[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