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ARTICLE · 28 NOVEMBER 2019

ARRC Published Recommended LIBOR Transition Language For Residential Adjustable Rate Mortgages

Jones Day
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Last Friday, the Alternative Reference Rates Committee ("ARRC") published its recommended language to address LIBOR's probable cessation after 2021 in newly issued residential adjustable rate...

United StatesFinance and Banking
Lisa Ledbetter
Lisa Ledbetter
Locke McMurray
Locke McMurray
Matthew Martel
Matthew Martel
Albert Rota
Albert Rota
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Last Friday, the Alternative Reference Rates Committee ("ARRC") published its recommended language to address LIBOR's probable cessation after 2021 in newly issued residential adjustable rate mortgages ("ARMs"). Minutes later, the ARRC announced that Fannie Mae and Freddie Mac plan to include the ARRC language in their residential mortgage note templates in the first quarter of 2020.

Mortgage documentation in use today typically provides for the lender or holder to designate a new index "based upon comparable information" upon LIBOR cessation. Given the likelihood of LIBOR's demise and in order to promote industry-wide "best practices," the ARRC's recommended language would establish a simplified set of "triggers" (actual cessation and a (pre-cessation) "unrepresentativeness" trigger) and a simplified set of "fallbacks" consisting of (i) the replacement index, if any, specific to consumer products (including ARMs) selected or recommended for use by the Federal

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