Home Capital Loan Originations Drop, Investigation Continues

Home Capital Group Inc., Canada’s largest alternative-mortgage provider, said originations fell in the third quarter and an investigation into loans with faulty income information will continue through most of next year.

Uninsured single-family residential originations, or traditional originations, fell to C$1.51 billion ($1.15 billion) in the third quarter, down almost 15 percent from a year earlier, and insured single-family originations slid 20 percent to C$416.3 million, the Toronto-based firm said in a statement Wednesday.

“Home Capital has taken several steps to improve origination volumes through the remainder of 2015, including sales measures to strengthen the company’s pipeline for residential mortgage originations,” the firm said, adding that it’s also expanding its commercial-lending products.

Home Capital’s third-quarter earnings fell 1.8 percent to C$72.4 million, or C$1.03 a share.

The lender, which cut ties with 45 brokers earlier this year after finding falsified borrower income information, also said it’s about a quarter of the way through its review of those loans and will be finished by late 2016.

Home Capital shares are down 21 percent since July, when it disclosed the falsified broker loans and a subsequent slide in origination volume. It’s the most-shorted stock on the Toronto stock exchange. The shares closed up 5.3 percent to C$33.11 in Toronto.

Relationships Suspended

From September 2014 to March of this year, the company suspended its relationship with 18 independent brokers and two brokerages for a total of 45 individual brokers. Of the mortgages reviewed from that pool so far, more than 90 percent could be eligible for renewal, Home Capital said. The total value of outstanding mortgages from those brokers fell to C$1.72 billion as of Sept. 30 from C$1.93 billion at the end of June. In July, Home Capital said that the brokers originated C$960.4 million of single-family mortgages in 2014.

The company also named William J. Walker to its board of directors. Walker is a partner at Gowling Lafleur Henderson LLP and has more than 30 years of experience in banking law and dealing with regulators, Home Capital said.

The company is hosting an earnings conference call Thursday at 10:30 a.m. Toronto time, reachable by telephone at 647-427-7450 or 888-231-8191.

Before it's here, it's on the Bloomberg Terminal.