Interest margins at the large California thrifts will widen through the end of the year, as the 11th district cost-of-funds index begins to decline, a leading analyst predicted.

The index, to which loans at most California thrifts are tied, fell 0.4%, to 5.14%, in July, according to numbers released on Aug. 31. And analyst Bruce Harting of Salomon Brothers said the index will continue to fall gradually through the end of the year.

As the index falls, interest margins on adjustable-rate mortgages held by the thrifts typically rise. That's because the index lags actual costs at thrifts.

For example, the July index, which measures the cost of funds at thrifts in that month, was not released until the end of August. And the lower costs will not be passed on to ARM borrowers until October.

By then, actual costs at the thrifts should be 0.10% or 0.15% lower than the July costs used to set ARM rates in October, Mr. Harting estimated in a recent report.

Margins have been rising for several months at the large California thrifts.

At the nation's largest thrift, Home Savings of America, Irwindale, margins have risen steadily all year. They climbed from 2.08% in January to 2.37% in July.

At the nation's second-largest and lowest-cost thrift, Great Western Bank, Chatsworth, margins have risen from 2.85% in February to 3.18% in July.

At Golden West Bank, one of the most conservative thrifts around, margins have risen from 1.70% in February to 1.91% in July.

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