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Gerald Soloway, CEO of Home Capital, is seen in his Toronto office on May 13, 2010.Jennifer Roberts/The Globe and Mail

Home Capital Group Inc. has a message for the short-sellers that caused a deep dive in its stock price two months ago: It doesn't see a housing bubble and the company is doing just fine.

After reporting solid second-quarter earnings after market close on Wednesday, the country's largest mortgage lender outside of the Big Banks said that it "has not observed evidence of a 'housing bubble' and expects that it will be able to continue to expand its share of the market."

It's a different tune to the one well-known hedge fund manager Steve Eisman was whistling a few months ago. Mr. Eisman, known for betting against mortgages in the United States before the recession hit, turned his attention to Canada in May.

He wasn't just bearish on the banking and housing markets in general. At a conference, Mr. Eisman pointed to Home Capital because of its position as the largest non-prime lender. His prescription for the U.S. collapse was a "big short," as documented by the iconic book.

"A lot of other hedge funds sort of jumped on board after he gave that speech," said Martin Reid, Home Capital's president.

Hyphen Partners LP, a small San Francisco-based hedge fund, also made headlines in Canada and the U.S. earlier this year when its founder sunk the vast majority of his fund's assets into a bet that the Canadian housing market and banks were heading for a tumble.

"When we got the statistics at the end of May, the short position in the company was about 5.5 million shares, compared to a historic average of about 800,000," said Gerald Soloway, the chief executive of Home Capital.

Within days, the stock dipped 13 per cent to about $49. It has since bounced up 25 per cent.

And Mr. Soloway credits some of that rise to the short-sellers. "As the stock started to cross $60 a few days ago, the volume started to pick up because the shorts would have had to look at the July month end and they would have had to square up their positions," he reasons.

Home Capital's share price is up 38 per cent in the last year, but only 6 per cent year-to-date after the decline that bottomed out in mid-May. Now, both Mr. Soloway and Mr. Reid hope the period of activity is behind them.

"As one person wise in the market once wrote, every short-seller has to be a future buyer," Mr. Soloway said. "And I think some of them have had to be future buyers the last few days."

(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)

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