Home Capital Group said hello is constantly on the make progress in reviewing its portfolio of mortgages generated by 45 brokers suspended for fraud this past year, using the worth of suspect mortgages visiting roughly $200 million within the fourth quarter.
The Toronto-based mortgage lender announced Wednesday that it has reviewed 40 percent from the mortgages which were produced by the brokers, that have been suspended from September 2014 to March 2015 after it was discovered they’d falsified income statements to help clients qualify for mortgages.
Home Capital asserted 90 percent from the mortgages reviewed to date are still eligible for renewal which is on pace to accomplish its investigation after this year. The need for the mortgages was also revealed to have shrunk to $1.55 billion from $1.72 billion in the third quarter as customers reduce their loans.
“The company continues to actively monitor the topic mortgages and notes that there happen to be no unusual credit issues,” Home Capital said in a statement.
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The company reported that net gain fell to $71.8 million for Q4 2015 from $71.9 million in 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 company announced it was buying back $150 million in stock and raising its dividend 9.1 percent, or 2 cents, to 24 cent per share.
The company signed $2.15 billion in new mortgages in the fourth quarter, down six per cent from 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 per cent.
“The underlying results were pretty strong so far as I will tell,” said Shubha Khan, research analyst of diversified financials at National Bank Financial. “Originations were stronger than what we had anticipated even though they were down year-over-year, there was net interest margin expansion, there was exceptional credit quality with loan losses being much lower than expected.”
Khan said that unlike some of the banks which have exposure to loans in resource provinces for example Alberta and Saskatchewan, Home Capital’s concentrate markets for example Ontario allow it to be less exposed to the slumping housing markets of oil-producing provinces.
He added, however, the company will have to show investors the way they intend to reinvigorate their mortgage pipeline, as some of the brokers which were fired as part of its fraud investigations introduced a disproportionately large chunk of new mortgages.
Home Capital began its investigation into falsified income statements in 2014, but did not reveal detailed information or why the brokers were suspended until July of last year. Management expects the investigation, which involves calling employers of mortgage applicants to ascertain if they really result in the amount of cash listed on their income statements, is going to be completed by no more 2016.
‘The underlying outcome was pretty strong’
The company has also says some seven to eight per cent of these investigated weren’t co-operating using the investigation or couldn’t get their incomes verified. Management asserted it intends to help those buyers get a new lender when their mortgages come up for renewal, potentially directing these to the non-public lending market.
Chief executive Gerald Soloway told analysts and reporters throughout a conference call in November that regardless of the fraud, most of the borrowers signed by the brokers had healthy credit ratings and were not missing mortgage repayments.
Despite the company’s troubles, no 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 something market perform.
“Although we do possess some concerns towards Home Capital’s outlook, at current valuation levels, we believe that the positive fundamentals within the company aren’t being properly reflected,” said TD Securities analyst Graham Ryding because he upgraded the stock to a buy on Jan. 22.
Shares of Home Capital closed down 1.93 percent, or 50 cents, to $25.35 in Toronto Wednesday.
