National Post (National Edition)
INSIDE THE RISE & FALL of HOME CAPITAL
‘LIKE THE PERFECT STORM’: AN FP INVESTIGATION INTO THE EVENTS THAT TOOK HOME CAPITAL TO THE BRINK
More than two weeks before the public would get the first inkling of problems at Home Capital Group
Inc., the alternative mortgage lender found itself under heightened scrutiny — and not for the first time — from Canada’s top banking regulator.
In a letter dated June 23, 2015 and addressed to the company’s founder and then chief executive Gerald Soloway, the Office of the Superintendent of Financial Institutions detailed the concerns that were building around the company.
"Significant corporate governance issues, AML (anti-money laundering) concerns and internal control breakdowns pertaining to practices in underwriting residential mortgages” had been identified at Home Trust, Home Capital’s fully owned subsidiary, OSFI wrote in the letter, a copy of which was obtained by the Financial Post. And the regulator was taking action. OSFI said it was raising the lender’s intervention rating from “Stage 0” to “Stage 1,” or “early warning,” putting the company back into a process of enhanced regulatory oversight known as staging. The letter also laid out a series of measures, including imposing stricter capital controls and ordering a thirdparty review of management and the company’s corporate governance structure.
In a move that foreshadowed the crisis of confidence that would later bring Home Capital to the brink of collapse, OSFI also insisted that Home Trust assess "legal and reputational issues related to securities law and the appropriate public disclosure” related to the mortgage fraud issues that had been discovered at the company the previous year.
By June 2015, Home Capital had already conducted a significant internal investigation, dubbed Project Trillium, into the mortgage fraud issues.
It had terminated underwriters and cut ties with dozens of brokers that had been helping fuel the company’s growth, leading to a noticeable decline in new mortgages, or “originations."
It had, as the company and three of its officials, including Soloway, would later admit in a settlement with the Ontario Securities Commission, already misled investors about the decline, telling them that factors such as the weather and the struggling economy were to blame.
But the problems at Home Capital were still a tightly held secret, known only to company insiders and a widening circle of regulators, who had significant concerns about the company’s processes and its leadership.
The supervisory letter, another letter from OSFI, interviews with more than 10 people familiar with matters at Home Capital, as well as additional documents obtained by the Financial Post, all suggest that the mortgage fraud issues and the problems they begat were not just a simple lapse, but rather a symptom of deeper issues at the company, including a profit-first mentality and weak corporate governance.
An internal emphasis on growth led Home Capital to launch new initiatives, such as the Accelerator suite of insured mortgages, while trying to rein in expenses, a combination that strained existing systems and resources, said one source.
"It was like the perfect storm.”
Home Capital’s bread and butter had always been its “classic” mortgages.
For the company, “classic” meant lending to those who didn’t qualify for traditional bank loans — for example, borrowers who were self-employed or had once been bankrupt, or who were new to the country and had no credit history.
It was an observation about the self-employed that Soloway made during his years as a real estate lawyer for one of Canada’s major banks that had sparked the idea for Home Capital in the first place.
“I saw these individuals were very creditworthy and they had good down payments and they had great capacity to service the loans, but they were getting turned down,” he told the Financial Post in July 2015.
Soloway, known to many simply as Jerry, was described by some who know him as a brilliant, “larger-than-life character” who was “respected and liked” and even “revered” for turning his company into a stock market darling, as well as for his keen knowledge of the mortgage industry.
Others, however, said he could be “mercurial” and controlling.
“Everybody knew Jerry was the boss, and if you pissed off Jerry, there was a feeling that there was a risk of getting kicked off the board,” one person said, referring specifically to the company’s earlier days.
For his part, Soloway, who is now retired but responded through his lawyer to a list of questions submitted by the Financial Post for this article, said Home Capital “grew and succeeded as a team.” And grow it did. By 2007, under his tutelage, the Torontobased company had delivered a return on equity of more than 20 per cent for 10 consecutive years — with earnings that year up 33.1 per cent to $90.2 million.
