NEW YORK - March 6, 2011 - It emerged last week that the Federal Reserve and the Office of the Comptroller of the Currency had stopped HSBC repossessing homes in December after identifying deficiencies in its procedures. Britain's biggest bank is the latest target of regulators after concerns that procedures, such as documentation, were not being followed correctly during repossession.

In an annual filing to the U.S. Securities and Exchange Commission, HSBC admitted that "the impact of the recently publicised foreclosure practices of certain servicers could ultimately result in increased severity of loss upon sale as there will likely be a dramatic and significant increase in the number of properties on the market once the industry implements the required changes".

The controversy over repossessions in the U.S. first erupted last autumn, when Bank of America, JPMorgan Chase and Citigroup were all forced by authorities to halt their processes.

The problems have caused another headwind for a housing market that has struggled to emerge from a slump that began in 2006. HSBC said that it is cooperating with regulators. A spokesman said the bank expects to resume repossessions soon and declined to comment further.

The UK bank also disclosed in the SEC filing that the average loss on the properties it repossesses had begun to rise in the second half of last year, as house prices weakened. The average loss on a property climbed from 3.9% in the first three months of 2010 to 15.3% in the final three months. U.S. homes that were repossessed last year sold at a 28% discount to other homes.

HSBC is saddled with its U.S. mortgage book through its 2003 acquisition of U.S. sub-prime lender, Household Financial. After prices collapsed, the bank was forced to write down $50 billion of bad loans at Household, which stopped new lending in 2009.