NEW YORK — HSBC Holdings PLC has suspended its foreclosure proceedings in the U.S. after a regulatory letter noted "certain deficiencies" in its processes.
The London-based bank became the latest to disclose that investigations by the Federal Reserve and the Office of the Comptroller of the Currency into foreclosure practices will likely result in fines and costly changes to the way it runs its mortgage business.
HSBC said in its annual filing with the U.S. Securities and Exchange Commission that its U.S. operations received a supervisory letter from the OCC citing problems in its processing, preparation and signing of affidavits and other documents supporting foreclosures. The bank received a similar letter from the Fed.
The bank said it has suspended foreclosures "until such time as we have substantially addressed the noted deficiencies." It is also reviewing foreclosures that have already been processed but where judgment hasn't been made yet, and will correct any deficient documentation.
HSBC said it is in discussions with the OCC and the Fed on its cease-and-desist orders, and expects consent orders soon.
As recently as November, HSBC had said it had "no concerns with its processes" and hadn't halted foreclosures.
HSBC's American depositary shares were recently down 3.3% to $53.29. The bank was separately downgraded by both Deutsche Bank and UBS to hold based on its 2010 results, which HSBC reported Monday.
The Buffalo News earlier reported HSBC's foreclosure halt.
The OCC's acting director, John Walsh, said last month the regulator was examining foreclosure practices at 14 of the largest mortgage servicers. The investigations stem from problems first uncovered in late 2010, in which banks were found to be using "robo-signers" to complete foreclosures. Robo-signers were employees who signed affidavits indicating they had reviewed documents when they hadn't actually performed proper reviews.
So far, nine of the public banks Walsh named have filed annual reports in recent weeks and disclosed investigations, saying fines are likely.
Last fall the nation's biggest banks, including Bank of America Corp. (BAC) and J.P. Morgan Chase & Co. (JPM), imposed foreclosure moratoriums. Both Bank of America and J.P. Morgan have restarted the majority of their foreclosures after implementing new procedures and said they don't believe the problems are legally material. Still, in their annual filings both also warned of "material fines" from the ongoing investigations.
Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc. also disclosed the possibility of fines and increased costs from regulatory scrutiny.
U.S. Bancorp and MetLife Inc. disclosed the investigations, but said they didn't expect their financials to be materially affected.
Several banks said they expect enforcement actions to force changes to procedures, and possibly delay the system, ultimately driving up the costs of handling mortgages.
Banks have routinely argued that delays in foreclosures bring additional costs as they are unable to rid the loans from their books. Some warn more delays in the nation's foreclosure machine would hamper the nation's housing recovery, and ultimately the economy's recovery.
Last week, SunTrust Banks Inc. said it was experiencing an increase in the time it takes to complete foreclosures as it conducted an internal review. The Atlanta-based bank said it found about 4,000 files, or 15% of its active foreclosure cases, had problems in documentation. The bank said it doesn't believe the problems violated laws.
SunTrust said it was facing investigations from federal authorities into foreclosure practices that could result in fines and "significant legal costs."
