WASHINGTON, DC-The Office of the Special Inspector General for the Troubled Asset Relief Program, SIGTARP, has come to the conclusion that Libor is still vulnerable to manipulation and to protect US taxpayers the bailout packages that based its financing on the rate should be renegotiated. That was one of a handful of recommendations the watchdog agency made in its quarterly report to Congress, but it was one with the most significant implications.

Libor, of course, has been beset with controversy for several months, culminating in the decision earlier this month by the UK Financial Services Authority to reset the way the benchmark rate is calculated. However, the controversy around Libor has not stopped its use—at least in commercial real estate transactions. To name just a few deals that used the benchmark rate recently: Starwood Property Trust financed a $46-million first mortgage loan on a 315-room Hilton in Rockville, Md., owned by JBG Cos. with Libor as the rate; NorthStar Real Estate Income Trust priced a $351 million CMBS transaction at a weighted average coupon of Libor + 1.63%; Strategic Hotels & Resorts' $362.3 million purchase of New York City's Essex House Hotel was financed in part by a $190 million first mortgage from Bank of America. The loan has an interest Libor plus 400 basis points, with a Libor floor of 75 basis points.

For the most part, the issues around Libor haven't been a big problem to date, Bill Hughes, SVP and managing director of Marcus & Millichap Capital Corp., told GlobeSt.com in an earlier interview. At bottom, he explains, Libor is just an index, something to measure rates against. "It is the all in rate that is important."

Presumably that will be the case if the government does indeed decide to shift the bailout programs to another rate. However, the reach of these programs is huge and any change is bound to have an impact on the players at some level, if only with additional paperwork and related costs. Also, while the manipulations of Libor have not hurt real estate investors and borrowers, that has not necessarily been true for the banks.

Currently, there are $598.6 million in outstanding TALF loans and $5.69 billion in outstanding PPIP debt with interest rates tied to Libor. These TARP programs are expected to last to 2015 and 2017. "Given the Libor manipulation and its current lack of reliability, the Federal Reserve has a solid basis to reach out to TALF borrowers and Treasury to the six PPIP managers, to express the need to amend the TALF/PPIP contracts," SIGTARP said in its report.