HSBC 2007 Annual Report Download - page 219

217
US personal lending
(Unaudited)
Total US personal lending fell by 4 per cent to
US$199 billion at 31 December 2007. Residential
mortgage balances were US$99 billion, a decline of
8 per cent, due to the continued run-down of the
correspondent portfolio in mortgage services, the
closure of the Decision One wholesale channel and
tightened underwriting criteria in the branch-based
consumer lending business, which curtailed growth.
Card balances rose by 8 per cent to
US$50 billion, but underlying growth slowed in the
latter part of the year following the decision to
reduce marketing and promotional activity in line
with reduced risk appetite, as the US economy
weakened. Motor vehicle finance loans rose by
1 per cent to US$13 billion, driven by strong growth
in the direct-to-consumer channel, partly offset by a
flat performance from participating dealerships in
the difficult economic environment.
Other personal lending fell by 9 per cent
to US$38 million due to tightening of underwriting
criteria and a reduction in direct mail campaigns.
Mortgage lending products
(Unaudited)
The Group offers a wide range of mortgage products
designed to meet customer needs. This includes
capital or principal repayment mortgages subject to
fixed or variable interest rates, and products
designed to meet demand for housing loans with
more flexible payment structures. HSBC underwrites
first lien residential mortgages and loans secured by
second lien mortgages; the latter are reported within
‘Other personal lending’ in the market sector
analysis on page 216. The bulk of the mortgage
lending products sold in the US consumer lending
branch network are for refinancing and debt
consolidation, rather than for house purchase.
Interest-only mortgages are those where
customers make regular payments of interest during
the life of the loan and repay the principal from the
sale of their home or alternative sources of funds
such as an endowment or other investment policy.
Introductory interest-only mortgages are where the
interest-only element is for a fixed term at the start
of the loan, after which principal repayments
commence. Affordability mortgages include all
products where the customer’s monthly payments
are set at a low initial rate, either variable or fixed,
before resetting to a higher rate once the introductory
period is over. These include ARMs, loans in which
the interest rate is periodically changed based on an
index.
HSBC has not offered, and does not anticipate
offering, ARMs with alternative payment options or
other negative amortisation products.
Affordability mortgages are primarily offered in
the US and the UK. Under the HFC and Beneficial
brands, HSBC Finance offers a range of products
and delivery channels designed for the needs of
customers with non-standard or less favourable
credit profiles. In the US, such mortgages
experienced heightened levels of delinquency in late
2006 and 2007. As a result, HSBC Finance took a
series of steps designed to curtail mortgage lending:
the mortgage services business ceased acquiring new
mortgages; the consumer lending business halted its
small volume of ARM loan originations, tightened
underwriting criteria and loan-to-income
requirements, and reduced loan-to-value ratios
for first and second lien loans. These measures
reduced HSBC Finance’s mortgage balances to
US$91 billion at 31 December 2007 (2006:
US$99 billion) as set out in the table below.
In the UK, affordability mortgages stood at
US$35 billion at 31 December 2007, compared with
US$33 billion at 31 December 2006. Overall credit
quality improved following measures taken in the
recent past to tighten underwriting standards and
improve the credit quality of new business.
Delinquency rates on mortgages in the UK offered
through HSBC Finance remained stable throughout
2007, with delinquency rates for loans offered in
2006 and 2007 lower than in the preceding two
years.
In the rest of the UK business, loan impairment
charges in the second half of 2007 were lower than
in the first half of the year, as overall credit quality
improved following recent measures to tighten
underwriting standards and improve the credit
quality of new business. Although losses from
mortgage lending remained low, maximum
loan-to-value ratios were reduced during the year
to mitigate the effects of a possible housing market
downturn.
The following table shows the levels of
mortgage lending products in the various portfolios
of HSBC Finance and the rest of the HSBC Group: