The Department of Housing and Urban Development (HUD) published a new Mortgagee Letter on Thursday that updates the source for calculating the expected interest rate for certain reverse mortgages.
Effective October 31, 2016, per Mortgagee Letter 2016-16, mortgagees must use the Intercontinental Exchange (ICE) Benchmark Administration for obtaining the 10-Year London Interbank Offered Rate (LIBOR) swap rate—as initially put forth under the “Index Availability” section in ML 2007-13. All other requirements of ML 2007-13 remain in effect.
ML 2007-13 required mortgagees to use the Federal Reserve Board’s Selected Interest Rate (H.15) statistical release as the main source for LIBOR rates, however, in late September the Fed announced that it would discontinue publication of certain interest rates, including swap rates pertaining to reverse mortgages.
Historically, the Fed obtained its 10-Year LIBOR swap rate from the ICE and calculated a weekly average using the ICE 10-Year swap rate available here.
Under the new guidance, it is important to note that the ICE does not use the term “LIBOR” in its references to the 10-Year swap rate, however, this is the rate to be used, HUD states in ML 2016-16.
To ensure consistency, HUD notes that the weekly average of the ICE 10-Year swap rate is effective on the Tuesday following the previous week.
In the event there is a U.S. Federal Holiday on a Monday, then the 10-Year swap rate is calculated on Tuesday and becomes effective the next business day.
Instructions for accessing the 10-Year ICE swap rate are available here.
Written by Jason Oliva