Home Capital Group Inc.'s C$2 billion ($1.5 billion) credit line from a Canadian pension fund buys it some time as the country's biggest alternative mortgage lender faces a run on deposits that may spark a sale of the company.
Healthcare of Ontario Pension Plan agreed to provide the one-year loan to offset the withdrawals sparked by allegations from regulators that the company misled investors about mortgage applications. Customers withdrew another C$290 million from its high-interest savings accounts Thursday, adding to the C$472 million pulled out the previous day, the company said in a statement. Balances have plunged more than 70% in a month. The company also has C$13 billion in guaranteed investment certificates.
Home Capital, which dropped 65% Wednesday before recouping some losses, is being watched closely by investors concerned about early signs of a collapse in Canada's frothy housing market. Prices have soared more than 30% in Toronto and surrounding cities, and household debt has jumped to record highs.
Though Home Capital's mortgage book of almost C$16 billion accounts for less than 1% of Canada's mortgage market, it will have trouble financing its loans if deposits continue to erode. Home Capital's woes also dragged down stocks of other alternative lenders this week, including Equitable Group Inc. and First National Financial Corp. The fallout from Home Capital may lead to a cooling of the housing market if these alternative lenders withdraw and some homebuyers lose access to mortgages, said Sumit Malhotra, an analyst at Bank of Nova Scotia. Home Capital lends to clients who can't get loans from commercial banks.
“There is an argument to be made that a reduced level of participation from alternative lenders would restrict funding for certain buyers, not necessarily a bad thing in a surging home price environment,” Mr. Malhotra wrote in a note to clients.