HSBC Holdings released an announcement on Friday that the bank will be settling at $550 million with the U.S. regulators. The news came out before the trial in New York where the bank might be fined with $1.6 billion. The fine was imposed from claims that the bank had made false representations on selling mortgage bonds to two Government-sponsored mortgage enterprises Fannie Mae and Freddie Mac before the subprime financial crisis.
The Federal Housing Finance Agency (FHFA) sued HSBC and several other banks for misleading information when they sold mortgage-backed assets and collateralized debt obligations that offered higher yields of return. These securities were backed by unsecure debt and when they failed to pay, the whole system collapsed which spured the economy's recession. The U.S. subprime mortgage crisis last 2007, that lasted for almost two years, was a huge blow to the U.S. economy. The government blamed many institutions for the crisis including banks like Deutsche Bank, Bank of America, Morgan Stanley, J.P. Morgan and Goldman Sachs last 2008. The move was described by an article in Washington Post as "one of the most sweeping government interventions in private financial markets in decades."
The FHFA is an independent federal agency who acts as a regulator for Fannie Mae, Freddie Mac and twelve other Federal Home Loan Banks. Both Fannie Mae and Freddie Mac were put under the conservatorship of the FHFA
As of late, the FHFA has recovered $17.9 billion from settlements with other banks. FHFA sued a total of 18 banks in 2011. Goldman Sachs paid $3.15 billion, Morgan Stanley at $1.25 billion, Deutsche Bank at $1.9 billion and Bank of America at $9.5 billion. Pending lawsuits remain with Royal Bank of Scotland Group and Nomura Holdings.
HSBC will settle $374 million to Freddie Mac and $176 million to Fannie Mae to end the U.S. mortgage claims against them. HSBC's general counsel Stuart Alderoty said that they are pleased to have resolved this issue.
