Okay, I'm not so sure how many people are familiar with the London Inter Bank Offer Rate, or LIBOR, but it has a huge effect on our economy.
London’s LIBOR Rate Surge Hits U.S. Mortgages
A surge in the overnight London Interbank Offered Rate (LIBOR), to 6.44 percent September 16, may create a further downward spiral in the already struggling U.S. housing market. In addition, shorter-term gains in LIBOR rates may indicate future increases as risk continues to grow and lenders demand higher compensation. According to the British Bankers’ Association, the rate surged 3.33 percentage points, its biggest jump in at least seven years.
Daily LIBOR rates are used to calculate monthly adjusting mortgage resets, including some option ARMs. Approximately six million U.S. mortgages consisting mostly of subprime and prime adjustable rate mortgages are linked to LIBOR. Because many U.S. mortgages linked to LIBOR do not limit the size of a loan’s first reset, a monthly mortgage payment could double or even triple.
Home prices in the U.S. will most likely continue to decrease through 2010, according to a statement by Freddie Mac on September 15. “If the LIBOR market seizes up and stays that way, it’s going to complicate everything,” said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. “What you are seeing is the unwinding of the financial system as we know it.”
Source
If this does not change and change quickly, the housing mess is going to get a lot worse & very quickly.
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