HSBC Must Pay $470M For Alleged Abusive Loan Practices

Thousands of homeowners who lost their homes or had their loans modified will receive a portion of a $470 million federal-state settlement with mortgage lender and servicer HSBC to settle allegations the bank engaged in origination, servicing, and foreclosure abuses. 

The settlement, a joint effort between 48 states, the District of Columbia, the Department of Justice, U.S. Department of Housing and Urban Development, and the Consumer Financial Protection Bureau, addresses alleged abuses such as robo-signing, and improper documentation keeping that contributed to people being pushed out of their homes from 2008 to 2013.

The deal reflects a continuation of enforcement actions to hold financial institutions accountable for abusive mortgage practices, the DOJ says in a statement, noting that the deal parallels the $25 billion National Mortgage Settlement reached in February 2012.

“Mortgage servicers have a responsibility to help struggling borrowers remain in their home, not to push them into foreclosure,” General Counsel Helen Kanovsky of HUD, said Friday.

Under the terms of the agreement, HSBC will pay $100 million to federal agencies;  $40.5 million of which will be paid to the settling federal parties; $59.3 million will go into an escrow fund administered by the states to make payments to borrowers who lost their homes to foreclosure between 2008 and 2012; and $200,000 to be paid into an escrow fund to reimburse the state attorneys general for investigation costs.

The California Attorney General’s office estimates that its residents will be eligible for about 10% of the foreclosure payments, while the New York Attorney General’s office believes as many as 136,000 residents will receive some form of relief through the agreement.

Another $370 million will be paid in relief to homeowners in the form of loan modifications, loan refinancing, reduced mortgage interest rates, forgiven forbearance, principal reductions for borrowers who are at risk of default and other forms of relief, with disbursements being overseen by an independent monitor. These payments have already been underway, the DOJ reports.

Additionally, the agreement requires HSBC to change how it services mortgage loans, handles foreclosures, and ensures the accuracy of information provided in federal bankruptcy court.

Specifically, the settlement’s consumer protections and standards include:
• Making foreclosure a last resort by first requiring HSBC to evaluate homeowners for other loss mitigation options;
• Restricting foreclosure while the homeowner is being considered for a loan modification;
• Procedures and timelines for reviewing loan modification applications;
• Giving homeowners the right to appeal denials; and
• Requiring a single point of contact for borrowers seeking information about their loans and maintaining adequate staff to handle calls.

While Friday’s agreement resolves potential violations of civil law based on HSBC’s deficient mortgage loan origination and servicing activities, it does not prevent state or federal authorities from pursuing criminal enforcement action related to this or other conduct by the lender, the New York AG states.

Last year, HSBC was among four banks that the Office of the Comptroller of the Currency announced said must abide by revised consent orders that impose limitations on the ways in which the lenders can conduct certain mortgage-related business activities.

The restrictions were handed down after the OCC determined that the banks hadn’t done enough to comply with enforcement orders related to past home foreclosure abuses such as mishandling loan papers, robo-signing legal documents, and improperly initiated foreclosures without reviewing each individual case.

While the restrictions didn’t affect mortgages that the banks issue themselves, they do limit the banks’ ability to acquire residential mortgage servicing or residential mortgage servicing rights from other companies.

Additionally, the lenders were limited in outsourcing or sub-servicing of new residential mortgage servicing activities to other parties and appointing senior officers responsible for residential mortgage servicing or residential mortgage servicing risk management and compliance, the OCC order stated.

The OCC said at the time that the banks face varying restrictions based on their particular circumstances, but didn’t elaborate in the announcement.