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.