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From Banking and Finance Law Daily, February 5, 2016

Bank to pay $470 million for mortgage abuses

By John M. Pachkowski, J.D.

HSBC North America Holdings Inc., and its affiliates, HSBC Bank USA, N.A., HSBC Finance Corporation, and HSBC Mortgage Services Inc., have entered into a consent order and will $470 million to address mortgage origination, servicing, and foreclosure abuses.

The consent order is between HSBC North America Holdings Inc., its affiliates, the Department of Justice, Department of Housing and Urban Development, Consumer Financial Protection Bureau, 49 state attorneys general, and the District of Columbia. Oklahoma is the only state not a party to the consent order.

The alleged mortgage origination, servicing, and foreclosure abuses are based on violations of: the various states’ unfair and deceptive acts and practices laws; the False Claims Act; the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; the Bankruptcy Code; and the Federal Rules of Bankruptcy Procedure.

Mirrors 2012 settlement. The agreement’s mortgage servicing terms largely mirrors the 2012 National Mortgage Settlement (NMS) reached in February of 2012 between the federal government, 49 state attorneys general, and the five largest national mortgage servicers. That agreement provided consumers nationwide with more than $50 billion in direct relief, created new servicing standards, and implemented independent oversight. The NMS required the servicers to provide consumer relief, such as principal forgiveness and short sale assistance, for distressed borrowers who met the settlement’s eligibility criteria, and refinancing assistance for certain borrowers. The servicers’ performances under the settlement are evaluated by the use of a series of 33 metrics to assess how well each servicer is adhering to the 304 servicing standards, or rules, under the NMS.

Consumer relief. Of the $470 million that the HSBC parties agreed to pay, $370 million will be used for consumer relief 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 remaining $100 million is to be split between the states and the federal government. The states are set to receive $59.5 million and the federal government $40.5 million.

Compliance. Besides the payments, the HSBC parties also required to fulfill other obligations under the terms of the consent order. These various obligations, set forth in numerous exhibits, relate to servicing standards, consumer relief, and compliance metrics.

To ensure compliance, the terms of the consent order will be overseen by an independent monitor, Joseph A. Smith Jr., who is also the monitor for the NMS. Smith will oversee implementation of the servicing standards required by the agreement, will certify that HSBC has satisfied its consumer relief obligations, and will file regular public reports that identify any quarter in which HSBC fell short of the standards imposed in the settlement.

One set of rules. Commenting on the consent order, New York Attorney General Schneiderman said, “There has to be one set of rules for everyone, no matter how rich or how powerful, and that includes lenders who engage in abusive business practices. The settlement announced today is a joint partnership that will create tough new servicing standards that will ensure fair treatment for HSBC’s borrowers and provide relief to customers across New York State and across the country.”

Rooting out fraud. Acting Associate Attorney General Stuart F. Delery stated, “This agreement is the result of a coordinated effort between federal and state partners to hold HSBC accountable for abusive mortgage practices.” He added, “The Department of Justice remains committed to rooting out financial fraud and holding bad actors accountable for their actions.”

Fair treatment. HUD’s General Counsel Helen Kanovsky noted, “Mortgage servicers have a responsibility to help struggling borrowers remain in their home, not to push them into foreclosure. This agreement is another example of how multiple agencies in the federal government and state attorneys general across the country are working to make sure the mortgage industry treats consumers fairly.”

Companies: HSBC Bank USA, N.A.; HSBC Finance Corporation; HSBC Mortgage Services Inc.; HSBC North America Holdings Inc.

MainStory: TopStory CFPB EnforcementActions Loans Mortgages UDAAP

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