INSURED MORTGAGE BUSINESS TO TAKE BIG HIT OVER NEW RULES, HOME CAPITAL SAYS.

Alternative lender Home Capital Group Inc. said Thursday that new federal government mortgage rules could take a 60 per cent bite out of its insured mortgage business.

Home Capital originated $464.8 million in insured mortgages in the second quarter, under its “Accelerator” brand of mortgages — an increase of 66.3 per cent compared to the previous year. The bulk of the company’s mortgages are uninsured, however, with $1.37 billion new uninsured mortgages originated in Q2.

New mortgage rules introduced earlier this month now required Canadians to be able to qualify under interest rates that are higher than what they will be actually paying, in order to ensure that homeowners can afford their mortgages if rates go up.

“Based on the information received to date and a preliminary analysis of the business impact based on origination activity over the last year, Home Capital expects these changes could result in a decline of up to 60 per cent in new ‘ Accelerator’ originations primarily due to the Company’s inability to purchase portfolio insurance as part of its lowratio ‘ Accelerator’ mortgage program,” Home Capital said in a statement.

The company expects that a 60 per cent decline in new insured mortgages will impact net income before tax by approximately $6.5 million, or $4.8 million on an annualized basis.

“Like all mortgage lenders, we are still assessing the full impact of the changes on borrower behaviour and the competitive landscape,” said Martin Reid, president and chief executive officer of Home Capital.

“As the effects become more clear, we will explore new business opportunities created by this shift”

Earlier this month, Genworth MI Canada Inc., the largest private residential mortgage insurer in Canada, warned that many of its customers would face difficulty meeting the mortgage rules.

The company estimated that more than one-third of its insured mortgages — primarily first-time homebuyers — would be affected.

Home Capital, one of Canada’s largest alternative mortgage lenders, already faced a decline in its insured originations last year after the company discovered a number of brokers had falsified income documents to help clients obtain mortgages. Sixty per cent of the mortgages created using false documents were part of its “Accelerator” line of insured mortgage products.

A total of 53 brokers were suspended from September 2014 to March 2015, from a total of 4,000 brokers in Home Capital’s network.

The 45 brokers that were specifically cut off for false documentation brought in nearly $1 billion worth of single-family residential mortgages in 2014 — roughly 12 per cent of all new mortgages created that year. The mortgages represent 5.3 per cent of outstanding loans on the company’s balance sheet.