“The practice of selling off defaulting mortgages to third parties is a very old (decades) very legal (read the mortgage contract) and very much a frequently exercised right of any mortgage holder whether it is Home Trust
or any private lender,” Ron Butler
, a broker with Butler Mortgage wrote in the comments section of MortgageBrokerNews.ca. “We have sold off our own mortgages to third parties and in all cases we sold them to companies and individuals associated with law firms who had the expertise to execute POS actions and spare that expense to ourselves and our investors.
“It is a well-established system that works, that is legal and helps holders of defaulted mortgages in their ongoing operations.”
Investment website Seeking Alpha alleged earlier this week that Home Trust
has been transferring loans to a company called Re-Charge Corporation, which is allegedly partially controlled by one of Home Capital’s board members.
“We hypothesize that the only logical reason a growth-starved lender would transfer loans off balance sheet is to hide non-performing loans,” the author of the report, who goes by the pseudonym The Friendly Bear, wrote.
Home Capital shares fell by 6.9% to $25.90 following the report, according to Baystreet.ca.
The report had some in the industry calling foul on the anonymous author, alleging he – or she – wrote the it in an attempt to impact Home Capital's stock price.
“The person who wrote the report wants to hide behind a rather obvious pseudonym to protect him/her from potential lawsuits,” commenter Tony Colalillo wrote. “The 'bear' implies that the publisher may be in cahoots with other 'short side' traders in an attempt to start a bear raid on Home Trust
For its part, Home Capital replied to the allegations and claimed selling loans to third parties is a normal business practice and that it has not sold any loans to third parties since September 2015.
Brokers are calling into question a report about one of their main partners, following an article alleging it sold off mortgages to improve its balance sheet.