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The Federal Housing Finance Agency (FHFA) is instructing the Federal Home Loan Banks (FHLBs) to soon stop investing in and entering into transactions that are tied to the London Interbank Offered Rate (LIBOR). LIBOR is set to stop publishing after 2021 and will be replaced by the Secured Overnight Financing Rate (SOFR).

SOFR was identified by the Alternative Reference Rate Committee under the direction of the Federal Reserve Bank of New York as the LIBOR solution. While New York Fed Bank President John Williams – with whom NAFCU is set to meet Friday – expressed concerns about the slow adoption of SOFR, the FHLBs have been a leader, issuing more than $100 billion in SOFR-linked securities since the first issuance in November 2018.

NAFCU Chief Economist and Vice President of Research Curt Long – in the newest edition of The NAFCU Journal – wrote an article focused on what credit unions should know about the LIBOR transition, including the adoption of the SOFR.

"This is an important step in the transition away from LIBOR to a more robust reference rate," said FHFA Director Mark Calabria. "Beginning this process immediately and providing clear timelines will help the Federal Home Loan Banks manage the risks associated with LIBOR in the most safe and sound manner possible."

Specifically, the FHFA told the FHLBs that:

• as of Dec. 31, 2019, they should stop purchasing investments in assets tied to LIBOR with a contractual maturity beyond Dec. 31, 2021; and
• as of March 31, 2020, they should no longer enter into all other LIBOR-based transactions involving advances, debt, derivatives, or other products with maturities beyond Dec. 31, 2021.

In another adjustment to the end of LIBOR, Fannie Mae recently announced that it would develop an adjustable-rate mortgage product that will be indexed to SOFR.