Even as the U.S. subprime mortgage crisis triggered a bust in global financial markets in the fall of 2008, it remained boom times for Home Capital.
“It’s the best of times because Home recorded ... the best quarter in its history,” Soloway told analysts on a third quarter conference call in November 2008, according to a Bloomberg transcript. “However, it’s the worst of times, when one looks at the financial volatility and unrest that has been experienced around the world.”
Earlier that year, in June, as it became apparent that subprime lending was becoming the scourge of the U.S. financial system, Home Capital moved to diversify, launching a suite of fully-insured mortgage products that were guaranteed by the Canadian government. They called the program Accelerator. “The Accelerator program ... will be a permanent part of our business plan on a going-forward basis,” Soloway told analysts on that November 2008 conference call, according to a Bloomberg transcript. “It not only is a good way to transfer some of the risk off the books, but it is a product that’s fully insured .... The benefit of that is proving to be far greater than I originally thought.”
While insured loans had lower margins than the “classic” variety (on which Home Capital could charge higher interest rates as the lender of last resort), they could also be securitized and moved off Home Capital’s balance sheet, freeing up capital to lend more and boost revenues.
“It’s like low hanging fruit,” said one source.
It would be this program — ironically designed to reduce the company’s risk profile — that would play a central role in the scandal that brought the mortgage lender to the brink of collapse less than a decade later.
After Accelerator’s launch, insured mortgage originations at Home Capital grew quickly.
The value of securitized residential mortgages more than doubled in 2008 to $1.5 billion, then leapt again by more than 70 per cent the following year, to $2.6 billion.
Accelerator accounted for 46.1 per cent of all single-family residential mortgage originations in 2009 — up from just 9.9 per cent a year earlier.
Proposed regulatory changes in the fall of 2009, however, made the “low-hanging fruit” much harder for Home Capital to reach.
That October, OSFI released a draft advisory ahead of the conversion to International Financial Reporting Standards (IFRS). Under this new accounting framework, securitized insured mortgages would have to be put back on the balance sheet, meaning Home Capital would need to put up more capital to satisfy regulatory ratios, or lend less.
This change was a big blow and Soloway told the Financial Post in February 2010 there would be “hardship if the rules are implemented as they are now proposed because it would limit the ability of small companies to do CMHC-insured mortgages, the safest type of business because they are insured by the government.”
But there was another drawback as well.
When the accounting change took effect in 2011 and more than $8.24 billion in insured mortgages were added back onto Home Capital’s balance sheet — dramatically increasing its total assets to $17.7 billion and raising its capital requirements — the company came under more intense regulatory scrutiny, said a source.
“They had been paying attention before, but OSFI really starts paying attention when they see this,” a source said. “It’s an order of magnitude, almost, bigger.”
Other changes were also afoot in the mortgage and financial industries.
In 2012, OSFI proposed an overhaul of its risk-management guidelines for boards or directors, emphasizing director competency, risk-management systems and oversight.
It also issued guidelines outlining its expectations for “prudent residential mortgage underwriting,” a set of rules known as B-20. The regulator was worried the financial system was becoming too vulnerable to growing household indebtedness. In turn, OSFI set out some key principles for lenders, including adequately assessing a potential borrower’s ability to service its debt.
And in July of that year, then-finance minister Jim Flaherty made changes to the country’s mortgage rules — including reducing the maximum amortization period to 25 years for insured mortgages and limiting government-backed mortgage insurance to homes under $1-million — in a bid to cool down an overheated real estate market.
The moves all came amid a renewed emphasis on corporate governance by the banking regulator, an effort to apply one of the lessons of the financial crisis.
By that point in 2012, however, the relationship between OSFI and Soloway had already become “acrimonious,” sources said.
Three sources said he had little patience for risk controls or corporate governance, an approach that put him at odds with the regulator.
