Bank of America Corp (BAC), Citigroup Inc (C): The Dying Legacy of the Financial Crisis

The financial crisis is not dead, but it is dying. Investors were reminded of this earlier today. According to the data analytics firm CoreLogic, the number of home foreclosures completed in the month of July fell by 25% compared to the same month last year.

“Foreclosures and delinquency rates continued their rapid descent in July,” noted President and CEO Anand Nallathambi. “Every state posted a year-over-year decline in foreclosures and serious delinquencies fell to the lowest level since December 2008.”

Bank of America Corp (NYSE:BAC)

The impact on the inventory of homes in some stage of foreclosure has been palatable. As you can see in the chart below, the national foreclosure inventory has fallen considerably over the last 12 months. The July figure of 949,000 was 32% less than the same month in 2012. And it was the 21st consecutive month with a year-over-year decline.

To say this trend is a welcome, albeit ongoing, development is an understatement. Indeed, if there’s one thing that’s haunted the U.S. economy over the last five years, it’s the state of the housing market. And the fear of foreclosure stands above almost all other concerns.

It has devastated consumer credit ratings, weighed on bank balance sheets, and competed against the construction of new homes — the latter of which create between two and three jobs per unit. All told, an estimated 4.9 million homes have fallen prey to it since September of 2008.

Of particularly welcome relief to the nation’s biggest mortgage lenders was news that the rate of seriously delinquent mortgages had dropped by 25% since the previous July. If there’s one thing other than legal costs that have led to losses at the nation’s biggest lenders, it’s been souring mortgages.

The experiences of Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) provide two cases in point. Both banks ultimately quarantined the losses in separate “bad bank” divisions, which have gone on to absorb the majority of the losses.

In 2012, Bank of America Corp (NYSE:BAC)’s legacy assets and servicing group lost $7.4 billion; the year before, it lost a staggering $20 billion. Over the same two years, Citigroup Inc (NYSE:C)’s local consumer lending group reported a net loss of $7.5 billion.

Now, to be fair, there have been beneficiaries. The most apparent of which are the independent mortgage servicers like Ocwen Financial Corp (NYSE:OCN) and Nationstar Mortgage Holdings. Over the last few years, as the banks have sold off the rights to service residential mortgages, these companies’ balance sheets have expanded by factors of two and six, respectively.

At the end of 2011, Nationstar held $1.8 billion in assets. Fast forward a year and a half, and today it holds nearly $12 billion. By comparison, Ocwen Financial Corp (NYSE:OCN) saw its balance sheet grow from roughly the same level in 2009 up to $7 billion at the end of the second quarter of this year.

Suffice it to say, despite this handful of beneficiaries, the continued progress on this front is unquestionably good news for the economy overall, and the housing and banking sectors in particular.

The article The Dying Legacy of the Financial Crisis originally appeared on Fool.com and is written by John Maxfield.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and Citigroup. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!