HSBC bought subprime loans from troubled lender Accredited Home Lenders, but stopped buying subprime loans in April 2007. (sidenote: Bobby Mehta stepped down as chief executive of HSBC Finance Corp. and as head of HSBC North America on February 15, 2007.)
Mortgage originators like Accredited Home Lenders usually sell their loans on to other investors soon after they’ve offered them to home buyers. That can either be done as a whole loan transaction or as a securitization in which mortgages are packaged up into mortgage-backed securities.
Whole loan sales have become more difficult. Originators used to be able to sell mortgage at a 2% premium, but now they get no premium or have to sell at a discount in many cases, Accredited said. A big chunk of Accredited’s revenue used to come from gains it made when it sold mortgages at a premium in whole loan transactions. However, there are fewer of those buyers now.
HSBC bought 30 percent of Accredited’s mortgages in 2006. But in April 2007, HSBC stopped buying subprime loans according to Accredited. At least HSBC quit buying Accredited’s subprime loans. One HSBC customer report sent to Household – HSBC Watch, and published on their website, is from a woman who said she refinanced to get away from HSBC. A short time later her mortgage was right back with her new lender – HSBC.