Alternatives to Libor in Consumer Mortgages

Mark E. Schweitzer, Guhan Venkatu
2012 Federal Reserve Bank of Cleveland. Economic Commentary  
Many adjustable rate mortgages in the United States are indexed to Libor. While the accuracy of this rate has recently been called into question, another issue affecting U.S. borrowers has become evident since the onset of the financial crisis. Specifically, many U.S. consumers with Libor-based loans may have been hit with substantially higher payments when their loans reset during the financial crisis than if those loans had been tied to a Treasury rate. We investigate several alternative
more » ... ence rates for consumer loans and estimate their payment effects on a large sample of Libor-linked U.S. mortgages. We find that these alternatives would have delivered savings over Libor of about $25 to $45 per month and substantially more for mortgages that reset in October 2008.
doi:10.26509/frbc-ec-201214 fatcat:hjztddzjvnapzmlhff4jlkvdea