Home Capital CEO confident mortgage business will return to historical norms

Home Capital is recovering quickly from a disastrous third quarter, when a dire shortage of liquidity and a new vetting process restricted its ability to originate new mortgages, chief executive Yousry Bissada said Wednesday.

He said Home Capital didn't have enough funds to lend until mid-July following an infusion of capital from famed investor Warren Buffet and even then, it has taken the alternative mortgage lender time to regain momentum in the market.

Earlier this year, the lender was accused by regulators of misleading investors, which caused depositers to swiftly withdraw their money and leaving the company in crisis mode.

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The company reported late Tuesday that its mortgage originations plunged 85 per cent compared with last year's third quarter to $385 million, compared with $2.54 billion. Its third-quarter income fell to $30 million, less than half of the $66.2 million it reported in the same quarter last year. Third-quarter revenue amounted to $95.4 million, down from $145 million.

"The third quarter was focused on stabilizing our liquidity, so we could get out and lend again," said Bissada, who joined the company in August.

Originations hampered

He added, however, that the company's ability to complete mortgage originations new loans for property buyers was hampered by its new approach to assessing risk and the way it processes transactions.

Bissada told analysts that 70 per cent of the new mortgage applications it received in the third quarter were either turned down or not processed quickly enough under Home Capital's new vetting system.

Home Capital needs to improve how it interacts with mortgage brokers, who are the intermediaries between the lenders and borrowers, he said, in part by providing them with acceptances, rejections or suggested modifications within 24 hours of receiving the applications.

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"I would say we're inconsistent today, to be fair. There are instances where we will give immediate same-day approvals and there are other instances where we will take a few days to give approvals. And that's not acceptable."

He added that Home Capital is taking steps to explain its new requirements to brokers and provide training on its new systems for processing mortgage applications.

"We've just got to go out and recommunicate with brokers what kind of deals fit our portfolio ... so that deals that are being sent here have a higher chance of being approved," Bissada said.

Bissada said things are improving on a weekly basis.

Home Capital's new chief financial officer, Brad Kotush, said that the company has attracted enough money through its guaranteed investment certificates to compensate for about $2 billion withdrawn suddenly from its savings accounts.

He added that funds provided through Buffet's Berkshire Hathaway have ensured Home Capital has ample funds available for its lending businesses.

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