HSBC 2011 Annual Report Download - page 127

125
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
property and additional loan impairment allowances
or write-downs are recorded as appropriate. Updates
to the valuation are performed no less than once
every 45 days until the property is sold, with
declines recorded through an impairment allowance
on the property. Increases to the valuation are
recorded to the extent of cumulative losses
previously recognised through the impairment
allowance on the property.
In late 2010, we temporarily suspended all new
foreclosure proceedings and in early 2011 ceased
foreclosures where judgement had yet to be entered
while we enhanced our processes. As a result, and
together with an increase in foreclosed property
sales, the number of foreclosed properties at HSBC
Finance decreased compared with the end of
December 2010.
The average total loss on foreclosed properties
and the average loss on sale of foreclosed properties
both increased compared with the end of 2010. This
was a result of the continued decline in house prices,
as well as a greater mix of foreclosed properties
being sold which we have held for longer periods of
time. Typically the longer the holding period, the
greater the loss we recognise by the time of sale. See
the table ‘HSBC Finance foreclosed properties in the
US’ below for more detail.
Since their introduction in 2010, HSBC Finance
has increased the use of deed-in-lieu and ‘short
sales’ to assist our real estate secured receivable
customers. Under a deed-in-lieu agreement, the
borrower agrees to surrender the deed to the property
without being subject to foreclosure proceedings and
HSBC Finance releases the borrower from further
obligation. Under a short sale, the property is offered
for sale to potential buyers at a price which has been
pre-negotiated between HSBC Finance and the
borrower. This pre-negotiated price is based on
updated property valuations and the expectation of
future cash flows from the customer. Short sales
also release the borrower from further obligations.
HSBC’s total losses on deed-in-lieu and short sales
are generally lower than losses from foreclosed
loans, or loans where we have previously elected not
to pursue foreclosure, and the practices generally
obtain resolution of the delinquent receivable over a
shorter period of time than the normal foreclosure
proceedings. HSBC Finance currently expects that
the use of deed-in-lieu and short sales will continue
to be significant in the future as it works with its
customers.
HSBC Finance foreclosed properties in the US
(Unaudited)
Half-year ended
2011
31 Dec
2011
30 Jun
2011 2010
Number of foreclosed properties at end of period ................................... 3,511 3,511 6,982 10,940
Number of properties added to foreclosed inventory in the year/quarter .... 11,187 3,116 8,071 20,489
Average loss on sale of foreclosed properties16 ....................................... 8% 9% 8% 5%
Average total loss on foreclosed properties17 ........................................... 56% 57% 55% 51%
Average time to sell foreclosed properties (days) .................................... 185 200 168 161
For footnotes, see page 185.
Credit cards
In the second half of 2011, we announced the sale
of our Card and Retail Services business, which
includes both our credit card and private label
operations. We have reclassified the associated
balances to assets held for sale. We will continue to
offer all card products and services during transition.
HSBC Bank USA continues to offer credit cards
to branch-based customers and corporate cards to
commercial and wholesale banking clients.
Two months or more delinquency rates in
our credit card portfolio declined from 4.7% at
31 December 2010 to 3.8% at 31 December 2011
while, in our private label cards portfolio, two
months or more delinquency rates decreased from
3.0% at 31 December 2010 to 2.5% at 31 December
2011 reflecting an increasing willingness on the part
of customers to make repayments and reduce
outstanding credit card debt levels.
Personal non-credit card
Personal non-credit card lending balances in the US
decreased significantly, largely due to continued
run-off. As a result two months or more delinquency
balances declined from US$0.8bn at 31 December
2010 to US$0.5bn at 31 December 2011.