Contents
Summary & Investment Recommendations 3
Company Summary 4
Investment Recommendations 5
Valuation Approach 7
Report Summary 8
Industry Highlights 12
Industry Overview 15
U.S. and Canadian Residential Mortgage Markets Are Drastically Different 16
Factors Impacting Residential Mortgage Industry 20
Outlook for Conventional Residential Mortgage Market 20
Canada’s Non-prime Mortgage Industry 22
Subprime Meltdown Unique to U.S. Market – Canadian Non-Prime Has Little in Common 23
Level of Competition Drastically Declining in Non-prime Market 25
Competitive Landscape 25
Mortgage Brokers a Growing Trend 26
Sources of Mortgage Funding and Their Risk Implications to Lenders 26
Outlook 28
Reduced Competition Creates Significant Unclaimed Market Potential 28
Exodus from Non-prime Segment Brightens Outlook for Certain Players 29
Competitive Dynamic Shifting: Mortgage Insurers Entering New Markets 30
CMHC’s Canada Mortgage Bond an Attractive Source of Funding 32
Not a Defensive Play: Sector Remains Economically Sensitive 32
Stress Testing a Downturn in Credit Performance 32
Risks 34
Equitable Group Inc. – Growth Potential Not Recognized
Summary and Investment Recommendation 38
Capital Markets Profile 41
Company Profile 42
Investment Outlook 46
Forecast 51
Specific Risks 52
Valuation 53
Appendix – Financial Summary 55

First National Financial Income Fund – Diverse Funding Sources Not Fully Appreciated
Summary and Investment Recommendation 58
Capital Markets Profile 61
Company Profile 62
Management Profile 64
Investment Outlook 65
Forecast 70
Specific Risks 71
Valuation 72
Appendix – Financial Summary 74
Home Capital Group Inc. – A Sustainable Growth Story
Summary and Investment Recommendation 78
Capital Markets Profile 81
Company Profile 82
Investment Outlook 87
Forecast 99
Specific Risks 100
Valuation 101
Appendix – Financial Summary 103

Summary & Investment Recommendations
We have launched coverage of three non-bank mortgage lenders: Home Capital Group Inc. (HCG-T),
Equitable Group Inc. (ETC-T), and First National Financial Income Fund (FN.UN-T). Equitable Group is
rated 1-Sector Outperform, and Home Capital and First National Financial Income Fund are rated 2-Sector
Perform. Details are summarized in Exhibit 1.
We believe that negative investor sentiment towards mortgage lenders has resulted in depressed
valuations that do not reflect the strong growth profile or long-term underlying fundamentals of these
companies. Reduced competition in Canada’s non-prime mortgage market has benefited the remaining
lenders. As a result of a number of major competitors exiting the segment, we anticipate the non-prime
mortgage lenders will experience a growth rate of 15% to 20% over the next five years, even with an
expected slowdown in the overall mortgage market. Despite an attractive growth profile and long-term
underlying fundamentals, the group is trading at average forward P/E multiples of only 9.9x and 8.4x
for 2008E and 2009E.
The risks associated with the Canadian mortgage lenders are both reasonable and measurable, in our
opinion. While the sector is economically sensitive, the companies under our coverage universe do not
have any direct exposure to the complex derivatives of structured credit securities that have been the
source of substantial writedowns and uncertainty across the financial services sector.
We believe that the balance of risks from this overly discounted sector offers some compelling
opportunities for investors.
The non-bank mortgage lenders are part of an out-of-favour sector.
• Despite the significant underlying differences between the Canadian and U.S. mortgage industries, the
Canadian non-bank mortgage lenders remain out of favour and in our opinion offer an attractive
opportunity for investors.
• The Canadian mortgage markets tilt the risk towards borrowers, creating a more conservative borrowing
culture in Canada. This likely explains historically lower mortgage default rates in Canada, and enables
Canadian mortgage lenders to better weather a downturn in the housing markets than their U.S. peers. We
believe that investments in Canadian mortgage lenders have lower risk than their U.S. peers, a fact we do
not believe the market fully appreciates.
The housing market is expected to moderate, but underlying fundamentals for Canada’s residential
mortgage market remain sound.
• Canada’s mortgage and housing markets remain healthy with delinquency rates near 20-year lows. We
expect the housing market to moderate over our forecast period and return to more sustainable levels. We
view this positively as it reduces the risk of a housing bubble bursting similar to what has taken place in
the U.S.
Reduced competition in the non-prime segments has benefited the remaining lenders that fund
mortgages through deposits or have diverse sources of funding.
• The exodus from Canada’s non-prime market is likely a reflection of changes in the capital markets that
impact access to mortgage funding, rather than a change in the outlook for the performance of Canada’s
mortgage market.
• Reduced competition has enabled lenders to (1) regain pricing power, and (2) originate greater volume
of loans from better-quality borrowers.