Last year, Freddie Macadopted SOFR and phase out LIBOR, and the move is triggering atrend throughout the lending community. More and more lenders arereferencing SOFR in their loan documents, following Freddie Mac'slead to shift away from LIBOR.

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"Freddie Mac's Multifamily Division has indicated that it willbegin purchasing floating-rate loans that use an index based onSOFR by November 1, 2020 at the latest, and that it will ceasepurchasing LIBOR-indexed floating-rate loans after December 31,2020," Jennifer Bojorquez, a partner atTroutman Sanders, tells GlobeSt.com. "In December2019, it priced a new offering of Structured Pass-ThroughCertificates, which included a class of floating rate bonds indexedto SOFR."

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As a result, other lenders are also adopting SOFR and adjustingloan language to include SOFR. "Until recently, many lenders usedgeneric alternate rate language in their loan documents withoutreference to any particular alternate interest rate benchmark,"says Bojorquez. "We now see lenders referencing SOFR as thespecific alternate rate or the primary alternate rate—first in thewaterfall of other alternatives—in the event LIBOR is no longerpublished."

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While some lenders are getting on board and transitioning,others are continuing to use standard language in their loandocuments. "Other lenders do not believe that SOFR is thedefinitive market standard and continue to reference an unspecificalternate rate that is announced by applicable governing bodies orthat is widely accepted in the market," says Bojorquez. "Whether analternate to SOFR emerges is yet to be seen."

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For Freddie Mac, the transition will come slowly, as it slowlyphases out LIBOR. It will start by supporting the SOFR bond market."Freddie Mac stated that its goal was to provide support to theSOFR bond market ahead of a SOFR multifamily mortgage offering andto help ease the transition away from LIBOR," says Bojorquez."Their announced adoption of SOFR certainly provides support foruse of the index by lenders on a broader basis, and sooner ratherthan later."

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.