By Heino Molls

In April, the CBC reported about Home Capital: “Shares in the alternative mortgage lender plunged” and “clients withdrew hundreds of millions of dollars in a matter of days. The troubles at Home Capital began when the Ontario Securities Commission alleged that several company executives misled shareholders in their handling of a scandal involving falsified documentation for a bunch of mortgages almost two years ago.”

The CBC further reported that “in the summer of 2015, Home Capital announced that it had cut ties with about 45 mortgage brokers for fudging numbers” and they reported that “Home Capital makes most of its money selling uninsured mortgages to clients who the big banks don’t cater to, usually because they have spotty credit histories, are self-employed or have otherwise uneven incomes.”



In other words, Home Capital gave mortgages to people who had been brushed off by the banks and other standard financial lenders so they could buy a house. Most mortgage lenders don’t want to take a chance on a person who might be working for themselves or who has been through some tough luck in the past, even though they can show that they are hard working and entrepreneurial. Does that sound like anyone you know? Well I can tell you someone who that sounds like – me, that’s who. It also sounds like a lot of real estate brokers and salespeople I know.

These are people who are self-employed and especially people who have been through the ringer of sales careers and whose credit has boomed and busted for no other reason than some bad luck or unforeseen happenings. I have often said and written that although I have never been a Realtor, I have enormous empathy for sales reps and brokers because we are all unemployed every single month. I can tell you, dear reader, that while I have covered your business for over 30 years, the only thing I know for sure about your business after all this time is that it is uncertain whether you will make a sale this coming month. I can also tell you that even though I have been in the business of providing news to this industry for almost 30 years, there is no guarantee that I will make a sale this month either.

For a lot of us, a company like Home Capital and what happens to them is important. I had a mortgage from Home Capital (through its subsidiary, Home Trust) a few years ago. It was arranged by a good mortgage broker who worked hard for me. I must be honest and say that I was not overly pleased because I had to pay a higher rate of interest than my straight-laced, union member neighbours with their guaranteed jobs and gold-plated benefits. I had to pay some extra charges that I kind of thought were suspect in terms of real bona fide costs to get my mortgage, such as “administrative fees”.

The important thing was that at the time no bank would even talk to me but Home Trust did and they did that for thousands of other people as well and for that I will be forever grateful. We all know the market is currently robust but there was a time that it was not and I can tell you that at that time, when the chips were down, Home Trust stood with me and they stood with a lot of other folks who didn’t have great credit. The bottom line was that if wasn’t for Home Capital, we would not have been able to buy houses for our families.

Today, for all the mud that is being slung at this mortgage company, even if some of it is deserved, somebody should say, “Hey, you know these guys helped a lot of people buy houses who would not have been able to because of the evil banks and conservative financial lenders in the real estate world.” For all the smug people who have lots of money and cushy incomes, there are a lot of folks who don’t. We ought to acknowledge the mortgage lenders and the mortgage brokers who work hard to help people buy a house who would otherwise not be able to. They deserve a lot of accolades that they don’t ordinarily get these days.

If I am not explaining this well enough, find the movie It’s a Wonderful Life and watch it. It is all about a guy who runs a savings and loan company that lends money to people that the banks turn away so they can buy homes for their family. It’s not just about Christmas, its about good people in business.

  • Carolyne L

    Although Heino drew attention to the Home Capital situation, the newscast follow up stories such as this point to the “management of investments:” who you choose to do business with, and how and if they were vetted, and by whom; and such, as is pointed out in the link to a story in today’s news; although tied to Home Trust, the real story behind the scenes is the Canadian investment vehicle known as the GIC, wherever it is invested, and what people know and do not know about their own investment is the real story behind the story.

    A million dollars isn’t what it used to be, but however the owner(s) acquire it, likely they would want to protect it. For some: It could represent a lifetime, for others it’s lunch money aboard their private Lear Jet.

