WBK Industry News - Federal Regulatory Developments

HSBC Reaches $601M Settlement over Allegations of Abusive Mortgage Practices

HSBC Bank USA and its affiliates (collectively, HSBC) reached a series of settlements with federal regulators and law enforcement agencies totaling $601 million over allegations that the bank engaged in mortgage origination, servicing, and foreclosure abuses, including ‘robo-signing.’

In one settlement, HSBC agreed to pay $470 million to settle charges by the U.S. Department of Justice (DOJ), the U.S. Department of Housing and Urban Development (HUD), 49 states, and the District of Columbia.  Oklahoma is the only state that did not participate in the consent order.

Separately, HSBC agreed to pay $131 million to the Federal Reserve Board (Federal Reserve) for deficiencies in residential mortgage loan servicing and foreclosure processing.  The civil money penalty assessed by the Federal Reserve is the maximum amount allowable by law.

Under the terms of the settlement with the DOJ, HSBC will provide $470 million to the DOJ, $370 of which will be used toward consumer relief by reducing the principal on mortgages for borrowers who are at risk of default, reducing mortgage interest rates, forgiving forbearance and other forms of relief.  The remaining $100 million will be divided into several parts; $40.5 million will be paid to the federal government, and $59.3 million will be paid to states to help borrowers who lost their homes to foreclosure between 2008 and 2012.  The final $200,000 will be paid into escrow to pay the state attorneys general for investigation costs.

In addition to paying the penalty, HSBC is required to fulfill various compliance obligations related to reforming its servicing standards, compliance metrics, and consumer relief.  The standards require oversight of foreclosure processing and are intended to ensure that foreclosure is used as a last resort after homeowners are evaluated for other loss mitigation offers.

The terms of the DOJ settlement with HSBC mirror those that were agreed to in the $25 billion 2012 national mortgage settlement between the federal government, 49 state attorneys general and the District of Columbia’s attorney general, and the five largest national mortgage services.  Joseph Smith, who is the monitor for the national mortgage settlement, will also oversee HSBC’s compliance with the settlement terms.

The DOJ press release is available here: http://www.justice.gov/opa/pr/justice-department-reaches-470-million-joint-state-federal-settlement-hsbc-address-mortgage.

The Federal Reserve press release is available here: http://www.federalreserve.gov/newsevents/press/enforcement/20160205a.htm.