COFI Recovers Slightly After Record Increase

The Eleventh Federal Home Loan District Cost of Funds Index for December recovered somewhat from the shock of Wachovia Mortgage FSB being removed from the calculation and the resulting record 84 basis point rise between October and November. The latest index, at 1.828% for December, was down nearly 27 basis points from the 2.094% reported for November. The Federal Home Loan Bank of San Francisco uses a weighted average calculation to determine COFI and the removal of Wachovia on Nov. 1, 2009 as it was merged into Wells Fargo Bank NA resulted in a major reduction in the amounts used in the formula. But the total average funds of $37.5 billion and the total interest expense of $57.1 million used to determine December's COFI are similar to the numbers used in the November calculation of $38.5 billion and $67.2 million. COFI is computed from the actual interest expense reported for a given month by the Arizona, California and Nevada eligible savings institutions members of the FHLB-SF. The index was designed to be a lagging indicator and thus less susceptible to wild swings. But a disclaimer issued by FHLB-SF said if a reporting member is removed from the calculation, depending on how it impacts total average funds and total interest expense, the effect could be significant.