H

Home Capital Group Inc
TSX:HCG

Watchlist Manager
Home Capital Group Inc
TSX:HCG
Watchlist
Price: 44.26 CAD Market Closed
Market Cap: 1.7B CAD
Have any thoughts about
Home Capital Group Inc?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2020-Q2

from 0
Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Home Capital Group's Second Quarter Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Ms. Jill MacRae of Investor Relations. The floor is yours.

J
Jill MacRae
Director of Investor Relations

Thank you, Sylvia, and good morning, everybody. Thank you for joining us today. I know you have a busy earnings calendar right now. We'll begin the call with remarks from Yousry Bissada, President and Chief Executive Officer; followed by a review of our financials by Brad Kotush, Chief Financial Officer. With us on the call to answer your questions are Ed Karthaus, EVP of Sales and Marketing; Mike Forshee, EVP of Underwriting and Funding; Benjy Katchen, Chief Digital and Strategy Officer; David Cluff, Chief Risk Officer; Victor DiRisio, Chief Information Officer; and James Pelletier, SVP of Commercial. All of our team members are at different physical locations for this call so please understand if our sound quality and response time are not at their usual level. Before we begin, I'd like to caution our webcast participants that discussion during this call may contain forward-looking statements about Home Capital's strategies and expected financial results. Various factors could cause actual results to differ materially from those contained in these forward-looking statements. Accordingly, the audience is cautioned against undue reliance on these remarks. Please refer to our advisory on forward-looking statements on Slide 2 of the investor presentation. Finally, a link to the slides accompanying this live webcast is available on our website at homecapital.com. And now I'd like to turn the call over to Yousry.

