Home Capital Cuts Ties With Mortgage Brokers

Alternatice lenders

Alternative mortgage lender Home Capital Group was halted trading on the TSX Wednesday after the company divulged it had severed connections with multiple mortgage brokerages for inflating income information pertaining to applicants.

Home Capital opened an investigation immediately after being advised that some of their brokers were involved in falsifying income numbers. The company said it had become aware of situations where applicants had submitted employment letters declaring more substantial incomes than they in fact earned.

“There was no evidence of falsification of credit scores or property values,” the Toronto-based company said in a statement.

The organization noted in a statement that it is publishing the important information after a request from the Ontario Securities Commission (OSC). Home Capital provides residential financing mainly to recent immigrants, self-employed individuals and borrowers who have non-traditional incomes, making it more difficult for them to get financing from traditional financial institutions like the big banks.

In an investigation stared in September 2014 threw until March of this year, Home Capital said it terminated fifty three broker companies in the review. That is out of more than 4,000 brokers the company works with at any given time, however, these were the higher performing ones. The company stated that the brokers which have been singled out, contributed $960 million worth of mortgage loans last year. That number is roughly 5% of the mortgages the lenders has out presently.

“During the course of its review, Home Capital did a broader test to ensure that this was not a widespread issue in its portfolio and the company is comfortable that it is not.”

Home Capital’s stock has fallen more than 43 per cent in the last 12 months, but was up 11 per cent once trading resumed on Thursday.

Even though income was inflated to qualify applicants for higher mortgage amounts, it is doubtful that these mortgages will actually default or have any real impact on Home Capital. The only real impact is that their mortgage portfolio is not as valuable as it seemed.