HSBC Is Sued by U.S. Borrowers Over Mortgage Insurance

HSBC Holdings Plc’s U.S. unit was sued in Philadelphia by homeowners in three states over claims that the bank took kickbacks from private mortgage insurers.

Five homeowners in Pennsylvania, North Carolina and Maryland sued alleging the company violated real estate laws by collecting more than $84 million from private mortgage insurers while paying only about $7.9 million toward purported reinsurance claims. Referral payments made to HSBC’s affiliated captive reinsurer HSBC Reinsurance Inc. were illegal, according to a complaint filed Jan. 4 in federal court in Philadelphia.

“Such payments, which HSBC Re periodically passes through to its parent HSBC USA in the form of lucrative dividends and premium income, continue to date,” lawyers for the homeowners said in the filing.

HSBC won’t comment “on this open legal matter,” spokesman Robert Sherman said in an e-mail.

Homebuyers who take out mortgages with less than 20 percent down payments are typically required to purchase private mortgage insurance at closing. The premium paid by the borrower protects the lender in the event of a default.

Beginning in 2004, HSBC took payments from private insurers including Radian Guaranty Inc. and Genworth Mortgage Insurance Co. in return for referring borrowers, according to the complaint. HSBC received payment while taking little to no risk under the underlying reinsurance contracts, the homeowners said.

The contracts, which aren’t publicly available, “provide private mortgage insurers with no recourse if HSBC Re abandons its reinsurance obligations at any time,” according to the complaint. Genworth and Radian are also named in the complaint.

‘Illusory’ Reinsurance

“The purported reinsurance provided by HSBC Re is illusory,” lawyers for the homeowners said in the filing.

The homeowners are seeking to represent borrowers who obtained residential mortgage loans from HSBC beginning Jan. 1, 2004, in their bid for restitution of all improperly collected reinsurance premiums and disgorgement of HSBC’s “ill-gotten gains.”

Al Orendorff, a spokesman for Genworth, had no immediate comment on the complaint. Elizabeth Emmons, a spokeswoman for Radian, didn’t immediately return a phone call seeking comment.

HSBC, based in London, is Europe’s largest bank.

The case is Ba v. HSBC USA Inc., 13-00072, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

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