OSFI, sources said, had even been pushing for him to step down and make way for a successor.
“They (OSFI) felt that Jerry was not in the best interest of the financial services industry as a whole,” a source said. “They felt that he did not appreciate or understand or respect the need for control and governance, and that’s why they wanted him out.”
Another source said they never heard the regulator call for Soloway to go, but understood that having a more conservative person at the helm of the business was seen as preferable. While OSFI, in response to a series of questions, said that it “cannot comment on any specific institution that it regulates and supervises,” Soloway disputed the notion that there was friction with the regulator, and
said that they never told him they wanted him to step down.
“I had an appropriately professional relationship with OSFI,” Soloway said, adding that it was “totally untrue” that either he or the company’s board — of which he “was only one member” — emphasized growth and sales ahead of risk management and good corporate governance.
Around this time, Home Capital was also starting to invest significantly to improve its oversight functions.
“Home Trust was a small place that had grown, and was still growing, into a much bigger place and was in the process of formalizing its risk management practices,” a source said.
But it was not there yet. And the company’s growth was about to reignite.
Almost immediately after the new rules that forced the company to put insured mortgages back on its books had been put in place in 2012, Home Capital had begun casting about for a solution.
At a June 2012 investors’ day, the company’s then-chief financial officer Robert Blowes said the company had submitted a proposal involving a form of security called interest-only strips to OSFI, according to CanadianMortgageTrends.com.
Interest-only strips are based solely on the interest payments from a pool of mortgages, which give investors the right to receive a portion of the interest. The act of selling this interest to a third party qualifies mortgages for off-balance sheet treatment under IFRS accounting rules.
In the fall of 2013, OSFI gave Home Capital the go-ahead to use IO strips, and the company wasted no time in revving up the Accelerator engine again.
“This favourable ruling confirms that off-balance sheet capital treatment can be achieved for securitized mortgages in certain situations and has resulted in an immediate increase of the Company’s unutilized lending capacity,” Home Capital said at
HCG DISCOVERED THAT ITS ACCELERATOR UNDERWRITING TEAM ... WAS FALSELY DOCUMENTING THAT THEY HAD COMPLETED INCOME VERIFICATION STEPS WHEN THEY HAD NOT ... — EXCERPT OF STATEMENT OF AGREED FACTS BETWEEN HOME CAPITAL, OSC
THEY HAD BEEN PAYING ATTENTION BEFORE, BUT OSFI REALLY STARTS PAYING ATTENTION WHEN THEY SEE THIS. — SOURCE ON IMPACT OF PUTTING INSURED MORTGAGES BACK ON BALANCE SHEET
SIGNIFICANT CORPORATE GOVERNANCE ISSUES, AML (ANTI-MONEY LAUNDERING) CONCERNS AND INTERNAL CONTROL BREAKDOWNS PERTAINING TO PRACTICES IN UNDERWRITING MORTGAGES. — JUNE 2015 LETTER FROM FEDERAL BANKING REGULATOR TO THEN-HOME CAPITAL CEO GERALD SOLOWAY
the time. “The ruling also provides significant flexibility with respect to growth of the portfolio of insured prime residential mortgages originated or renewed by the Company.”
Mortgage originations under the Accelerator umbrella more than doubled in the fourth quarter of 2013, year-overyear, to $357 million. Its traditional “classic” mortgages, meanwhile, grew just 5.9 per cent, to $1.23 billion.
At the same time, Home Capital took two steps to diversify and expand its funding sources. By December 2013, it had launched a high-interest savings account product and Oaken Financial, a direct-toconsumer deposit brand.
For 2014, Home Capital set aggressive targets to continue Accelerator’s upward trajectory.
The company aimed for 75 per cent growth in Accelerator and 20 per cent yearoveryear growth in Classic, according to a copy of a KPMG report exploring the root causes of the mortgage fraud problems that was posted online in August.
