As part of an agreement between HSBC and the Justice Department, HUD, the CFPB, and 49 state attorneys general (and DC’s), $470 million will be paid out to settle mortgage origination and servicing/foreclosure abuses.
The Justice Department noted that the settlement mirrors the $25 billion National Mortgage Settlement (NMS) agreed upon back in February 2012. The five largest mortgage servicers were part of that settlement, but HSBC was not.
This settlement is the result of negotiations that took place after the announcement of the NMS in which HSBC was presumably found to have taken part in similar abusive mortgage practices.
The agreement resolves violations related to HSBC’s so-called “deficient mortgage loan origination and servicing activities.”
The settlement will be overseen by Joseph A. Smith Jr., who is also the independent monitor of the NMS.
Like many other large banks at the time, HSBC was likely accused of underwriting faulty mortgages and then quickly foreclosing on the very same borrowers.
The bank shut its wholesale subprime lending arm Decision One in 2007, ceased wholesale and correspondent lending in 2008, and shuttered its retail brands HFC and Beneficial in 2009.
Nearly $60 Million in Cash Payouts to Affected Borrowers
Some $40.5 million of the proceeds will go to the settling federal parties, while another $59.3 million will be deposited into an escrow fund managed by the states in order to make payments to borrowers who lost their homes to foreclosure from 2008 to 2012.
It appears that homeowners in New York State were most affected by HSBC’s actions, with an estimated 136,000 mortgages accounting for 31% of HSBC’s overall loan portfolio.
In California, roughly 7,500 borrowers whose mortgages were serviced by HSBC and eventually lost to foreclosure will be eligible for a payment.
In a press release, California Attorney General Kamala Harris said eligible borrowers would be contacted about how to qualify for payments (e.g. claim forms in the mail), though it may not hurt to be proactive and reach out as well.
The amount of the payment will be dependent on how many borrowers actually file claims. California borrowers are expected to be eligible for around 10% of the funds.
$370 Million in Relief for Existing Homeowners
The bulk of the money, $370 million, will be allocated to consumers affected by the bank’s lending practices during the housing boom and subsequent bust that still own their homes.
By July of this year, HSBC will complete the relief by taking the following actions:
– Reducing the principal balance on mortgages for borrowers who are at risk of default
– Reducing mortgage interest rates
– Refinancing of underwater mortgages
– Forgiving forbearance
– Other non-specified forms of relief
Additionally, HSBC will be required to improve their servicing standards by doing the following:
– Making sure a foreclosure is a last resort
– Restricting foreclosure while considering a loan modification
– Implementing procedures and timelines for loan mods
– Providing homeowners the opportunity to appeal denials
– Creating a single point of contact for borrowers seeking information
Per usual, this agreement doesn’t preclude borrowers from pursuing their own lawsuit against the bank, nor does it prevent state and federal authorities from pursuing criminal enforcement actions.
Keep an eye out for PHH Mortgage to be next in line.