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.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

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!