Jon Mace, BNN Bloomberg
The Ontario Teachers' Pension Plan Board has announced plans to purchase the parent company of reverse mortgage-issuer HomeEquity Bank.
The deal would see the Ontario-based fund acquire HomeQ Corporation from Birch Hill Equity Partners Management Inc. Financial terms were not disclosed.
"HomeEquity Bank is an excellent fit for our growing portfolio of leading financial services firms,” said Karen Frank, senior managing director of equities at Ontario Teachers', in a news release.
“We believe the company has a high-quality management team, a solid value proposition for consumers and room to grow their business given Canada's aging population as well as the increased attractiveness of staying in your own home as you age."
Toronto-based HomeEquity Bank is best known for its CHIP reverse mortgage (once known as the Canadian Home Income Plan), which is designed for homeowners aged 55 and up.
“We are excited about the value Ontario Teachers' will bring as we continue to serve Canada's rapidly growing retiree population,” said Steven Ranson, president and chief executive officer of HomeEquity Bank, in a release. “Its long-term capital profile, track record of delivering retirement solutions and our shared vision of making a positive impact on the lives of retired Canadians makes Ontario Teachers' a natural partner for us."
The deal hinges on regulatory approval. In the news release, the parties said they expect conditions to be met in the second half of 2022.
NEWS PROVIDED BY HomeEquity Bank
Sep 22, 2021
TORONTO, Sept. 22, 2021 /CNW/ - Ontario Teachers' Pension Plan Board ("Ontario Teachers'") announced today that it has entered into an agreement to acquire HomeQ Corporation ("HomeQ"), the parent company of HomeEquity Bank, from Birch Hill Equity Partners Management Inc. ("Birch Hill") and the other minority shareholders of HomeQ. The completion of the acquisition is subject to receipt of required regulatory approvals, which the parties expect to occur in the first half of 2022.
Ontario Teachers’ announces agreement to acquire HomeEquity Bank (CNW Group/HomeEquity Bank)HomeEquity Bank is Canada's leading bank offering reverse mortgage solutions including the flagship CHIP Reverse Mortgage. HomeEquity Bank has a 30-year track record of helping Canadians 55 and older age in place by accessing the equity in their homes. The bank is well positioned for sustained growth as more Canadians near retirement age and seek innovative solutions to create income and build wealth.
"HomeEquity Bank is an excellent fit for our growing portfolio of leading financial services firms. We believe the company has a high-quality management team, a solid value proposition for consumers and room to grow their business given Canada's aging population as well as the increased attractiveness of staying in your own home as you age," said Karen Frank, Senior Managing Director of Equities at Ontario Teachers'. "Ontario Teachers' has a long history of investing in successful financial services businesses in Canada and internationally and we look forward to supporting HomeEquity Bank during its next stage of growth."
"We are excited about the value Ontario Teachers' will bring as we continue to serve Canada's rapidly growing retiree population. Its long-term capital profile, track record of delivering retirement solutions and our shared vision of making a positive impact on the lives of retired Canadians makes Ontario Teachers' a natural partner for us," said Steven Ranson, President and Chief Executive Officer of HomeEquity Bank. "I want to thank Birch Hill for its unwavering support for HomeEquity Bank over this past decade. Our partnership provided a reliable source of capital so that HomeEquity Bank could help more Canadians access the equity they built in their homes and live in the place they love."
The company's significant growth over the past nine years during Birch Hill's ownership has been driven by strong leadership, increased diversity of distribution channels, product expansion, significant investment in marketing and technologies, and a revitalized brand that resonated strongly with the attitudes of Canadian homeowners aged 55 plus.
Ontario Teachers' was advised by TD Securities Inc. as financial adviser, with Blake, Cassels & Graydon, LLP as legal adviser. Legal adviser to HomeQ was Torys LLP.
