TORONTO, Oct. 20, 2016 /CNW/ - Home Capital Group Inc. (TSX: HCG) ("Home Capital" or "the Company") today made the following statement on the anticipated impact of recently announced changes to mortgage insurance rules by the Government of Canada.
The Company anticipates that certain limitations placed by the Government regarding eligibility criteria for low-ratio government-backed insured mortgages could significantly reduce the Company's ability to profitably originate and fund these mortgages. Of the new criteria set out, low-ratio lending to rental properties and for the purpose of refinancing will be most impacted under the Company's "Accelerator" mortgage program. As a result, the Company expects lower activity from these offerings.
Based on the information received to date and a preliminary analysis of the business impact based on origination activity over the last year, Home Capital expects these changes could result in a decline of up to 60% in new "Accelerator" originations primarily due to the Company's inability to purchase portfolio insurance as part of its low-ratio "Accelerator" mortgage program. However, since the "Accelerator" program has traditionally been a low margin product offering, Home Capital anticipates the negative impact on net income before tax to be relatively limited, approximately $6.5 million and after tax net income of approximately $4.8 million on an annualized basis. This estimate assumes that the Company sells its residual interest in fixed rate mortgages which is an activity that the Company does from time to time.
"Like all mortgage lenders, we are still assessing the full impact of the changes on borrower behaviour and the competitive landscape," said Martin Reid, President and Chief Executive Officer of Home Capital. "As the effects become more clear, we will explore new business opportunities created by this shift. We believe that Home Capital's solid fundamentals, strong balance sheet and nimble, entrepreneurial strategy leave us well positioned to take advantage of any opportunities that result."
Additional details about the mortgage rule changes can be accessed on the Government of Canada Department of Finance website at https://www.fin.gc.ca/n16/data/16-117_2-eng.asp.
Home Capital does not intend to comment further prior to the Company's regularly scheduled earnings conference call on November 3, 2016.
Caution Regarding Forward-looking Statements
This press release contains forward-looking information within the meaning of applicable Canadian securities legislation. Please refer to the Home Capital's 2015 Annual Report, available on Home Capital's website at www.homecapital.com, and on the Canadian Securities Administrators' website at www.sedar.com, for Home Capital's Caution Regarding Forward-looking Statements.
About Home Capital Group Inc.
Home Capital Group Inc. is a public company, traded on the Toronto Stock Exchange (HCG), operating through its principal subsidiary, Home Trust Company. Home Trust is a federally regulated trust company offering residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through its direct to consumer deposit brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, Home Bank. Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.
SOURCE Home Capital Group Inc.
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