NEW YORK, July 17 (Reuters) - Fannie Mae and Freddie Mac will eventually halt purchases of U.S. home loans linked to the London interbank offered rate as that index is set to be phased out after 2021, Mark Calabria, the head of the Federal Housing Finance Agency, told Reuters on Wednesday. LIBOR is referenced against $200 trillion worth of U.S. financial products, primarily in interest rate derivatives. There are roughly $1 trillion in adjustable-rate mortgages (ARMs), or about 6.5% of all U.S. home loans outstanding, which are reset against it. (Reporting by Richard Leong; Editing by Richard Chang)
Fannie Mae and Freddie Mac are expected to stop purchasing LIBOR-linked mortgages. While the government-sponsored enterprises have not been told to stop buying LIBOR ARMs, that day will come, said FHFA director Mark Calabria. Echoing comments from New York Federal Reserve President John Williams at an industry event on 15 July, Calabria said the FHFA was trying to reduce risk and called for increased efforts to educate consumers about the move from LIBOR. He said: “I don’t want to wake up one day and have millions of mortgage borrowers feel like that they were hoodwinked or they were sold something” they did not understand. Outstanding LIBOR-linked ARMs are worth around $1tn or ~6.5% of all outstanding US home loans.