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Last week, HSBC Holdings plc became the latest bank to announce a foreclosure settlement deal with the Office of the Comptroller of the Currency (OCC) and other U.S. banking regulators. The company has agreed to pay $249 million to stop review of wrongful foreclosures in the U.S.

Out of the total amount, $96 million will be utilized for direct payments to eligible borrowers, while $153 million will be used for providing relief to troubled homeowners through principal reductions and loan modifications. The deal will enable nearly 112,000 homeowners, whose property was wrongly foreclosed in 2009–2010 by HSBC, to get cash compensation, ranging from a few hundred dollars to a maximum of $125,000.

Additionally, under the terms of the deal, the process initiated by the OCC in 2011 – to review all the borrowers’ files that were wrongly foreclosed in 2009-2010 – would end. Under that process, the banks were required to hire independent consultants to go through the loan files and look for any faulty foreclosure practice.

Earlier in the same week, The Goldman Sachs Group, Inc. (GS - Analyst Report) and Morgan Stanley agreed to pay $557 million in aggregate to settle similar charges. Moreover, in early January, 10 banks, including Citigroup, Inc. (C - Analyst Report), BofA, JPMorgan, Wells Fargo and SunTrust Banks, Inc. (STI - Analyst Report), agreed to pay a total of $8.5 billion.

As a result of the deal, HSBC is anticipated to record a pre-tax charge of $96 million in the fourth quarter of 2012, while the remaining amount is expected to be covered from the existing reserves.

Though the settlement is expected to marginally dent HSBC’s fourth-quarter results, in the long run it will be a big relief. Further, the distressed homeowners would also be benefited. We are hopeful that like the earlier foreclosure settlement deal, this one would also be a decisive step in restoring confidence in businesses and rejuvenating the sagging housing market.

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

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