Mortgage securities traders and analysts want lenders to consider doing away with, or at least modifying, a key index that's used to set rates on adjustable mortgages.

At issue is the 11th District cost-of-funds index, or Cofi, which lenders themselves have criticized for not satisfactorily reflecting current conditions.

Any change in the index would affect about $153 billion of loans outstanding-about one quarter packaged into mortgage securities and the rest held or sold as whole loans.

Some on Wall Street suggest Cofi be replaced with some other, more widely accepted, index. But because of the record keeping and administrative issues associated with such a move, more timely and accurate release of index data is also proposed. The improvements would make Cofi securities easier to trade and, therefore, more appealing to investors, Wall Street representatives said.

The Wall Street executives were speaking at a forum last week in New York sponsored by the PSA Bond Market Trade Association.

This is not the first time Cofi has come under fire. Indeed, discontent has been percolating for several years.

Lenders and investment bankers have criticized the index as sluggish because it takes a while for the Federal Home Loan Bank Board to gather data from lenders and have it synthesized and published.

Because of the lag, the index has always been erratic-and can even be inaccurate. That makes it hard to determine lenders' actual cost of funds and appropriately price securities backed by loans using the index, Wall Street executives said.

The criticism comes amid a spate of mergers among the western thrifts that contribute data to the index and as more thrifts adopt commercial bank charters. Both trends have complicated the task of compiling the index.

Some of the PSA's members asked the association to approach lenders directly about the index.

The request, which is still being evaluated, followed contact with the Federal Home Loan Bank Board, which said it still has contractual obligations to prepare and publish the index.

The PSA would probably find a concerned audience among lenders, said Brian Smith, director of policy and economic research at America's Community Bankers, a trade group whose members include a number of western thrifts.

Banking executives said Wall Street would be better off approaching the lenders, instead of appealing to Congress, which already has its plate full with financial reform efforts.

Cofi "is far less popular" with lenders than it was when first introduced in 1981, Mr. Smith said.

"It is a relatively small share of their current production."

Indeed, lenders have been shifting in recent years to other indexes because Cofi loans cannot be easily sold in the secondary market.

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