COFI
ARM Cost of Funds Index
The
11th District Cost of Funds is more prevalent in the West and the 1-Year Treasury
Security is more prevalent in the East. Buyers prefer the slowly moving 11th District
Cost of Funds and investors prefer the 1-Year Treasury Security.
The
monthly weighted average Eleventh District has been published by the Federal
Home Loan Bank of San Francisco since August 1981. Currently more than one
half of the savings institutions loans made in California are tied to the 11th
District Cost of Funds (COF) index.
The
Federal Home Loan Bank's 11th District is comprised of saving institutions in
Arizona, California and Nevada.
Few
people who use and follow the 11th District Cost of Funds understand exactly how
it is calculated, what it represents, how it moves and what factors affect it.
The
predecessor to the 11th District Cost of Funds index was the District semiannual
weighted average cost of funds published for a six month period ending in June
and December. The San Francisco Bank was the first Federal Home Loan Bank to publish
a monthly cost of funds index.
The
funds used as a basis for the calculation of the 11th District Cost of Funds index
are the liabilities at the District savings institutions: money on deposit at
the institutions, money borrowed from a Federal Home Loan Bank (known as advances)
and all other money borrowed. The interest paid on these types of funds is the
cost of these funds.
The
ratio of the dollar amount paid in interest during the month to the average dollar
amount of the funds for that month constitutes the weighted average cost of funds
ratio for that month.
The
average cost of funds is said to be weighted because the three kinds of funds
and their costs are added together before a ratio is computed rather than calculating
averages individually for the three sources and using a simple average of the
three ratios. This gives the greatest weight to the interest paid on deposits,
and explains the delayed reaction of the index to rising fixed-rate mortgages.