Markets
BAC

HSBC Faces $601M Fine for Mortgage Malpractices in US

Tablet displaying intraday stock performance

In a major relief to distressed home owners, U.K.-based HSBC Holdings plcHSBC has agreed to resolve allegations of abusive mortgage practices. The bank reached a national mortgage settlement ("NMS") and will pay $470 million (£325 million) in financial commitments and $131 million (£91 million) as a financial penalty.

The U.S. regulators - the Department of Justice ('DOJ"), the Department of Housing and Urban Development ("HUD"), the Consumer Financial Protection Bureau (CFPB"), various other federal agencies, attorneys general ("AGs") from 49 states and the District of Columbia, and the Federal Reserve - are part of the settlement.

Of the $470 million of financial assistance, $370 million will be provided as consumer relief such as lowering the principal amount on borrowers' mortgages and declining mortgage interest rates. These have to be completed by Jul 2016.

Notably, the remaining $100 million will be divided into several parts: $40.5 million for the federal parties; $59.3 million as compensation to borrowers who lost their homes; and $0.2 million to be paid into an escrow fund to compensate the state AGs as investigation costs.

The $131-million penalty slapped on HSBC would resolve the Fed's claims over deficits in residential mortgage-loan servicing and foreclosure processes.

HSBC had been accused of indulging in abusive foreclosure and mortgage originating practices against home owners, who were struggling to keep up with loan payments during the 2008 financial crisis. Also, the company was alleged to have 'robo-signed' foreclosure documents.

Further, as per the settlement, HSBC will be required to fulfill the national servicing standards set forth by the previous NMS agreements. Earlier in 2012, the U.S. regulators had settled similar charges with Bank of America Corp. BAC , JPMorgan Chase & Co. JPM , Citigroup Inc. C , Wells Fargo & Co and Ally Bank for nearly $25 billion (in aggregate).

Moreover, similar to the prior NMS deal, HSBC will have to install an independent monitor to oversee the compliance with settlement terms. The DOJ stated that this part of the settlement will be overseen by Joseph Smith, who is also the monitor for the NMS.

Notably, HSBC is fully reserved to meet the settlement amount. Therefore, the company's financials are not expected to be impacted by this agreement.

Currently, HSBC carries a Zacks Rank #4 (Sell).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

HSBC HOLDINGS (HSBC): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

BAC HSBC JPM C

Other Topics

Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More