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Mortgage Options of America, Inc. - providing mortgage loans and programs in Massachusetts
Cost of
Funds Index (COFI)
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.
