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.
