I remember when Home Capital was a darling of Bay Street, when it was gaining customers by focusing on segments of the mortgage market that were disregarded by the big banks. I remember HCG was issuing credit cards to its mortgage customers, this was an innovation at the time! I remember taking the CSC as a teenager, and these were the days before you could take the test online, I had to go down to the CSI offices at York/King and it was the same building as the offices of Home Capital and I remember thinking that was pretty cool. But now it looks like Home Capital Group is crashing down. They have lost the confidence of the market willing to fund it, and that’s pretty much the end of the line for a trust company.
HCG shares were down another 10% today. The problems are due to fraud in the underwriting process and poor internal controls. First National shares are trending lower, but it doesn’t seem like the market is too concerned, and Equitable Group is also under a little pressure. Its hard to tell at this point if the price of HCG shares are down specifically due to their OSC and regulatory and underwriting failures, or because the market should also be concerned about he high price of Ontario real estate, to which HCG, FN, and EQB all have direct exposure to. I can only imagine the mortgage fraud that is seeping into the mortgage underwriting process as real estate prices reach new highs. With rates so low, its easy for issuers to cede market share share in a market that is highly price sensitive. Mortgages are a commodity product.