Home » Posts tagged 'home capital group'
Tag Archives: home capital group
Second Cockroach: Canadian Mortgage Lender Crashes After Admitting Mortgage Fraud
Second Cockroach: Canadian Mortgage Lender Crashes After Admitting Mortgage Fraud
Back in April/May, Canada’s biggest mortgage lender, Home Capital Group, crashed its way into the headlines, coming clean over its balance sheet-full of liar loans, suffered a bank run, and was forced to take emergency liquidty from taxpaying pensioners, and was eventually bailed out by good old Warren Buffett.
“Probably nothing…”
Well just when everyone though that crisis was over, a second cockroach in the Canadian mortgage bubble fiasco just emerged…
Laurentian Bank of Canada fell the most in almost nine years after reporting it found customer misrepresentations on some mortgage loans it sold to another firm.
Echoing problems that almost sunk Home Capital Group, Bloomberg reports that:
An audit “identified documentation issues and client misrepresentations” with some mortgages from its B2B Bank unit that were sold to a third-party firm, the lender said Tuesday in its annual report.
Laurentian said it will repurchase about C$89 million ($70 million) of those mortgages in the first quarter, or 4.9 percent of such loans sold to the firm.
It will buy back an additional C$91 million of mortgages “inadvertently” sold to the firm, also in the first quarter.
Just as we saw with Home Capital, the CEO initially shrugged it off as immaterial:
“This is largely a documentation and securitization-eligibility issue,” Chief Executive Officer Francois Desjardins said in a call with analysts.
“It is not material for the bank, its operations, its funding nor its capital. We have worked to change processes to ensure that this issue is resolved.”
However, the total value of the mortgages sold to the third-party issuer was about C$1.16 billion, according to the bank.
Laurentian said it was first alerted of the issue in September by the purchaser and initiated its own audit.
Have no fear though:
…click on the above link to read the rest of the article…
“Canada Hasn’t Seen A Bank Run Such As This In Decades” – Finance Minister Says Home Capital Bailout Is Possible
“Canada Hasn’t Seen A Bank Run Such As This In Decades” – Finance Minister Says Home Capital Bailout Is Possible
Slowly but surely, Canada is starting to appreciate just how serious the Home Capital failure is, and how the unprecedented bank run that has led to 94% of retail deposits fleeing the troubled lender…
… is just the first step of what will likely be a very painful process, which will likely culminate with either a government bailout, or a financial system on the verge of panic.
Today, the Globe and Mail has published an in-depth report putting the HCG pieces together, or as the G&M itself puts it, the “dramatic story of a financial institution’s near-collapse.”
It was late in the evening on Sunday, April 30, when lawyers working for Home Capital Group Inc. dialled into a call with lawyers representing the company’s new lending syndicate. The troubled mortgage lender had negotiated a $2-billion credit line just days earlier, emergency money the board felt was needed to survive after a high-profile run on deposits at subsidiary Home Trust. The company planned to draw down the first $1-billion from it the next morning, May 1.
…click on the above link to read the rest of the article…
The Toronto Housing Market Is About To Collapse By This Measure
The Toronto Housing Market Is About To Collapse By This Measure
With the collapse of Home Capital Group focusing the world’s attention on the Canadian real estate market, nowhere is the subprime debt time bomb more likely to go off than Toronto, which as we recently noted “has gone nuts.”
Even Bank of Canada Governor Stephen Poloz (who declined to comment on questions about Home Capital Group and whether he’s worried about contagion), noted that Toronto is out control tonight while answering questions following a speech in Mexico City…
“pretty sure recent gains in Toronto home prices were not sustainable and that the city’s housing market had elements of speculation““Financial stability is part of the Bank of Canada’s monetary policy decision making, but the central bank’s primary mission is inflation targeting,… it would be odd to use interest rates to target home prices in just one city.”
Perhaps Mr. Poloz… But, as we noted previously, it doesn’t take a genius to figure out that this will end in tears. Even the big Canadian banks are fretting. “Let’s drop the pretense. The Toronto housing market and the many cities surrounding it are in a housing bubble,” Bank of Montreal Chief Economist Doug Porter warned clients. But the bubble’s deflation would push the city into a fiscal and financial sinkhole
Jason Mercer, TREB’s Director of Market Analysis, explained the basic supply and demand problem:
“Annual rates of price growth continued to accelerate in March as growth in sales outstripped growth in listings,” he said.“A substantial period of months in which listings growth is greater than sales growth will be required to bring the GTA housing market back into balance.”
