HSBC Holdings plc
) became the latest bank to announce a foreclosure settlement
deal with the Office of the Comptroller of the Currency (OCC) and
other U.S. banking regulators. The company has agreed to pay $249
million to stop review of wrongful foreclosures in the U.S.
Out of the total amount, $96 million will be utilized for direct
payments to eligible borrowers, while $153 million will be used
for providing relief to troubled homeowners through principal
reductions and loan modifications. The deal will enable nearly
112,000 homeowners, whose property was wrongly foreclosed in
2009-2010 by HSBC, to get cash compensation, ranging from a few
hundred dollars to a maximum of $125,000.
Additionally, under the terms of the deal, the process initiated
by the OCC in 2011 - to review all the borrowers' files that were
wrongly foreclosed in 2009-2010 - would end. Under that process,
the banks were required to hire independent consultants to go
through the loan files and look for any faulty foreclosure
Earlier in the same week,
The Goldman Sachs Group, Inc.
) and Morgan Stanley agreed to pay $557 million in aggregate to
settle similar charges. Moreover, in early January, 10 banks,
), BofA, JPMorgan, Wells Fargo and
SunTrust Banks, Inc.
), agreed to pay a total of $8.5 billion.
As a result of the deal, HSBC is anticipated to record a pre-tax
charge of $96 million in the fourth quarter of 2012, while the
remaining amount is expected to be covered from the existing
Though the settlement is expected to marginally dent HSBC's
fourth-quarter results, in the long run it will be a big relief.
Further, the distressed homeowners would also be benefited. We
are hopeful that like the earlier foreclosure settlement deal,
this one would also be a decisive step in restoring confidence in
businesses and rejuvenating the sagging housing market.
HSBC currently retains a Zacks Rank #3 (Hold).
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