MBA Publishes Primer on Evolving Issues for LIBOR Transition Affecting Commercial Real Estate Finance
WASHINGTON, D.C. (January 25, 2019) - The Mortgage Bankers Association (MBA) today released a primer designed to provide members and the commercial real estate finance industry with an introduction to potential transition issues - and evolving issues to monitor - in preparation for the sunset of the London Interbank Offered Rate (LIBOR), expected in 2021.
"MBA is committed to assisting member companies on the transition from LIBOR to a successor index. Our ongoing efforts on LIBOR transition involve active engagement with interested members, including commercial real estate finance firms and other market participants," said Thomas Kim, MBA's Senior Vice President of Commercial Real Estate Finance. "Although the expected LIBOR transition is still a few years away, it's important that market participants begin considering the items presented in the primer. We are grateful to the members on MBA's Commercial/Multifamily LIBOR Outreach Committee as the industry prepares for what's next."
Authored by MBA's LIBOR Outreach Committee, the "Primer on Evolving Issues for LIBOR Transition and Commercial Mortgage Market Challenges," offers key action items that member firms need to address, and identifies emerging issues to prepare for in the transition away from LIBOR. The Committee recommends that firms:
- Identify and assess existing LIBOR exposure in their portfolio;
- Prepare adequate contract fallback language for new floating rate loans being closed today;
- Review operational requirements;
- Encourage voluntary adoption by lenders and borrowers of the successor rate at such time as all key constituencies have agreed on the means and methods of transitioning to an alternative rate;
- Join the Federal Reserve ARRC email distribution for key LIBOR transition updates;
- Keep track through ARRC and ISDA regarding hedging products; and
- Manage international implications of a replacement index (for companies with international floating rate portfolios).
Representing a cross-section of commercial mortgage market participants that utilize LIBOR-based reference indices in their businesses, MBA's LIBOR Outreach Committee plans to elevate key issues, share ideas for best practices and be an ongoing resource for the industry throughout the transition.
"It is vital that the industry prepare for what comes next with respect to LIBOR-based commercial mortgage loans. Companies should watch market developments closely and take steps to prepare in light of the uncertainty around the successor index and how it will function," said Andrew Foster, MBA Director of Commercial Multifamily, and staff lead of the LIBOR Outreach Committee.