The banks completed their fourth-quarter call reports to regulators this week and they are much better than I was anticipating. I will be writing about various aspects of them over the next few weeks, but the first data series that needs to be discussed is the non-performing mortgages (NPL).
I've written several columns on this subject over the past few years as the data has been mixed to negative. This is the first report since the 2008 financial crisis where all four of the dominant money centers, JPMorgan Chase (JPM), Bank of America (BAC), Citi (C), and Wells Fargo (WFC) reported strong and impressive performance in the area of their non-performing loans.
All four are showing declines in the value of their non-performing mortgages in both aggregate dollar values and as a percentage of loans outstanding.
The most impressive numbers came from BAC reporting a decline in its portfolio of non-performing mortgages for the first time since a small decline the second quarter of 2010. The outstanding value of non-performing mortgages declined from about $58 billion in the third quarter to about $55 billion in the fourth. That's a big drop and almost certainly a reflection of an increase in approved short sales.
It's too early to determine if this is the beginning of a real change for the better in the outlook for BAC, but the size of the move coupled with the positive performance by the other money centers indicates that it might be.
But I would be cautious right now because the value of non-performing mortgages as a percentage of its entire first trust residential loan portfolio is still very high at about 20.2%, down from about 20.8% in the third quarter.
JPM and C both experienced declines in their non-performing loans that are most probably due as well to the increase in approved short sales and nascent stabilization in home values.
JPM's first trust residential NPLs declined in value from about $27 billion in the third quarter to about $26 billion in the fourth. At Citi the decline was from about $10 billion to about $9 billion.
WFC experienced a slight increase from about $34.5 billion to $35 billion, but the value of its mortgage portfolio also increased by $5 billion from $253 billion to $258 billion.
The value of mortgages tied to foreclosed properties that have yet to be sold also declined at all four of the money centers, while the value of outstanding loans increased.
In aggregate, this was the best quarter for the performance of the money centers, as measured by their call reports, since the crisis of 2008.