Key Takeaways
- The 11th District Cost of Funds Index (COFI) was a monthly average interest rate index for Arizona, California, and Nevada.
- The COFI was used by lenders to adjust rates on adjustable-rate mortgages (ARMs).
- It was published by the Federal Home Loan Bank of San Francisco until January 31, 2022.
- Freddie Mac developed a replacement index called the Enterprise 11th District COFI Replacement Index.
- The COFI’s primary use was in the western U.S., differing from the 1-year Treasury index used in the east.
What Is the 11th District Cost of Funds Index?
The 11th District Cost of Funds Index (COFI) was a monthly average interest rate index that reflected the cost of funds for western savings institutions in Arizona, California, and Nevada. Introduced in 1981, it was used by mortgage loan lenders to adjust rates on adjustable rate mortgages (ARMs). The Federal Home Loan Bank of San Francisco published the COFI until January 31, 2022. It was replaced by the Enterprise 11th District COFI Replacement Index, which was developed by the The Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac.
How the 11th District COFI Was Calculated and Used
The 11th District Cost of Funds Index (COFI) was computed using several different factors, with interest paid on savings accounts comprising the largest weighting in the average. As a result, the index tended to have low volatility and follow market interest rate changes somewhat slowly; it was generally regarded as a two-month lagging indicator of market interest rates. The interest rate on a mortgage would not match the COFI, rather the ARM rate that was typically 2% to 3% higher than COFI, depending on the borrower’s credit history, the size and terms of the loan, the ability of the borrower to negotiate with the bank, and many other factors.
Because was computed using data from three western states, the COFI was primarily used in the western U.S., while the 1-year Treasury index was the measure of choice in the eastern region.
The Bottom Line
The 11th District Cost of Funds Index (COFI) was a weighted average of interest rates in Arizona, California, and Nevada. It was used by mortgage lenders to adjust interest rates on adjustable-rate mortgages. The index had low volatility and was a lagging indicator of market interest rates.
The COFI was discontinued on January 31, 2022, and replaced by the Enterprise 11th District COFI Replacement Index. In contrast to the COFI, the 1-year Treasury index was focused on the eastern U.S.