1 Stock of value in Canada’s hot real estate market
Home Capital (TSX: HCG) is a holding company that provides residential and non-residential mortgage lending, residential mortgage securitization, consumer loans and credit card services. In addition, the company offers deposits through brokers and financial planners and through Oaken Financial.
Diversified geographic base
Licensed to operate across Canada, Home Capital has offices in Ontario, Alberta, British Columbia, Nova Scotia and Quebec. The company had an average of 755 active employees in 2020 and competes with regulated mortgage lenders, such as Canadian chartered banks, insurance companies and financial institutions, and lenders who provide mortgage financing in homes. single-family homes, collective dwellings and non-residential buildings. residential commercial mortgage segments.
Large range of products
In addition, the company offers deposits, such as guaranteed investment certificates, registered retirement savings plans, high interest savings accounts, tax-free savings accounts, registered income funds. pension and short-term certificates. It competes with regulated financial institutions that issue credit cards and lines of credit and provide other loans to individuals.
Growth opportunities in certain segments
The uninsured single-family residential portfolio is the Company’s primary mortgage portfolio, which consists primarily of uninsured mortgages with a loan-to-value ratio of 80% or less, serving selected segments of the Canadian financial services market that do not ‘have not traditionally been the subject of large financial institutions. These mortgages are generally funded by the deposits and fundraising activities of the company.
Lucrative mortgage portfolio
Insured residential credit is very profitable for Home Capital. It includes the Company’s insured single-family accelerated mortgages and insured securitized residential multi-unit mortgages. These mortgages are generally funded through mortgage-backed securities programs sponsored by the Canada Mortgage and Housing Corporation (CMHC) and Canada Mortgage Bonds. In some cases, these mortgage portfolios may be sold off-balance sheet, resulting in the recognition of gains on the sale.
Loans financed by deposits
Residential commercial loans are another lucrative area of Home Capital’s portfolio. It includes insured and uninsured residential commercial loans, which include commercial mortgages secured by residential property such as non-securitized multi-unit residential mortgages and builders’ inventories. Multi-unit residential insured mortgages are included in this portfolio until it is securitized. These loans are funded by deposits.
Deposit diversification strategies
The company’s uninsured assets are largely funded by Home Capital’s depository activities. Deposits are generally taken for fixed terms, varying from 30 days to five years and carry fixed interest rates. The company also has deposit diversification strategies, including the growth of Oaken Financial.
Low risk residential securities
In addition to Home Capital’s loan portfolios, the company manages a cash portfolio to meet liquidity needs and the investment of excess capital. The company also has a structured residential mortgage-backed securities (RMBS) private placement program. RMBS are backed by the Company’s portfolio of uninsured single-family residential mortgages.
Mortgage product line
The company appears committed to offering a range of mortgage products through Home Capital’s distribution channels. In addition, Home Bank, a subsidiary of Home Capital, a Canadian retail bank, offers deposits and mortgages.
Overall, Home Capital appears to be trading at a very attractive valuation and could offer excellent returns over the long term.
The article TFSA Investors: 1 Value Stock in the Canadian Housing Market first appeared on The Motley Fool Canada.
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Foolish contributor Nikhil Kumar has no position on any of the stocks mentioned.