Quite a few in the MoneyCafe.com community are interested in the Wachovia Cost of Savings Index (COSI), which is an index for adjustable rate mortgages. It’s like a broken record when reporting the COSI. One of our users reported that 3.76% was the latest COSI. I confirmed this number with the bank. To paraphrase an old saying – check out the new COSI, same as the old COSI.
While the rest of the financial world was dealing with complete instability since the middle of 2008, Wachovia maintained virtually the same cost of savings for seven straight months (June through December). There is a flat line on the recent COSI graph. The bank is essentially saying they paid the same for their deposits on the last day of December as they did on the last day of June. At first glance (and second glance) this really makes you scratch your head. Rates have been very volatile since June, but not the COSI. Almost every bank is offering about half the interest rates they were offering last summer. If you look at the Wachovia website, it shows much lower rates on CDs than the COSI would indicate. On top of all that, Wachovia stopped reporting the COSI publicly. There has been a lot of grumbling about COSI mortgage rates not going down. After all, the higher the reported COSI the more money Wachovia gets on it’s mortgages. On the surface it seems like something is very wrong. But is there funny business going on with Wachovia and the COSI?
According to the Wachovia webite, the Cost of Savings Index (COSI) “is a unique index available through Wachovia. COSI is based on the interest rates Wachovia pays to individuals on certificates of deposit. The index is calculated monthly and used to determine the interest rate on your mortgage. COSI is based on the weighted average of all the interest rates paid on certificates of deposit held by individual depositors as of the last business day of each month.”
Looking at how far rates have dropped these past 6 month, it would seem almost impossible for the COSI to be so stable. So I looked into some comparable indexes to see if I could glean anything. I was surprised. The 11th District Cost of Funds Index (COFI) was 2.829 in June and 2.757 in December. So it’s pretty much the same. It did spike in the fall but came back down. The COFI is overall a lower rate because it doesn’t just include CDs. The COFI also includes checking accounts which may pay no interest and money market accounts which pay lower rates than CDs. Another good comparison is the Treasury Department’s reported National Cost of Funds which was 3.10 for June and 2.89 for November (the last month reported). There was no big drop in this index.
So back to the question of whether there is any funny business going on with the COSI? It’s quite remarkable to see complete stability in anything lately. It’s the only flat line chart I’ve seen. But it was the COFI that spiked in the fall, while the COSI was stable. And industry wide, banks’ costs of funds were not that much lower at the end of the year than they were last June. So I would have to say, while the recent COSI history seems odd, it’s consistent with comparable data.
Your comments are quite right that the June to December 2008 changes in both the COFI and the COSI rates were both negligible and therefore consistent. However, what causes me to scratch my head (twice) is that the actual rates of the COFI and COSI were quite similar over the years between 1999 through most of 2006. In late 2006 (when Wachovia got involved), the COSI rate began climbing higher than the COFI rate, and it now ranges around 100 basis points higher. Which means to me that the Wachovia COSI rate is being calculated in a different manner than the World Savings COSI rate. And I don’t feel that is fair to holders of loans originated by World Savings, who were told that COFI and COSI indexes were similar.
Jonathan,
Two quick comments.
The Wachovia calculation is different. World Savings COSI was based upon “deposit accounts” not just CD’s.
Also, if I recall correctly World Savings deposits were a comparatively large component of the COFI calculation. Wachovia is not in the 11th District (FHLBSF).
Good comments, Greg. My COSI loans state that “The index is the weighted average…..on the deposit accounts….of Golden West Financial….” So what do you think will happen when San Francisco-based Wells Fargo (which I presume is a large component of the COFI calculations) takes over the loans? Wells Fargo COSI? COFI? LIBOR? CMT? 12MTA? Or some other form of alphabet soup?
Jonathan, Wells is not a member the FHLBSF (a bank for financial institutions) which reports the 11th District COFI. See FHLBSF.com.
I would expect Wells to substitute a new index. It’s got to be a big pain to have your own index so I guess it will be an index they don’t control. Maybe COFI, but that’s not popular like it used to be. CODI may work. I’m sure somebody’s crunching numbers over there to backtest and see what is most advantageous.
https://www.moneycafe.com/library/cofi.htm
https://www.moneycafe.com/library/codi.htm
This is a good analysis and illustrates the point. A key finding from the other blogs is that:
“I just spoke with someone at the “VIP desk”. He assured me that this program has not been neglected and that the rates are still valid based on the CDs for $1M+ packages (never knew there was a qualification for the size of those CDs).”
