LIBOR Manipulation May Nullify Adjustable Rate

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see http://mobile.nytimes.com/2015/05/21/business/international/ubs-to-pay-more-than-500-million-in-fines-for-manipulating-currency-and-libor.html?_r=0

Many of the alleged mortgage loans have documents that provide for adjustment of the interest rate and the monthly payment — some as early as 30 days and some as far out as 5 years. These adjustments are expressly stated in the note as being based on changes on certain indexes. LIBOR (London Interbank Offered Rate is usually a component of the basis for the adjustment. But, as we have seen on multiple occasions (such as the one in the link above) LIBOR was manipulated and fabricated by the Banks whose reports are used to determine the LIBOR index.

Many Banks have been fined as a result of their illegal activities. My opinion, as an expert, is that the adjustment to rates and payments on notes and mortgages based at least in part on LIBOR are definitely inaccurate. AND there is no way of knowing the true rate without finding out the exact manipulations that occurred and the effect on the index. The note was drafted by the “lender.” So it is to be construed against the party who wrote it — either by or for the originator.

If the actual adjustment cannot be computed because the index upon which it is based was fatally flawed, then the adjustment should not occur unless the parties agree on the amount of adjustment. If I am right, most of the adjustments that have been declared by servicers and banks are (a) wrong and (b) illegal — as a result of their own illegal activities in manipulating LIBOR. Even if they did not participate in such illegal activity, though, the fact remains that the Index is wrong.

This could mean that borrowers who have an adjustable rate mortgage may be able to (a) reduce their payments and (b) seek disgorgement of the amount they paid over the initial monthly payment.

7 Responses

  1. All subprime was pegged to mostly the 6 mo. Libor. From 1994- present. Probably 100s of billions of additional fraudulent income to the servicers. (Subservicers mostly)
    If the banks have all purchased their Libor non-prosecution agreements, (settlements), then how is this not cause for RICO prosecution? Or are such actions underway on behalf of borrowers?

  2. At Consumer Rights Defenders reachable at 818.453.3585, our strategies always include an attack on LIBOR adjustables for the reason that they are heavily manipulated corruptly to cause overcharging leading to unjustifiable defaults on the loans. We suggest those with such notes call us today to discuss your options.
    Litigation is the only way to fix these corruption issues.

    To contributors below: fraud is commonly alleged in the formation of the loans and way they are accounted for thereafter. Causes include fraudulent concealment, rescission, restitution, or specific performance in some cases if you don’t want to cancel the debt/mortgage. 818.453.3585 if you have questions…ask for Steve.

  3. to Louise: if your previous loan was not paid off, and you have no evidence of it being paid furnished to you (and the mortgage is still sitting on the land records) then you would have a case of “Failure of Consideration,” for which you would likely have two remedies: (1) bring suit for “specific performance,” or (2) rescinding/voiding the contract as consideration is absent. In your specific case, you have a mess.

  4. Jan Van Eck, what about a void contract (mortgage and note) from the very beginning because of illegal and corrupt practices? There are multiple practices that went down at the beginning of origination, identity theft, third party not in the contract (note and mortgage), rescinding of the wire that funded the loan after execution of the closing documents, no satisfactions filed of previous loans (in my case) or, in other words, the title company (lawyer) did not do his job and the title was clouded and the loan should never have happened, fraudulent practices related to the HUD 1, (2 HUDS), finally, closing atty did 3 years in the fed pen for wire fraud, oh my!

  5. The resolutions available to the borrower may well be much more extensive than outlined in the Commentary. This is not the first time that manipulation of LIBOR has come out. There was a previous scandal centered in London where the actors artificially changed LIBOR rates so as to accommodate their interbank lending accommodations.

    If the LIBOR rate is misused on a number of times, then it may be construed to be a set of indicia of a corrupt pattern and practice of the participating banks. Then, building on that foundation, if it is a known or anticipated business practice of those rate-setters to be playing games, then those who are in the industry and use that corrupt rate can have imputed knowledge of the corrupt practice.

    The next question then becomes, if there is actual or imputed knowledge of a corrupt practice, can a lender that deliberately chooses a corrupt rate have a claim in equity to the interest that the rate would generate? And I would think not. In which event, either none of the interest can be charged, or the contract itself is now open to repudiation, or becomes unenforceable.

    If open to repudiation, and the factor that is the crux (the interest rate manipulation) is hidden from the borrower, then that paves the way to a late-stage Jesinowski rescission. The general principle being: a lender cannot avail himself of the benefits of a court of equity by coming before that court with documents steeped in the corrupt interest-rate practices of the industry. I invite an analysis of this proposition.

  6. @CR – WHO CARES!!!? The judges will still take the word of confessed felons over a homeowner each and every case. To a sane person you would think that would nullify the judicial immunity of the judicial community.

  7. Been saying this for a long time that these adjustable rate increases attached to LIBOR was BS and is corrupt and this was the thing that started this collapse!

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