Reply #8: HSBC braces for $9 billion in mortgage price hikes [View All]

[UpInArms]

http://www.reuters.com/article/businessNews/idUSN2622732520070726?feedType=RSS&sp=true

NEW YORK (Reuters) - A $9 billion wave of risky mortgages resetting at higher interest rates in the United States could force Europe's biggest bank, HSBC Holdings Plc (HSBA.L: Quote, Profile, Research), to absorb another big hit to profits as more customers default.

Most of HSBC's reset activity, which increases the chances of defaults by triggering sharply higher monthly mortgage payments, will take place in the second half of the year.

The London-based bank's HSBC Finance Corp. set aside $1.7 billion for loan losses in the first quarter, but that may not be enough, analysts say. HSBC reports interim results for the first half of the year on Monday.

This month, U.S. lenders, including JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research) and Countrywide Financial Corp. (CFC.N: Quote, Profile, Research), revealed bigger-than-expected problems on loans that are considered a better risk than the ones held by HSBC.

Both companies blamed their problems on the slumping U.S. housing market.

HSBC's U.S. mortgage operations, which cater to a riskier clientele, may face deeper problems on about $9 billion in adjustable-rate mortgages.

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Payments can increase more than 50 percent, according to a March study of adjustable-rate mortgages by Christopher Cagan, head of research at First American CoreLogic Inc. Overall, trillions of dollars of adjustable-rate mortgages will have their payments begin to reset this year and next, he said.

Cagan estimated about 1.1 million U.S. mortgages will be lost to foreclosure because of resets, triggering more than $325 billion in losses that will be spread into the next decade.

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