Canada’s biggest non-bank lender Home Capital to sell C$1.5 billion worth of mortgages

Canada’s biggest non-bank lender Home Capital Group announced that its subsidiary, Home Trust, has entered into an arrangement with an independent third party that wishes to purchase funded mortgages or accept mortgage commitments and renewals up to a total of $1.5 billion.

The Third Party has indicated its non-binding intention to

• Purchase as much as $1 billion in qualifying uninsured mortgages, with an immediate interest in purchasing or accepting commitments and/or renewals for up to half of that amount, or $500 million; and

• Purchase or accept commitments for up to $500 million in insured mortgages, subject to appropriate documentation.

The Third Party has also indicated an interest in further expansion of this arrangement at a later date.

“This is another step forward in the company’s efforts to restore confidence in our operations. It follows the recent addition of four outstanding new Board members with corporate governance and banking experience,”

Home Capital Board Chair Brenda Eprile said. “The fundamental premise of Home Capital is to assist home buyers, many of whom are new Canadians, to obtain mortgage financing and achieve their dream of home ownership.”

“This purchase arrangement is designed to give us the ability to continue to serve as many customers as possible in the mortgage broker channel, and we are optimistic that there can be opportunities for future growth,” said Bonita Then, interim Chief Executive Officer of Home Capital. “Meanwhile, we continue to work very hard to develop additional sources of funding, while carefully managing our liquidity.”

“Notwithstanding this arrangement, we are tightening our lending criteria and reducing some of our broker incentive programs and expect that will result in a decline in our originations and renewals,” said Ms. Then. “We will continue to evaluate opportunities that could enable us to return to more normal levels of activity in our traditional on-balance sheet business.”

The Company will continue to offer mortgages in most of its existing product categories, however at reduced volumes.

In addition, the terms of the new funding arrangement as well as the Company’s previously announced $2-billion credit line will lead to a greater focus in the near term on originating mortgages to sell, rather than holding them on balance sheet and funding through deposits, as Home has traditionally done. The Company anticipates that this will result in lower overall mortgage balances, increased costs and reduced levels of profitability in the near term. The existing mortgage portfolio continues to perform well.

The Company and its advisers continue to work toward seeking lower cost sustainable funding solutions and to evaluate strategic alternatives to solidify and strengthen its successful mortgage origination platform. The Company also announced its intention to pay back 100% or $325 million of the outstanding aggregate principal amount of the Company’s 2.35% Notes at the scheduled maturity date, May 24, 2017.

As previously announced, Home Trust has drawn $1.4 billion from its $2 billion credit line, under a commitment originally provided on April 27, 2017. The credit line is led by the Healthcare of Ontario Pension Plan (HOOPP) and was successfully syndicated to (or to entities affiliated with) Credit Suisse, Goldman Sachs, Fortress Investment Group and a major North American financial institution. The Company’s liquid assets stood at approximately $1.10 billion as of end of day May 8, 2017 and combined with the undrawn amount of $600 million under the facility led by HOOPP, the Company’s aggregate available liquidity and credit capacity totaled approximately $1.70 billion.

Home Trust’s High Interest Savings Account (HISA) deposit balances are expected to be approximately $146 million on May 9 after the settlement of transactions that took place on May 8. Guaranteed Investment Certificate (GIC) deposits, including Oaken and broker GICs, stood at approximately $12.64 billion as at May 7. Oaken savings accounts stood at approximately $165 million as at May 7. Home Trust’s GICs and HISA deposits are eligible for Canada Deposit Insurance Corp. coverage.

Source: Home Capital Group

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