For days now, investors and industry types have been impatiently waiting to hear why Home Trust terminated numerous mortgage brokers. Today we got Home’s explanation.
The company said the following in a disclosure requested by the Ontario Securities Commission:
- 45 individual mortgage brokers were cut off (about 1% of the company’s broker relationships)
- The alleged reason: “Falsification of income information” (i.e., fraud, albeit the company doesn’t refer to it as such)
- It found no evidence of falsification of property values
- These shunned brokers originated $960.4 million of single-family residential mortgages in 2014, out of $7.6 billion in total Home Trust originations
- 60% of the questionable mortgages were for Home Trust’s prime “Accelerator” products (i.e., they were largely insured mortgages)
- This potential fraud was identified by “an external source” in late 2014, the company says.
Home said it is “comfortable” this issue is not widespread in its portfolio, adding, “The Company continues to actively monitor the subject mortgages and notes that there have been no unusual credit issues.”
You can read about the measures the company took to prevent this from happening again here: link. These include “requests for more detailed documentation and income verification from brokers.”
Interestingly, we’ve been approached by three lenders asking if we know which brokers Home terminated. It seems that several lenders and mortgage investors are trying to identify these allegedly shady originators, so they can ban them.
We’ll have full analysis of these developments after the company’s 10:30 a.m. conference call Thursday. If you’re following this saga, you can listen in on that call here: http://www.homecapital.com/ir_webcasts.asp