HSBC 2012 Annual Report Download - page 153

151
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Credit quality of personal lending in the US
(Unaudited)
For further information on renegotiated loans in
North America, see page 158.
Mortgage lending
In our CML first lien residential mortgage portfolio,
two months and over delinquent balances were
US$7.6bn at 31 December 2012, compared with
US$7.9bn at 31 December 2011. The decline mainly
reflected the continued run-off of balances and the
improvement in economic conditions. The reduction
was partly offset by the increase in late stage
delinquency driven by the suspension of foreclosure
activities which began in late 2010. In our HSBC
Bank USA portfolio, two months and over
delinquent balances increased by 8% to US$1.4bn
due also to foreclosure delays.
In the US, second lien mortgage balances
declined by 16% to US$6.0bn at 31 December 2012,
representing 11% of the overall US mortgage
lending portfolio. Two months and over delinquent
balances were US$477m at 31 December 2012
compared with US$674m at 31 December 2011.
The majority of second lien residential
mortgages are taken up by customers who hold
a first lien mortgage issued by a third party. Second
lien residential mortgage loans have a risk profile
characterised by higher LTV ratios, because in
the majority of cases the loans were taken out
to complete the refinancing of properties. Loss
severity on default of second lien loans has typically
approached 100% of the amount outstanding, as any
equity in the property is consumed through the
repayment of the first lien loan.
Impairment allowances for these loans are
determined by applying a roll-rate migration analysis
which captures the propensity of these loans to
default based on past experience. Once we believe
that a second lien residential mortgage loan is likely
to progress to write-off, the loss severity assumed in
establishing our impairment allowance is close to
100% in the CML portfolios, and more than 80% in
HSBC Bank USA.
HSBC Finance: foreclosed properties in the US
(Unaudited)
Half-year ended
Year ended
31 December
2012
31 December
2012
30 June
2012
Year
ended
2011
Number of foreclosed properties at end of period ................................... 2,973 2,973 2,836 3,511
Number of properties added to foreclosed inventory in the period ............. 6,827 3,212 3,615 11,187
Average loss on sale of foreclosed properties7 ........................................ 6% 6% 7% 8%
Average total loss on foreclosed properties8 ............................................ 54% 53% 55% 56%
Average time to sell foreclosed properties (days) .................................... 172 166 179 185
For footnotes, see page 249.
In late 2010, we suspended all new foreclosure
proceedings and, in early 2011, ceased foreclosures
where judgement had yet to be entered while we
enhanced our processes. We have now resumed the
processing of suspended foreclosures in substantially
all states, although there remains a significant
backlog which will take time to resolve. Loss
severities may be increased by any additional delays
in the processing of foreclosures.
The number of foreclosed properties at HSBC
Finance at 31 December 2012 decreased compared
with the end of December 2011 as the rate at which
properties were added to real estate owned inventory
was slow as a result of the backlog in foreclosure
activities and the continuing sales of these properties
during 2012. We expect that the number of foreclosed
properties added to the inventory will increase
and this will continue to be affected by ongoing
refinements to our processes and extended
foreclosure timelines.
The average total loss on foreclosed properties
and the average loss on sale of foreclosed properties
decreased compared with 2011. This reflected a
greater proportion of properties sold where we
had accepted a deed-in-lieu. Typically, losses on a
deed-in-lieu are lower than losses from properties
acquired through a standard foreclosure process.
The decrease in the loss on sale also reflected a
slowdown in the rate of decline in house prices
during 2012 and, in some markets, improvements
in pricing compared with 2011.