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New SOFR ARM Index and Non-QM ARM Program Changes

May 5, 2023

Overview

The London Interbank Offered Rate (LIBOR) is being discontinued as an approved index for adjustable interest rate mortgages (ARMs), and will be replaced with the Secured Overnight Financing Rate (SOFR) as an approved index for ARM loans.

In anticipation of the transition, effective May 8, 2023, Carrington Mortgage Services, LLC (CMS) will implement the SOFR 30-day Compounded Average Index as the replacement index for all CMS Non-QM ARM loan programs.

In addition to the SOFR change, effective May 8, 2023, CMS will also be making the following changes for Non-QM ARM Loan Programs:

  • Add new 7/1 ARM option for Investor Advantage program
  • Eliminate the 10/1 ARM options for all programs
  • Increase the Margin for all programs
  • Shorten the rate adjustment period from 12 months to 6 months for all programsExpand the Initial Rate Cap from 2% to 5% on Investor Advantage and Flexible Advantage programs

Refer to the tables below for specific SOFR ARM program requirements (changes from current guidelines are highlighted in green):

Prime Advantage SOFR 5-year ARM SOFR 7-year ARM SOFR 10-year ARM
Margin 4.500 4.500 N/A
Initial Cap 2.000 5.000 N/A
Periodic Cap 2.000 2.000 N/A
Lifetime Cap 5.000 5.000 N/A
Floor Start Rate Start Rate N/A
Adjustment Months 6.000 6.000 N/A

 

Flexible Advantage Plus SOFR 5-year ARM SOFR 7-year ARM SOFR 10-year ARM
Margin 4.500 4.500 N/A
Initial Cap 2.000 5.000 N/A
Periodic Cap 2.000 2.000 N/A
Lifetime Cap 5.000 5.000 N/A
Floor Start Rate Start Rate N/A
Adjustment Months 6.000 6.000 N/A
Investor Advantage SOFR 5-year ARM SOFR 7-year ARM SOFR 10-year ARM
Margin 6.000 6.000 N/A
Initial Cap 5.000 5.000 N/A
Periodic Cap 2.000 2.000 N/A
Lifetime Cap 5.000 5.000 N/A
Floor Start Rate Start Rate N/A
Adjustment Months 6.000 6.000 N/A
Flexible Advantage SOFR 5-year ARM SOFR 7-year ARM SOFR 10-year ARM
Margin 6.000 6.000 N/A
Initial Cap 5.000 5.000 N/A
Periodic Cap 2.000 2.000 N/A
Lifetime Cap 5.000 5.000 N/A
Floor Start Rate Start Rate N/A
Adjustment Months 6.000 6.000 N/A

Contacts

Please contact your Account Executive or Account Manager with any questions.

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