When it comes to the health of the economy, the housing market is the canary in the coal mine, providing clear and early clues of pending trouble. And that’s why analysts track its performance intently, looking at a multitude of indicators that might signal the looming recession some are forecasting.

Now, one critical clue from the housing market has emerged to suggest economic growth is likely to backslide, and that is a steady decline in single-family authorizations.

In essence: Construction activity appears to be slowing.

Single-family housing authorizations – what some call a key predictor of economic recessions – represent building permits requesting permission to commence construction. In contrast, housing starts signal that construction has already begun. 

According to the latest data released by BuildFax, single-family housing authorizations fell for the third consecutive month in February, declining 4.24% from the previous month. This also represents a 5.75% decline year over year.

The data left BuildFax to conclude that, “without relief from this steady decline in single-family housing authorizations, an economic slowdown is likely forthcoming.”

Existing housing maintenance and remodeling volumes are also down, continuing a four-month decline. Maintenance volume was down 5.53% year over year, while remodeling volume was down 10.07%.

But at the same time, spend for both maintenance and remodeling increased, which BuildFax attributed to recent spikes in construction labor costs.

Interestingly, some cities are defying national trends, posting increases in new construction and maintenance in February.

Dallas, New York City, Chicago and Washington, D.C., saw activity in new construction and maintenance rise.

BuildFax said Chicago saw the greatest increases, with new construction up 60.15% and maintenance up 19.51%, which the report said could be a result of the city’s strategic five-year housing plan to solve affordability problems.

“It’s yet to be seen whether housing activity in these cities will eventually slow as it has on a national level or if these will be key metros to watch as the U.S. potentially heads towards an economic slowdown,” BuildFax wrote.

BuildFax CEO Holly Tachovsky said the performance of these indicators over the next several months will be key to determining the overall impact on the economy.

“There have been persistent declines across key housing indicators for four consecutive months. However, we anticipate some economic relief as we head into 2019’s spring home buying season,” Tachovsky said.

“Mortgage rates have reached recent lows leading to increased potential for home sales, which is oftentimes followed by a surge in remodeling activity,” she continued. “The performance of single-family housing authorizations, maintenance and remodeling activity through this next season will shed light on whether declines in the housing market will spread to the broader economy.”

Here is a map of new construction and maintenance activity in the 10 largest metros:

(Source: BuildFax)

Article source: https://www.housingwire.com/articles/48454-this-housing-market-clue-predicts-pending-economic-slowdown

PricewaterhouseCoopers will pay $335 million to the Federal Deposit Insurance Corp. in a settlement that ends claims that the auditor failed in its duties by not discovering the accounting malfeasance that led to the late-2000s collapse of Colonial Bank, which funded the mortgages originated by Taylor, Bean Whitaker.

Once upon a time, TBW was the largest privately held mortgage company in the country, employing more than 2,000 people. But TBW collapsed in 2009 after it was discovered that TBW Chairman Lee Farkas and others were cooking the books to cover for hundreds of millions of dollars in nonexistent mortgages.

PwC acted as the auditor for Colonial Bank, which also collapsed when the issues at TBW were uncovered.

When it failed, Colonial Bank was taken over by the FDIC, which then sued PwC and claimed that the bank’s failure cost the insurer $5 billion, making it one of the country’s largest ever bank failures.

Eventually, a federal judge ruled that PwC was “negligent” in its role as Colonial Bank’s auditor, stating that the company could have done more to prevent Colonial’s collapse.

And last year, the judge ordered PwC to pay more than $625 million for its actions in the Colonial/TBW matter.

But, late last week, the two sides announced that they’d reached a settlement in the matter that will see PwC pay $335 million to the FDIC for its role in the TBW affair.

That amount is much closer to the $306.75 million that PwC originally contended it should pay the FDIC, rather than the $625 million awarded to the agency by District Judge Barbara Jacobs Rothstein.

And the FDIC agreed to the settlement over the objections of former FDIC Chair Martin Gruenberg, who still serves on the FDIC board of directors.

Gruenberg issued a statement through the FDIC, in which he stated that he did not vote to approve the settlement because the settlement did not require PwC to admit liability in the matter.

