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Problems seem to persist for HSBC Holdings plc concerning the way it conducts its operations. The New York Attorney General (AG) Eric Schneiderman has recently sued the company for alleged violation of foreclosure laws.

While filing the case in a New York Supreme Court in Buffalo, the AG accused HSBC of infringing the state’s foreclosure law. The particular law requires court-supervised settlement meetings to be held within 60 days of filing for foreclosures. This process provides homeowners with an opportunity to negotiate loan modification, thereby leading to reduction in monthly payments.

The AG claimed that HSBC had failed to provide homeowners the option to negotiate mortgage modifications, consequently leading them to face foreclosure proceedings. The company allegedly failed to file Request for Judicial Intervention forms related to foreclosure for hundreds of cases for almost 2 years.

Further, HSBC continued to charge interest and fees, as well as penalties from homeowners. This increased the debt amount for homeowners, thus further lowering their chance of qualifying for mortgage modifications.

The AG seeks compensation for wronged homeowners and a relinquishment of inappropriately accrued charges and fines from HSBC. Further, the lawsuit demands the company to file documents in a timely manner in the future.

The aforesaid lawsuit evinces the AG’s scrutinized inspection of mortgage servicers’ foreclosure practices, following the $25 billion settlement deal announced last year between 49 AGs and 5 servicers – Bank of America Corporation (BAC - Analyst Report), Wells Fargo & Company (WFC - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report), Ally Financial Inc. and Citigroup Inc. In May 2013, the New York AG had declared his intention to sue Wells and BofA for alleged violation of the terms of the National Mortgage Settlement deal.

However, HSBC was not the part of this deal. In Jan 2013, the company announced a separate foreclosure settlement deal with the Office of the Comptroller of the Currency (OCC) and other U.S. banking regulators. The company agreed to pay $249 million to stop the review of wrongful foreclosures in the U.S.

Further, in Dec 2012, the company reached a settlement with the U.S. law enforcement authorities in the money laundering case and agreed to pay a penalty of $1.9 billion.

We believe that such lawsuits and their impending settlements will adversely impact HSBC’s financials going forward. This could lead to higher legal costs and exhaust the company’s financials as well.

HSBC currently carries a Zacks Rank #3 (Hold).

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