A large number of homeowners are alleging, via a class action lawsuit, that they paid substantially more on their adjustable-rate mortgages because of Libor manipulation.

By Peter Ricci

When news broke in the summertime that banks had been engaging in widespread acts of Libor manipulation – effectively rigging interest rates on $300 to $600 trillion of credit cards, mortgages, and loans – the financial regulatory system was completely thrown off-kilter, and analysts attempted to narrow down who exactly was affected by the manipulation.

Back in July, we had explained how Libor could impact residential real estate, and now a collection of homeowners are verifying our suspicions with a class action complaint, which alleges they paid more on their mortgages than they should have.

Libor Manipulation – Homeowners Get the Shaft?

Filed in New York federal court earlier this month, the plaintiffs in the lawsuit are arguing, according to a CNN Money synopsis of the case, that because of Libor manipulation by the world’s largest banks, they paid more on their adjustable-rate mortgages than they should have. Some key details on the case include:

• Libor is an aggregate rate that is compiled each business day by Thomson Reuters, and is based on the interest rates that banks would have to pay to borrow money of various currencies.
• The scandal of Libor manipulation, though, involves those banks lying to the British Bankers’ Association when they reported those interest rates.
•  Thus, the class action lawsuit states that between 2000 and 2009, banks manipulated Libor and continually pushed rates higher and higher, forcing the homeowners to pay more than they should have (John Sharbrough, a lawyer for the plaintiffs, estimates the Libor manipulation created an extra $300 a year in mortgage payments).
• Between 2000 and 2001, the suit states, ARM rates show “an otherwise inexplicable increase in the rate on, or about, the first business day of each month.”

Tip of the Libor Iceberg?

According to numbers from the Office of the Comptroller of the Currency, the nation’s banks originated roughly 900,000 ARMs between 2005 and 2009, so there could be thousands upon thousands of disgruntled homeowners joining in on the lawsuit – a point that the lawsuit itself makes.

And homeowners are not the only group looking for damages; as CNN Money pointed out, there are a number of other class action lawsuits currently on the books, with plaintiffs ranging from local government bodies to community banks.