HSBC reaches $601M settlement over charges of ‘abusive mortgage practices’

Settlement reached with DOJ, HUD, CFPB, Federal Reserve, 49 states

(Update: This article is updated to include a statement from HSBC.)

HSBC agreed to a $601 million settlement with a series of federal agencies and nearly every state over charges that the bank engaged in mortgage origination, servicing and foreclosure abuses.

The massive settlement with HSBC was jointly announced Friday by the Department of Justice, the Department of Housing and Urban Development, the Consumer Financial Protection Bureau, 49 states and the District of Columbia.

As part of that settlement, HSBC will pay a total of $470 million in relief to consumers and payments to federal and state parties, and will be bound to mortgage servicing standards and be subject to independent monitoring of its compliance with the agreement, the DOJ said in a statement.

“This agreement is the result of a coordinated effort between federal and state partners to hold HSBC accountable for abusive mortgage practices,” said Acting Associate Attorney General Stuart Delery.

“This agreement provides for $370 million in creditable consumer relief to benefit homeowners across the country and requires HSBC to reform their servicing standards,” Delery added. “The Department of Justice remains committed to rooting out financial fraud and holding bad actors accountable for their actions.”

In a separate, but related, announcement, the Federal Reserve announced that HSBC will pay $131 million to settle similar claims.

According to the Fed, the penalty assed to HSBC is the maximum amount allowed by the law, and takes into account the circumstances of HSBC’s “unsafe and unsound practices and foreclosure activities.”

According to an announcement from Florida Attorney General Pam Bondi, the settlement requires HSBC to “substantially change” how it services mortgage loans, handles foreclosures and ensures the accuracy of information provided in federal bankruptcy court.

The terms will help prevent past foreclosure abuses, such as robo-signing, improper documentation and lost paperwork, Bondi’s office said.

In a statement, HSBC said that the company is “pleased” about the settlement.

“We are pleased to have reached this settlement and believe it is a positive result that benefits American homeowners and the US housing industry,” said Kathy Madison, CEO, HSBC Finance Corp. “Throughout the housing market downturn, HSBC stayed focused on home preservation and approached foreclosure as a last resort option, and this agreement affirms our commitment to assisting customers who are facing financial difficulties.”

Under the terms of the settlement with the DOJ, HUD, the CFPB and the states, HSBC will be required to:

  • Pay $100 million, including $40.5 million to be paid to the settling federal parties; $59.3 million to be paid 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
  • HSBC is also required to complete $370 million in creditable consumer relief directly to borrowers and homeowners by July 2016 in the form of 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 relief to homeowners has been underway and will likely provide more than $370 million in direct benefits to borrowers because HSBC will not be permitted to claim credit for every dollar spent on the required consumer relief
  • HSBC will also be required to implement standards for the servicing of mortgage loans, the handling of foreclosures and for ensuring the accuracy of information provided in federal bankruptcy court. These standards are designed to prevent foreclosure abuses of the past, such as robo-signing, improper documentation and lost paperwork, and create new consumer protections.  The standards provide for oversight of foreclosure processing, including third-party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court. The servicing standards ensure that foreclosure is a last resort by requiring HSBC to evaluate homeowners for other loss-mitigation options first. In addition, the standards restrict HSBC from foreclosing while the homeowner is being considered for a loan modification

According to the Fed, its penalty may be satisfied by providing borrower assistance or remediation in conjunction with the Department of Justice settlement, or by providing funding for nonprofit housing counseling organizations.

If HSBC does not satisfy the full penalty amount within two years, the remaining amount must be paid to the Department of Treasury, the Fed said, adding that it will closely monitor compliance by HSBC with the requirements of the order.

“This settlement illustrates the department’s continuing commitment to ensure responsible mortgage servicing,” said Principal Deputy Assistant Attorney General Benjamin Mizer, head of the Justice Department’s Civil Division. “The agreement is part of our ongoing effort to address root causes of the financial crisis.”

According to the DOJ, that portion of the settlement will be overseen by Joseph Smith, who is also the monitor for the National Mortgage Settlement.

Smith will oversee implementation of the servicing standards required by the agreement, will certify that HSBC has satisfied its consumer relief obligations and will file regular public reports that identify any quarter in which HSBC fell short of the standards imposed in the settlement. 

The parties may seek penalties for non-compliance, the DOJ said. 

“Mortgage servicers have a responsibility to help struggling borrowers remain in their home, not to push them into foreclosure,” said General Counsel Helen Kanovsky of HUD. “This agreement is another example of how multiple agencies in the federal government and state attorneys general across the country are working to make sure the mortgage industry treats consumers fairly.”

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