    It seems this sort of situation is secured quite differently stateside, according to business colleagues there.

    http://www.ctvnews.ca/mobile/business/b-c-investor-fears-1-million-at-risk-in-gic-1.3437415

    Carolyne L 🍁

  • Carolyne L

    Heino:
    This is a copy and paste of a comment at the CBC news Home Capital article: WOW! Might make for some interesting conversation…

    In particular note this fellow’s interaction:
    Worth reading! This fellow’s comment on banking forum re Home Capital Group currently in the news, he writes in reply to another person:

    “I don’t know where you are from but in ‘merika, you can’t withdraw cash without filling out forms targeting you as a probable money laundering drug traffickers (I know, the pot calling the kettle black, right?). If you take out smaller amounts of say $5000 routinely trying to accumulate a cash stock pile for safety, again the forms. I wanted $40k in my safe for just in case money…. I had to tell the teller I was car hunting and wanted to get a better “cash” deal. After two months, using 4 diff banks I got called in to my main bank to be warned and… More forms. The same bank I had used for my $1.6 M revenue business.
    There is a war on cash. $100 bills beware. I’m looking into a possible eBay – PayPal – way to buy gold without such a huge drama and scrutany. I feel so dirty just trying to touch my own money.”
    ====

    It is no different this side of the 49th, or anywhere else in the world. I follow the Swiss America newsletters and have a solid contact there, and the future prognostications are not pretty, largely based on the EU and preparation for one world government.

    The fellow’s comment above would prove useless for him if his 40k became unusable cash with no value overnight. And that appears to be the danger possibly with Home Capital, not their mortgage portfolio. If the “run on the money” kicks in or out like in Greece last year, we might not have heard the end of the (beginning) of the Home Capital story.

    CBC closed the discussion at 232 comments plus replies.

    ====

    Those of us born before 1945 are labelled “the silent generation.” We certainly are/were. We weren’t / aren’t placard carrying demonstrators by and large. We were taught when all else fails: stand.

    The boomers are 1945-1965. Some of us have children who are boomers, with children born in 1965 on the cusp of that generation. Coming to that realization is sometimes an odd feeling. They married and didn’t have children for 8-10 years and now their own children are buying homes from builders.

    They don’t want to buy “used” homes one said, and they expect to have the best of everything in it as well as having purchased loads of builder upgrades. They have jobs where they earn well over a hundred and fifty thousand a year at age 23, with their spouse, and with the low rates qualified to buy houses over 400k. With minimum down.

    There must be an algorithm in there some place. They are paying 30 times what we paid for our first house, and they earn 35 times what we earned to qualify.

    So does that mean that all things are relative?

    If I recall in 1963 rates for fixed 25 year mortgages were about 6%. Our payment was $98.00 a month including taxes.

    When I was 65 and single and found myself house hunting I took on a variable rate mortgage at prime minus 60 pts. I am a strong believer in variable rate mortgages. But they are not for nervous people because they fluctuate.

    I know a mortgage broker that some of my clients worked with and they each had an existing mortgage at their bank. They bought a resale MLS through me and he took them away from their bank and put them with Home Trust with a lesser rate than they got at their bank. I don’t know details because I didn’t ever get involved with that end of my client business, once a broker or the client bank was involved.

    The odd thing was that their bank was the mothership bank for Home Trust. Hard to figure. But the clients were pleased.

    I had several clients where that was the routine. There’s a lot goes on behind the scenes in the mortgage business. I didn’t ask questions.

    I never once qualified a buyer in 38 years (true); but I never showed a buyer properties until they could first prove to me that they were pre-qualified, in writing, subject to the purchase to be appraised of course. I saw that as the job of their banker or their mortgage broker, not my job. I never asked where the buyer worked although they often told me, or asked how much money they earned.

    For those who said I worked in an unconventional manner, this might be one example: surround yourself by experts outside your area of expertise and let them do their jobs. And let them assume that responsibility and liability. Why would agents want to do business any other way?

    When I sold an MLS or exclusive listing, the COF clause was just in the offer for a few days to tidy up loose ends and allow time for the appraisal to get done. I knew my buyer had a commitment in hand. And I could produce it if called upon.

    Nice neat and tidy paperwork with no surprises. It is still my opinion that is how financing should be handled. Agents who get involved with client financing are very often working outside their area of expertise. Not a good idea.

    Not only that but by letting the finance experts do their jobs, it freed me up to do my end of the real estate business, getting and keeping seller and buyer contracts in order and completed in a timely fashion.

    REALTORS(r) need to stop trying to wear so many hats and concentrate on what they are really meant to do. There are experts in each arena within our industry. Let them do their jobs. Without companies like Home Capital to pick up the business the banks don’t want, how much real estate would get sold at all. And is the investor cashing out in such a corporation the actual catalyst that could cause the market to crash?

    If banks and governments are the only market controllers, buyers can’t buy and sellers can’t sell. Then what? Sister industries crash because so much more of the economy is tied to what happens in the Land Registry Office on closing day. The domino effect cannot be avoided. Again.

    Carolyne L 🍁

  • Rick Goodman

    Well stated. They performed. Others would not.