HSBC 2007 Annual Report Download - page 223

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the greatest home value depreciation, driven by
rising unemployment rates in these markets and a
weakening US economy.
In vehicle finance, two months or more
delinquencies moved from 3.16 per cent at the end
of 2006 to 3.68 per cent at 31 December 2007. The
increased delinquency in the vehicle finance
portfolio was not as severe as has been experienced
elsewhere in the industry. In 2007, the vehicle
finance business tightened underwriting criteria in
both the dealer and direct-to-consumer channels, to
convert the mix of new loans to a higher credit
quality.
HSBC has been proactive in reaching out to
customers to provide financial counselling and
assist them in restructuring their debts to avoid
foreclosure. As a consequence, HSBC restructured
and modified loans that it believed could be
serviced, in line with local policies. In particular,
customers with ARM loans approaching the first
reset were contacted in order to assess their ability
to make the higher payments and, where
appropriate, to refinance or modify their loans.
As a result, in 2007 HSBC has modified more
than 8,500 loans with an aggregate balance of more
than US$1.4 billion.
In 2007, approximately US$4.5 billion of
ARM loans reached their first interest rate reset.
In 2008, approximately US$6.5 billion of ARMs
will reach their first interest rate reset, of which
US$2.8 billion relates to HSBC Bank USA and
US$3.7 billion to HSBC Finance. Within the latter,
US$2.7 billion is in mortgage services, the
remainder in consumer lending. ARMs in HSBC
Bank USA are largely prime balances. Delinquency
rates are expected to continue to rise in 2008, as the
limiting of originations means that the portfolio
will mostly be running off. A deterioration in
economic conditions and the housing market would
also increase delinquencies.
Loan delinquency in the US
(Unaudited)
The following tables provide a detailed analysis of
loan delinquency in the US.
Two months and over contractual delinquency in Personal Financial Services in the US
(Unaudited)
Quarter ended
31
December
2007
30
September
2007
30
June
2007
31
March
2007
31
December
2006
30
September
2006
30
June
2006
31
March
2006
US$m US$m US$m US$m US$m US$m US$m US$m
Residential mortgages1 .. 5,404 3,868 2,992 2,703 2,733 2,335 1,999 1,892
Second lien mortgage
lending1 ...................... 1,589 1,240 941 855 810 580 416 352
Vehicle finance2 ............. 488 451 384 302 415 421 367 292
Credit card ..................... 1,830 1,581 1,314 1,274 1,312 1,217 1,089 1,100
Private label ................... 598 536 434 429 471 444 419 373
Personal non-credit card 2,634 2,238 2,000 1,881 1,888 1,696 1,518 1,518
Total1 .............................. 12,543 9,914 8,065 7,444 7,629 6,693 5,808 5,527
%
3 %3 % 3 % 3 % 3 % 3 %3 %3
Residential mortgages1 .. 5.47 3.83 2.92 2.54 2.54 2.19 1.89 1.81
Second lien mortgage
lending1 ...................... 9.02 6.81 5.02 4.35 3.97 2.79 2.03 1.81
Vehicle finance2 ............. 3.68 3.40 2.91 2.29 3.16 3.21 2.82 2.27
Credit card ..................... 5.68 5.09 4.32 4.43 4.48 4.46 4.09 4.28
Private label ................... 3.43 3.28 2.72 2.65 2.83 2.88 2.84 2.60
Personal non-credit card 13.16 10.88 9.69 9.33 9.05 8.23 7.56 7.70
Total1 .............................. 6.29 4.95 4.00 3.64 3.67 3.28 2.89 2.81
1 Consumer lending balances for the first three quarters of 2006 have been restated due to a reclassification of balances between first lien
and second lien. Mortgage services balances for the second half of 2006 and the first half of 2007 have been restated due to a
reclassification of assets between foreclosed and second lien.
2 In December 2006, the vehicle finance business changed its write-off policy to provide that the principal balance of vehicle loans in
excess of the estimated net realisable value will be written off 30 days (previously 90 days) after the financed vehicle has been
repossessed if it remains unsold, unless it becomes 150 days contractually delinquent, at which time such excess will be written off. This
resulted in a one-time acceleration of write-offs totalling US$24 million in December 2006. In connection with this policy change, the
vehicle finance business also changed its methodology for reporting two months and over contractual delinquency to include loan
balances associated with repossessed vehicles which have not yet been written down to net realisable value. This resulted in an increase
of 42 basis points to the vehicle finance delinquency ratio and an increase of 3 basis points to the total consumer delinquency ratio.
3 Expressed as a percentage of loans and advances in Personal Financial Services in the US.