Unfortunately these are not individuals, these are corporations holding CDs this large and look more like Wachovia/World/Wells/Whatever giving sweetheart deals to other institutions (and taking big bonuses and commisions on the way) and then passing on the cost by sucking the equity out of clients homes.
PS we should all be worried because our Caps on these loans are over 10% which could be relized very soon if this practice is not nipped in the bud by a lawsuit.
Rob informed us that the January COSI is 3.69%
http://moneycafe.com/blog/2008/12/wachovia-cosi/comment-page-1/#comment-112
Excellent article and research on the issues with this index. However stable CD rates were during Jun – Dec, they have cratered since then so we should expect this rate to come down precipitously in the coming months.
I’d be inclined to agree with you but I thought I’d compare the indexes for myself and clearly this graph shows that the rate is being artificially maintained since around June or July of 2008. Since then the COSI has lost all relation to the CODI or COFI…
http://spreadsheets.google.com/ccc?key=pQs8GCUhB6sz4drSeqIigYg&hl=en
Definately something has changed…
After reading this thread and the other COSI thread(s) and agreeing with Dale and others I thought I’d add something. I too liked the COSI that I signed up for, knew of the risks and believe that in the current downturn it should be ‘golden’ but it’s clearly being ‘tweaked’. (My other UK SVR mortgage with the Abbey is proving a bonus at 4.69%). I put the following graph together that shows that the COSI is being manipulated by Wachovia and has lost it’s traditional relation to the CODI and COFI:
http://spreadsheets.google.com/ccc?key=pQs8GCUhB6sz4drSeqIigYg&hl=en
So today I thought I’d call customer service and ask for a breakdown of the Wachovia CDs that were paying anything like the 3.78% average that is making up the COSI rate (yes i understand it’s a weighted average etc.). I asked on the pretext that I’d like to open a CD and get the benefit of such a fantastic interest rate… and to find out how my COSI rate is so far off the CODI…
The Call:
10 minutes on hold then a quick conversation with Padma, who didn’t know what I was talking about, then I was transferred from India to a ‘VIP’ section that apparently knew what I was talking about. 10 minutes on hold and then the same question to the VIP rep. The rep. told me they didn’t know what CDs paid that rate or have any details of any CDs, they were ‘Wachovia mortgage’ and ‘Wachovia bank’ gave them the rate and I should contact the bank directly to ask about CDs and no they couldn’t give me a breakdown or the calculation of the index… I work for a bank so I can understand the disconnect between the LOBs but I pressed the point that it was a Wachovia mortgage and my agreement clearly states to contact customer service for full details about the COSI rate and it’s calculation… The rep. got quite abrasive and told me to visit http://www.mortgage-x.com/ for details about the COSI rate. I asked if this was a Wachovia website, she said no. I asked if Wachovia was affiliated with the website, she said no. I asked if Wachovia was responsible for the content on the website, she said no. I then asked why she was sending me there as it had nothing more than the info on the Wachovia website and was not really a ‘reliable’ source, she said that’s what she’s been told to do… hmm I thought, almost time to ask for the supervisor but I asked if she knew if the method of calculating the index had changed as it didn’t appear to be shadowing the CODI or COFI rates anymore, she said no we would have told you if that had happened… I then pressed further to get the Wachovia CDs that were paying that kind of interest rate she said she’d have to transfer me to ‘the bank’… then she cut me off… something not quite right there… will follow up tomorrow (had to get back to work to finance the mortgage so left it today) and then a written request as is laid down in my loan agreement, surely a binding legal document (?)… I’ll let you know what happens…
FYI – Wachovia is publishing the current rate here: http://www.wachovia.com/misc/0,,1412,00.html
FYI – Wachovia are posting the current rate here: http://www.wachovia.com/misc/0,,1412,00.html
Great info Brian and thanks for your efforts. I contacted WB this morning and spoke with the VIP section of mortgage banking. The gentlemen indicated the rate is based upon a rolling 12-month average of ALL CD rates offered. He also indicated that since the market crash and the banking issues surfaced, banks have been offering “higher” rates on CDs to increase bank deposits. After mentioning to him CD rates has dropped significantly in recent months he agreed that rates on this product should drop as it eliminates the early months with high rates and adds new months with low rates.
