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ARM Index Analysis

COFI performs best, LIBOR worst

April 29, 2005


A new MortgageDaily.com analysis of adjustable rate mortgage indexes indicates the cost of funds index has performed better than the Monthly Treasury Average or 1-year Treasury during the past year, while a LIBOR-based index has performed worse.

The share of ARM applications reached a record 37% late last month and currently stands just above one-third. COFI, MTA, the 1-year Treasury and the 6-month LIBOR are some of the most popular indexes that compete for ARMs.

COFIs measure of 2.317% in February marked the ninth consecutive increase since May 2004 when it measured 1.708% -- the lowest point in the 23 years since the Federal Home Loan Bank of San Francisco began reporting the data. COFI reflects the interest expenses reported for a given month by member savings institutions in Arizona, California and Nevada.

March's COFI is due to be announced later today.

Excluding one fluctuating period with the LIBOR, each of the four indexes over the past five years peaked sometime in 2000, and then hit floors in 2003 and 2004 only to cure their wings and soar to higher current levels.

Within the past five years, the COFI peaked in December 2000 at 5.617% and then trended downward -- going below 5% in April 2001 and into the 3% range in September. It continued sliding, falling below 3% at the start of 2002 and below 2% in August 2003 -- until bottoming out last May at 1.708%, the bank said.

As for the 1-year Treasury, the Federal Reserve reported that it was 3.30% in March -- the highest level its been since August 2001.

The 1-year Treasury's highest point within the last five years was in 2000 -- in May at 6.33%. From that point forward, the average trended lowered until bottoming out in June 2003 at 1.01%.

The Monthly Treasury Average index came in at 2.347% last month, which is more than a percentage point higher since its level a year ago, according to the Federal Reserve Statistical Release. Except for January, the index has increased every month since last April -- when the index of 1.238% broke a downward trend of almost three and a half years.

The MTA is reportedly configured by averaging the previous 12 monthly values of the average yield on a constant-maturity 1-year Treasury bill.

The MTA index over the past five years climaxed at 6.128% in November 2000 and then fell consecutively all the way down to 1.225% last March, before heading up to its current level.

The 6-month LIBOR was 3.415% in April -- marking a 13-consecutive-month increase from 1.368%, according to Fannie Mae.

In looking at its activity since 2000, the 6-month LIBOR peaked at 7.064% that May and then decreased each month to 1.983% at the end of 2001. From thereon, it went on a roller coaster ride until beginning its steady climb last April.

ARM Index Performance Over Past Year

Cost of Funds Index 1.815% 2.317% +50 BPS
6-Month LIBOR 1.160% 3.150% +199 BPS
Monthly Treasury Average (MTA) 1.225% 2.171% +95 BPS
1-year Treasury 1.19% 3.03% +184 BPS

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.

email: [email protected]

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