LIBOR Changes and impact

Updated 4/13/2021

What is LIBOR and how does it affect my mortgage?

LIBOR stands for (London Interbank Offered Rate) and helps many financial institutions set the interest rates for loans, swaps, bonds, credit cards, adjustable rate mortgages, and other products.

By the end of June 2023, financial institutions around the world will phase LIBOR out and likely implement a new benchmark for determining interest rates.

Mortgage Impact

Customers with a fixed rate mortgage are not impacted by this change. Customers with an Adjustable Rate Mortgage (ARM) with a term extending beyond 2023 may be impacted by this change if the adjustable rate is tied to LIBOR. Fulton Bank will choose a replacement index, such as SOFR, to replace LIBOR before the index is retired on June 30, 2023 . While some customers may see a slight adjustment in their payments, we are working to ensure that customers will not be adversely financially impacted by the change in a substantial way.

Why LIBOR is being phased out

Changing industry norms and LIBOR manipulation scandals are driving a shift away from LIBOR, causing borrowing to decline as banks looked for other means to obtain financing. For these reasons and more, regulators advocated that markets move away from LIBOR to a more reliable index. 

How Fulton Bank is preparing for the LIBOR transition

We have a large team dedicated to this transition and closely engaged with market activities. No action is required of mortgage customers at this time. We will reach out directly to affected customers to address their mortgages.

Frequently Asked Questions

What are the alternative rates to LIBOR?

Neither the industry nor any bank has a perfect replacement for LIBOR. While certain rates receive many of the headlines, additional alternatives are still being considered.

The Alternative Reference Rates Committee (ARRC), an industry group convened by the Federal Reserve Board and the New York Fed, recommends using the Secured Overnight Financing Rate (SOFR). SOFR is considered a more robust reference rate than LIBOR as it is wholly based on actual transactions and represents an active daily market. Both Fannie Mae and Freddie Mac are members of the ARRC and participate in many of its working groups.

What is SOFR? 

SOFR is based on transactions in the U.S. Treasury repurchase, or repo, market, where banks and investors borrow or lend Treasuries overnight.

• It is produced by the New York Fed in cooperation with the Office of Financial Research each business day.
• SOFR is continuing to develop and will have multiple variations. Daily Simple SOFR, SOFR in Advance and SOFR compounded in arrears are currently published. Term SOFR is under development and not yet available.
• The ARRC released A User’s Guide to SOFR  to further explain details about SOFR and how market participants can use it in cash products.

How is SOFR different from LIBOR?

Although LIBOR and SOFR reflect short-term borrowing costs, they are calculated very differently:

• LIBOR is an unsecured rate, has multiple tenors, has a credit risk component, is set by panel banks, and may be derived using estimated rates.
• SOFR is a secured rate, is a daily rate (overnight), is considered risk free, and is based entirely on actual transaction data from the repo market.

What do I need to do to prepare for the transition from LIBOR?

No action is required of existing Adjustable Rate Mortgage customers at this time. We will provide further updates in advance of any necessary changes to impacted customers. Reference this site for additional resources on the LIBOR transition and industry developments. Information is current as of the date is was published. 

Resources

• Freddie Mac: LIBOR Transition
• Fannie Mae: LIBOR Transition
• ARRC - Alternative Reference Rates Committee