Ratings agency weighs impact of new mortgage rules

Credit ratings agency DBRS has changed the trend on all ratings for Home Capital Group to negative from stable, citing the potential impact from new mortgage rules.

The agency says that the Department of Finance Canada’s tighter mortgage rules, introduced in October will “likely have a negative impact on the [Home Capital] Group’s origination volumes as well as loans under administration and, as a result, be a headwind to profitability.”

It highlights that these changes come at a time when the lender is already challenged by loss of market share in its broker channels following customer service and retention issues. This follows the suspension of around 45 brokers associated with falsified mortgage applications in 2014.

DBRS says that Home Capital Group has been managing its uninsured Alt-G portfolio and has low impairments and losses but says it is cautious due to the nature of the firm’s portfolio, which makes it “more susceptible to a real estate market correction than peers.”

Current ratings for the group are: Issuer Rating and Deposits and Senior Debt rating at BBB (high) and Short-Term Instruments rating at R-2 (high). 

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