Y
Yousry Bissada
President, CEO & Non

Thank you, and good morning. I'm pleased to welcome you to our second quarter results conference call. I'm happy to report that this was a quarter of growth for us at Home Capital. We grew our net income and our net income per share, both on a sequential and a year-over-year basis. We accomplished this even while we were -- prudently added to our credit allowance to account for deterioration since Q1 in our forward-looking economic models as a result of COVID-19. Today, we have another quarter of COVID experience behind us, and we're beginning the process of cautious reopening across the country. We're able to do that, thanks to the coordinated efforts of our political leaders, government agencies and health professionals, working together to keep the health of Canadians as the most important consideration in the reopening policies. We believe that focusing on long-term objectives and putting people first is the right strategy for this country to see this crisis through to the end and beyond. Focusing on long-term stakeholder objectives, including putting our customers and our people first, is how we operate at Home Capital. Today, I will discuss what we accomplished in Q2, our efforts at supporting our borrowers through financial uncertainty and our activities for the balance of the year. Beginning with our Q2 results. Home Capital's net income grew on a sequential and year-over-year basis. I think it is significant that we were able to grow earnings even after taking a larger-than-historical credit provision. As Brad will discuss in more detail, the increased provision was not driven by a decline in the quality of our loan book but by a deterioration in our forward-looking economic models for the second quarter compared with the first quarter. If you look at our preprovision income, it was substantially higher than the same quarter last year. We also reported year-over-year improvement in our efficiency ratio and return on equity. In all our major markets, the local real estate boards are reporting higher sales volume, higher prices and more new listings. After some slow spring sales, the recent Toronto Real Estate Board data reported the highest recorded sales for the month of July in the past 10 years. This kind of activity is possible to manage in this environment because the industry is finding ways to use technology and safe contact measures in all phases of the home-buying process. Brokers, realtors, lawyers, inspectors, buyers and sellers, everyone is working together to enable home purchases to happen. A lot of businesses have slowed down during this time of shutdown, but ours is not one of them. I could not be prouder of our industry, our partners, our people, and the work we all do to help Canadians find and purchase their homes. Here at Home, I'm pleased to report that we grew our originations this quarter compared with 2019, with growth in both our residential and commercial lending. This says as much about the importance of what we do as it does about our success in doing it, and it is evidence of a market that has stayed healthy and resilient despite all the predictions to the contrary. Importantly, we have achieved this growth in a quarter where we had adjusted our risk appetite, in line with the prevailing conditions of financial uncertainty, that is, more cautious underwriting. Our Oaken deposits continued to grow in dollar value and as a percentage of our deposit funding. This growth took place in a quarter when our Oaken stores were closed. Over time, and as local health authorities permit, we plan to reopen our Oaken stores. It has always been our strategy to put the wishes of our customers first and serve them the way they want to be served. Some customers still prefer the personal experience of in-store service, and we'll be happy to offer that again, in addition to our phone and online options. Another aspect of our operations has not changed, it is our commitment to our digital transformation. We are moving forward with Home Trust IGNITE Program. All our project teams have successfully adapted to remote work environment and projects are moving forward. We launched a new CRM release, with improved sales reporting and loan servicing functionality for all our contact center; and launched 2 additional IGNITE projects, digital banking and loan origination. The progress we have made so far has given us the flexibility to adapt to a work-from-home model and still provide high levels of privacy and security to our customer data. This flexibility made it possible to increase our quality of service to our brokers and borrowers, even while meeting high volumes of customer requests. I look forward to sharing developments with you. Turning to the subject of our customer support measures during this health crisis. It is now nearly 6 months since the World Health Organization declared COVID-19 to be a global pandemic. From the beginning, we made it our top priority to provide help and support to our people, our partners and our customers. You can see from the results we are reporting today that people still want to own homes and not even a global health crisis has changed that. As we report our last -- as we reported in our last quarterly update, Home offered payment deferrals on over 9,000 loans, totaling nearly $4 billion in asset value or 23% of our loan portfolio as of April 30. As of July 31, those figures have declined to fewer than 3,000 loans, and less than $1.3 billion or roughly 7.5% of our loans. And we expect to continue to see a decline in the deferrals. Brad will talk about the numbers later in the call, but I want to tell you a little bit about the process and how it ties with our unique value proposition. In the early days of the shutdown, people feared for the security of their homes, even as they depended on their homes for isolation and safety. Our response was, we are here to help. Home gave 2 months payment deferrals to any borrower whose account was in good standing and who told us that they had been impacted by the pandemic. We were happy to do that. Home was able to pivot from not only helping Canadians own their homes, to helping people keep their homes. Beyond the initial 2 months, we followed a different process. Borrowers were required to file a new application for relief. We looked at the financial picture of each customer, educated them on the impact of different relief options and worked with them to determine the best way forward. In some cases, that meant additional deferral support. For some borrowers, it meant adjusting their payments. In other cases, we helped them understand that it was not in their best interest to take additional debt and counseled them on how to find ways to return to regular payments. In these extraordinary circumstances, we can serve our customers best by listening to their stories and helping them make the best decisions for their unique situations. The 2-month approach gave us the opportunity to support our customers when they needed it most, but also the opportunity to gain valuable insight in our customers' borrowers -- in our borrower's ability to repay before granting additional relief. We believe the economic environment in which we find ourselves will create an ongoing need for individual lending solutions, and we have the experience to meet that need. Now looking ahead to the balance of the year. The latest data on sales activity and housing prices are consistent with a healthy and resilient real estate market. Our people have shown that they can execute effectively in this environment, and we are confident they will continue to do so. We will move ahead with our plans for reopening our work space while committing to our employees they will be able to return safely. And we are proceeding with our strategy for digital transformation through our IGNITE Program. In the event of a second wave of the pandemic, we are now even more well equipped to face these unique challenges and continue to operate our business with agility, resiliency and integrity. COVID-19 has created a lot of disruption to the economy and to our business. While we look forward to an eventual recovery, we can't be certain of its timing and magnitude. We are using this period of restricted operations as an opportunity for learning and development. The deferral programs that we put in place have been an opportunity to have meaningful conversations with our borrowers, to listen to their stories and learn how we can best help them. Remote working has given us opportunities to engage with our employees and to learn more about what they need to carry on, the important work we do. We are engaging with brokers and learning how we can be a better partner to them. We are able to make use of this opportunity because we had all the elements in place to function successfully before the health crisis began to affect all our lives. We had and continue to have a strong capital position, abundant liquidity, a sustainable risk culture underlying all our interactions, a culture that emphasizes service excellence and an unparalleled group of team members who are dedicated to the important work we do. I will now ask Brad to discuss our financial results.

