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Wachovia COSI or CODI?

Many World Savings / Wachovia customers have received letters from Wachovia saying that their GDW COSI-indexed loan is being converted to the new Wachovia COSI index. They can either switch to the Certificate of Deposit Index (CODI) or let their mortgage automatically convert to the Wachovia COSI. As these indexes are currently higher than the GDW COSI index (as of Aug 2007), Wachovia would adjust the margin to offset the higher interest rate.

The following graph compares the CODI index with both the old GDW COSI and the new Wachovia COSI based on their past performance.

Assuming that the original margin is 2.85, it must be adjusted to offset the higher interest rate as follows:

Current GDW COSI {monthly value as of Jul 2007}: 4.78
Original margin: 2.85

Current Wachovia COSI {monthly value as of Jul 2007}: 4.90
The new margin should be: 2.73
Rounding it to the nearest 0.05: 2.75

Current CODI {monthly value as of Jul 2007}: 5.324
The new margin: 2.306
Rounding to it the nearest 0.05: 2.30

Based on the above figures we have computed the interest rate for each of these indexes by adding the margin to the index value:

Wachovia COSI or CODI?
Wachovia COSI or CODI?
{ Obtaining Permission to Reproduce }

Though the CODI reacts more quickly to changes in the market than the GDW COSI in both uptrend and downtrend movements, the number of months with the higher CODI is approximately the same as the number of months with the higher COSI, as our graph shows.

However, with the margin adjustment from 2.85 to 2.30, the number of months with the higher CODI-indexed interest rate would be definitely lower than the number of months with the higher COSI-indexed interest rate.

Disclaimer

The 'Wachovia COSI or CODI?' graph has been prepared by Mortgage-X for general illustrative purposes only. The information contained on this web page is not intended to provide mortgage or other financial advice specific to the circumstances of any individual and should not be relied upon in that regard. The graph should not be construed as a recommendation as to the advisability of applying for CODI-indexed ARMs. Neither Mortgage-X nor any of the participating financial institutions is responsible in any manner for any damages whether direct, indirect, special or consequential, howsoever caused, arising out of use of this information.

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