HSBC Mortgage Review

HSBC is a world bank that was heavily invested in American subprime lending. In 2007 HSBC had one third of its business in the United States and 75% of its bad debt, mostly as a result of the subprime meltdown. In early 2007 HSBC fired two of its top executives, Bobby Mehta of HSBC Finance and Sandy Derickson, CEO of HSBC Bank USA and Vice Chairman of HSBC Mortgage Finance for their part in the huge losses and write down that hit the lender through bad subprime debt.

In 2003 HSBC Mortgage Finance bought out Household Financial for $14.2 billion. At that time, Household Finance was the largest sub-prime mortgage lender in the United States. Household Finance was the subject of numerous lawsuits at the time due to alleged discriminatory lending practices and was under intense criticism for its troubled, badly-organized book of messy loans.

Allegations of abuse include charging higher points and fees for minorities, women, and elderly persons, and targeting these groups for loans with unfavorable terms even when they qualified for better terms under the corporation’s own underwriting guidelines.

By the first quarter of 2007, HSBC Mortgage Finance had taken over the not-so-coveted role once occupied by Household Finance as new king of the disorganized, money-losing subprime mortgage lenders. Mehta and Derickson were invited to leave (with generous severance packages totaling in the millions), and HSBC began to shut down HSBC Mortgage Finance offices and lay off brokers, loan originators, and support staff.

At the end of 2007, HSBC still had taken losses of well over $10 billion due to subprime lending in the US, well over what it had initially anticipated, and was being talked about in financial circles in the same breath as now-infamous Bear Stearns. HSBC closed two of its largest mortgage lending arms, Decision One and HSBC Mortgage Finance, and announced it was no longer selling and trading mortgage-backed securities in the United States.

HSBC continues to service mortgage loans and holds securities backed by mortgages in countries other than the US. Its webpage http://www.us.hsbc.com/1/2/3/personal/home-loans/mortgage/mortgage-programs still lists a variety of home mortgage loans as being available including more exotic options such as interest-only loans combined with ARMs, Jumbo loans, blended loans, limited documentation loans (also known as ‘stated income loans’ because the borrower simply states his or her income without having to prove it), and straight interest-only loans.

Whether or not HSBC is actually writing any of the loans that customers apply for is a separate question. Most likely HSBC is writing very few mortgages in the US, and like many other banks heavily invested in the US mortgage market, is still working hard to divest itself of anything even tangentially related to it. The degree to which world banks were damaged by exposure to the US mortgage market continues to alarm the worldwide financial industry.