New SOFR ARM Index and Non-QM ARM Program Changes
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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