Home Capital Group said hello continues to make progress in reviewing its portfolio of mortgages generated by 45 brokers suspended for fraud last year, with the worth of suspect mortgages visiting roughly $200 million in the fourth quarter.
The Toronto-based mortgage company announced Wednesday it has reviewed 40 per cent of the mortgages which were made by the brokers, that have been suspended from September 2014 to March 2015 after it had been discovered they had falsified income statements to help clients qualify for mortgages.
Home Capital said that 90 percent from the mortgages reviewed so far are still entitled to renewal which is on pace to complete its investigation by the end of this season. The value of the mortgages seemed to be revealed to have shrunk to $1.55 billion from $1.72 billion within the third quarter as customers pay down their loans.
“The company is constantly on the actively monitor the topic mortgages and notes that there happen to be no unusual credit issues,” Home Capital said inside a statement.
Home Capital Group Inc’s probe into alleged fraud by mortgage brokers widensHome Capital’s broker purge not really a sign of a larger problem in Canada’s housing industry, says rival lender
The company reported that net income fell to $71.8 million for Q4 2015 from $71.9 million within the fourth quarter of 2014. Adjusted earnings per share arrived at $1.02, missing the $1.05 analysts surveyed by Bloomberg had expected.
Despite the miss, the mortgage lender announced it was buying back $150 million available and raising its dividend 9.1 per cent, or 2 cents, to 24 cent per share.
The company signed $2.15 billion in new mortgages within the fourth quarter, down six percent in the $2.29 billion recorded in Q4 2014. The amount of new insured mortgages advanced 46.1 per cent, while new uninsured mortgages dropped 12.1 percent.
“The underlying results were pretty strong as far as I will tell,” said Shubha Khan, research analyst of diversified financials at National Bank Financial. “Originations were stronger than what we’d anticipated even though they were down year-over-year, there is net interest margin expansion, there was exceptional credit quality with loan losses being reduced than expected.”
Khan asserted unlike some of the banks which have exposure to loans in resource provinces for example Alberta and Saskatchewan, Home Capital’s focus in markets for example Ontario allow it to be less subjected to the slumping housing markets of oil-producing provinces.
He added, however, that the company will need to show investors the way they plan to reinvigorate their mortgage pipeline, as a few of the brokers that were fired included in its fraud investigations introduced a disproportionately large chunk of new mortgages.
Home Capital began its investigation into falsified income statements in 2014, but didn’t reveal the full details or why the brokers were suspended until July of this past year. Management expects the investigation, that involves calling employers of mortgage applicants to ascertain if they really result in the amount of money for auction on their income statements, will be completed by the end of 2016.
‘The underlying outcome was pretty strong’
The company has also revealed that some seven to eight percent of those investigated weren’t co-operating using the investigation or could not get their incomes verified. Management said that it intends to help those buyers get a new lender when their mortgages come up for renewal, potentially directing them to the private lending market.
Chief executive Gerald Soloway told analysts and reporters throughout a conference call in November that despite the fraud, the majority of the borrowers signed by the brokers had healthy credit scores and were not missing mortgage payments.
Despite the company’s troubles, none of the analysts surveyed by Bloomberg who cover the stock have issued sell ratings. The ratings include one strong buy, three buys, three outperforms, one overweight, one sector perform and one market perform.
“Although we do possess some concerns towards Home Capital’s outlook, at current valuation levels, we feel that the positive fundamentals within the company are not being properly reflected,” said TD Securities analyst Graham Ryding as he upgraded the stock to some buy on Jan. 22.
Shares of Home Capital closed down 1.93 per cent, or 50 cents, to $25.35 in Toronto Wednesday.