Home Equity Income Trust Announces the Release of its First Quarter 2009 Financial Results

    Highlights compared to 2008:

    -   The mortgage portfolio grew 12% on an annual basis to $826 million;
    -   Originations of $15 million declined by 48% and spread percentage of
        2.95% declined from 3.27% in accordance with guidance issued in Q4
    -   Normalized income per unit decreased 25% to $0.22

    TORONTO, May 7 /CNW/ - Home Equity Income Trust (TSX: HEQ.UN (HOMEQ or
the Trust)), which pays cash distributions earned from a portfolio of reverse
mortgages originated by Canadian Home Income Plan (CHIP), today announced its
financial results for the quarter ended March 31, 2009.
    Despite ongoing global financial and economic uncertainty during the
quarter, the Trust again displayed resilience and produced encouraging
results. "While we cannot know for certain that the worst is behind us, we are
cautiously optimistic that recent developments internal and external to our
business will continue to have positive effects on our performance," said
President and CEO Steven Ranson.
    As announced in Q4, 2008, the Trust intends to apply to the Minister of
Finance for its subsidiary, Canadian Home Income Plan ("CHIP"), to become a
federally regulated Schedule I bank to be known as HomEquity Bank. At the
April 30th annual and special meeting, the Trust's unitholders voted in favour
of converting its business structure from an income trust to a taxable
corporation (the "Conversion") prior to HomEquity Bank being continued as a
Schedule I bank. The objective of obtaining a bank charter is to enable
HomEquity Bank to access retail deposits sourced through deposit brokers so as
to grow the Trust's consolidated reverse mortgage portfolio and increase its
spread income. Retail deposits represent a stable and cost effective source of
funds that will be used to supplement the wholesale funding strategy the Trust
has followed since its IPO in 2002. "We are very pleased that our unitholders
support our plan to continue CHIP as a bank. Obtaining unitholder approval for
the conversion is a critical step in the process," stated Mr. Ranson.
    During Q1, the Trust continued to work diligently towards this end and,
subject to the review and approval of its application by the Office of the
Superintendent of Financial Institutions and the Minister of Finance, the
Trust continues to target operating HomEquity Bank commencing in the third
quarter of 2009. In the interim, the Trust has taken specific actions to
conserve its cash resources. Steps have been taken to reduce the average
mortgage amount for new customers and marketing activity has been scaled back.
Until such time as HomEquity Bank becomes fully operational, these actions
will result in originations being temporarily reduced. During the quarter the
portfolio grew by 12% to $826 million and mortgage originations of $15 million
were in accordance with guidance issued in Q4 2008.
    As a result of conservative underwriting policies, the mortgage portfolio
currently has an average loan-to-value of 36%, which will reduce an
anticipated drop in residential real estate. Over the last several years HOMEQ
has refined its underwriting inputs to reduce risk in the event of declining
property values. In particular, better than expected experience with regard to
assumed future interest rates and expected occupancy terms will help to offset
the near term effects of falling real estate values. As at March 31, 2009 less
than 2% of the portfolio had a loan to value of over 70% and less than 10% of
the portfolio had a loan to value of over 60%.
    In order to ensure immediate availability of funds to finance new
originations, in 2008 the Trust increased its cash holdings to higher than
historical levels. The increased level of cash has had a near term negative
impact on normalized income as the interest rate earned on the investment of
the cash balances is less than the cost of the debt. In addition, the
difference between the Prime Rate and the rate on Government of Canada
Treasury Bills ("T-Bills"), on which mortgage rates have historically been
based, and the rate on Bankers' Acceptances ("BAs"), on which the Trust's debt
and hedging instruments are based, deviated significantly from historical
norms. Both of these situations have resulted in a reduction of spread
percentage during the last year.
    In response, in 2008 the Trust increased the interest rate charged for
new mortgages and changed the interest rate reset methodology. These changes,
however, will take some time to be fully reflected in the Trust's results
until such time as a greater proportion of the Trust's portfolio is priced
using the new methodology. In addition, during 2009, the difference between
the T-Bills and BAs has begun to return to historical norms which, should it
persist, will also help to restore spread percentage to higher rates. During
Q1, 2009, spread percentage of 2.95% was in accordance with guidance issued in
Q4, 2008.
    Normalized income in Q1 2009 amounted to $3.1 million and normalized
income per unit was $0.22 per unit, 25% lower than Q1 2008. During the quarter
the Trust incurred $0.5 million of costs associated with the Conversion.
Normalized income net of these costs was $3.6 million or $0.25 per unit, a
decrease of 13% per unit from Q1 2008. The decrease is mainly due to the
reduction in spread income earned on the portfolio as discussed above.
    "It is our responsibility to consider the near and long term financial
health of the Trust and to adopt measures that ensure the ongoing success of
the business, recognizing that access to capital markets may remain difficult
for some time. We are well positioned to take advantage of the significant
benefits of CHIP's continuance as a Schedule I bank and the eventual
stabilization of the financial markets to continue to profitably build our

