Shahien Nasiripour

HuffPost Reporting shahien@huffingtonpost.com

One Of World's Largest Banks Warns Of Punishment For

Improper Foreclosure Practices In U.S.
Foreclosure Fines

HSBC North America Holdings, the nation's ninth-largest bank by assets, warned investors Monday of
impending fines after receiving notice from federal bank regulators admonishing the lender for
improper foreclosure practices.

The bank is the latest in a string of large financial companies that have used recent securities filings to
prep investors for fines and a significant increase in costs associated with processing mortgages and
repossessing homes, after being cited by regulators for deficient and sometimes illegal operations. On
Friday, Ally Financial, Wells Fargo & Co., and SunTrust Banks -- three of the nation's 10 largest handlers
of home mortgages -- said in regulatory documents that they expect to be sanctioned by the U.S.
government for their foreclosure practices.

The penalties follow months-long criminal and civil probes by federal and state regulators into lenders'
mortgage practices. Officials said they found significant shortcomings and violations of various state
laws. A "small number" of foreclosures should not have occurred, John Walsh, the interim head of the
Office of the Comptroller of the Currency, the federal regulator of national banks, told a Senate
committee earlier this month after his agency surveyed less than 3,000 out of millions of loan files.

The lender's two mortgage subsidiaries, HSBC Finance Corp. and HSBC Bank USA, both received letters
from regulators. The Federal Reserve noted "deficiencies" in how the consumer finance arm and the
holding company processed foreclosure documents, how it monitored for such issues and the lack of
resources they devoted to evicting borrowers from their homes, according to the firm's annual reports
filed with the Securities and Exchange Commission. Its subsidiary bank received a similar letter from the
OCC.

Combined, HSBC handles about $110 billion in home loans, making it the 12th-largest mortgage servicer
in the country, according to Inside Mortgage Finance, a trade publication and data provider. The firm
has suspended home repossessions since identifying improper foreclosure practices.

In regulatory filings filed with the SEC in November, the bank said it had not suspended foreclosures due
to the so-called robo-signing controversy, which forced many of its competitors to halt home
repossessions after evidence revealed improper foreclosure practices. But in its most recent filings,
HSBC indicated that it had suspended home repossessions. This occurred sometime between Nov. 5 and
today.
HSBC expects to be subject to a regulatory order banning certain mortgage and foreclosure practices,
according to its SEC filings, joining other large firms. The lender is currently in discussions with the Fed
and the OCC over the terms of the cease and desist orders, which will require HSBC to fix various
deficiencies identified by bank regulators, it said. The orders will be finalized "shortly after" the lender
filed its annual reports with the SEC, it said.
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The orders may subject the firm to more lawsuits, it added. They also may hurt the firm's reputation and
drive up costs associated with implementing proper foreclosure practices. Mortgage companies have
long neglected how they handle home loans, regulators have said, skimping on basic practices in order
to save money.

Perhaps most significantly, the regulators' various orders will not preclude further action against HSBC,
including fines and other monetary penalties, the firm said. The financial services giant, one of the
largest banks in the world by assets, could not predict how all of this would impact its bottom line, it
said.

On Friday, SunTrust outlined a settlement agreement it expects the bank, as well as other large firms, to
adhere to based on demands from regulators. The company will likely have to acknowledge they
improperly handled documents when trying to foreclose on homeowners, failed to devote sufficient
resources when handling mortgages and failed to develop systems to prevent such problems, SunTrust
told investors in its annual report.

HSBC is among the lenders being targeted for improper and at times illegal foreclosure practices that
have led to delays in home repossessions and a decrease in foreclosures, roiling the housing market and
depressing home prices. About a dozen federal regulators, along with attorneys general in all 50 states,
are conducting the investigations. The Huffington Post reported Thursday that federal regulators could
demand as much as $30 billion in penalties from the 14 largest mortgage firms. State regulators, who at
present are only examining the five largest servicers, are looking to exact even heftier fines from the
targeted companies.
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Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail;
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