The SOFR is the Secured Overnight Financing Rate and is the rate large financial institutions pay each other for overnight loans. The simple explanation is that it is a key benchmark interest rate used by most lenders. Mortgage lenders use this benchmark as an index when pricing conventional and jumbo adjustable rate mortgage products. The SOFR recently replaced the LIBOR, London Interbank Offered Rate in 2021. The reason for the replacement was that LIBOR had been marred by a series of scandals regarding inaccuracy due to manipulation. Alternatively, SOFR is less likely to be manipulated as the Treasury repo market is one of the most liquid in the world, which means its reported value is backed by real transaction data versus hypothetical rates that were self-reported for LIBOR. I’m Stewart Brown, a licensed Mortgage Loan Originator in Palm Springs, California here to simply topics in Real Estate and Mortgage Lending. Please, like, share, follow and subscribe!
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