Home Capital Group Inc. comments on confirmation of regulatory capital treatment for Home Trust's mortgage securitization transactions

Aug 06, 2013, 17:00 ET from Home Capital Group Inc.

TORONTO, Aug. 6, 2013 /CNW/ - Home Trust Company, a wholly owned subsidiary of Home Capital Group Inc. (TSX: HCG) learned today that Home Trust's regulator, the Office of the Superintendent of Financial Institutions Canada (OSFI), has confirmed the regulatory asset-to-capital multiple (leverage ratio) treatment associated with the sale of certain residual interests arising from transactions related to mortgage securitizations.

Home Trust originates and securitizes insured residential mortgages through the CMHC-sponsored mortgage-backed security program. Home Trust administers the securitized mortgages and retains certain interests in the prepayment risks associated with the underlying mortgages. Prior to the adoption of International Financial Reporting Standards (IFRS), the underlying mortgages were removed from Home Trust's balance sheet (both for financial reporting purposes and for the regulatory leverage measure). However, on adoption of IFRS in January 2011, these securitized mortgage pools were brought back on to Home Trust's balance sheet (both from a financial reporting and regulatory leverage perspective), effectively reducing Home Trust's total lending capacity.

Home Trust has sold the benefit of the retained interests in some securitized mortgage pools.  The result of these transactions under IFRS is the removal of the related mortgage pools from Home Trust's balance sheet and recognition of gains and losses on the related overall securitization transactions. Home Trust received confirmation from OSFI that the regulatory asset-to-capital multiple or leverage treatment of these transactions will follow the accounting treatment subject to specific conditions being met.  When this accounting is applied to the measurement of regulatory assets and capital, the ratio of regulatory assets to capital is generally reduced, which is favourable to the lending capacity of Home Trust. This is similar to the regulatory leverage (capital) treatment for these assets prior to the adoption of IFRS.

"With this confirmation, but subject to additional limits that CMHC may impose on the issuance of NHA MBS in future, Home Trust expects to gradually increase its origination and securitization of insured residential mortgages and sales of retained interests in the securitized mortgage pools", said Gerald M. Soloway, CEO, Home Capital. "This is expected to result in increased penetration of the mortgage broker channel and will reinforce Home Trust's one-stop mortgage provider strategy."

About Home Capital and Home Trust
Home Capital Group Inc. is a public company, traded on the Toronto Stock Exchange (HCG) operating through its principal subsidiary, Home Trust Company. Home Trust is a federally regulated trust company offering deposit, residential and non-residential mortgage lending, securitization of insured residential first mortgage products, consumer lending, Visa and payment card services. Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.

SOURCE Home Capital Group Inc.