Borrowers whose adjustable-rate mortgages are tied to the Cost of Funds Index were recently treated to a nice surprise. Meanwhile, the index used on one-year ARMs drifted lower, while another ARM index based on the cost of funds paid by European banks has soared.
COFI was 1.218 percent as of October. The index is used to determine rate adjustments on some ARMs, many which were originated by the former World Savings out of California and are now owned by San Francisco-based Wells Fargo &Â Co.
Based on data reported by the Federal Home Loan Bank of San Francisco going back to July 1981, COFIÂ has never been this low. The previous record was set in October 2009:Â 1.259 percent.
The 11th District index — which represents interest expenses paid by FHLB members based in Arizona, California and Nevada — had been as high as 12.673 percent in June 1982.
COFI fell from 1.276 percent in September and was 1.654 percent in October 2010.
Average total funds used in October’s calculation were $35.2 billion.
A competing ARM index, the yield on the one-year Treasury note, edged down to 0.12 percent in October from 0.13 percent in September, according to data released by the Department of the Treasury. The one-year yield closed out November at 0.12 percent.
Another ARM index, the six-month London Interbank Offered Rate, was 0.61 percent as of the end of October, rising from 0.55 percent at the end of September, according to previously released data from Bankrate.com. LIBOR finished November at 0.75 percent.
The disparity between movements in the COFI and LIBOR reflect anxiety among European banks over the sovereign debt crisis in the euro zone, while U.S. banks are reaping the benefit of the perceived safe haven of U.S. Treasury debt.
ARM share of loan inquiries was 5.50 percent in the U.S. Mortgage Market Index from Mortech Inc. and MortgageDaily.com for the week ended Nov. 25.
