LIBOR CFPB FAQ ARMs 5 – What indices are identified in the LIBOR Transition Rule as examples of comparable indices for each LIBOR tenor?

Compliance > Regulation Z - TILA > LIBOR Transition
Q:  What indices are identified in the LIBOR Transition Rule as examples of comparable indices for each LIBOR tenor?
 
A:   As stated above, in LIBOR Adjustable-Rate Mortgage FAQ 4, if a creditor wishes to avoid triggering a refinance of the transaction during the LIBOR transition, the creditor must select a replacement index that is comparable to the LIBOR index. Comment 20(a)-3.ii.B.

The ARRC has recommended certain SOFR-based spread adjusted indices (SOFR-Based Spread-Adjusted Indices) to replace certain tenors of LIBOR for consumer products. For purposes of this Regulation Z provision, these SOFR-Based Spread-Adjusted Indices are examples of indices that are comparable to certain tenors of LIBOR. These comparable indices include:
  • 1-month LIBOR: The SOFR-Based Spread-Adjusted Index to replace 1-month LIBOR is an example of a comparable index for 1-month LIBOR.
  • 3-month LIBOR: The SOFR-Based Spread-Adjusted index to replace 3-month LIBOR is an example of a comparable index for 3-month LIBOR.
  • 6-month LIBOR: The SOFR-Based Spread-Adjusted Index to replace 6-month LIBOR is an example of a comparable index for 6-month LIBOR.
     
Comment 20(a)-3.ii.B.
 
If a creditor replaced one of the identified tenors of LIBOR with its respective SOFR-Based Spread-Adjusted Index, the creditor would not trigger a refinance through that action. Other indices may also be comparable.
 
 
This Q&A was created based on information from the Consumer Financial Protection Bureau’s website (which may be updated from time to time) that provides Answers to Frequently Asked Questions on the Transition Away from LIBOR.  This information may be found here:  https://files.consumerfinance.gov/f/documents/cfpb_libor-transition_faqs.pdf
 

Add Feedback