About HomeEquity Bank
HomeEquity Bank is a Schedule 1 Canadian Bank offering a range of reverse mortgage solutions including the flagship CHIP Reverse Mortgage™ product. The company was founded more than 30 years ago as an annuity-based solution addressing the financial needs of Canadians who wanted to access the equity of their top asset – their home. The Bank is committed to empowering Canadians aged 55 plus to live the retirement they deserve, in the home they love. For more information, visit www.chip.ca
About Ontario Teachers'
Ontario Teachers' Pension Plan Board ("Ontario Teachers'") is the administrator of Canada's largest single-profession pension plan, with C$227.7 billion in net assets (all figures at June 30, 2021 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.6% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. The defined-benefit plan, which is fully funded as at January 1, 2021, invests and administers the pensions of the province of Ontario's 331,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
About Birch Hill Equity Partners
Birch Hill is a Canadian mid-market private equity firm with a 26-year history of driving growth in portfolio companies and delivering returns to investors. Based in Toronto, Birch Hill currently has over $4 billion in capital under management. Since 1994, Birch Hill has made over 68 investments, with 52 fully-realized. Today, their 16 partner companies collectively represent one of Canada's largest corporate entities with over $6 billion in total revenue and more than 34,000 employees.
SOURCE HomeEquity Bank
For further information: Media Contacts, HomeEquity Bank, Yvonne Ziomecki, EVP & CMO, Phone: (416) 554-1669, Email: yziomecki@heb.ca; Ontario Teachers', Dan Madge, Director, External Communications, Phone: (416) 419-1437, Email: media@otpp.com; Birch Hill Equity Partners, Pierre Schuurmans, COO and Partner, Phone: (416) 775-3830, Email: pschuurmans@birchillequity.com
Related Links
http://www.homequitybank.ca/
Organization Profile
HomeEquity Bank
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The Ontario Teachers’ Pension Just Bought Canada’s Largest Reverse Mortgage Lender
Canadian home prices are moving faster than wages, leaving a lot of cash-poor, house-rich Boomers. The Ontario Teachers’ Pension Plan Board (OTPPB) must see opportunity, because they are buying a large reverse mortgage lender. The pension announced its acquisition of HomeEquity bank today. It might not be a familiar name, but their flagship product might ring a bell — CHIP Reverse Mortgages. The lender is the largest provider of reverse mortgages, which are on the climb again.
OTPPB To Acquire Canada’s Largest Reverse Mortgage Lender
The OTPPB announced they’ll be acquiring HomeQ, the parent company of HomeEquity Bank. The bank is behind CHIP reverse mortgages, an extremely fast-growing debt product. An announcement went out today, but it’s still subject to regulatory approval. Failing any issue there, the deal should be done in the first half of 2022. Once completed, the pension will own the largest reverse mortgage player in Canada.
Reverse Mortgages
If you’re not familiar with reverse mortgages, they’re a straightforward concept. Reverse mortgages are a type of loan where seniors pledge their home equity in exchange for cash. Lenders either deliver the funds as a lump sum, or regular payments over the term — whatever is agreed. It’s basically a mortgage in reverse, not unlike the name suggests. Another similar product is a home equity line of credit (HELOC). The biggest difference between a HELOC and a reverse mortgage is the repayment terms.
Unlike a HELOC, a reverse mortgage doesn’t require regular payments. Generally, payment is only required after death, default, or a sale. In exchange for the generous payment terms, the lender charges higher interest rates. It makes sense from the lender’s perspective since they have no idea when they’ll be repaid. From the borrower’s perspective, it might not be the best option.
Borrowers have a few issues to consider — it doesn’t take your income into account, and it’s expensive. Being on a fixed income with not a lot of money, but a lot of home equity is a dangerous combination. Borrowers that don’t have a repayment plan, or use it to fund retirement, can see their equity disappear quickly. That can leave the borrower with significantly less funds than they may have planned.
Canadians Owe $4.83 Billion In Reverse Mortgage Debt, And It’s Climbing Fast
More and more cash-poor, house-rich Boomers are seeking out reverse mortgages. The outstanding balance of reverse mortgage debt reached $4.83 billion in July, up 12.46% from last year. This is a new record high for reverse mortgage debt.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated financial institutions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
The growth rate is also worth a quick mention. The 12.46% annual growth in July is the highest level since October 2020. Except back then the market was showing deceleration of growth. Now we’re looking at high growth accelerating. As living costs rise faster than the CPI-indexed pensions, this is primed for a run higher.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated financial institutions.
Source: Regulatory Filings, Better Dwelling.
Reverse mortgage debt is likely to see huge growth as Canada’s population ages. Home prices have long outpaced income, and are now how many people fill the gap. Expensive housing also means fewer people will have funds for anything but a home. It’s a huge growth opportunity for the pension. It is ironic to see a pension make a big bet on others not having enough in retirement though.