…click on the above link to read the rest of the article…
Contagion: Home Capital Bank Run Spreads To Another Canadian Mortgage Lender
Contagion: Home Capital Bank Run Spreads To Another Canadian Mortgage Lender
As discussed first thing this morning, the fate of Canada’s largest alternative mortgage lender, Home Capital Group, appears to have been decided over the weekend, when in the span of just one week, over 70% of the company’s deposit base had been withdrawn, effectively mothballing the business, leaving just a sale or liquidation as the two possible outcomes even as a $2 billion emergency line of credit keeps the company afloat, at least until HCG’s $12.8 billion in GICS mature some time over the next 30 to 60 days.
Predictably, the news of the ongoing bank run once again spooked shareholders, who sent its stock sliding by 10%, and wiping out two-thirds of the company’s market cap in under 2 weeks.
A bigger red flag emerged when concerns about possible contagion appeared to have been justified Canada’s Equitable Group, another alternative mortgage lender, said Monday it had started seeing “an elevated but manageable” decrease in deposit balances, traditionally a polite way by management to admit a bank jog is taking place. The company said that customers had withdrawn an average C$75 million each day between Wednesday and Friday, and while the withdrawals so far are modest, and represented 2.4% of the total deposit base, the recent HCG case study showed how quickly such a bank run could escalate. And while liquid assets remained at roughly C$1 billion after the outflows, the company also announced that it had taken out its own C$2 billion credit line with a group of Canadian banks, just in case the bank run was only getting started.
…click on the above link to read the rest of the article…
This Is What A Bank Run Looks Like: Home Capital Loses 70% Of Deposits In One Week
This Is What A Bank Run Looks Like: Home Capital Loses 70% Of Deposits In One Week
According to HCG’s latest press release this morning, the “less than prime” Canadian mortgage lender held HISA deposits of only $391 million as of Monday, May 1; this is down C$130 million from Friday, or a reduction in the total amount by 25%. It is also down 72% from the C$1.4 billion reported one week ago.
For those who need to think all the way back to the third Greek bailout of 2015 to recall what a bank run looks like, here is what the deposit situation at HCG has looked like over the past month.
There is some good news: a terminal bank run at the mortgage lender has already been largely factored in, and is largely covered courtesy of the recently announced $2 billion emergency loan from the Ontario Pension Plan – putting up to 321,000 retirees on the hook – which carries a pre-bankruptcy interest rate of as much as 20%. To this end, HCG announced today that its subsidiary, Home Trust, expects to receive the initial draw today of $1 billion from its $2 billion credit line.
However, there is another problem: the company has another C$12.8 billion in Guaranteed Investment Certificate deposits, or GICS. As these 30- and 60-day deposits come due in the coming weeks, depleting HCG’s already tapped out liquidity, and forcing even more emergency loans. Without a deposit base, Home Capital can’t fund new mortgages.
…click on the above link to read the rest of the article…
Panic Bank Run Leaves Canada’s Largest Alternative Mortgage Lender On Edge Of Collapse
Panic Bank Run Leaves Canada’s Largest Alternative Mortgage Lender On Edge Of Collapse
After two years of recurring warnings (both on this website and elsewhere) that Canada’s largest alternative (i.e., non-bank) mortgage lender is fundamentally insolvent, kept alive only courtesy of the Canadian housing bubble which until last week had managed to lift all boats, Home Capital Group suffered a spectacular spectacular implosion last week when its stock price crashed by the most on record after HCG revealed that it had taken out an emergency $2 billion line of credit from an unnamed counterparty with an effective rate as high as 22.5%, indicative of a business model on the verge of collapse .
Or, as we put it, Canada just experienced its very own “New Century” moment.
One day later, it emerged that the lender behind HCG’s (pre-petition) rescue loan was none other than the Healthcare of Ontario Pension Plan (HOOPP). As Bloomberg reported, the Toronto-based pension plan – which represented more than 321,000 healthcare workers in Ontario – gave the struggling Canadian mortgage lender the loan to shore up liquidity as it faces a run on deposits amid a probe by the provincial securities regulator. Home Capital had also retained RBC Capital Markets and BMO Capital Markets to advise on “strategic options” after it secured the loan.
Why did HOOPP put itself, or rather its constituents in the precarious position of funding what is a very rapidly melting ice cube? The answer to that emerged when we learned that HOOPP President and CEO Jim Keohane also sits on Home Capital’s board and is also a shareholder. But how did regulators allow such a glaring conflict of interest? According to the Canadian press, Keohane had been a director of Home Capital until Thursday, but said he stepped away from the boardroom on Tuesday to remove the conflict of interest when it became clear HOOPP might step in as a lender.
