Home Capital Group Inc. is having trouble wooing back borrowers.
Mortgage originations dropped 85% to $385 million in Q3 from a year earlier, the Toronto-based company said earlier this week.
The lender is expecting its balance of non-securitized single-family home loans to be $10 billion at the end of the year, down from $10.4 billion at the end of the third quarter.
“New loan originations were well below historical levels and are not adequate to replace loan assets reduced through sales,” Home Capital said in its statement, as quoted by Bloomberg. “Although the company successfully stabilized its liquidity position and quickly restored deposit funding, the process of restoring loan growth has been slower than planned and is management’s top priority.”
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Home Capital is seeking to regain investor and customer confidence after almost collapsing this year and taking Canada’s housing market down with it. The provincial regulator accused the company of not disclosing fraud properly amid a slew of reports by investors short-selling the stock, driving shares to a record low and casting doubt on lending peers. The company has settled with the regulator and clients behind a class-action lawsuit.
The lender reported profit that beat estimates, with adjusted earnings per share of 37 cents above the average 25-cent forecast of nine analysts surveyed by Bloomberg. Net income of $30 million was below the $66.2 million reported in the year-ago period.
Analysts said there’s still no clear plan for how the company will win back clients. Laurentian Bank downgraded the lender to a hold rating from buy, one of nine analysts who rate the stock a hold. Home Capital also has one sell and one buy rating. Chief Executive Officer Yousry Bissada, who replaced founder Gerald Soloway this year, said on the third quarter conference call that details of strategy will be announced by the second quarter.
The lender also is grappling with a real estate market that’s been subject to new rules for lenders, insurers and borrowers in the last 12 months. Those have cooled demand and may deter some buyers because of higher qualifications for home loans.
Home Capital shares are down 54% this year. They have more than doubled from a low in May, fueled in part by an investment from Warren Buffett.
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