[Federal Register Volume 76, Number 26 (Tuesday, February 8, 2011)]
[Notices]
[Pages 7089-7091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2781]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
Intent To Discontinue and Request for Comment
AGENCY: Office of Thrift Supervision (OTS).
ACTION: Notice of Intent to Discontinue and Request for Comment.
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SUMMARY: The OTS is requesting public comment on its proposal to cease
collection of data used to calculate and publish the Monthly Median
Cost of Funds Index (MMCOF), the Quarterly Cost of Funds Index (QCOF),
the Semiannual Cost of Funds Index (SCOF), and other related cost of
funds ratios currently published monthly in the OTS's Cost of Funds
(COF) Report.\1\ At the end of the comment period, the comments and
recommendations received will be analyzed to determine the extent to
which the OTS should modify the proposal prior to giving final
approval. The OTS will then submit the revisions to OMB for review and
approval.
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\1\ Link to published COF reports: http://www.ots.treas.gov/?p=StatisticalReleases.
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DATES: Comments must be submitted on or before April 11, 2011.
ADDRESSES: Interested parties are invited to submit written comments to
the OTS.
[[Page 7090]]
You may submit comments, identified by ``Cost of Funds Indices,''
by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail address: [email protected].
Please include ``Cost of Funds Indices'' in the subject line of the
message and include your name and telephone number in the message.
Fax: (202) 906-6518.
Mail: Information Collection Comments, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552, Attention: ``Cost of Funds Indices.''
Hand Delivery/Courier: Guard's Desk, East Lobby Entrance,
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention:
Information Collection Comments, Chief Counsel's Office, Attention:
``Cost of Funds Indices.''
Instructions: All submissions received must include the agency
name. All comments received will be posted without change to the OTS
Internet Site at http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1, including any personal information
provided.
Docket: For access to the docket to read background documents or
comments received, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1. In addition, you may inspect comments
at the Public Reading Room, 1700 G Street, NW., by appointment. To make
an appointment for access, call (202) 906-5922, send an e-mail to
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202)
906-7755. (Prior notice identifying the materials you will be
requesting will assist us in serving you.) The OTS schedules
appointments on business days between 10 a.m. and 4 p.m. In most cases,
appointments will be available the next business day following the date
we receive a request.
FOR FURTHER INFORMATION CONTACT: For further information about the
revisions discussed in this notice, please contact Jim Caton, Managing
Director--Economic and Industry Analysis, at (202) 906-5680.
In addition, copies of the reporting forms and instructions for
cost of funds reporting requirements can be obtained at the OTS Web
site through the following link: http://www.ots.treas.gov/?p=StatisticalReleases.
SUPPLEMENTARY INFORMATION: The OTS is proposing to cease collection of
data used to calculate and publish the MMCOF and to cease publication
of the MMCOF, QCOF, SCOF, and other related COF indices.
Abstract
Some institutions submit MMCOF data to the OTS monthly for the
OTS's use in calculating a monthly median cost of funds index.
Additionally, the OTS publishes two indices based on calculations from
data included in the Thrift Financial Report (TFR): \2\
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\2\ Copies of the reporting forms and instructions for the TFR
can be obtained at the OTS Web site (http://www.ots.treas.gov/?p=ThriftFinancialReports).
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1. A quarterly average cost of funds index, and
2. A semiannual average cost of funds index.
These indices are used by certain mortgage lenders as benchmarks from
which to base rate adjustments for adjustable rate mortgages (ARMs).
Effect of Recent Legislation
The Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203 (the Dodd-Frank Act), was enacted into law on July
21, 2010. Title III of the Dodd-Frank Act abolishes the OTS, provides
for its integration with the Office of the Comptroller of the Currency
(OCC) effective as of July 21, 2011 (the ``transfer date''), and
transfers the OTS's functions to the OCC, the Board of Governors of the
Federal Reserve System (Board), and the Federal Deposit Insurance
Corporation (FDIC).