…click on the above link to read the rest of the article…
Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History
Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History
Call it Canada’s “New Century” moment.
We first introduced readers to the company we said was the “tip of the iceberg in Canada’s magnificent housing bubble” nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.
Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.
As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable Group Inc. fell 17 percent, Street Capital Group Inc. fell 13 percent, while First National Financial Corp. declined 7.6 percent. In short, the Canadian mortgage bubble has finally burst.
Some more details on HCG’s emergency source of funding: Home Capital will pay 10% interest on outstanding balances and a non-refundable commitment fee of C$100 million, while standby fee on undrawn funds is 2.5%. The initial draw must be C$1 billion.
…click on the above link to read the rest of the article…
Liar Loans Pop up in Canada’s Magnificent Housing Bubble
Liar Loans Pop up in Canada’s Magnificent Housing Bubble
For a long time, the conservative mortgage lending standards in Canada, including a slew of new ones since 2008, have been touted as one of the reasons why Canada’s magnificent housing bubble, when it implodes, will not take down the financial system, unlike the US housing bubble, which terminated in the Financial Crisis.
Canada is different. Regulators are on top of it. There are strict down payment requirements. Mortgages are full-recourse, so strung-out borrowers couldn’t just mail in their keys and walk away, as they did in the US. And yada-yada-yada.
But Wednesday afterhours, Home Capital Group, Canada’s largest non-bank mortgage lender, threw a monkey wrench into this theory.
Through its subsidiary, Home Trust, the company focuses on “alternative” mortgages: high-profit mortgages to risky borrowers with dented credit or unreliable incomes who don’t qualify for mortgage insurance and were turned down by the banks. They include subprime borrowers.
So it disclosed, upon the urging of the Ontario Securities Commission, the results of an investigation that had been going on secretly since September: “falsification of income information.” Liar loans.
Liar loans had been the scourge of the US housing bust. Lenders were either actively involved or blissfully closed their eyes. And everyone made a ton of money.
So Home Capital revealed that it has suspended “during the period of September 2014 to March 2015, its relationship with 18 independent mortgage brokers and 2 brokerages, for a total of approximately 45 individual mortgage brokers,” who’d together originated nearly C$1 billion in single-family residential mortgages in 2014. That’s 5.3% of the company’s total outstanding loan assets, and 12.5% of its total single-family mortgage originations in 2014.
That’s a big chunk. The company, however, didn’t disclose why it took so long to disclose this.
It said an “external source” had warned it about income falsification on mortgage applications submitted by a number of brokers. Its investigation did not find any evidence of falsified credit scores or property values, it said.
…click on the above link to read the rest of the article…
Largest “Alternative” Mortgage Lender in Canada Plunges, Denies “Systemic Problem” in Housing Market
Largest “Alternative” Mortgage Lender in Canada Plunges, Denies “Systemic Problem” in Housing Market
Home Capital Group, Canada’s largest non-bank mortgage lender, focuses on “alternative” mortgages, as they’re called euphemistically, that is high-profit mortgages to risky borrowers with dented credit or unreliable incomes, such as self-employed folks or new immigrants, who don’t qualify for mortgage insurance and were turned down by the banks. They include subprime.
Its stock plunged almost 20% on Monday in Toronto. On Tuesday, it dropped another 4% to close at C$32.74, the lowest since September 2013, and down 41% from the halcyon days last November.
Analysts went into a wild and belated scramble to lower their ratings on the stock. It has been the fourth most shorted stock in Canada, with 20% of its free float shorted, according to Bloomberg. Those folks made a bundle over the last two days.
Friday after hours, when no one was supposed to pay attention, the company issued astatement ahead of its second quarter earnings report on July 29 that shocked analysts:
In the second quarter, originations of high-margin uninsured mortgages had plunged 16% from a year ago, to C$1.29 billion. And originations of lower-margin insured single-family mortgages had plummeted 55% to C$280 million.
A warning sign flaring up in Canada’s majestic housing market where prices have soared for years, in an economy rattled by the oil price crash and other issues, and now likely in a technical recession?
No way.
“We think this is an HCG-specific growth issue,” Royal Bank of Canada analyst Geoffrey Kwan wrote to clients, “not an early signal of rising losses or broader housing stress.” However, he did expect industry mortgage loan growth to “slow in the next 2-3 years.”
Just not yet.
The company blamed some changes it had made: It had terminated some of its 4,000 or so mortgage brokers, “which caused an immediate drop in originations,” according to the statement.
It suddenly decided to use a “conservative approach to growing its residential mortgage business.” What had spooked it? What does Home Capital know that we don’t? It didn’t say.
…click on the above link to read the rest of the article…
