HELOC Issuers Transition to New Global Financial Benchmarks
What happened
HELOC issuers began adopting new global financial benchmarks for their products on September 21, 2020. The Federal Reserve stated that scrapping LIBOR would pose a risk to financial stability and undermine global transition planning. The Federal Reserve and Treasury are urging legislation to replace LIBOR with the Secured Overnight Financing Rate in certain contracts.
Why it matters
The transition affects trillions of dollars of contracts as LIBOR approaches its 2023 expiration. Banks that fail to transition away from the benchmark rate could face supervisory consequences from the Federal Reserve. Servicers who skip required written notice of the new index face foreclosure challenges.
Who's involved
- HelocThe subject of the transition to new global financial benchmarks.
- Federal Reserve BankIssued warnings that banks failing the transition could face supervisory consequences.
- FEDIs urging the passage of legislation to replace LIBOR with a new benchmark.
- Bank of AmericaMay face market price changes forcing re-pricing and risk modeling on existing HELOC loans.
Who could feel it
Possible knock-on effectsThese are possibilities Brind reasoned out, not predictions, and not advice. Most are not stated in any report.
- BetterSpeculative
Better might require updating HELOC product structure and pricing models due to market shifts.
- HSBCSpeculative
HSBC could face operational changes requiring the switching of trillions of contracts to new benchmarks.
- Bank of AmericaSpeculative
Bank of America could face market price changes forcing re-pricing and risk modeling on existing HELOC loans.