COFI Drops Below 2%

For the first time ever, the Eleventh Federal Home Loan District Cost of Funds Index has fallen below the 2% mark.The index for August was 1.946%, down from 2.018% in July, according to the Federal Home Loan Bank of San Francisco. COFI is one of several indices that are popular for adjustable-rate mortgage loans. In recent weeks, fixed rates have been dropping as bond yields have declined. The national average for the 30-year fixed-rate mortgage stood at 5.98%, the first time it has fallen below 6% since the end of July, according to the most recent Freddie Mac Primary Mortgage Market Survey. COFI is an index of what FHLBank-SF members pay for money to make mortgages, much of which consists of deposits. Greg McBride, a senior financial analyst at Bankrate, commented that "a lack of job growth, wavering consumer confidence, and a manufacturing sector plagued by overcapacity have many viewing the economic recovery as a glass half-empty. The pessimism will weigh on deposit yields and delay any continued improvement." Therefore, it is likely that COFI, in a couple of months, will reflect the rise in deposit interest rates over the summer. But it might turn south yet again.