralized Mortgage Obligations, Credit Risk Transfer securities, and Multifamily PCs and SPCs. Each security in the list is accompanied by a CUSIP, prior index, and replacement index. Freddie Mac has stated that it will be responsible for selecting the replacement index.
On its website, Freddie Mac uploaded the list of securities along with links to various resources such as the LIBOR Transition Playbook, Frequently Asked Questions and Answers about the LIBOR Transition, a table presenting the Selected Replacement Index for each legacy LIBOR product, and other pertinent details.