A tiny Canadian mortgage lender suddenly finds itself in the spotlight as its stocks plunge. It is facing a run on deposits and regulators are ready to review the company’s practices.

For real estate agents in particular and the general public overall, this points to a potential crack in the foundation of Canada’s seemingly unshakable housing market. According to a report by Bloomberg, the cracks started to form when the company allegedly failed to review a number 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. Ultimately, this piqued the interest of the Ontario Securities Commission, which determined that the company misled its investors when it didn’t disclose the fraud for five months.

The company’s stock has plummeted by 75 percent, dropping its value to about $515 million (CN) from a high of about $3.5 billion (CN).  Today, the company doesn’t have a strong deposit base and can’t fund new mortgages. It has hired investment firms to consider a sale with little success.

On May 11, Home Capital Group, issued a statement for the first time casting some doubt about its future.

“Management believes that material uncertainty exists regarding the company’s future funding capabilities as a result of reputational concerns that may cast significant doubt upon the company’s ability to continue as a going concern.”

Many agents are bracing for a potential ripple effect and there is some concern North of the Border that the issues could spread to other lenders. There is a competitive market in the alternative mortgage space, which caters to those who can’t get financed by the larger banks. One difference from the U.S. housing crisis of a decade ago, there is little evidence of faulty loans so far.

Right now, it doesn’t seem that Home Capital will be the needle that pops the Canadian housing bubble. It makes up 1 percent of the Canadian mortgage market. Trouble will loom if other lenders see similar deposit runs and retreat from the segment or if it scares off potential clients. Then, Canadian real estate agents will be left to wonder what is next.

On May 9, the company reached a deal with “an independent third party” that would allow it to issue new mortgages and increase the chances it could stay afloat.

Reuters reported on May 11 that Home Capital was in talks to divest about $2 billion in assets to help pay down a high-interest loan. It also could sell off assets, which could delay the sale of the entire company.

On May 8, Brenda Eprile was appointed as chairperson as part of a governance overhaul to reassure the market as Home Capital faces a partial run on its funding and a crisis of confidence. On May 12, she said Home Capital’s investment bankers are looking at a range of options to address their near-term liquidity and long-term funding issues.

“Sale of some non-core assets is being considered … With the couple of deals that have been announced, we’ve got some breathing room. So, now we’re taking the time to try to carefully see what are the options. A lot of parties have come forward, but we want to be smart about what we do.”