Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.
Is the yield curve a deciding factor in setting rates? The head of the Federal Reserve Bank of New York says no.
According to an article in the Wall Street Journal, N.Y. Fed chief John Williams said last week that the idea of inversion of the yield-curve on its own wouldn’t be enough for him to pull back from supporting further rate hikes if he thought the economy called for them.
What's an inverted yield curve, you ask, and why should I care?
An inverted yield curve means yield (profit) goes in reverse or to put it better: reverse yields = no profit.
It's pretty much seen as a warning sign of rough times ahead for investors, for obvious reasons, and some say it predicts a recession. So Williams' muted response is pretty remarkable, when considered in this context.
From the article:
“I think we need to make the right decisions based on our analysis of where the economy is and where it’s heading,” Mr. Williams told reporters after a speech in Buffalo. “If that were to require us to move interest rates up to the point where the yield curve was flat or inverted, that would not be something I find worrisome on its own.”
Mr. Williams was responding to a question about the narrowing in the difference between short- and long-dated Treasury yields. When short-term yields rise above long-term yields, that is known as an inversion in the yield curve, something that has often preceded a recession.
“I don’t see the flat yield curve or inverted yield curve as being the deciding factor in terms of where we should go with policy,” he said.
It may not seem like an inverted yield curve would be a big deal to the mortgage market, but it is. An inverted yield curve is a growing concern, and most journalists can't seem to get their heads around it, like in this case, but fear not, here's a quick (and accurate) explanation:
"An inverted curve is deadly to banks and the shadow banking system because the cost of capital then exceeds the expected return on investment, which means the financial system ceases creating credit for new enterprises."
So guess what happens if secondary market investors aren't making money? They pull out. And that's not good for keeping the cost of lending low for mortgage lenders.
The WSJ article goes on to explain that several Fed officials have indicated they don’t want to raise rates further “if that by itself causes the curve to invert.” The WSJ notes: “Given how close two- and 10-year Treasury yields are now, one or two more rate rises could potentially drive that inversion.”
The Federal Open Market Committee’s minutes from its July-August meeting indicated the Fed is on track for a September rate hike. The meeting’s minutes explained that many participants suggested it would likely soon be appropriate to take another step in removing policy accommodation. The Fed explained further gradual increases would be required, and supported the pace of a rate hike of 25 basis points per quarter.
Last week, news surfaced that Goldman Sachs was shuttering plans to launch a cryptocurrency trading desk, indicating a lack of institutional support for bitcoin and other cryptocurrencies. But Goldman CFO Martin Chavez refuted the rumors at a recent appearance at a conference, according a CNBC report.
"I never thought I would hear myself use this term but I really have to describe that news as fake news," Chavez said on stage at the TechCrunch Disrupt Conference in San Francisco.
According to the article, Chavez explained the bank doesn’t have a timeline for the desk and that it is working on a bitcoin derivative, called a "non-deliverable forward," thanks to client demand.
"The next stage of the exploration is what we call non-deliverable forwards, these are over the counter derivatives, they're settled in U.S. dollars and the reference price is the bitcoin-U.S. dollar price established by a set of exchanges," Chavez said.
On Friday, the Consumer Financial Protection Bureau announced new consumer advisory committee members, filling a gap that was created back in June of this year, when the CFPB and its acting director, Mick Mulvaney, gutted three of the boards.
"These experts are highly talented individuals in consumer finance markets, and we look forward to working closely with them throughout their service,” Mulvaney said in a statement.
According to the CFPB’s press release, the newly appointed members include experts in consumer protection, fair lending, civil rights, fintech, financial services, community development and consumer financial products and services, as well as representatives of community banks and credit unions. According to the agency, the new members will serve a one-year term.
The Department of Housing and Urban Development is asking the city of Dayton, Ohio, to repay $166,000 the department says the city spent on “unallowable” costs, according to reporting from the Dayton Daily News.
The Dayton Daily News’ reporting is based on HUD documents that the paper said it obtained. The article also said that HUD’s Departmental Enforcement Center identified an additional $647,000 in “questionable costs,” but city officials explained to the paper that those were preliminary estimates and part of a draft report. The article also indicated that HUD is also asking the city to show how it spent an additional $502,000, or repay that money.
From the article:
The city of Dayton had an “extensive pattern” of revising vouchers related to the federal Home program to direct funds to other projects, altering project records and failing to maintain documentation to support whether the costs were allowable, according to an Aug. 13 letter HUD sent to Dayton City Manager Shelley Dickstein.
“We acknowledge that there were some things we had to do differently and own and improve upon,” Dickstein told the Dayton Daily News. “The first thing we did was replace the leadership.”
The HUD reviews showed no signs that money was fraudulently used, city officials said.
The August letter, from a HUD community planning and development manager in Ohio, said HUD intends to reject the Dayton-Kettering Consortium’s fiscal year 2018 Home program certification and action plan, which city officials say could delay receipt of funding.
According to the paper’s reporting, Dayton typically has received anywhere from $1.1 million to $1.5 million each year in Home program funds to be used to promote affordable housing initiatives, including housing rehab, construction, homebuyer assistance and tenant-based rental assistance.
Again, from the article:
HUD’s inspection took place late last year, months after this newspaper learned that the city of Dayton had forfeited nearly $477,000 in federal Home dollars after missing a key deadline.
The director and executive secretary of the department that oversaw the Home program resigned last year after being placed on administrative leave.
Later this week, HousingWire’s engage.marketing kicks off in Dallas at the Renaissance Hotel. Stay tuned to HousingWire.com for sights and sounds from this exciting marketing event!
Have a good week everyone!