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."

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 (NYSE: BAC  ) and Citigroup (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'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 (NYSE: OCN  ) 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.

Have you missed out on the massive gains in bank stocks over the past few years? There's good news: It's not too late. Bargains of a lifetime are still available, but you need to know where to look. The Motley Fool's new report "Finding the Next Bank Stock Home Run" will show you how and where to find these deals. It's completely free -- click here to get started.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2013, at 12:13 PM, breakBofAnow wrote:

    What do you expect foreclosed homeowners to do? keep paying on a foreclosed, or to be foreclosed home? It' just a numbers game with investors, while peoples dreams being robbed from them, ruining their credit, devastating, and leaving families homeless. That doesn't enter the equation? What is wrong with you people?

  • Report this Comment On September 03, 2013, at 10:32 AM, tunetopper wrote:

    I echo the above post- and add AT WHAT COST?

    Yes you will have new home ownership when your Wall ST banks allow for the liar loans and other illegitimate sub-prime market to be so intermingled with the higher quality stuff that there had to be a "cleansing out" of the entire market with a drop of 25-30% IN HOME PRICES in several key growth areas of the US. We need to keep the spotlight on the bad actors until justice is served.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2615533, ~/Articles/ArticleHandler.aspx, 10/31/2014 5:26:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 17,195.42 221.11 1.30%
S&P 500 1,994.65 12.35 0.62%
NASD 4,566.14 16.91 0.37%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/30/2014 4:01 PM
BAC $17.03 Up +0.04 +0.24%
Bank of America CAPS Rating: ****
C $53.15 Up +0.51 +0.97%
Citigroup Inc CAPS Rating: ***
NSM $34.40 Up +0.05 +0.15%
Nationstar Mortgag… CAPS Rating: ***
OCN $23.16 Up +2.35 +11.29%
Ocwen Financial Co… CAPS Rating: **

Advertisement