3 companies that could prove just as risky as the big banks

If you don't like the big banks, do yourself a favour and avoid these 3 businesses too.

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Many investors think the Big 4 banks like Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) are quite risky, due to their high reliance on home loans and elevated prices in the Australian market.

However, if you're avoiding the Big 4 banks because you think the housing market is overheated, there are plenty of other companies that could be worth steering clear of. Here are 3 of the riskiest, in my opinion:

Genworth Mortgage Insurance Australia (ASX: GMA)

Genworth is a company that investors should be majorly wary of if they think that the housing market has become too risky. As a provider of lenders mortgage insurance, Genworth could be on the hook for reimbursing billions of dollars of losses if the housing market collapses.  Not only that, but if housing sale/purchase activity declines (or lending standards tighten), Genworths' income falls because it will be writing fewer insurance policies.

Yellow Brick Road Holdings Ltd (ASX: YBR)

Along with other mortgage brokers and non-bank lenders like Homeloans Limited (ASX: HOM), Yellow Brick Road could expect to see a significant decline in its ability to write loans and earn commissions. The company also has a wealth management offering, but it appears its market-leading low-cost loans are the primary driver of both revenues and attracting new customers.

Nick Scali Limited (ASX: NCK)

Furniture retailers like Nick Scali Limited (ASX: NCK) and Harvey Norman Holdings Limited (ASX: HVN) could also be ones to watch, with their sales being an indirect beneficiary of the housing boom, as new construction led to huge growth in demand for furnishings.

Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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