Home Capital is safer than it seems

Article Excerpt

HOME CAPITAL GROUP INC. $72 (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 34.7 million; Market cap; $2.5 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.6%; TSINetwork Rating: Average; www. homecapital.com) gets 90% of its revenue by making residential mortgage loans to borrowers who don’t meet the stricter standards of larger, traditional lenders, like banks. These clients include recent immigrants with limited credit histories and self-employed individuals. The remaining 10% of Home Capital’s revenue mainly comes from credit cards and other loans to consumers and businesses. Fixing loans before they go bad Even though Home Capital caters to riskier borrowers, it avoids huge credit losses by identifying problem loans early. It then uses this information to restructure a borrower’s repayment terms and adjust its lending policies. The company also cuts its risk by selling its mortgages to third parties. Moreover, Home Capital keeps its mortgage loans below 80% of a property’s market value. Home Capital raises money for its…