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."
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 (BAC 3.35%) and Citigroup (C 1.41%) 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'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'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 (OCN 1.69%) and Nationstar Mortgage Holdings (NYSE: NSM). 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 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.
