COFI Down 18 BP in November: FHLB-SF

There is an 18 basis point plunge in Eleventh Federal Home Loan District Cost of Funds Index for November, setting a new all-time low.

The plummet to 0.783% from October’s 0.963% ends a five-month period where the index rose just over a single basis point from the previous low of 0.951% set in May 2013.

COFI is a weighted-average calculation of what it costs reporting members of the Federal Home Loan District of San Francisco to originate mortgages. Some mortgage lenders index adjustable rate products to this rate.

While one component of the calculation, total average funds, remained similar in November from October ($32.5 billion versus $32.9 billion), the total interest expense was significantly lower. November’s total interest expense is $21.2 million, down from $26.4 million.

Some of the institutions which report data used for COFI (and in November, there were 15) rely on fixed rate deposits with medium- and long-term maturities as a primary source of funds. Because rates on these deposits are not affected by changing market interest rates until the deposit matures, the total interest expense paid by savings institutions in a particular month may reflect interest rates that were prevalent in previous months or years, the FHLB-SF says.

This makes the index insulated from the rate volatility which started in May as bond investors began pricing the start of the Federal Reserve’s taper into their securities purchases.