(Three sources who saw the scanned 20-page report, which appeared on hcgexposed.com, a website connected to short seller Marc Cohodes, deemed it to be authentic, although they could not tell whether it was a draft or final version of the report. Cohodes has waged a public campaign against the management and direction of Home Capital.)
Home Trust relied on a network of more than 4,000 brokers to refer potential customers and it was the role of the company’s underwriters to ensure that those customers met the proper criteria to receive a loan, and to verify that their documentation was in order.
The KPMG report, however, identified multiple deficiencies in Home Trust’s underwriting operations and oversight, including poor training, “inadequate process design” and a “lack of attentiveness to risk,” on top of “a serious shortage of resources and skills.” The practices that had served Home Capital so well over the
years for uninsured mortgages were designed for lower volumes of high margin sales, with more time for processing, a source said, and were not suited for the higher volume and faster turnaround needed for insured mortgages at Accelerator.
In some cases, the company would be so behind that funding would not get to the borrower on time and the mortgage wouldn’t close.
“That’s how broken the processes were,” the source said.
In its June 23, 2015 letter, OSFI would also express concern that Home Trust had put too much of an emphasis on collateral and too little on the other key factors, such as capacity to pay and character, when assessing credit-worthiness, echoing the core finding of the KPMG report.
The KPMG report also found that employees, including managers, were incentivized to prioritize volume ahead of risk, something reinforced by the fact that sales and underwriting reported to the same unit.
Inside the Accelerator unit itself, a source said targets at the time had been set at $10-million worth of transactions per month for each of its underwriters.
One underwriter, however, was far exceeding his targets.
According to sources, the underwriter, who they identified as Sharoukh Elavia, was processing as much as six times the $10 million per month level. The KPMG report noted that Elavia was pushing through an average of 151.8 deals per month, with the next most prolific underwriter coming in at just 49.2 deals.
“The volumes should have given an indication of something being very wrong,” said a person familiar with the situation.
Eventually, the proportionally high volume of mortgages did raise red flags.
In May 2014, Home Capital’s risk department notified the lender’s executive vice president of mortgage lending, Pino Decina, and the senior vice president of mortgage lending, Armando Diseri, about the quality of Accelerator loans originated by an “Underwriter ‘S’ ” according to the KPMG report.
Three sources said underwriter “S” referred to Elavia, who declined to comment when reached by the Financial Post.
The KPMG report did not name the individual in the risk department who noticed the anomalies.
According to a source, subsequent spot checks discovered that a significant proportion of applications coming from the Accelerator unit were missing information.
Eventually, the individual in the risk department escalated their concerns to the board, the source said.
According to the statement of agreed facts released as part of the misleading disclosure settlement between the company and the OSC in August 2017, the company itself became aware of irregularities involving one of its underwriters “by June” 2014.
“HCG discovered that its Accelerator underwriting team, including one of its highest volume underwriters, was falsely documenting that they had completed income verification steps when they had not actually done so (“Phantom Ticking”) for a large proportion of mortgages underwritten, and further that employment/income information used to support the mortgage applications had been falsified,” the statement of facts said.
By August, the company had launched Project Trillium, aimed at determining the scope, extent and cause of the problem.
The individual in the risk department, however, was not the only person to notice something was amiss.
A source said the company received an email in the third quarter of 2014 from a mortgage broker alerting Home Capital that a rival was using falsified information in their loan applications.
This missive spurred more people within the company into action, said the source.
According to redacted documents received from the Canada Mortgage and Housing Corporation obtained via a Freedom of Information request, Home Trust arranged for an Oct. 30 conference call with the CMHC involving Soloway, Diseri, Decina, then-chief financial officer Robert Blowes and then-president Martin Reid, on which it notified the mortgage insurance provider of its internal investigation.
“Home Trust reported the issue to OSFI and contacted CMHC in order to be transparent and preserve their relationship with the Corporation .... CMHC thanked Home Trust for coming forward with the information, and for being proactive in working together with CMHC to prevent fraud,” wrote Marie Dyck, then CMHC’s manager of insurance fraud prevention, according to the redacted documents.
