HSBC Widens Home Loan Modification Options

HSBC Concedes to More Loan Modification Options

HSBC's old loan modification plan

HSBC, which bought an Illinois subprime lender called Household International Inc. in 2003, has modified loans since 2007 of some 238,000 home loans, with a combined outstanding balance of $28.8 billion. Initially, to modify loans, HSBC tried a strategy called "re-aging." If a borrower fell behind on payments by two months or more, HSBC allowed sometime to catch up, by declaring the loan current and adding the delinquent amount to the balance owed.

But even with such loan modifications, consumers defaulted. As of Sept. 2008, 21%, or about $6 billion, of HSBC's $28.7 billion in re-aged consumer loans, subsequently experienced defaults. This default rate was higher than in the period ended June 30, when 18% fell into default. HSBC has decided to scale down on its re-aged loan modification program- saying that consumers need more help, - "in the current marketplace."

HSBC's new loan Modification plan:

HSBC is starting to make more options available to its borrowers. Before homeowners' adjustable-rate loans reset to higher rates, HSBC is contacting some of their customers and freezing their current rate, or allowing the borrower to pay a rate below what the new rate would be.

In offering such aid, HSBC and other lenders are aware of the risk that some borrowers might seek to get their loan modified, even if they don't need it- or take on riskier loans with the belief they will be bailed out.

Written by Katherine M