Falsified Documents – Home Capital Cut Ties with Dozens of Mortgage Brokers
Late in the day on July 29, 2015, Home Capital Group, Inc. realized that it had severed ties with many of its mortgage brokers, leading to a halt in trading on the company’s stock. The reason for their decision was an investigation showing that the brokers had falsified borrower income in many documents. The internal investigation had commenced in the fall of 2014 but had only become public when the Ontario Securities Commission requested that the company open its records.
Home Capital is one of the biggest alternative mortgage lenders in Canada, through its Home Trust subsidiary. The company had brought in outside investigators after a third party had pointed out some problems with some of the applications that several brokers had submitted on behalf of different borrowers. The fraud did not extend to altered property values or bogus credit scores, though; it only had to do with borrowers’ income statements.
Between September 2014 and March 2015, the company suspended 45 total mortgage brokers, which included 18 independent brokers and two brokerages. These brokers had originated about $960 million of loans for single-family dwellings in 2014, or just over 5 percent of the entire volume of outstanding loans. About 60 percent of the loans were included in Home Trust’s Accelerator program, which provides insured mortgages for prime borrowers.
In addition to suspending relationships with the brokers, the company also altered its staffing as a result of the investigation and has made steps to improve the way it verifies income. Despite the company’s assurances that it did not expect the issues to cause large-scale losses on the loans or to turn out to be prevalent in the mortgage portfolio, the company’s stock price still plummeted in the wake of the announcement. In fact, since the company issued a warning on July 10 that Q2 mortgage originations had been $600 million lower than they were in Q2 of 2014, the shares of the company had been dropping steadily. Of all the stocks in Canada, it had the second-most often shorted shares.
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