By mid-November that year, Home Capital had terminated three underwriters and one underwriter had resigned as a result of the findings of Project Trillium, according to the OSC’s agreed statement of facts.
Elavia was one of the underwriters who left the company. A credit review cited in the KPMG report found that his mortgages had a lower error rate than those of the other high volume producers on the unit, and there has been no accusation of wrongdoing on his part. He later found a job with mortgage financing company MCAP Corp.
As well, between November 2014 and January 2015, Home Capital terminated its relationships with two brokerages (out of more than 100 it worked with) and thirty brokers.
As the Trillium investigation was nearing completion in February 2015, the weak underwriting controls at Home Capital were in clear view within the company.
The company knew that the brokers and underwriters with which it had cut ties had accounted for some $881.4 million in mortgage originations in 2014 — representing 10 per cent of the company’s total originations for that year.
Those terminations, plus the new controls the company put in place that increased the processing time needed for
mortgage applications, had also slowed the pace of originations. Some brokers started sending their business to other lenders because of the lengthier processing times at Home Capital, according to the OSC. To the outside world, however, it was business as usual.
“As you know today is February 12, just two days before Valentine’s Day,” Soloway said on a conference call following the company’s annual filing, according to a Bloomberg transcript. “Home’s Board of Directors has declared a Valentine’s Day gift to all shareholders in the form of a dividend increase. And to all of Home’s shareholders we dedicate this little poem, which you may have heard before: ‘Roses are red, violets are blue, this dividend increase is just for you.’”
Three months later, in a first quarter interim earnings filing on May 6 and call the following day, Home Capital attributed the slowdown in originations that stemmed from the termination of brokers to other things, such as “cold weather” and “macroeconomic” factors.
“We are a little more cautious of risk because one of the things that you have to keep focused on in business is you try not to let sort of the ups and downs get in the way of doing what you have to do,” Soloway told analysts, according to a transcript of the May 7 call. “And rather than play for the quarter, we play for the whole company and we look for quality and we look for good business. And if it’s a little slower in the quarter, we don’t see it as disastrous.”
That call, and the company’s first quarter earnings filing, would come back to haunt the company and some of its key executives.
While work was being done behind the scenes to address the mortgage fraud issues and to improve Home Trust’s processes, by June the company was facing increasing internal and external pressure over the question of disclosure.
On the first day of the month, a vicepresident at the company wrote what would become known as the “whistleblower” memo in which the company’s board was officially notified of internal concerns about the handling of the mortgage fraud.
Titled “Failure to Comply with Timely and Continuous Disclosure Obligations and Related Concerns — Fraudulent Mortgages,” the memo was submitted under Home Capital’s code of conduct and ethics policy and was received by the chair of the audit committee of Home Capital’s board of directors.
But the whistleblower didn’t stop there: Sources say the individual also took the concerns directly to the firm’s chief securities regulator, the Ontario Securities Commission.
(Home Capital also delivered the memo to the OSC within days of receiving it, according to documents filed by the regulator.)
While the bulk of the concerns OSFI was soon to lay out in the two letters to Soloway and Home Trust fell outside the OSC’s purview, the question of disclosure was squarely within it.
By mid-June, company advisers were dispatched to the OSC’s headquarters in downtown Toronto for what would turn out to be a contentious session.
What emerged were two starkly different views regarding the company’s obligations following the discovery of the improper mortgage documentation.
Sources say Home Capital representatives expressed the view that there was nothing more the investing public needed to know.
(This is in keeping with the statement of agreed facts with the OSC, which says Home Capital sought advice from external professional advisors after an earnings conference call on May 7, 2015, “to determine whether a clarifying public statement was required.” As the OSC document notes: “no clarifying statement was issued.”)
