Adjustable-rate mortgages based on Libor may cost borrowers far more than comparable mortgages based on U.S. Treasury rates, according to research by the Federal Reserve Bank of Cleveland.
Roughly 90% of subprime mortgages are linked to the London interbank offered rate, or Libor, said the Cleveland Fed's research director, Mark Schweitzer, and its senior policy analyst, Guhan Venkatu.
If current interest rate trends persist, these ARMs will cost borrowers in Ohio alone an additional $34 million, compared with comparable mortgages, the Cleveland Fed researchers said.
Closing the gap by bringing Libor in line with Treasury rates would help many borrowers, as well as the broader economy, the authors said in their report published last week.