Under Title III of the Dodd-Frank Act, all functions of the OTS
relating to federal savings associations and rulemaking authority for
all savings associations are transferred to the OCC. All functions of
the OTS relating to state-chartered savings associations (other than
rulemaking) are transferred to the FDIC. All functions of the OTS
relating to supervision of savings and loan holding companies
(including rulemaking) are transferred to the Board.
Current Actions
After careful review, the OTS believes the volume of ARMs using COF
indices the OTS publishes as benchmarks for ARM rate adjustments has
declined significantly. In addition, the COF indices published by the
OTS are being derived from data of fewer savings associations than they
were in prior years as discussed in more detail later in this notice.
Hence, these indices are subject to greater skewing from data outliers
and extraneous data movements. For these reasons, the OTS is proposing
to eliminate the data collection used to calculate and publish the
MMCOF index, as well as the publications of the QCOF, SCOF, and other
related COF indices.
The OTS is proposing to implement changes to savings associations'
data reporting requirements effective January 31, 2012. The proposed
changes would require savings associations currently regulated by the
OTS to cease filing data used to calculate the MMCOF index. Further
publication of the MMCOF, the QCOF, the SCOF, and other related cost of
funds ratios currently published monthly in the COF Report would cease
as of January 31, 2012. The final COF Report would be for the month of
December 2011. Until the effective date of these changes, savings
associations would continue to file MMCOF data in the current manner
using existing processes.
In making this proposal, the OTS reviewed its proposal made in 1994
\3\ to eliminate the MMCOF and the comments received regarding that
proposal. The OTS also closely reviewed the changes in savings
associations' aggregate asset composition and mortgage portfolio since
the 1994 proposal, as well as recent changes in the overall mortgage
markets.
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\3\ Link to 1994 proposal: http://www.ots.treas.gov/_files/4830057.pdf.
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As noted in the 1994 proposal, mortgage lending survey data from
the then Federal Housing Finance Board (FHFB) indicated the indices
published by the OTS were not widely used. For loans closed in March
1994, only 1.8 percent of ARMs were adjusted with indices included in
the ``Other Cost of Funds Indexes''--the category that included the
MMCOF as well as the QCOF and SCOF.\4\
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\4\ Comparable mortgage lending survey data is no longer
published by the successor agency to the FHFB--the Federal Housing
Finance Agency (FHFA).
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Despite the low usage of these indices by lenders, the OTS decided
not to pursue eliminating the MMCOF at that time. The primary reasons
for this decision were comments regarding potential customer confusion
and concern if the MMCOF index were discontinued.
The OTS notes that much has changed regarding the volume of ARMs
held by savings associations and the number of institutions whose data
comprise the MMCOF, QCOF, and SCOF indices. At the end of 1994, there
were 1,526 OTS-regulated savings associations that participated in
providing information to calculate the MMCOF. That number declined 52
percent to 733 at the end of the third quarter 2010. This decline has
made the
[[Page 7091]]
MMCOF index more susceptible to outlier and extraneous data movements.
The QCOF and SCOF are weighted averages of the cost of funds from
all applicable OTS-regulated savings associations. Like the MMCOF, the
decline in the number of OTS-regulated savings associations has made
these indices more susceptible to outlier and extraneous data
movements. This is especially true of these indices since weighted
averages subject them to more skewing by large institutions and data
outliers.
Additionally, the amount of adjustable rate residential mortgages
and mortgage-backed securities held by savings associations has also
declined since 1994 despite an increase in aggregate thrift industry
assets. At the end of 1994, OTS-regulated savings associations held
$774 billion in aggregate assets. Of that total, $304 billion, or 39.6
percent, were held in residential ARM loans and related securities.
Though third quarter 2010 industry assets of $928 billion were higher
than at the end of 1994, ARM holdings declined to $130 billion, or 14.0
percent of assets.
The decline in ARM loans and related securities with lagging market
indices (LMI)--which include the MMCOF, QCOF, and SCOF among other
LMIs--was more stark over this period. At the end of 1994, savings
associations' LMI ARMs totaled $152 billion, or 19.8 percent of assets.
LMI ARMs held by savings associations declined 93 percent to just $10
billion, or 1.1 percent of assets as of September 30, 2010.
