HOME CAPITAL GROUP INC. $32(Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 70.2 million; Market cap; $2.2 billion; Price-to-sales ratio: 3.9; Dividend yield: 2.8%; TSINetwork Rating: Average; www.homecapital.com) caters to borrowers who don’t meet the stricter standards of traditional banks, such as the self-employed and recent immigrants with limited credit histories.
The stock fell 20% after the company said it sold $1.29 billion of new home mortgage loans in the second quarter of 2015, down 15.7% from $1.53 billion a year earlier.
Home Capital sells most of these loans through independent mortgage brokers, and it has cut ties with some of them over concerns about inaccurate loan applications. In all, these brokers supplied 15% of the company’s new mortgages.
Strong competition is also hurting demand for insured mortgages, which Home Capital provides to more creditworthy borrowers. Sales of these loans fell 54.8% in the quarter, to $280.0 million from $619.6 million.
This news adds to Home Capital’s risk. Investors also fear that a sudden drop in home prices, particularly in Toronto, could force some borrowers to stop repaying their loans.
However, the company keeps its credit losses down by identifying problem loans early and adjusting the repayment terms.
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