But regulators in the OSC’s corporate finance department took the opposite view, concluding that details of the mortgage fraud and the impact on the business were material information required by investors. Continued on next page
THE VOLUMES SHOULD HAVE GIVEN AN INDICATION OF SOMETHING BEING VERY WRONG. — SOURCE ON VOLUME OF MORTGAGES BEING ORIGINATED IN ACCELERATOR UNIT
TO ALL OF HOME’S SHAREHOLDERS WE DEDICATE THIS LITTLE POEM, WHICH YOU MAY HAVE HEARD BEFORE: ‘ROSES ARE RED, VIOLETS ARE BLUE, THIS DIVIDEND INCREASE IS JUST FOR YOU.’ — GERALD SOLOWAY ON CALL WITH ANALYSTS IN 2015
I FELT THEN AND FEEL NOW THAT WE ACTED APPROPRIATELY INCLUDING BY CREATING AND RELYING ON A SPECIAL COMMITTEE OF THE BOARD HEADED BY A FORMER CHAIR OF THE OSC, WHICH INVESTIGATED THE MATTER. — GERALD SOLOWAY
Sources say tensions between the company and the securities regulator escalated quickly, but that Home Capital eventually agreed to make a statement.
At around the same time, OSFI sent the two regulatory letters to Home Trust, laying out its behindthe-scenes issues.
In the letter dated June 23, OSFI said it was concerned about “leadership and tone from the top resulting in an overall risk culture which overly emphasizes growth and ROE (return on equity) targets in the business at the expense of controls,” an assessment that Soloway himself strongly disputes.
OSFI also worried about “the effectiveness of corporate governance,” given the need to make significant changes to the company’s risk and compliance culture in the wake of the Trillium probe.
In addition to raising it’s intervention level, OSFI also said it was raising Home Trust’s Composite Risk Rating to “Above Average.”
Because of the “frequency of intervention” — Home Trust had been in staging as recently as 2014, sources told the Post — and the “seriousness of the concerns,” OSFI laid out eight intervention measures.
As part of a “fulsome risk assessment of potential issues and exposures” resulting from the mortgage fraud — which included the assessment of disclosure risks — OSFI also wanted the company to consider the “potential loss” of status as an approved lender, issuer or seller at the Canada Mortgage Housing Corporation, developments that could have been devastating for a company that relied on insured mortgages to fuel its growth.
“This should include an assessment of the impact of having tainted mortgages included in existing CMHC securitizations,” the letter said.
A letter dated a few days earlier, on June 19, noted that OSFI could only verify that Home Trust had satisfactorily resolved 8 of 18 outstanding issues from previous reviews related to residential mortgage lending.
It also indicated that it had recommended the company adopt stronger income verification controls for certain kinds of applicants as early as December 2013, which suggests the issue should have at least been on the company’s radar while the troubles at Accelerator were developing.
“These repeat findings cause concern given the importance of the initial recommendations in key areas such as income verification,” OSFI wrote.
When asked if OSFI had expressed concerns about income verification prior to problems that led to Project Trillium, Soloway said: “Not to my knowledge.”
While it is unclear what effect the letters had on Home Capital, they demonstrated that the banking regulator was aware of what had been transpiring inside the company.
And the public was about to find out, too.
On Friday July 10, Home Capital issued a news release to update the market on mortgage origination volumes in the second quarter. In the fifth paragraph, the company said an ongoing review of its business partners had led to the termination of relationships with “certain mortgage brokers, which caused an immediate drop in originations.”
While the announcement sparked a nearly 19 per cent plunge in the company’s shares the following Monday, it did not go far enough for the OSC.
The securities regulator insisted the company issue a second news release fully explaining to investors the issues uncovered and the changes to the business that would result. Sources say the company and its advisors bristled at being told what to say and when to say it by the regulator, and initially pushed back.
A second news release was ultimately issued on July 29, which said the OSC had “requested” the release of the additional information.
