HSBC faced with a problem of overcoming growth of mortgages within subprime borrowers. As a result, the demands of customers were higher than the stock of money at the disposal of HSBC. Moreover, the bank confronted with problems in operational systems in terms of defining type of loans and payments which were done previously by its clients and subprime borrowers, in particular. The number of mortgage loans shifted all predictions during 2005-2006. Customers received approval by means of exaggerated information about own incomes. Senior management team was responsible for the problem and the department of HSBC responsible for mortgage market as well. Also the department of risk management was responsible for trouble. The management of HSBC did not correctly identify the course of actions due to the “housing boom” and the fact that competitors could possibly seize this sphere of economic relationships. Moreover, the company referred to wholesalers.
HSBC still runs into trouble due to the mortgages originated in 2005-2006 and the risk for borrowers with ARM to lose their houses due to foreclosures which now count 20 percent (Laudon & Laudon, 2009). Moreover, for ARM borrowers “in some cases, the adjustment can increase a monthly payment by $500” (Laudon & Laudon, 2009, p. 477). The right solution primordially should have touched upon the information about customers as of the income rates. Another prospect should have considered the initial decrease of mortgage percentage for subprime borrowers. The right solution to come up to the issue with mortgage market rationally was not taken into account due to the rush for profits.
HSBC for the solution of the problem “doubled the number of customer representatives who call on borrowers who have missed payments and discuss payment plans that are more manageable”(Laudon & Laudon, 2009, p. 477). Moreover, the company implemented new analytical software, in order to “deploy scoring models and portfolio segmentation” (Laudon & Laudon, 2009, p. 477). These innovations will possibly help to turn around the huge number of subprime borrowers, but there is no guarantee that it will be soon. That is why during this period of time subprime borrowers can change personal information or can simply move to other locations. Additional factors for which HSBC did not account are the decrease of prices for real estate due to the crisis. The real price of houses has become approximately twice as little.
The consequences of HSBC changing its approach to subprime lending will touch upon the interests of customers to choose where to go for mortgage. It will result the leakage in customers base of the bank. Thus, AMR will not be desired. This in return will cause a decrease in business area. Moreover, constant need of Americans for real estate may provoke the government to borrow financial aid from, for example, IMF.
Not to lose interests of current and potential subprime clients HSBC provided the policy of second-lien loans in the subprime segment. Also there were changes in personnel and in policy. HSBC stopped purchasing state-income loans and concentrated its attention on scoring customers and checking their ability to provide payments. HSBC went wrong in that part of decision making which presupposes further possible increases of percentage rates for subprime borrowers, so that to make them sure to pay back. Accuracy and comprehensiveness of current models for mortgage loans were poorly stated. That is why provision of clear information with attractive percents for mortgage and returning of past and current credits by means of closer work with customers in this field of loans will be a mere “panacea”.
References
Laudon, K. C., and Laudon J. P. (2009) Management Information Systems: Managing the Digital Firm. Ed. 11 New Jersey: Pearson Prentice-Hall, Upper Saddle River.