HSBC to pay $470 million for mortgage abuses

The U. S. Department of Justice announced today, February 5, 2016, that the Department, the Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau, along with 49 state attorneys general and the District of Columbia’s attorney general, have reached a $470 million agreement with HSBC Bank USA NA and its affiliates (collectively, HSBC) to address mortgage origination, servicing and foreclosure abuses.

"The settlement reflects a continuation of enforcement actions by the department and its federal and state enforcement partners to hold financial institutions accountable for abusive mortgage practices. The settlement parallels the $25 billion National Mortgage Settlement (NMS) reached in February 2012 between the federal government, 49 state attorneys general and the District of Columbia’s attorney general and the five largest national mortgage servicers, as well as the $968 million settlement reached in June 2014 between those same federal and state partners and SunTrust Mortgage Inc."

Under the agreement

• HSBC will pay $100 million: $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.
• By July 2016, HSBC will complete $370 million in creditable consumer relief directly to borrowers and homeowners 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 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.

The agreement settled only potential violations of civil law. It does not prevent criminal enforcement actions related to HSBC's conduct, or for punishing wrongful securitization conduct. State attorney general preserved all claims against Mortgage Electronic Registration Systems (MERS), and individual borrower actions are not barred by the agreement.

In conjunction with the settlement agreement with the Department of Justice et al., the Federal Reserve Board announced its assessment of a $131 million penalty against HSBC North America Holdings, Inc., and HSBC Finance Corporation for deficiencies in residential mortgage loan servicing and foreclosure processing. The Board said the penalty "is the maximum amount allowed under the law, taking into account the circumstances of HSBC's unsafe and unsound practices and foreclosure activities." The penalty can be remitted by the Board to the extent HSBC satisfies the Department of Justice settlement or by providing funding for nonprofit housing counseling organizations. If HSBC does not satisfy the full $131 million penalty amount within two years, the remaining amount must be paid to the U.S. Department of Treasury.