The two-page release finally revealed much of what had been going on behind the scenes, including that an external source had alerted the board to discrepancies in income verification submitted by some mortgage brokers. It also revealed the internal probe’s findings of income falsification, and the financial and operational impact of the broker suspensions.
In between the two announcements, on July 27, the company announced that a key director had resigned from the board of Home Capital. The news release announcing James C. Baillie’s July 24 departure said he resigned “for a variety of personal reasons” and had advised the board “several months” earlier that he wished to resign.
Baillie, a former chairman of the OSC who joined the board of Home Capital and subsidiary Home Trust in 2012, was seen as integral to the company’s push to gain credibility in the area of corporate governance, sources say.
As a result, his pending departure was a concern as Home Capital sought to reassure OSFI of its governance bona fides.
Soloway himself referenced Baillie’s regulatory background, when asked if he would handle the decline in originations and the Project Trillium issues differently today.
“I felt then and feel now that we acted appropriately including by creating and relying on a special committee of the board headed by a former chair of the OSC, which investigated the matter, and by relying on our professional advisors,” Soloway said.
In a decisive moment for Home Capital, the OSC’s corporate finance team referred the matter to the regulator’s enforcement division for further investigation.
The conclusion of that investigation, more than 18 months after the initial meeting between the OSC and Home Capital advisers, would bring OSFI’s concerns about the risks of disclosure to life in dramatic and devastating fashion for Home Capital and its shareholders.
The OSC alerted Home Capital to its preliminary conclusions in February of 2017 and followed with formal allegations in April.
Those allegations included failing to disclose a material change to the business, and misleading shareholders about the reason for the decline in mortgage originations, and named the company, as well as Soloway, former chief financial officer Robert Morton and former chief executive Martin Reid.
On March 27, the company said in a statement that it had “terminated” Reid — before the formal allegations had even been received — initiating a run on the company’s deposits that only picked up steam in the weeks that followed.
Home Capital’s shares plunged from $27.72 on March 27 to a low of $5.85 on May 5, while the company’s high interest savings accounts ultimately shed nearly $2 billion in deposits — raising serious questions about the company’s future as a going concern.
In a dramatic turn, renowned investor Warren Buffett threw the company a lifeline in June, taking a nearly 20 per cent stake and provide a $2 billion line of credit.
The company itself, which appointed Yousry Bissada as its new CEO in July, would not address any specific questions provided by the Financial Post in connection to this article.
“Home Capital’s new senior leadership, with the support of our refreshed board, is focused on crafting a renewed strategy for Home Capital that will help drive our growth as one of Canada’s leading alternative mortgage providers,” it said in a statement.
It is not known whether Home Trust is still being staged, or what level of regulatory scrutiny it is facing from OSFI above the ordinary, if any.
As the company fought to stay afloat, some legal observers wondered why it had not simply settled the narrow claims of the OSC before the allegations were made public, as often happens in such cases.
Sources say at least some directors were in favour of an early resolution that would satisfy the regulator, but this view failed to gain traction with the entire board.
A sticking point is understood to have been the OSC’s requirement for key Home Capital players to step away from the company as part of any settlement.
One of them was Soloway, who had stepped down as CEO in May of 2016, but had remained on the board into 2017.
However, within a week of the OSC filing formal allegations, the company announced Soloway would not seek re-election to the board and that Morton was to be moved out of the CFO position.
Soloway appeared in person, along with Reid and Morton, at an OSC hearing in August to approve the settlement — their presence was a condition of the deal — but he has remained largely silent on the dramatic events that brought the company he founded and built to the brink of collapse.
In his statement to the Financial Post, Soloway offered an explanation for why he ultimately settled.
“I did what I had to do in order to help save the company and to protect the employees and shareholders of Home Capital,” he said.
Asked about his legacy, Soloway told the Post he is “very proud to have been involved in the creation and growth of Home Capital.”
“There are many people across Canada who are in homes today that would not be but for Home Capital’s existence.”