City landfills aren’t pretty places. Much the same can be said for Citi Holdings, the newly formed dumping ground for Citigroup’s most ailing and malodorous assets.

Earlier this year, the de facto government-owned bank created Citi Holdings as a repository for assets that it either planned on selling or would simply have a hard time giving away. In truth, Citi Holdings really isn’t a distinct company. It’s merely part of a PR strategy to get investors to focus on the businesses that are going well at Citi and which are housed in a so-called good bank called Citicorp.

But Citi Holdings holds the key to gauging just how long the bank will remain a ward of the state.

Now technically, things looked good at Citi Holdings in the second quarter, according to the results released today. But that’s only because Citi Holdings benefited from the closing of the Smith Barney joint venture with Morgan Stanley.

Strip away the $11.1 billion in pre-tax dollars from that deal and you get a good look at the problems that persist at Citi.

One of the biggest lines of business dumped into Citi Holding is the bank’s North American consumer lending operation, which includes homes, auto, student and personal loans. And the numbers for consumer lending are plain ugly. The group accounts for 83 percent of the $9.85 billion that Citi Holdings has set aside to cover losses on all credit and loan losses.

Particularly troubling is that the percentage of home loans to North American borrowers that are now delinquent is up to 6.52 percent. At the end of the first quarter the percentage of home loans past due was 5.9 percent and a year ago it was a little over 3 percent. Those numbers don’t suggest much improvement in the housing market and raise the prospect of ever higher delinquency rates as the unemployment rate creeps higher and higher.

Equally troubling is the spike in the percentage of commercial real estate loans that are now considered past due. In the second quarter, 1.57% of commercial real estate loans in North America were delinquent, compared with just 0.46 percent in the period a year ago. This is another sign that the two years of trouble in the residential market are finally hitting the commercial market.

Just about the only bright spot in Citi Holdings is in the pile of really bad stuff — the $300 billion in collateralized debt obligations, credit default swaps and other subprime mortgage garbage that the government has guaranteed losses on.

Those troubled assets are still losing money, but they aren’t quite as toxic these days. In the second quarter, the bank marked up the value of some of its most beaten-down assets by nearly $1 billion.

Citi, just like other banks, is benefiting from a new accounting rule that gives banks greater latitude in valuing toxic securities. But the relentless surge in the number of mortgages that are becoming overdue may undermine the temporary relief Citi is getting on its mortgage-backed securities portfolio. (Editing by Martin Langfield)