Lender responds to allegations

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Home Capital has responded to a claim that it sold non-performing loans to a third party in a bid to improve its balance sheet.

Home Trust, in the normal course of its business, from time to time sells loans to third parties, when loans require work-outs or restructurings,” Home Capital said in a release Wednesday. “All loans sold to third parties are accounted for, with any losses reflected in write-offs for the related period.

“Loans sold to all third parties since 2013 totaled less than $125 million, and was approximately $12 million in 2015 and $nil in 2016 on a current on-balance sheet total loans portfolio of $18.1 billion.”

Home’s response comes on the heels of a report by the investment website Seeking Alpha that alleges the lender 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 Seeking Alpha’s report wrote.

The author, The Friendly Bear, provided insight into the research method and how he came to the conclusion alleged in the article.

“Our supporting research in this report includes on the ground insight. Through on the ground field work and our internet sleuthing, we began to suspect ties between Re-Charge and HCG that we were able to prove through our retrieval of public filings,” the Friendly Bear wrote. “For background, our research involved sending investigators to Canada to dig up public documents that can only be retrieved physically from Canadian government offices.”

In response, Home Capital said it has not sold any loans to Re-Charge Corporation since last year.

Home Trust calculates provisions for credit losses in accordance with applicable accounting requirements and incorporates any losses from loans sold to third parties into the historical data used to calculate the collective allowance,” the lender said. “Home Trust has not sold any loans requiring work-outs or restructurings to any third party, including Re-Charge Corporation, since September 2015.” 
  • Raj on 2016-08-24 12:18:17 PM

    Bears for their own vested interests are trying to undermine Home Trust.

  • Anthony C. on 2016-08-24 12:22:15 PM

    lemme guess...Seeking Alpha and/or its acquaintances are short on HCG.

  • Tony Colalillo on 2016-08-24 12:34:40 PM

    The "Friendly Bear' is not very friendly at all when it comes to publishing reports like this. The person who wrote the report wants to hid behind a rather obvious pseudonym to protect him/her from potential lawsuits. The 'bear' implies that this the publisher may be in cahoots with other 'short side' traders in an attempt to start a bear raid on Home Trust's stock. Anyone in the financial services industry in Canada knows about our privacy laws and how stringent they are.
    To quote the report: “For background, our research involved sending investigators to Canada to dig up public documents that can only be retrieved physically from Canadian government offices.”
    Yeah, sure, because when you go to Canadian government offices they open the information archives to anyone who asks, especially American 'sleuths' who are looking to inform 'inquiring people who want to know'. The 'Seeking Alpha' website used to be a decent website to find investment information, but now its turned into nothing more than a tabloid on the net.

  • michael on 2016-08-24 12:39:56 PM

    can anybody say, "the big short"? What does that say about our accounting practices when financial institutions can just offload their pile of shitty loans on somebody else? I doubt the Lenders that wrote those loans have any repercussions because they are off the books. Practices like this are exactly how our banking system gets eroded and won't change until regulators make some tougher regualtions. Regulators are just as responsible as home trust because they have the "fox guarding the henhouse" mentality by letting f\i's self regulate. I say, your a regulator, then regulate, your not here to pacify the industry by looking the other way.....

  • Ron Butler on 2016-08-24 1:30:40 PM

    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. 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.

  • David O'Gorman on 2016-08-24 2:29:45 PM

    You hit the nail on the head Anthony.
    The buyers of these types of mortgages/portfolios are not vestal virgins having less than prime mortgages foisted on them. The buyers are the financial equivalent of junkyard pickers, buying mortgages with issues, at a discount.

    I read awhile ago that when Home bought CFF Bank very large % of the CFF mortgage portfolio was was on Alberta properties & we know how that story is playing out. In the days of Gerry Solway I would have said only a fool would bet against HT.

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