    Quarterly Financial Statements and Conference Call

    The Q1 2009 interim financial statements are available on the Trust's
website at www.homeq.ca and www.sedar.com.
    HOMEQ will hold a conference call to discuss these financial results on
May 8, 2009, at 8:30 am (Eastern).
    Available on the call to answer questions will be Steven Ranson,
President and Chief Executive Officer, and Gary Krikler, Senior Vice President
and Chief Financial Officer.
    To participate in the conference call, please dial 1-888-892-3255.
    A live audio webcast (listen-only mode) of the conference call will be
available at www.homeq.ca.
    An archived recording of the call will be available at 1-800-937-6305
(conference ID 515746).

    Non-GAAP Measures

    The Trust uses a number of financial measures to assess its performance.
Some measures are calculated in accordance with GAAP, such as operating margin
and net income. Other measures such as distributable cash and net spread are
non-GAAP measures. These measures do not have standardized meanings under GAAP
and may not be comparable to similar measures used by other trusts and

    Forward Looking Statements

    Home Equity Income Trust from time to time makes written and verbal
forward-looking statements about business objectives, operations, performance,
and financial condition, including, in particular, the forecast of cash
distributions and anticipated dividend policy, the Trust's plans relating to
the conversion and the establishment of HomEquity Bank, and the likelihood of
HOMEQ's success in developing and expanding its business. These may be
included in the Annual Reports, regulatory filings, reports to unitholders,
press releases, Trust presentations and other communications. These
forward-looking statements are based upon a number of assumptions and
estimates that are inherently subject to significant uncertainties and
contingencies as described in the Trust's Annual Information Form and the
Management Discussion and Analysis in its most recent financial statements,
many of which are beyond the control of HOMEQ. Actual results may differ
materially from those expressed or implied by such forward-looking statements.
HOMEQ does not undertake to update any forward-looking statement, whether
written or verbal, that may be made from time to time except as required by
applicable securities laws.

    About Home Equity Income Trust

    Home Equity Income Trust provides unitholders with monthly cash
distributions from a portfolio of reverse mortgages originated by its wholly
owned subsidiary Canadian Home Income Plan Corporation. As of March 31, 2009,
the portfolio generating cash returns to the Trust comprised approximately
7,000 reverse mortgages with an accrued value of $826 million, secured by
residential properties across Canada worth approximately $2.3 billion. CHIP
(www.chip.ca), has been the main underwriter of reverse mortgages in Canada
since pioneering the concept in 1986.
    The Trust's units trade on the Toronto Stock Exchange under the symbol
HEQ.UN. Additional information on HOMEQ, including annual and quarterly
reports can be viewed at www.homeq.ca.

    %SEDAR: 00018040E

For further information:

For further information: Steven K. Ranson, President and Chief Executive
Officer, (416) 413-4663, sranson@homeq.ca or Gary Krikler, Senior Vice
President and Chief Financial Officer, (416) 413-4679, gkrikler@homeq.ca

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