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Home Trust to offer traditional mortgages

Alternative lender believes competing with banks will lower risk, allow it to pick up more business

LORI MCLEOD

00:00 EDT Wednesday, August 06, 2008

Alternative lender Home Trust Co. is launching a line of traditional mortgage products that will compete directly with those offered by the banks.

The Toronto-based lender hasn't been pushed out of lending to riskier borrowers, a problem encountered by some of its competitors as a result of the U.S. subprime crisis.

Instead, the company, which uses a deposit-based funding model, believes the move will help fuel the growth of its core alternative-loan business and its relationships with mortgage brokers.

"What we can offer is a one-stop shop, particularly for brokers where time is of the essence for their clients," said Gerald Soloway, chief executive officer of Home Trust's parent, holding company Home Capital Group Inc.

"We've been looking out over the economy trying to figure out how we can expand our business, but lower our risk profile. This is a good way to do that."

The goal is to allow brokers whose clients are on the edge of qualifying for a traditional mortgage the option of pursuing that route first.

If they don't succeed, for reasons that could include an insufficient credit score or income verification, they can then turn to a more expensive alternative product offered by Home Trust.

The new line is the latest in a series of successful product rollouts by the company, which also include credit card and commercial mortgage loans, said Jeff Fenwick, an analyst at Cormark Securities Inc.

"The management there are very good business operators. They're very good lenders, they are cautious about where they lend, and are able to capitalize on new opportunities," Mr. Fenwick said.

Unlike some of its competitors that relied on bundling and selling uninsured loans to fund new mortgages, Home Trust is a deposit-taking organization, whose eligible deposits and financial products are insured by Canada Deposit Insurance Corp.

Its new insured mortgages, marketed under the Accelerator Program name, will be sold into the Canada Mortgage and Housing Corp.'s bond program. At maturity, Home Trust will have the option, upon renewal, of putting them back on to its own books, Mr. Soloway said.

Thus far, Home Trust's alternative loan business has continued to thrive.

Home Capital reported yesterday that sales and profit were up 20 per cent in the second quarter from the previous year.

The strong results likely drove the stock's 6.7-per-cent gain yesterday, Mr. Fenwick said.

Part of the growth in business came from picking up residential mortgage business from fallen competitors, it said.

The company's ability to fill the gap and find new growth opportunities should help it withstand a slowdown in the Canadian housing market, Mr. Fenwick said.

Starting in 2009, the Accelerator mortgages are expected to add about 20 per cent, or $500-million a year, to the company's new mortgage business, Mr. Soloway said.

Yesterday, Home Capital also said it was raising its dividend by 1 cent a quarter to 52 cents a year, in part owing to its confidence in the Canadian mortgage and housing markets.

The mortgage market in Canada, with few exceptions, still appears strong and defaults are low, Mr. Soloway said.

HOME CAPITAL GROUP (HCG)

Close: $39, up $2.43

The Globe and Mail
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