The U.S. government is looking to a London-based index to help keep it competitive.
In a Federal Register Notice, the Federal Housing Commissioner has requested that the one-year London Interbank Offered Rate, commonly known as LIBOR, be added as an acceptable index for FHA-insured adjustable-rate mortgages.
Currently, only the weekly average of the one-year Treasury can be used as an index on HUD-insured ARMs, the proposal said. HUD said it previously believed that it was appropriate for U.S. government-insured mortgage loans to have "an index calculated and published by the U.S. Government."
But the growing popularity of the LIBOR, as well as the secondary market's acceptance of it as an index, prompted HUD to change its view, the notice said.
"It is necessary for HUD to offer a LIBOR option to remain competitive in the secondary market," the commissioner said.
As of May 30, Fannie Mae reported the 1-year LIBOR yield was 5.4139%. On the same day the one-year Treasury yield was 5.02%, Fed data indicate. But the two indexes have reportedly tracked each other closely over time.
"The better margins available for LIBOR-indexed loans often make LIBOR-based loans a better deal," HUD said.
Comments about the proposal are being solicited online at www.Regulations.gov until Aug. 18.