Home Capital Group made a strong return to uninsured mortgage lending in the first quarter, after scaling back considerably over the last year to avoid excessive losses from risky loans.
Uninsured loans - offered to those who don't meet the more stringent requirements of the big banks such as the self-employed and recent immigrants - accounted for 58 per cent of the Toronto-based company's $1.3-billion in new loans in the first quarter.
The portion of loans that were not insured by Canada Mortgage and Housing Corp. slipped as low as 35 per cent through the recession as the company sought the safety of customers with higher credit ratings. But uninsured loans offer greater profits for the company, and are Home Capital's traditional strength.
The company reported earnings Wednesday after the markets closed, saying adjusted profit rose to $45-million in the quarter. Impaired loans represented 0.29 per cent of all loans, down from 0.47 per cent a year ago.
Chief executive officer Gerald Soloway said the lower delinquency rate is likely to due to a housing market that continues to perform well, after a period of softness through the recession. Homeowners who get into trouble are now selling on their own, instead of waiting for Home Capital to foreclose.
"From coast to coast, the market is pretty stable," he said. "If we do get a house back, we're able to sell it without too much trouble. But if they can sell it themselves, that's obviously better for everyone involved."
He said the company is being cautious when considering loans that will go toward properties in Vancouver or downtown Toronto, because the markets are showing signs of overheating. The company would rather lend in a stable market, than one that is posting swings in either direction.
"We are being very careful with those two markets because there are still bidding wars," he said. "But once you get outside of those cities, things are actually quite stable. And it's much easier to lend into a stable one than a market that has too much exuberance."
The company also doubled the number of Equityline Visa accounts it issued, to 2,107 from 1,008 a year ago. The credit product allows homeowners to tap up to $250,000 of home equity, with interest rates set at different levels depending on an applicant's credit rating.
At the end of the quarter, the credit card users owed the company $362-million, all of it secured by either cash deposits or residential property.