Why Are Global Investors Concerned With A Tiny Canadian Mortgage Lender?

Most investors haven't heard of Home Capital Group Inc HCG, a Toronto-listed, Canada-based financial institution that offers residential and non-residential commercial mortgage lending and consumer lending products.

Canada's Financial Post noted Home Capital is facing the scrutiny of regulators who allege the company misled investors; clients have pulled C$1.5 billion ($1.09 billion) in savings accounts over the past four weeks alone.

But behind the scenes, some investors are concerned the company's direct exposure to less well-qualified borrowers is a troubling sign for the ultra- hot housing market.

According to a Bloomberg report, investors are right to be paying attention to the Canadian company, and looking for signs if its woes is merely a struggling and less-than-honest mortgage company, or, "signs of cracks" forming in Canada's housing market.

So Now What?

The Bloomberg report noted Home Capital can't finance new mortgages given the large outflow of capital with more withdrawals to follow.

It's possible Home Capital's problems could spread to other lenders, but it's important to keep in mind its delinquency rate is a mere 0.20 percent despite its client base, which includes small-business owners, new immigrants and borrowers who failed to obtain financing from the major banks.

Also, Home Capital's activities account for just 1 percent of the entire Canadian mortgage market. But at the end of the day, if other similar lenders see a similar outflow of capital, then Canada's housing market could run out of steam.

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