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Econometric Models of the Eleventh District Cost of Funds Index

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  • Passmore, Stuart Wayne

Abstract

The Eleventh District Cost of Funds Index (COFI) is a popular index for pricing adjustable-rate mortgages. COFI is calculated from the interest expenses incurred by thrifts when raising funds. It is a mixture of current and past interest rates on many different financial instruments. COFI can be modeled well with simple econometric models. Commonly used, simple COFI models are compared using a method developed by Hendry (1989). Some of these models, which appear to fit the data well, have nonrobust parameters, significant serial correlation, and heteroscedastic errors. These poorly specified models may lead to systematic mispricing of COFI mortgages. Once a robust econometric model is chosen, the lagged adjustment of COFI to movements in interest rates can be incorporated into mortgage pricing models. Copyright 1993 by Kluwer Academic Publishers

Suggested Citation

  • Passmore, Stuart Wayne, 1993. "Econometric Models of the Eleventh District Cost of Funds Index," The Journal of Real Estate Finance and Economics, Springer, vol. 6(2), pages 175-188, March.
    • Handle: RePEc:kap:jrefec:v:6:y:1993:i:2:p:175-88
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    Cited by:

    1. Wayne Passmore & Alexander H. von Hafften, 2018. "Financing Affordable and Sustainable Homeownership with Fixed-COFI Mortgages," Finance and Economics Discussion Series 2018-009, Board of Governors of the Federal Reserve System (U.S.).
    2. Passmore, Stuart Wayne & von Hafften, Alexander H., 2020. "Financing affordable and sustainable homeownership with Fixed-COFI mortgages," Regional Science and Urban Economics, Elsevier, vol. 80(C).
    3. Hancock, Diana & Passmore, Wayne, 2016. "Cost of funds indexed mortgage contracts with government-backed catastrophic insurance (COFI-Cats): A realistic alternative to the 30-year fixed-rate mortgage?," Journal of Economics and Business, Elsevier, vol. 84(C), pages 109-130.
    4. Wayne Passmore & Alexander H. von Hafften, 2017. "Improving the 30-Year Fixed-Rate Mortgage," Finance and Economics Discussion Series 2017-090, Board of Governors of the Federal Reserve System (U.S.).
    5. Jerry Nickelsburg & William Yu, 2021. "On the Consequences of the Discontinuation of the Eleventh District Cost of Funds Index," The Journal of Real Estate Finance and Economics, Springer, vol. 63(1), pages 143-160, July.
    6. Jane K. Dokko & Brian M. Doyle & Skander J. van den Heuvel & Michael T. Kiley & Jinill Kim & Shane M. Sherlund & Jae W. Sim, 2009. "Monetary policy and the housing bubble," Finance and Economics Discussion Series 2009-49, Board of Governors of the Federal Reserve System (U.S.).

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