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Home Capital Group Inc. has agreed to purchase CFF Bank from Canadian First Financial Group

Brett Gundlock/The Globe and Mail

Home Capital Group Inc., the mortgage provider that disclosed it investigated loan irregularities in its portfolio, said it bought CFF Bank to diversify its funding sources.

The purchase, worth about C$15-million ($11.5-million) adds about C$1.4-billion in loans and C$235-million in assets to Toronto-based Home Capital, according to a statement Monday. The company is buying the Oakville, Ontario-based bank from Canadian First Financial Group.

The deal "represents a major step towards realizing our long-term plan to achieve greater funding diversification," for the company's operating unit, Home Trust, Home Capital Chief Executive Officer Gerald Soloway said in the statement.

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The purchase won't "impede our efforts to manage the recently disclosed situation with Home Capital mortgage originations," Martin Reid, Home Capital president, said in the statement.

The deal furthers Home Capital's goal of becoming a schedule 1 lender after it applied for the license last year. Along with assets, Home Capital gains new customers and employees in Ontario, Manitoba, Saskatchewan, Alberta and British Columbia, according to the statement.

A schedule 1 banking designation would provide Home Capital with the ability to accept deposits and have those deposits eligible for insurance by the Canada Deposit and Insurance Corp., like the country's largest lenders.

Enhanced Documents

Home Capital Group said last month it cut ties with 45 brokers who originated about C$1-billion in mortgages after an internal investigation found false income information on loans in its portfolio. The stock is one of the most-shorted in Canada as investors wager on a setback in the country's surging real estate-market.

The team leading the CFF Bank integration will work closely with the Home Capital team leading the enhanced loan verification process at the company, according to the statement.

The transaction is subject to regulatory approval and is expected to close this fall.

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