The general decline in savings associations' ARMs was attributable
to low prevailing interest rates for fixed-rate loans during the past
three years. These low rates have resulted in strong refinancing
activity out of ARMs and into fixed-rate loans.
Due to the decline in savings associations' ARMs outstanding,
especially for LMI ARMs, savings associations' reporting costs and
burden associated with reporting for the MMCOF, agency costs and burden
associated with the publication of these indices, and the declining
number of institutions comprising these indices, the OTS is proposing
to discontinue the publication of, and special data collections for all
the OTS's COF indices.
Index Substitution
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989, Public Law 101-73 (FIRREA), was enacted into law on August 9,
1989. Section 402(e)(4) of FIRREA requires the OTS to designate
acceptable substitute indices should it discontinue publication of
indices used for ARM rate adjustments. To help designate acceptable
substitute indices for the MMCOF, QCOF, and SCOF indices, the OTS
analyzed the values and changes of 17 publicly available indices on a
monthly basis from January 1990 through August 2010. The OTS compared
the values and changes of the publicly available indices to those of
the MMCOF, QCOF, and SCOF. Correlation coefficients \5\ were calculated
for each publicly available index value to the MMCOF, QCOF, and SCOF.
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\5\ The correlation coefficient is a single number that
describes the degree of relationship between two variables. A
perfect positive correlation (a correlation coefficient of +1)
implies that as one index moves, either up or down, the other index
will move in lockstep, in the same direction.
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Based on this analysis, the following indices were the most highly
correlated to the MMCOF:
1. 11th District Cost of Funds (Source: The Federal Home Loan Bank
of San Francisco (FHLB-SF)): Correlation 0.98
2. Federal Cost of Funds (Source: Freddie Mac (FHLMC)): Correlation
0.96
3. National Average Contract Mortgage Rate (Source: The Federal
Housing Finance Agency (FHFA)): Correlation 0.96
4. Monthly Treasury Average (MTA) (Source: Federal Reserve Board--
H.15 FRSD): Correlation 0.93
The following were the most highly correlated to the QCOF:
1. 11th District Cost of Funds: Correlation 1.00
2. Federal Cost of Funds: Correlation 0.98
3. National Average Contract Mortgage Rate: Correlation 0.96
4. Monthly Treasury Average (MTA): Correlation 0.96
Quarterly averages were calculated from the monthly indices and
used for calculating the correlation to the QCOF.
The following were the most highly correlated to the SCOF:
1. 11th District Cost of Funds: Correlation 1.00
2. Federal Cost of Funds: Correlation 0.98
3. National Average Contract Mortgage Rate: Correlation 0.97
4. Monthly Treasury Average (MTA): Correlation 0.96
Semi-annual averages were calculated from the monthly indices and used
for calculating the correlation to the SCOF.
As set out above, the same four publicly available indices had the
highest correlation coefficients when compared to each of the OTS's COF
indices. Though the correlation coefficients differed slightly, all
were highly correlated to the OTS's COF indices.
It should be noted that due to the significant monetary actions
taken to help the U.S. economy stabilize and fully recover from the
most recent recession, some of the publicly available indices based on
U.S. Treasury security rates--such as the MTA--have declined to levels
below the OTS's COF indices. However, as indicated by the correlation
coefficients, the movements of these indices track the OTS's COF
movements well. Hence, the movements in these indices could possibly be
used for future rate adjustments rather than the index value itself.
Request for Comment
Comments are requested on the proposed requirement that OTS-
regulated savings associations cease filing data used to calculate the
MMCOF index. Comments are also requested on what should be considered
an appropriate substitute index for each of the OTS's COF indices or
alternatively, what should be considered an appropriate index to
benchmark periodic changes to ARM rates based currently on the OTS's
COF indices.
Comments submitted in response to this notice will become a matter
of public record.
Dated: February 3, 2011.
John E. Bowman,
Acting Director, Office of Thrift Supervision.
[FR Doc. 2011-2781 Filed 2-7-11; 8:45 am]
BILLING CODE 6720-01-P