HSBC 2012 Annual Report Download - page 511

509
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
of a larger agreement announced by the Federal Reserve Board and the Office of the Comptroller of the Currency in
January 2013 involving HSBC and twelve other mortgage servicers subject to foreclosure consent orders pursuant to
which the mortgage servicers would pay, in the aggregate, in excess of US$9.3bn in cash payments and other
assistance to help eligible borrowers. Pursuant to these agreements, the Independent Foreclosure Reviews will cease
and be replaced by a broader framework under which all eligible borrowers will receive compensation regardless of
whether they filed a request for independent review of their foreclosure and regardless of whether the borrower was
financially injured as a result of an error in the foreclosure process. Borrowers who receive compensation will not be
required to execute a release or waiver of rights and will not be precluded from pursuing litigation concerning
foreclosure or other mortgage servicing practices. For participating servicers, including HSBC Bank USA and HSBC
Finance, fulfilment of the terms of these agreements will satisfy the Independent Foreclosure Review requirements of
these consent orders. These consent orders do not preclude additional enforcement actions against HSBC Bank USA,
HSBC Finance or HNAH by bank regulatory, governmental or law enforcement agencies, such as the US Department
of Justice (‘DoJ’) or State Attorneys General, which could include the imposition of civil money penalties and other
sanctions relating to the activities that are the subject of the consent orders. Pursuant to the agreement with the Office
of the Comptroller of the Currency, however, the Office of the Comptroller of the Currency has agreed that it will not
assess civil money penalties or initiate any further enforcement action with respect to past mortgage servicing and
foreclosure-related practices addressed in the consent orders, provided the terms of the agreement are fulfilled. The
Office of the Comptroller of the Currency’s agreement not to assess civil money penalties is further conditioned on
HSBC North America making payments or providing borrower assistance pursuant to any agreement that may be
entered into with the DoJ in connection with the servicing of residential mortgage loans within two years. The
Federal Reserve Board has agreed that any assessment of civil money penalties by the Federal Reserve Board will
reflect a number of adjustments, including amounts expended in consumer relief and payments made pursuant to any
agreement that may be entered into with the DoJ in connection with the servicing of residential mortgage loans. In
addition, the agreement does not preclude private litigation concerning these practices.
Separate from the consent orders and settlement related to the Independent Foreclosure Review discussed above, it
has been announced that the five largest US mortgage servicers (not including HSBC Group companies) have
reached a settlement with the DoJ, the US Department of Housing and Urban Development and State Attorneys
General of 49 states with respect to foreclosure and other mortgage servicing practices. HNAH, HSBC Bank USA
and HSBC Finance have had discussions with US bank regulators and other governmental agencies regarding a
potential resolution, although the timing of any settlement is not presently known. HSBC recognised provisions of
US$257m in 2011 to reflect the estimated liability associated with a proposed settlement of this matter. Any such
settlement, however, may not completely preclude other enforcement actions by state or federal agencies, regulators
or law enforcement bodies related to foreclosure and other mortgage servicing practices, including, but not limited to
matters relating to the securitisation of mortgages for investors. In addition, such a settlement would not preclude
private litigation concerning these practices.
Participants in the US mortgage securitisation market that purchased and repackaged whole loans have been the
subject of lawsuits and governmental and regulatory investigations and inquiries, which have been directed at groups
within the US mortgage market, such as servicers, originators, underwriters, trustees or sponsors of securitisations,
and at particular participants within these groups. As the industry’s residential mortgage foreclosure issues continue,
HSBC Bank USA has taken title to an increasing number of foreclosed homes as trustee on behalf of various
securitisation trusts. As nominal record owner of these properties, HSBC Bank USA has been sued by municipalities
and tenants alleging various violations of law, including laws regarding property upkeep and tenants’ rights. While
HSBC believes and continues to maintain that the obligations at issue and the related liability are properly those of
the servicer of each trust, HSBC continues to receive significant and adverse publicity in connection with these and
similar matters, including foreclosures that are serviced by others in the name of ‘HSBC, as trustee’.
HSBC Bank USA and HSBC Securities (USA) Inc. have been named as defendants in a number of actions in
connection with residential mortgage-backed securities (‘RMBS’) offerings, which generally allege that the offering
documents for securities issued by securitisation trusts contained material misstatements and omissions, including
statements regarding the underwriting standards governing the underlying mortgage loans. These include an action
filed in September 2011 by the Federal Housing Finance Agency (‘FHFA’). This action is one of a series of similar
actions filed against 17 financial institutions alleging violations of federal and state securities laws in connection with
the sale of private-label RMBS purchased by Fannie Mae and Freddie Mac, primarily from 2005 to 2008. This action,
along with all of the similar FHFA RMBS actions, was transferred to a single judge, who directed the defendant in
the first-filed matter to file a motion to dismiss. In May 2012, the District Court filed its decision denying the motion
to dismiss FHFA’s securities law claims and granting the motion to dismiss FHFA’s negligent misrepresentation