More than 1,000 Maryland borrowers who lost their homes to foreclosure after working with HSBC bank on loans are eligible for payments under the terms of a $470 million settlement reached with the British firm over abusive lending practices, Attorney General E. Brian Frosh said Friday.
The agreement between HSBC North America Holdings Inc. and the U.S. Justice Department, other federal agencies and attorney generals in 49 states and the District of Columbia requires HSBC to pay $100 million, including $40.5 million to the federal government and $59.3 million to establish a national pool of money for direct payments to borrowers who lost their homes between 2008 and 2012.
The terms also require HSBC to provide $370 million in relief to customers, by reducing mortgage rates or offering other loan modifications. Some of those moves are already underway, the Justice Department said.
Officials said the settlement is meant to address some of the problems that led to the wave of foreclosures that followed the housing crash and financial crisis. It is similar to previous deals reached with mortgage servicers, including the $25 billion National Mortgage Settlement reached in 2012.
"HSBC's abusive practices caused real damage to Marylanders," Frosh said in a statement. "This settlement provides important relief for past abuses."
The complaint, filed Friday in U.S. District Court, says HSBC provided misleading information to borrowers, did not apply or track customer payments accurately, and improperly denied loan modifications, among other claims.
The settlement requires HSBC to comply with strengthened mortgage servicing standards, under the oversight of an independent monitor.
HSBC also intends to pay a separate $131 million penalty announced Friday by the Federal Reserve Board, also over mortgage practices, under the terms of the settlement, the company said.
HSBC Finance Corp. CEO Kathy Madison said in a statement that the firm is "pleased to have reached this settlement and believe it is a positive result that benefits American homeowners and the US housing industry."
"Throughout the housing market downturn, HSBC stayed focused on home preservation and approached foreclosure as a last-resort option, and this agreement affirms our commitment to assisting customers who are facing financial difficulties," she said.
HSBC previously agreed to a $249 million settlement with the Federal Reserve Board and Office of the Comptroller of the Currency, also over deficient practices in mortgage loan servicing and foreclosure processing. It has been negotiating the new settlement with the U.S. Justice Department since the 2012 National Mortgage Settlement, officials said.
About 1,100 Maryland borrowers and 75,000 borrowers nationwide lost their homes to foreclosure and are eligible for direct payments, said Frosh spokesman David Nitkin. That represents an average payment of about $800 per borrower.
HSBC, which has shrunk its mortgage business, has a portfolio of about 400,000 loans nationally, including 9,000 in Maryland, that may be eligible for other forms of relief, he said.
Frosh's office said borrowers eligible for relief will be notified about how to qualify for payments. The settlement of the civil complaint does not preclude future criminal cases.