What’s Going On
During the Beginning of 2017, Home Capital Groups Stock plummeted by approximately 65%, due to a report released by the Ontario Securities Commission on their business practices. This report claimed that Home Capital Group mislead Shareholders when they blamed their losses on a lack of mortgages due to seasonality and competitive markets, when according to the Ontario Securities Commission it to the appeared internal fraud could be the cause of the depletion.
It is alleged that more than 30% of Home Capital Groups brokers were inflating the incomes of mortgage applicants to ensure that they would qualify for a mortgage, a practice called “bad underwriting”. Although only about 10% of Home Capital Groups mortgages were subjected to bad underwriting the issue was taken very seriously, once this information made its way to the CEO the company took immediate action and terminated a large group including approximately 30 brokers, 4 underwriters and 2 brokerages.
The company maintains that it has not engaged in any fraudulent activity.
How it Could Affect You
The exposure of this issue has led many people to question just how many mortgages have been given out to those who shouldn’t have qualified for one and if the Canadian housing market is on the brink of a housing crisis like the one which occurred in the United States. However, this issue will have less of an effect on the Canadian housing market than people think. At the height of the United States housing crisis the delinquency rate on mortgages was at 11.5% and the delinquency rate of the current Canadian housing market is only 0.28%, meaning we have a long way to go before we reach a crisis as seen in the United States.
This issue will for the most part affect further investments in Home Capital Group, which could lead to a buy out of the company. If this were to occur unqualified current customers may lose the ability to renew their mortgage at the end of their term. This will only affect a limited amount of people considering the fact that Home Capital Group only represents a small portion of the Canadian housing market.