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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: My Question in short:
Can you quantify the change in size of the alternate mortgage lending market due to the recent mortgage regulations changes in Canada? Can you also comment on the quality of said mortgages given that the regulations have essentially raised the bar on the mortgages that the big 5 will write up?

My Question in long form:
I’d appreciate you input on the change in the alternate lending market and any corrections you wish to add to the information I’ve provided.

From my research, there have been three sets of regulations changes to the financial industry in response to the 2008 financial crisis, the Volker rules, Dodd-Frank and Basel I, II, III. From my understanding, the Volker rules limit proprietary trading/derivatives and are thus irrelevant to this subject. The “Dodd-Frank reform” is a sort of blanket US legislation that is being written SEC and rolled out in pieces, some already in effect, until 2018. I believe it will have a direct effect on mortgage quality regulations in the US, but Canadian banks will be able to place there US operations in subsidiaries and thus Canadian operations will be unaffected.

On the other hand, Basel I, II, III and other OSFI policies will have a direct effect on the Canadian mortgage market in a two-fold fashion;
-Bank capital reserves requirements are more stringent from both a quantitative and qualitative measure.
-Rules regarding who qualifies for mortgage insurance have been elevated.

Benjamin Tal recently commented that these new regulations will raises the bar on who qualifies for a big 5 bank mortgage and thus create a new high quality tranche of mortgage business for alternative lenders such as HCG. Would you agree with that hypothesis? I believe the mortgage market is around 1.2 trillion in Canada; do you have an estimate on the size of this tranche of the market? Are there any other alternative lenders similar to HCG that stand to benefit from the change in the market place?


Thanks in advance for answering my question and also for the great research reports you regularly deliver.
Read Answer Asked by Emile on March 06, 2014
Q: Hi,

I have a pretty big position in AVO about 15% which I bought at $32. It has been trending down and I was not able to sell it to reduce my exposure. Today I have purchased 5 put options with 28 strike and sold 5 call options at 32 strike. Do you think it is wise to do this to protect the downside. This will also restrict my upside though.
Read Answer Asked by Imtiaz on March 04, 2014
Q: Hi, Wondering about your recomendations pertaining to the delisting of PLB. As I understand, PLB holdings will be transferred to a combination of END and GUD shares. Do you have
a preference between the two or are there others in the sector that you prefer? Thanks, Lavern
p.s. Will be glad to support the upcoming Ride for Cancer that Peter is participating in. What a great idea, see our Great Country, exercise, all while supporting a very worthwhile cause!
Read Answer Asked by Lavern on March 04, 2014
Q: Cant wait for the income portfolio. Any idea why Fiera (fsz) did not pay its last dividend which should have been declared in Feb?
Read Answer Asked by michael on March 04, 2014
Q: CFN

any news? stock is weak today, is this a buying opportunity before earnings?
Read Answer Asked by Eric on March 04, 2014
Q: BFN.UN-T Boston Pizza Royalties Income Fund...could you please comment on The Secondary Offering of Units?

Thank you!
Read Answer Asked by David on March 04, 2014
Q: J.Hodgins was quoted in the Feb.28 Financial Post saying HCG's "leverage...is currently about 8.5X on its mortgage book. They are moving away from (CMHC) insured mortgages and more toward subprime, and we think this is exactly the wrong time to be doing that." His reco is sell/short on a pair trade though he doesn't say what he's long.

How accurate is what he is stating is Home Capital's strategy, and how important is that leverage number? What for instance are the competition's leverage ratios and what would be a conservative number? I know that Oaken has had a fairly aggressive GIC campaign on the 3 year and less notes over the last few months and I know they like to match the mortgage and GIC terms to reduce rate risk. I've absorbed your previous responses on his BNN appearance and agree with your rationale. Thanks, J.
Read Answer Asked by Jeff on March 03, 2014
Q: Good morning!
Help! Four months ago, I started investing in my TFSA for my young adult son. I hold ACQ, AVO,CGX, STN and T. All are down between 6-7% except Telus. I know that these are good companies, but I would really like to add a stock that will show growth in the near future. What would you suggest? I so appreciate your service-my other accounts are doing well, based on your advice. Many thanks. Ellen
Read Answer Asked by Ellen on March 03, 2014
Q: MCB/GLN I am looking to raise some cash. Because of your views of McCoy and Glentel they are prime candidates. Glentel's earnings are coming out soon and I am expecting a reasonable Xmas season and hope to sell in that time. McCoy I am less sure of as to when to sell. I have a small profit in both. What would you recommend?
Read Answer Asked by Gerald on March 03, 2014
Q: Good Morning 5i,

Till more funds become available for me to invest I’ve decided to strengthen my portfolio fundamentals one sector at a time, starting with the REITs.

I currently own Senior Housing Properties Trust (SNH), RioCan Real Estate Investment Trust (REI.UN), Northern Property Real Estate Investment Trust (NPR.UN), Lexington Realty Trust( LXP), HCP In. (HCP), Dundee Real Estate Investment Trust( D.UN), Cominar Real Estate Investment Trust( CUF.UN), Chartwell Retirement Residences (CSH.UN) , Calloway REIT (CWT.UN).

I am willing to sell a couple of my holdings and buy H & R REIT and HealthLease Properties REIT. Your suggestions please, along with any other ideas you may have.

As always your help is appreciated.
Read Answer Asked by Mark on March 03, 2014
Q: Good Afternoon Peter
I already own a 1.5% position in Enghouse [ESL]. I am planning to put an additional 4.1% of my portfolio into other Infotech stocks and am focusing on Constellation [CSU], Open Text [OTC], and Descartes [DSG].
Would you spread the purchase over all three stocks or just pick one or two and what would your choice be?
Many thanks for your previous advice......Paul
Read Answer Asked by Paul on March 03, 2014
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