HSBC Holdings PLC is the latest bank to settle with the Federal Housing Finance Agency (FHFA) over poorly underwritten mortgages sold to government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in the run-up to the financial crisis.
The North American arm of the bank has agreed to pay $550 million to settle the agency's claims that misrepresented the quality of some loans sold to the GSEs from 2005 to 2007. Specifically, HSBC will pay $374 million to Freddie Mac and $176 million to Fannie Mae.
HSBC is the 17th of 18 financial firms, including JPMorgan Chase and Goldman Sachs Group, that the FHFA filed lawsuits against in 2011.
However, HSBC's settlement is nowhere near as large as the ones paid by those banks, mainly because it sold fewer loans to Fannie and Freddie but also because the securities have performed better.
HSBC officials point out in a press release that unlike some of the other banks sued by the FHFA, it was not alleged to have committed fraud.
HSBC ceased U.S. issuance and distribution of residential mortgage-backed securities in 2007.
‘We are pleased to have resolved this matter,’ says Stuart Alderoty, senior executive vice president and general counsel for HSBC North America, in the release.
To date, all principal and interest payments have been made on the securities related to the settlement, HSBC officials report.
To date, the FHFA has recovered more than $18 billion through the settlements. Two cases, against Nomura Holdings Inc. and Royal Bank of Scotland Group, are yet to be resolved.