A group of 45 brokers suspended by Home Capital Group Inc. for alleged mortgage fraud generated nearly $2-billion worth of outstanding mortgages for the lender, twice as much as executives originally estimated, the company revealed Wednesday.
Earlier this year, Home Capital, Canada's largest alternative mortgage lender, admitted it had suspended dozens of brokers after an internal investigation revealed that some had submitted fraudulent mortgage applications that artificially boosted the incomes of borrowers. At the time, the company said it believed the brokers had generated a total of nearly $960-million in mortgage loans for the lender last year.
Yesterday, it said it had determined that the total outstanding mortgages generated by the group stood at $1.93-billion as of June. By the end of September, that total had dropped to $1.72-billion. "The company expects this balance to decline as customers pay down loans," Home Capital wrote.
The company has said its suspended brokers represented 60 per cent of its business in insured mortgages. The volume of new insured mortgages was $416.3-million in the third quarter, down more than 20 per cent compared with $522-million in same period last year, while Home Capital's core business of uninsured loans fell nearly 15 per cent, to $1.78-billion.
Despite comprising a larger share of Home Capital's mortgage business than initially expected, the questionable loans have been performing well, the company said. It said it is one quarter of the way through reviewing the suspect loans, a process that is expected to continue until the end of next year.
But of those mortgages it has reviewed, the company said more than 90 per cent would be eligible for renewal.
Home Capital has been working to rebuild its mortgage business since it revealed its fraud probe in July. It has spent about $1.4-million since the last quarter of 2014 working to "realign some of its business partnerships following the suspension of the small number of brokers." The company has a network of about 4,000 brokers in total.
Last month, it finalized the purchase of struggling CFF Bank for $17.8-million from Canadian First Financial Group as part of its goal of becoming a Schedule 1 bank. The designation would allow Home Capital to accept insured deposits, diversifying its funding sources away from costly brokered deposits.
It also announced plans to purchase up to 5 per cent of its outstanding shares in a bid to boost its stock price. As part of the purchase, Home Capital said it was injecting $35-million into CFF in an effort to "stabilize" the lender. The company also said it was seeking a "renewed effort" to expand its commercial-loan business and credit-card offerings in the wake of the drop in its residential mortgage volume.
The company also announced a new board member to replace veteran director James Baillie, who resigned shortly after Home Capital's fraud revelations. It appointed William Walker, a partner at law firm Gowling Lafleur Henderson LLP, whose expertise, the company said, included an "an emphasis on the rights and remedies of mortgage lenders" along with experience dealing with federal banking regulators.
Home Capital reported profit of $72.4-million in the third quarter, down 1.8 per cent from the same period last year. Total mortgage advances were $2.5-billion in the quarter, down 2.2 per cent from the third quarter of last year.
Tamsin McMahon