Bloomberg News

HSBC Signs $249 Million Deal Settling U.S. Foreclosure Flaws

January 18, 2013

HSBC Holdings Inc. (HBC:US) has agreed to a $249 million accord to settle claims of improper U.S. foreclosures, joining 12 other mortgage servicers in a deal that now exceeds $9 billion, according to banking regulators.

U.S. units of Europe’s largest bank signed a deal with the Federal Reserve and the Office of the Comptroller of the Currency to pay $96 million in cash to 112,000 U.S. borrowers it foreclosed on in 2009 and 2010 and provide $153 million in other mortgage help, according to a statement by the Fed and OCC today. HSBC was among lenders accused of rushing home foreclosures by using flawed documents.

Ten of the largest U.S. mortgage servicers, including JPMorgan Chase & Co. (JPM:US), Bank of America (BAC:US) Corp. and Citigroup Inc. (C:US), agreed to an $8.5 billion settlement with the Fed and the OCC on Jan. 7. This week, Goldman Sachs Group Inc. (GS:US) and Morgan Stanley (MS:US) joined the deal with the Fed, ending their faulty foreclosure history with a $557 million package of cash and other assistance.

After a U.S. housing-market collapse started the worst U.S. financial crisis since the Great Depression, mortgage servicers were accused of engaging in improper foreclosure practices, including so-called robo-signing of documents. In almost two years since regulators ordered the largest U.S. servicers to hire independent consultants to conduct case-by-case reviews of foreclosures, none of the borrowers has been compensated.

‘Benefit Homeowners’

“We are pleased to have reached this agreement, in line with 12 others in the industry who have arrived at similar settlements, and believe it is a positive development that will benefit homeowners,” said Neil Brazil, an HSBC U.S. spokesman, in a statement. The bank will record a pretax charge of $96 million in the fourth quarter of 2012 and expects its existing reserves will absorb the $153 million in other aid “with no significant incremental financial impact,” Brazil said.

Last month, London-based HSBC agreed to pay $1.9 billion to close a global money-laundering probe by the U.S. Department of Justice and banking regulators in the U.S. and U.K. It struck this foreclosure deal with the OCC and Fed because HSBC Bank USA is regulated by the OCC while the Fed regulates HSBC Finance Corp., which absorbed Household International Inc. in 2004. Mortgage servicers handle billing and collections as well as foreclosures if borrowers default.

Case-by-Case Reviews

The new settlement ends case-by-case foreclosure reviews and provides for borrowers who went through foreclosures under HSBC or the other servicers to automatically receive some level of cash compensation based on banks’ review of the level of harm each may have suffered. Cash payments will be as high as $125,000 to borrowers hurt the most, the regulators have said.

Of the $9.3 billion in settlements with the 13 banks, Bank of America is paying the most at $2.9 billion, followed by Wells Fargo & Co. (WFC:US) and JPMorgan, both at $2 billion, according to an OCC document. Almost 4.2 million borrowers will receive compensation from the cash pot of $3.6 billion, for an average payout of $867.

Ally Financial Inc. (ALLY:US), IndyMac Bancorp’s successor OneWest Bank FSB and EverBank Financial Corp. (EVER:US) were among banks in the 2011 foreclosure-review agreement and haven’t yet reached an accord with regulators.

“Conversations continue with all of the banks that did not enter the Jan. 7 agreement in principle but are covered by our April 2011 enforcement action,” Bryan Hubbard, an OCC spokesman, said today.

Consulting Fees

Banks have paid more than $1.5 billion in fees to several third-party consultants, such as Promontory Financial Group LLC, PricewaterhouseCoopers LLP and Ernst & Young LLP, during the abandoned review process, the regulators have said.

“I can’t help but question the effectiveness of a process that led to $1.5 billion in fees to a small number of consultants and only slightly more than twice that in relief to millions of injured borrowers,” U.S. Representative Carolyn Maloney, a New York Democrat, wrote in a letter to the OCC and Fed chiefs dated yesterday.

Maloney requested data from the regulators as she tried to understand “how these fees were ultimately generated and how your supervision of the institutions impacted the progress of the independent foreclosure review process.”

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net.


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