HSBC is one of the biggest banking & financial services organization in the world. In That case study, HSBC Faced subprime mortgage loan crisis in 2007. HSBC was the major player in this crisis as it becomes the biggest lenders in the field of subprime mortgage sector in United States in the year of 2006. Subprime mortgages are mainly offered to the customers who often got bad credit reports, low incomes and others fault which means they got risk in default and also they got a higher probability of failure to pay the loan in future.
But HSBC was interested about sub prime mortgages in order to gain good business opportunities and profit. Infect in united state in the year between 2001 and 2006, subprime customers do not require providing any down payment and also have very low introductory rates which become so common during that time. Because of all these HSBC faced the crisis when the customers were unable to pay the high interest.
Numbers of reasons were responsible for the HSBC subprime loan crisis like people, technology and organizational factors. In the chart below, people, organization and technology is connected with information technology which influenced the ultimate business solution in an organization. Source: Lecture Sheet (1) In the case study, HSBC faced mortgages loan crisis and for that people technology and organizational factors were mainly responsible. The risky lending system was the main trouble for HSBC subprime loan crisis.
With the coinciding rise of the interest rate, many borrowers were not able to pay their interest payments and defaulted on their loans. And furthermore the number of delinquent and defaulted accounts grows but they were unable to find the level accurately. HSBC participated in a complicated business that involved more than a simple lender-borrower relationship. One unit of HSBC mortgage services originated mortgages, often of the subprime variety. HSBC flipped some of these loans to other companies, but kept others as investments.
The ones HSBC kept provided revenue from the interest they generated, assuming the borrowers kept current with their payments but later on, the borrowers fell behind the defaulted and for that HSBC suffered the losses. HSBC brought lots of subprime loans for higher revenue from other sources. Most of these loans were piggy back loans, which means home owner s who are not able to pay the down payment for a house would be Qualify for a mortgage by borrowing the down payment amount, therefore that sort of loans were totally involved with risk which makes HSBC to fall into problem.