“As a result of its failure to follow required auditing standards, PwC did not detect that hundreds of millions of dollars of assets claimed by Colonial did not in fact exist, had been sold to others, or were worthless. If PwC had complied with auditing standards, it would have discovered the fraud, the fraud would have been stopped, and the damages to Colonial Bank would have been limited,” Gruenberg said in his statement.

“As noted, the settlement announced today did not include a written admission of liability by PwC,” Gruenberg added. “Given PwC’s professional negligence, which contributed directly to the failure of Colonial Bank and large losses to the Deposit Insurance Fund, I voted against authorizing the settlement without a written admission of liability by PwC.”

Nevertheless, the FDIC agreed to the settlement.

“PricewaterhouseCoopers LLP and the Federal Deposit Insurance Corporation as Receiver for Colonial Bank have settled professional negligence claims brought by the FDIC-R against PwC to their mutual satisfaction,” a spokesperson for PwC said in a statement.

According to Rothstein, PwC was negligent in its audits of Colonial Bank’s business in 2003, 2004, 2005, and 2008. Rothstein ruled that PwC’s audits were not designed to detect fraud and did not fully inspect Colonial’s business in the relevant years.

According to Rothstein, PwC did not inspect any of TBW’s loan files at Colonial in 2003 or 2004, failed to follow up on the “illogical” dates on Colonial’s financial reports, failed inspect any of the supposed collateral backing the mortgages in question, and neglected to follow-up on sample loans that failed quality control checks.

TBW is one of housing crisis’ most notorious collapses.

Beginning in 2002 and stretching to 2009, Farkas and his fellow conspirators swept funds between accounts at Colonial and Ocala Funding, a TBW subsidiary that also provided funding for TBW’s mortgages to cover constant overdrafts.

By December 2003, the rolling overdraft had grown to more than $120 million and sweeping the funds back and forth became too complex, so Farkas and others began selling mortgages that didn’t exist to cover the shortages.

By 2009, Colonial Bank had more than $500 million in nonexistent loans on its books.

TBW also sold loans to Fannie Mae and Freddie Mac. In 2002, loans sold to Fannie represented 85% of TBW’s business, but Fannie Mae canceled its seller/servicer agreement with TBW after it learned that Farkas had personally taken out $2 million in loans that were not actually backed by homes or any other eligible collateral to pay for the buybacks on non-compliant loans that TBW sold to Fannie.

In fact, Farkas planned to sell eight fraudulent loans (totaling $2 million) to Fannie to cover the money he needed pay Fannie for other non-compliant loans.

Fannie Mae discovered this fraud when Farkas was unable to make payments on the eight fraudulent loans, but did not communicate its findings to Freddie Mac, its regulator or other interested parties.

Subsequently, Freddie considerably increased the volume of its business with TBW.

Farkas’ schemes were finally discovered when Colonial, which was on the verge of insolvency, applied for $553 million in funding from the Troubled Asset Relief Program.

According to a 2014 report from the Federal Housing Finance Agency’s Office of the Inspector General, Farkas planned to use TBW to invest $150 million in Colonial and help raise the additional $150 million because he knew that without the injection of funding, TBW’s massive fraud would be discovered.

The additional $150 million wound end up being diverted from Ocala’s books to Colonial’s, but the entire nature of Colonial’s fundraising raised a red flag with the Special Inspector General for TARP.

Investigators questioned whether the injection of funding from Farkas was a “round trip” transaction, where the $300 million from TBW would be paid back from the TARP funds.

In the process of the investigation, several of Farkas’ co-conspirators eventually revealed the details of the multi-year, multi-billion dollar fraud.

Farkas eventually received a 30-year prison sentence and was ordered to forfeit $38.5 million in ill-gotten gains for the $2.9 billion scheme after he was found guilty on 14 counts of bank, wire and securities fraud, becoming one of the only people actually jailed for financial crimes in the run-up to the housing crisis.

And this isn’t the first time that PwC has been forced to pay up over its role in the TBW collapse. Back in August 2016, the auditor settled a $5.5 billion lawsuit over the same issue.

For much more on the fall of TBW, click here.

Article source: https://www.housingwire.com/articles/48456-pwc-reaches-335-million-settlement-with-fdic-over-taylor-bean-whitakercolonial-bank-audits

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