HSBC halts foreclosures over paperwork errors

LOS ANGELES — HSBC Holdings is suspending foreclosures in the U.S. after a government review of the lender's procedures revealed problems with the way it handled some home repossessions.

The London-based bank's foreclosure moratorium came to light in its annual report Tuesday.

HSBC said U.S. government officials determined there were certain deficiencies in the way the lender prepared affidavits and other foreclosure-related documents.

"We have suspended foreclosures pending correction of the weaknesses," the company said in the report.

The lender said it will resume foreclosures once it has addressed the problems.

State and federal officials launched investigations last fall into foreclosure procedures used by mortgage servicers and lenders, including HSBC Finance and HSBC Bank USA.

The inquiries came after revelations in September that some major banks rammed through hundreds of foreclosures daily without giving many of the borrowers a fair shot at keeping their homes.

Soon after, several major lenders decided to temporarily freeze foreclosures while they reviewed and, in some cases, refiled foreclosure documents.

That helped slow the pace of repossessions toward the end of last year, but lenders still took back more than 1 million homes in 2010, according to foreclosure listing service RealtyTrac.

HSBC said it has cooperated with the review, which includes a joint examination by officials from the Federal Reserve Board and the Office of the Comptroller of the Currency.

In addition to finding problems with the company's foreclosure-documentation procedures, investigators also took issue with how HSBC evaluated and monitored law firms retained to handle foreclosures on the bank's behalf, the lender said.

HSBC's management said it is reviewing all foreclosures that haven't been completed and will take steps to fix documentation problems and refile paperwork as needed.

The lender said it expects scrutiny of the foreclosure process to increase due to ongoing state and federal investigations into foreclosure practices.

As a result, the bank expects there could be more delays in the foreclosure process.

Meanwhile, HSBC said it expects to receive orders soon that spell out what it needs to do to fix its foreclosure procedures.

Those orders have the potential to increase the company's "operational, reputational and legal risk profiles," and will require significant managerial resources to carry out, HSBC warned.

The bank also noted it remains vulnerable to actions by other government agencies, including possible fines and civil penalties.