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Mortgage industry should prepare for new interest-rate index, Fed working group says

Alternative Rates Reference Committee, Federal Reserve, Federal Reserve Bank of New York

A new interest-rate index can be a suitable replacement for Libor, the current benchmark rate index set to be retired after 2021, a working group of finance professionals has determined.

That means the mortgage industry should start soon to prepare for the transition to the new index, the group told reporters Thursday.

The London Interbank Offered Rate tracks the interest rates that banks use to lend to each other over the short term. Many adjustable-rate products, including mortgages, have long used Libor as a “reference,” but the index was tarnished by a price-fixing scandal that came to light in 2012, and the financial industry had to find a replacement.

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