Reply to Impact of the LIBOR rate scandal on mortgage rates?

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[quote=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.[/quote]

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