As recently as a few weeks ago, the business model of Canada’s largest alt-mortgage lender, Home Capital Group, was originating and sourcing mortgages. Then a liquidity crisis struck, sending the company’s business into a tailspin and unleashing an unprecedented bank run on the company’s retail deposits. And, as of today, the company is now in the mortgage selling business. In a press release, the company announced it has entered into an arrangement with an undisclosed third party to sell up to a total of $1.5 billion in funded mortgages and loan renewals, in a desperate attempt to shore up liquidity, and confirmation that other attempts to raise capital have failed.
While Home Capital added that the deal includes up to C$1 billion of uninsured mortgages and C$500 million of insured mortgages, or about 10 percent of the company’s total mortgage book, it did not provide the most important information: at what price it sold the mortgages.
As HCG adds, the Third Party has “indicated an interest in further expansion of this arrangement at a later date” suggesting that the terms of the transasction were quite advantageous.
‘This purchase arrangement is designed to give us the ability to continue to serve as many customers as possible in the mortgage broker channel, and we are optimistic that there can be opportunities for future growth,’ said Bonita Then, interim Chief Executive Officer of Home Capital. ‘Meanwhile, we continue to work very hard to develop additional sources of funding, while carefully managing our liquidity.’
This post was published at Zero Hedge on May 9, 2017.