For your consideration: Our observations regarding What's holding back the housing market?

For your consideration: Our observations regarding What's holding back the housing market?

ARM Indexes: 11th District Cost of Funds (COFI)

Alias "Monthly Weighted Average Cost of Funds Index for Eleventh District Savings Institutions"

The 11th District Cost of Funds (COFI) has been discontinued by its source, the Federal Home Loan Bank of San Francisco, with the publication of the December 2021 value on January 21, 2022.

Why was the COFI discontinued?
When the index was first calculated back in 1981, over 200 thrifts (Savings and Loans) contributed data to the calculation of the index. Changes to the banking industry -- consolidation, mergers, changes of charters to national banks -- diminished the number of reporting firms over time. At the time of discontinuance, there were only eight such firms remaining.

Likely minimal impact from COFI discontinuance
COFI ARMs were last popular perhaps 15 years ago or more, and were most widely utilized in the western states from which the index data was drawn. After a number of significant refinance waves over the last 15 years, it's unclear how many of these products are still in place. For those that are, some will see the use of a substitute COFI index calculated by Freddie Mac to allow lenders servicing these loans some continuity.

COFI Replacement Index
The so-called "Enterprise 11th District COFI Replacement Index" will be calculated by Freddie Mac using the Federal Cost of Funds as a basis, although it will be adjusted so that the new index value is roughly equivalent to the old COFI.

The replacement index is for existing loans. Freddie Mac noted that "The Replacement Indices may not be used on any new financial instrument created or entered into on or after February 28, 2022." and that "Freddie Mac does not endorse or authorize the use of the Replacement Indices on financial instruments that are not owned or guaranteed by the GSEs at time of the transition."

About COFI
The 11th District Cost of Funds index is used primarily for ARMs with monthly interest rate adjustments. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada. The cost of funds reflects the interest paid by institutions for savings accounts, FHLB advances, money borrowed from commercial banks, and other sources.

Since the largest part of a cost of funds index is interest paid on savings accounts, this index lags market interest rates. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general. However, such ARMs often have payment caps, but no month-to-month interest rate caps.

Please note that the 11th District COF index is a lagging index . The index value for a particular month is not reported until the end of the next month. Thus, the 11th COF index for the month of March is reported on the last business day of April; the October value is reported on the last business day of November, etc. (The index value is released after 3 PM Pacific time, or after 6 PM Eastern time.)


ARM Indexes: 11th District Cost of Funds (COFI) from December 2020 to December 2021

Date 11th District Cost of Funds
Dec-2021 0.22300
Nov-2021 0.21800
Oct-2021 0.22500
Sep-2021 0.22500
Aug-2021 0.23800
Jul-2021 0.26300
Jun-2021 0.28200
May-2021 0.30600
Apr-2021 0.34300
Mar-2021 0.37700
Feb-2021 0.40800
Jan-2021 0.45700
Dec-2020 0.46000

3-Month TCM
6-Month TCM
1-Year TCM

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