Also, I challenged them on provding documentation of the calculation of the index. You can fax a request to Customer Support at 210-509-1174. I will be faxing a formal request for detail calculation of this index rate first thing Monday.
On the surface something just doesn’t add up with Wachovia COSI rate and how it is determined. It seems as though they are just setting the rate based on what serves them and differs from what holders of COSI mortgages originally signed up for. There seems to be minimal transparency, like many on this thread I am going to investigate further.
Thanks Ron, apologies for duplicating some of the information. Interesting that the VIP rep told you it is now ALL CDs and not just those held by individual depositors as defined on the Wachovia website.
I’ll also fax a request and I suggest everyone else does the same.
It’s a sad indoctrination of the state of our regulatory system and the ineptness of management, both in business and government, when, after throwing billions of dollars of our money at the banks with virtually no strings attached, the government is now trying to put non binding pressure on banks to renegotiate failing mortgages, when just enforcing the current regulations and keeping this bank honest about the COSI might save a few thousand home owners from going to the wall. Changing the index from individual depositor’s CDs to all CDs including institutionally owned CDs must surely need some fiduciary scrutiny?
Banks make money from lending money to us for more than they paid for it, among other more devious activities. If the banks stop lending us money they stop making money. If you replace the money the banks would have made through lending with handouts from the taxpayer the banks still make money but what is the incentive to get them lending again? Let the banks go under and let the people borrow direct from the fed at the sweet, sweet rate that the banks get… lol… apologies sounds, like socialism… rant over…
Brian, Why not cut out the middleman (the fed) and borrow directly from the Chinese? lol
Just did some quick calculations:
Average COSI since Jan-91 = 4.34%
Average COFI since Jan-91 = 4.16% (11th District)
Looks great, one would expect the current COSI to be around 3% given the COFI is at 2.75%
But the above calculations are a bit meaningless as the Wachovia COSI rate calculation changed in May 2006 removing deposit accounts and only covering CDs so:
Average COSI since May-06 = 4.46%
Average COFI since May-06 = 3.78%
This still looks pretty good and given the COFI is at 2.75% the COSI should be around 3.4%.. but it’s nearer 3.8%…
But this doesn’t tell the whole story, from May-06 to Jan-08 the indexes maintained the expected .66% spread
Average COSI May-06 to Jan-08 = 4.57%
Average COFI May-06 to Jan-08 = 4.11%
So given that average the COSI should now be around 3%… err
The real disparity between COFI and COSI only really shows up from Jan-08:
Average COSI Jan-08 to Jan-09 = 3.94%
Average COFI Jan-08 to Jan-09 = 2.97%
Now the COSI / COFI spread works… 3.78% / 2.75%
So what changed in Jan-08? Have Wachovia been offering great CDs for the last 2 years and I just missed it? Maybe not, the spread may be nothing and the statistical anomaly will rectify itself in March as the lower rate CDs push down the average and the COSI moves back to where it should be, around 3% to 3.3%… maybe… only a week until we find out what way it’s heading…
COSI as of 2/15/09 = 3.69%
Does anyone have an idea why the rate has not been published since February 15th? i’m sure last month they posted the rate on 2/1 and then again on 2/15. If the rate is calculated at the end of each month and it’s now March 10th where is the current rate?
The rate is caculated and published on the 15th of each month. So February’s rate should be available on March 15, now that they have resumed publishing the number.
Thanks for the info, appreciated
We tried to get the February COSI this afternoon, but Wacovia hasn’t updated as yet. If anyone has the number, please let us know.
Nope, I tried today as well and the ‘VIP’ department didn’t have it either but they ‘thought’ they might have the update tomorrow, which is very strange.
Just got off the phone with Wachovia and the current rate they have from 3/13/09 is 3.60% according to the VIUP rep, so it is moving down, just very very slowly… the rep was not sure why it was not updated on the website or when it would be updated on the website…
Thanks Dave. We’ll try to confirm so we can publish on our COSI page. We are surprised at the number because 9/100ths of a point is not such a big drop, but I guess you take what you can get.
Yeah something really doesn’t add up with this crowd. Wachovia have now removed all references to the COSI from their website and removed the ARM index page from the site completely! Ron, did you ever get any response from fax for details on the rate calculation?