October 11, 2007 (LPAC)--Three quarters of the adjustable-rate mortgages taken out by buyers with shaky credit standings, and about a quarter of the hybrid ARMs taken out by those with good credit ratings, are tied to the London Interbank Offered Rate, or LIBOR, which is set by global investors and banks in London.

This is a dramatic change from only a few years ago, when most ARMs in the U.S. were tied to the prime rate set by American banks, or rates on Treasury bills largely controlled by the Fed. At the time, the Fed could provide immediate relief to overburdened ARM customer with rate cuts. Now these same ARM customers have to depend on the jolly good will of the London-based investors and banks.

The fact that the London Interbank Offered Rate is used to set the rate on ARMs puts the statements by Bank of England Governor Mervyn King about not cutting interest rates in a new, more interesting light.