The Beginning of the LIBOR Mortgage Loan Battle

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The ripples made in the global financial pond by the LIBOR scandal continue to spread. At long last they have begun to change into a legal battle between victims of the scandal and the banks guilty of causing the LIBOR manipulation in the first place.

While mortgage loans articles have covered statewide and even national issues, they rarely cover a globally impacting problem such as the LIBOR scandal. This macro problem has very micro consequences, as it’s likely touched the lives of nearly every individual American.

LIBOR, or the London Interbank Offered Rate, is the average interest rate at which banks in London—some of the most globally powerful banks—charge one another for borrowing money. It was discovered in the summer of 2012 that Barclays, a British banking titan, had been manipulating LIBOR. As investigations continued it was revealed that JPMorgan, UBS, Citigroup, and HSBC—essentially all the elite global banks—had also been involved. Barclays was forced to pay a settlement worth $453 million.

In New York, a class action lawsuit currently in federal court claims that individual borrowers with adjustable-rate mortgage loans (commonly called ARMs) paid more than they should have as a result of the LIBOR scandal. This homeowner-led class action lawsuit is but one of many class action lawsuits brought about by the LIBOR scandal. It seems everyone from local governments to individual investors and community banks are banding together in order to battle it out in court with lenders.

The lawsuit from the homeowners’ group claims that the banks had colluded to push LIBOR rates higher for variable rate mortgage loans. Due to LIBOR’s wide-ranging influence, thousands of mortgage loan borrowers could potentially become a part of the class action lawsuit. From 2005 to 2009, banks lent 900,000 adjustable-rate mortgage loans which were tied to LIBOR.

John Sharbrough, a lawyer for the class action lawsuit, alleges that affected mortgage loan borrowers paid an additional $300 each year. The defending banks are alleged to have profited by hundreds of millions—if not billions—of dollars.

The Calm Before The Storm

The banks had better get used to being on the defensive. Facing off against the homeowners’ lawsuit isn’t going to be their only problem. Even if the banks manage to defeat the current onslaught of lawsuits there will be subsequent lawsuits as more damaged victims attempt to obtain restitution.

It seems that lawsuits from victims aren’t the only problem the banks will have to deal with either. According to Bloomberg News, an inside source claims that U.S. prosecutors intend to file more charges by the end of this year against traders in several banks involved in the LIBOR scandal.

“It’s not surprising that you’ve got a blizzard of legal actions out of all this,” said Mark Zandi, chief economist at Moody’s Analytics, according to CNN.

These lawsuits will likely snowball into one costly blizzard for banks and anyone investigators find was complicit in the LIBOR scandal. While it may take years before justice is served against Barclays and other banks who were involved in the LIBOR manipulation, the battle to rein in another corrupt financial industry practice has just begun.