Impact of the LIBOR rate scandal on mortgage rates?

[Anonymous]

Anyone have opinions about whether the LIBOR rate scandal is likely to have a short-term impact on mortgage rates? We're shopping around now for a fixed-rate mortgage, and wonder if we should wait 1-2 weeks to see if rates come down. Most of the press seems to be about adjustable rate mortgages, and I have't seen any discussion of a short-term impact on rates. Any informed opinions to share?

[Anonymous]

I thought, correct me if I'm wrong since this is not exactly my field of study, but that the LIBOR sets interest rates for basically everything- fixed or not. So yes, it may have a more visible volatile reaction with ARMs, but in reality everything is effected. So rates may be for 30 yr fixed this week at 3.67% but last Thursday they were at 3.62%. Now whether this scandal will have a significant impact... I honestly hope it DOES. I hope rates drop another .5%... because then it will make sense for myself and a lot of others who bought with a rate around 4% to refi.

The LIBOR rate is also tied to private student loans. So as a political strategy, if it goes down- this could only help certain administrations...

I read a financial piece last week on the scandal and a certain economist + professor from MIT said the process of LIBOR fixing and all the banks involved dwarfs by several magnitudes any financial scandal the world has seen yet.

[Anonymous]

I am in the residential mortgage finance business, and will give you my short answer here:

In the short-term, the current LIBOR scandal will have no or only a slight impact on rates. the issue is that LIBOR is being fixed by the major banks, as opposed to being an open-market rate. However, the open market for LIBOR is limited to a small number of banks anyway. Basically, 30-day LIBOR (the most common rate) is at 0.24%...perhaps it will float in the 0.20% to 0.30% range for the short term, but that will not impact rates much.

Longer-term, markets will either switch from LIBOR to another short-term rate or will demand LIBOR transparency. Either way, home mortgage rates will be more readily transparent, although likely more volatile, as the rates will truly float over a transparent index.

For mortgages, this only applies to ARMs. 15 and 30 year fixed are priced off of Treasury swap rates, not LIBOR. But LIBOR is used for student loans, car loans, credit cards, and pretty much every other short term or variable rate loan.

[Anonymous]

OP here. Thanks for the great replies!