Why Everyone Is Talking About the Troubles at a Tiny Canadian Lender

The world is paying attention again to Home Capital Group Inc., the tiny Canadian mortgage lender that’s recovering from near-collapse. Over the past few weeks it has settled with the regulator over fraud allegations, its deposits have stabilized and stock has tripled and Warren Buffett has agreed to buy a 38 percent stake. None of that, however, clears up the broader question Home Capital’s troubles raised: Was this an isolated case of a struggling mortgage company, or are cracks forming in Canada’s red-hot housing market?

It started in 2014 when the company, formed 31 years ago by Gerald Soloway, failed to screen a pile of questionable mortgages brought in by outside brokers. Some 45 brokers falsified income information on borrowers, prompting Home Capital to cut ties with them, leading to a drop in new business. This eventually led to an investigation by the Ontario Securities Commission, which said on April 19 that Home Capital had misled investors by not disclosing the fraud until five months after they became aware of the problem.