The interest expense paid by western savings institutions continued its historic descent, dragging down the cost of some mortgage loans with it.
The Federal Home Loan Bank of San Francisco reported that the average interest paid by its member savings institutions for their various sources of funds during August fell. According to the government sponsored enterprise, its cost of funds index -- also known as COFI -- fell about seven basis points from the prior month to 1.946%. A year ago, the index was 2.763%, and it currently stands at its lowest point in decades.
The index is reported about 30 days following the end of each month.
The calculation of COFI is based on savings institutions located in Arizona, California and Nevada. For August, average total funds was $381.1 billion, compared to $370.1 billion reported for July.
Adjustable rate mortgages (ARMs) that use COFI as an index compete for borrowers with the popular 1-year Treasury-indexed ARM. The Mortgage Bankers Association of America reported today that the average 1-year ARM fell 11 basis points from the prior week to 3.45%. The group reported that nearly a quarter of all applications in its survey were for an ARM loan.