HSBC pays FHFA 550m dollars to settle claims that it did not adequately reveal the true risks on mortgage bonds it sold to Freddie Mac and Fannie Mae before the financial crisis.
Despite being accused of making false representations to Freddie Mac and Fannie Mae by the regulator, HSBC never admitted guilt. The London-based bank recently lost a bid to have the case dismissed.
The FHFA (Federal Housing Finance Agency ) targeted 18 financial institutions in 2011, including HSBC, Goldman Sachs and JP Morgan. During the crisis, Freddie Mac and Fannie Mae did not have sufficient capital, government officials said, so they were placed under the FHFA’s control.
The American taxpayer bailed out Fannie Mae and Freddie Mac to the tune of $187 billion.
The FHFA has been trying to recover losses on about $200 billion in mortgage-backed securities that were sold to Freddie Mac and Fannie Mae.
So far, the FHFA has recovered over $18 billion in related cases, including this latest HSBC settlement. Two cases, one against Royal Bank of Scotland and and the other against Nomura Holdings, have not yet been resolved. The US regulator says it “remains committed to satisfactory resolution of these actions.”
In an official statement, FHFA announced that HSBC will pay:
- $374 million to Freddie Mac,
- $176 million to Fannie Mae.
HSBC’s current deal with FHFA comes only a couple of weeks before its September 29th trial in New York, where the British bank may face penalties totaling $1.6 billion.
HSBC not accused of fraud
According to HSBC, it is the 17th financial institutions to reach a settlement with FHFA. It emphasizes that it was not among the banks alleged to have committed fraud.
Stuart Alderoty, Senior Executive Vice President and General Counsel for HSBC North America, said “We are pleased to have resolved this matter.”
HSBC added that all principal and interest payments on the securities related to the settlement have been made.
Other banks’ settlements with the FHFA were much larger than HSBC’s, partly because it did sold less to Freddie Mac and Fannie Mae, and its the securities have not performed so badly.
In August, Goldman Sachs agreed to a $1.2 billion settlement in which it had to buy back mortgage securities. Bank of America’s settlement with the FHFA totaled $5.83 billion, while JP Morgan’s was $4 billion.
By August this year, Bank of America had agreed to pay various government agencies more than $17 billion in settlements.