Brokers Loosen Ties as Home Capital Fights For Its SurvivalBy , , and
Home Capital seen as ‘lender of last resort’ by brokers
Rival Equitable doesn’t see itself taking on Home’s mortgages
Home Capital Group Inc. is losing touch with a constituency crucial to its survival: brokers who feed the book of business at Canada’s embattled mortgage lender.
Samantha Brookes, founder of Mortgages of Canada, sent in at least three clients’ applications since April 26, the day Home Capital announced a C$2 billion ($1.5 billion) rescue loan and warned it may miss financial targets. She hasn’t heard back. True North Mortgage and Butler Mortgage are exploring options with other banks and some brokers say loans have been delayed.
"When you can’t place a file, you send it to Home Trust -- and we don’t even know if they’ll be able to do deals going forward," Brookes said by phone from her office in northeast Toronto, referring to Home Capital’s operating unit. "I’m concerned. If I can’t close deals I don’t get paid. And if you can’t send it to Home Capital, the consumer may need a second mortgage, or to pay a higher interest rate."
The disconnect with brokers may signal the company is reluctant to take on new business as it faces a run on deposits and soaring borrowing costs from the credit line from Healthcare of Ontario Pension Plan. More than a third of Brookes’s business goes to Home Capital and it’s the same for many alternative brokers, who call Home Capital a "lender of last resort."
Home Capital denies that business is slow. “Home continues to conduct business," Pino Decina, executive vice president of residential mortgage lending, said in an emailed reply. "We have been funding every day."
This echoes emails to brokers, seen by Bloomberg, where Decina last week said nothing has changed despite "news reports" about the company. In another email Tuesday, Reaza Ali, senior business development manager, said the main focus this week would be to close a "large pipeline" of transactions, though they’re still accepting new deals. On Thursday, Decina told brokers Home Capital is "actively seeking expanded sources of funding" and is "optimistic our challenges are temporary."
No More Deals
"We are not sending Home Trust any deals at this point as we fear their ability to fund the mortgages at closing has been compromised," said Dan Eisner, chief executive officer at True North Mortgage, which gives Home Capital about C$25 million of its C$1.2 billion annual business. "Furthermore, we are exploring other lending options for clients that have scheduled Home Trust closings in the next few weeks."
Canadian Western Bank’s CEO Chris Fowler said this week the lender expects application volumes to rise as business slows for its rival Home Capital, though it will continue to be selective. Andrew Moor, CEO at Equitable Group Inc. -- another of Home Capital’s competitors -- said he doesn’t see his company accelerating its portfolio growth because growing too fast wouldn’t be prudent.
Home Capital and its peers -- so-called alternative lenders -- target first-time home buyers who can’t get a loan from traditional banks because they lack a credit history. These borrowers are typically self-employed, small business owners, or new immigrants who place large down payments, often more than 25 percent of the property value.
Home Capital’s default rate has been less than 0.25 percentage points, lower than the big banks, prompting analysts and brokers including Ara Mamourian, owner of Spring Realty Inc. and Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce to vouch for the quality of Home Capital’s loan book.
Geoff Carnevale, vice president at Admore Financial Services Inc., has his personal savings with Home Capital, which has been facing a run on deposits. He said his firm is sending Home Capital applications and they’re responsive.
"They’ve supported my business and the broker channel for years and I’m going to keep supporting them until somebody tells me I can’t," Carnevale said.
Anthony Venuto, who works for his mother’s Centum Streetwise Mortgages, said all three of the deals sent to Home Capital since last week have been funded, though one is delayed. Centum gives about a third of its C$140 million annual mortgage business to Home Capital and while "there’s a lot of misconceptions out there right now, I think they’ll get their act together," he said.
Shares in Home Capital fell 11 percent to C$6.90 in Toronto on Wednesday and are down about 70 percent since April 19, when the securities regulator accused it of misleading investors. Home Capital says the allegations are without merit and will be vigorously defended. The first hearing is at 1 p.m. on Thursday at the Ontario Securities Commission.
Still, many brokers appear to be sending clients to Home Capital’s rivals, said Ron Butler at Butler Mortgage, which usually sends C$100 million of C$900 million annually to Home Capital.
These other lenders have raised rates by half a percentage point, tightened requirements and become more picky about borrowers, Butler said by phone. "There can still be credit impairment and self-employment issues, but there’s this tightening, tightening, tightening."
— With assistance by Doug Alexander, Allison McNeely, and Kim Chipman