Home Capital Group suffered a sharp slowdown in its core mortgage business in the third quarter as the embattled lender faces fallout from a crisis of confidence.

The embattled lender reported an 85-per-cent plunge in mortgage originations in the three months ending Sept. 30, with $385 million in new loans compared to $2.54 billion a year earlier.

Home Capital also warned originations will likely be “well below historical levels” during the fourth quarter.

“Looking ahead, our top priority is to grow our residential and commercial business lines to more normal and sustainable levels. We are enhancing our sales and underwriting processes to improve service levels and win business,” said CEO Yousry Bissada in a press release.

Home Capital Group also reported net income of $30 million in its most recent quarter, about half of what it earned in the year-ago period before the Ontario Securities Commission alleged that it misled investors.

The Toronto-based mortgage lender's (HCG.TO) third-quarter income amounted to 37 cents per share on a fully diluted basis and included the impact of reduced loan balances, increased interest expenses, elevated non-interest expenses and loss on sale of mortgage assets, the company said in a statement late Tuesday.

That compares to a net income of $66.2 million and $1.01 diluted earnings per share in the same quarter last year.

Third-quarter revenue amounted to $95.4 million, down from $145 million in the similar quarter a year ago.

"Third quarter performance continued to reflect a number of negative factors stemming from the liquidity event including lower residential and commercial loan assets, higher deposit interest costs and elevated non-interest costs," the company said in a statement.

"New loan originations were well below historical levels and are not adequate to replace loan assets reduced through sales."

It's been a tumultuous few months for Home Capital, which has been looking to restore soundness after allegations it was misleading shareholders prompted a run on deposits by customers in April.

The lender said in October that it's still facing elevated expenses because of the scrutiny, and the need to borrow funds at higher rates to make it through the liquidity crunch.

“It’s sort of sad the way this has all worked out,” said Michael Sprung, president of Sprung Investment Management and a Home Capital shareholder, in an interview with BNN.

“If they can get their funding under control and the originations start to climb, I believe this company is on the road to recovery. But whether it will recover to the extent that it was prior to the intervention by the Ontario Securities Commission, I’m not too sure.”

-- With files from the Canadian Press