PRESS RELEASE: S&P Lowers HSBC Mortgage Resi Servicer Rankings To ABOVE AVG

18th Jun 2010 20:56

The following is a press release from Standard & Poor's: OVERVIEW -- We lowered our rankings on HSBC Mortgage Corp. USA (MC) to ABOVE AVERAGE from STRONG as a residential mortgage loan servicer, subordinate-lien mortgage loan servicer, and residential subprime mortgage loan servicer. -- The rankings reflect our view of MC's experienced and tenured management team, automation, and policies and procedures, training regimen, internal controls, and default management proficiency. -- Offsetting these strengths and contributing to the lowering of the ranking is our opinion that the company's practice of running on two servicing platforms is inefficient and impedes effective customer service and default management. In addition, it is our understanding that recommendations from HSBC's audit department reviews have not been fully implemented and retested. NEW YORK (Standard & Poor's) June 18, 2010--Standard & Poor's Ratings Services has lowered its rankings on HSBC Mortgage Corp. USA (MC) to ABOVE AVERAGE from STRONG as a residential mortgage loan servicer, subordinate-lien mortgage loan servicer, and residential subprime mortgage loan servicer. The outlook is stable in each category. The lowering of the rankings reflects our opinion that the company's practice of running on two servicing platforms may be inefficient and may impede effective customer service and default management. While customer service's average speed to answer (ASA) has risen over prior periods, it is within the comparable range of other servicers we monitor. Collection statistics ASA and abandonment rates have risen above the median level of other servicers we monitor. We recognize that the company's decision to exit subprime lending generated by MC's sister company, HSBC Finance, may have contributed to the halt of the scheduled conversion/migration to one servicing platform. MC is a wholly owned subsidiary of HSBC Bank USA N.A. and part of U.K.-based HSBC Holdings PLC. In addition, it is our understanding that the company has not fully implemented and retested the audit department's recommendations, which are based on reviews of the servicer. MC has informed us that it is continuing with the strategic consolidation plan it formed in late-2008 to centralize servicing management across the U.S. and expects to complete this effort this year. The company has completed its alignment and centralization of its management activities according to function. The overall rankings reflect our view of MC's experienced and tenured management team, automation, policies and procedures, training regimen, internal controls, and default management abilities. MC assigns some traditional mortgage servicing processes to the company's Group Service Centers (GSCs) in India and The Philippines. According to MC, it closely monitors and controls the tasks it assigns, which include service-level agreements and weekly reporting. MC provides metrics through Standard & Poor's Servicer Evaluation Analytical Methodology (SEAM) questionnaire, and the company's statistics generally align with those of other similarly ranked mortgage servicers and other servicers we monitor. The levels of delinquencies in MC's prime loan servicing portfolio align with those reported in The Mortgage Bankers Association's fourth-quarter 2009 National Delinquency Survey, while its subprime delinquencies were marginally above them. Delinquencies for the subordinate-lien portfolio were also slightly above those in the fourth-quarter 2009 American Bankers Association Consumer Credit Delinquency report. Outlook The outlook is stable for each servicing asset type. Although the prime and subordinate-lien portfolio volumes have declined over the past two years, we believe stabilization in the financial markets may open up opportunities for the bank to offset this runoff with newly originated mortgage loans. The falling number of subprime loans is a negative ranking consideration, however, and we would consider revising our outlook to negative or lowering our ranking if the decline continues. RELATED CRITERIA AND RESEARCH -- "Servicer Evaluation Ranking Criteria: U.S.," published Sept. 21, 2004. -- "Select Servicer List." Primary Credit Analyst: Richard Barnes, London (44) 20-7176-7227; [email protected] Servicer Analyst: Edward Highland, New York (1) 212-438-1287; [email protected] No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. 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(END) Dow Jones Newswires June 18, 2010 15:56 ET (19:56 GMT)