In a notice sent to to brokers yesterday and obtained by Housing Wire, HSBC said yesterday that it “has made the decision to discontinue correspondent channel acquisitions” through its HSBC Mortgage Services division. The division was primarily engaged in correspondent subprime lending, and the company said in its notice that it will cease correspondent activities on May 31, 2007. HSBC noted its decision to exit the correspondent channel will not impact HSBC Mortgage Corporation, its prime mortgage business, or Decision One, the company’s wholesale sub-prime origination arm.
The company’s disclosure in early February that subprime loans it funded would force it to take a $10 billion hit on loan impairment charges was one of the leading factors that pushed the subprime credit crunch into the media spotlight. The company did not specify how many correspondent brokers would be affected by the company’s move, and calls to the company for additional information were not returned as of Friday evening, March 23. (Brokers affected by the HSBC decision are encouraged to email email@example.com with information on the change and their plans going forward.) Numerous subprime lenders have exited the wholesale origination channel for subprime loans, but few have publicly exited a correspondent channel, according to a review of recent loan closures by HW editorial staff. Correspondent lending often involves a the use of a “captive” broker responsible for originating loan products for a single company, using loan guidelines provided by their correspondent sponsor. Correspondent brokers are often not employees of the company they originate loans for.