HSBC 2011 Annual Report Download - page 124

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Areas of special interest > Personal lending
122
end of 2010. Our most significant concentrations
of mortgage lending were in the UK, the US and
Hong Kong.
US mortgage lending
US mortgage lending balances, including second lien
mortgages, were US$59.5bn at 31 December 2011, a
decline of 11% compared with the end of 2010.
Overall, US mortgage lending represented 15% of
our total personal lending compared with 16% at
31 December 2010.
Mortgage lending in HSBC Finance was
US$44.1bn at 31 December 2011, 11% of our
gross loans and advances to personal customers.
These balances declined by 13% from 31 December
2010 as the run-off of the CML portfolio continued.
However, despite the continued low interest rate
environment, our loan repayment rates declined
compared with historical experience, in part due to
our ongoing efforts to assist customers avoid
foreclosure through our loan modification
programmes which have resulted in slower
repayment rates.
HSBC Finance US mortgage lending15
(Unaudited)
At 31 December 2011 At 31 December 2010
Mortgage
Services
Consumer
Lending Total
Mortgage
Services
Consumer
Lending Total
US$m US$m US$m US$m US$m US$m
First lien ............................................. 13,141 26,467 39,608 15,300 30,016 45,316
Second lien ........................................ 1,724 2,796 4,520 2,269 3,349 5,618
14,865 29,263 44,128 17,569 33,365 50,934
Impairment allowances ...................... 1,846 3,242 5,088 1,837 2,474 4,311
– as a percentage of the above
balances ..................................... 12.4% 11.1% 11.5% 10.5% 7.4% 8.5%
For footnote, see page 185.
At HSBC Bank USA, mortgage lending
balances were US$15.4bn at 31 December 2011, a
reduction of 4% compared with the end of 2010.
This was primarily due to the reclassification of
balances relating to the pending sale of certain non-
strategic branches to assets held for sale in the third
quarter of 2011, partly offset by an increase in new
mortgage sales to our Premier customers.
As previously reported, the Federal Reserve
Board completed an industry-wide examination
into foreclosure practices in 2010. The resulting
Servicing Consent Order required us to take
prescribed actions to address certain deficiencies in
our foreclosure processes, as well as review all
foreclosures pending or completed between January
2009 and December 2010. We continue to work
closely with the regulators to align our processes as
required and are implementing operational changes
as necessary. Although we have resumed
foreclosures in 48 states, it will be a number of
months before we fully resume all foreclosure
activities in all states, as we need to ensure that all
necessary enhancements have been satisfactorily
implemented.
During 2011, certain courts and state
legislatures issued new rules relating to foreclosures.
In some courts, scrutiny of documentation increased,
while in others additional verification of information
was required prior to foreclosure. This combination
of factors led to a significant backlog of foreclosures
which will take some time to resolve, and may result
in additional delays which could have an adverse
effect on house prices resulting in higher loss
severities.
For discussion of credit trends in the US
mortgage lending portfolio and the steps taken to
mitigate risk, see ‘US personal lending – credit
quality’ on page 124.
Mortgage lending – rest of the world
Mortgage lending in the UK was US$112bn at
31 December 2011, our largest concentration of this
exposure, representing 12% of total gross lending to
customers. The balance was 8% higher than at
the end of 2010.
In the UK, the majority of mortgage lending was
to existing customers holding current or savings
account relationships with HSBC. We continued to
restrict lending for the purchase of residential
property for the purpose of rental, and almost all new
business was originated through our own sales force,
with self-certification of income not permitted.
These lending practices helped to ensure that our UK
mortgage portfolio remained of high quality, and our
average LTV ratios for new business and our total
mortgage books were 53% and 52%, respectively.