Introduction of SOFR-indexed CMOs, Cessation of New LIBOR-indexed CMO Issuances, and Supplement/Amendments Posted for Legacy LIBOR-indexed CMOs
In light of the potential future cessation of LIBOR, and in order to foster a liquid, efficient, and resilient securities market, Fannie Mae and Freddie Mac (the Enterprises), under the guidance of their regulator and conservator FHFA, have announced they plan to:
- Offer SOFR-indexed Collateralized Mortgage Obligations (CMOs) (i.e., REMICs and Strips) beginning in June 2020; and
- Cease issuing new LIBOR-indexed CMOs no later than September 30, 2020. The Enterprises will continue to
- issue new resecuritizations of LIBOR-indexed CMOs (also known as "ReREMICs"), provided that such resecuritizations do not increase the total unpaid principal balance of the LIBOR-indexed CMOs outstanding, and
- conduct exchanges of related combinable and recombinable (RCR) certificates.
The Enterprises also announced that they have posted a supplement (in the case of Fannie Mae) and amendments (in the case of Freddie Mac) to the governing legal documents of certain of their legacy LIBOR-indexed CMOs.
SOFR-indexed CMO Framework Presentation
Fannie Mae and Freddie Mac have posted a SOFR-indexed CMO Framework presentation that explains the details of the SOFR-indexed CMOs they will be offering beginning in June 2020, available here.
Supplement/Amendments Posted for Certain Legacy LIBOR-indexed CMOs and Moratoria Lifted on Affected Legacy Bonds
Fannie Mae and Freddie Mac also announced the posting of a supplement (in the case of Fannie Mae) and amendments (in the case of Freddie Mac) to the governing legal documents of certain of their legacy LIBOR-indexed CMOs. Both Enterprises have certain outstanding multiclass REMIC and Strip securities with legal agreements and disclosure documents that did not contemplate a permanent cessation of LIBOR. To address this issue, at the direction of their regulator and conservator FHFA, the Enterprises have adopted an aligned approach to supplement the LIBOR fallback provisions of their respective affected legal documents with new provisions modelled on language endorsed by the securitization working group of the Alternative Reference Rates Committee (ARRC). Fannie Mae's supplement posting can be found here and Freddie Mac's amendment postings can be found here.
In conjunction with the posting of the supplement and the amendments, respectively, Fannie Mae is lifting the moratorium on new REMIC issuances that include legacy CMOs issued prior to 2014 whose interest rate is based on LIBOR and Freddie Mac is lifting the moratoria on new REMIC issuances backed by legacy CMOs for which LIBOR is calculated using the "LIBO Method" and the "ICE Method". Those CMOs can be included in new REMIC issuances beginning in June 2020. If you would like to include such CMOs in new REMIC issuances, please contact the Enterprise that issued those CMOs for resecuritization options.
For questions, please contact the Fannie Mae Investor Help Line at 1-800-232-6643, Option 3 or by e-mail.
Freddie Mac announcement
This announcement does not constitute an offer to sell or the solicitation of an offer to buy securities of Fannie Mae. Nothing in this announcement constitutes advice on the merits of buying or selling a particular investment. Any investment decision as to any purchase of securities referred to herein must be made solely on the basis of information contained in Fannie Mae's applicable Prospectus and the Prospectus Supplement and the related legal documentation, and no reliance may be placed on the completeness or accuracy of the information contained in this announcement.
You should not deal in securities unless you understand their nature and the extent of your exposure to risk. You should be satisfied that they are suitable for you in light of your circumstances and financial position. If you are in any doubt you should consult an appropriately qualified financial advisor.