B
Bradley William Kotush
Executive VP & CFO

Thanks, Yousry, and good morning, everyone. We appreciate you taking the time to join us. The presentation on our financial results begins on Slide 7. As Yousry mentioned, we've made significant efforts over the past 3 years to allow our business to perform in any conditions. The fact that we are navigating a global pandemic with a strong balance sheet and ample liquidity to support our customers is evidence of the success of that effort. Our people, capabilities, values and sustainable risk culture have been put to the test, and the results are showing the resilience of our business model. We are pleased to report diluted earnings per share were $0.65 on a reported basis and $0.70 on an adjusted basis, an increase of more than 20% relative to both last quarter and the same quarter last year. Net income also grew on both a sequential and year-over-year basis. Our Q2 net income grew by 23% over Q1 and by 7% over Q2 of 2019. On an adjusted basis, net income grew by 23% over Q1 2020 and by 5% over Q2 2019. The growth in net income that we reported this quarter is all the more significant because we achieved it in a quarter in which the majority of our team was working remotely and that we took sizable provisions to strengthen our balance sheet against forecasted deteriorating economic conditions. Slide 8 breaks down some of the components of that growth. You will see that net income per share this quarter was helped by improved net interest margins and by a lower number of shares outstanding. You can also see our credit provisions in the quarter reduced our earnings per share on a relative basis by $0.18. Slide 9 shows our originations for the quarter. We increased our originations in both residential and commercial mortgages. Lower volumes in the alternative market were more than offset by higher Accelerator volumes. Commercial volumes grew by 60% over last year. Slide 10 shows our total loan portfolio with growth of 3% year-over-year, broadly in line with the market. As you can see on Slide 11, we adjusted our risk appetite at the end of Q1, which resulted in tighter underwriting standards. The impact on our portfolio is evident with a higher FICO score this quarter on new originations compared with Q1 and by a higher FICO score on the overall portfolio. Slide 12 shows the progress of our net interest margin, which reached 2.4% this quarter compared with 2.38% last quarter and 2.09% in the same quarter last year. This quarter, NIM was enhanced by higher yield on loans and lower deposit costs. But it was also negatively impacted by a higher average volume of low-yielding liquid assets on the balance sheet relative to Q1. Despite the drag on our NIM, we continue to hold a substantial volume of liquid assets on our balance sheet. We believe this is a correct strategy for an economic environment, which is still uncertain. Another aspect of our liquidity risk management shows through in the management of our Oaken channel on Slide 13. We've continued to attract deposits to Oaken, which has now reached over $3.7 billion, over 26% of our total deposit funding. 84% of those deposits are in the form of term deposits. Turning to a discussion of customer deferrals and credit, beginning on Slide 14. During our Q1 call, we reported that we had granted payment deferrals on over 9,900 loans, representing over $3.9 billion principal balance as of April 30. As of July 31, loans under deferral had declined by 73% to under 2,700 loans, and the principal value of the loans under deferral declined by 67% to approximately $1.3 billion. On Slide 15, you can see we took additional credit provisions of $18.7 million this quarter. The provisions related to a deterioration in the economic outlook over the life of those loans. Details on our models are on Page 53 of the notes to our financial statements. In all scenarios, unemployment is not expected to return to pre-COVID levels until 2022. All scenarios are forecasting a decline in housing prices over the next 12 months. Although the latest data on the Canadian housing market shows it to be active, this has not yet been incorporated in the economic models behind our credit provisioning decisions. Write-offs during the quarter remained modest at 2 basis points of assets, even under these conditions, underscoring the quality of our loans and our security. As you can see on Slide 16, net nonperforming loans are stable at 0.42% of gross loans and 0.37% of gross single-family residential loans. The right-hand chart tells you that Stage 3 loans were 31% covered by Stage 3 allowances at the end of Q2 versus 24.3% at this time last year. Looking at the components of our allowance for credit losses on Slides 17 and 18. You can see that we increased our allowances for expected credit losses in residential, commercial and consumer retail lending. As we mentioned earlier, 94% of the increase this quarter was attributable to Stage 1 and Stage 2 loans that are currently performing. If economic conditions evolved in a way that is consistent with the predictions in the credit loss models, subject to any other unexpected changes, our current level of provisions are expected to be sufficient to cover expected losses. If future conditions are forecast to be worse than the scenarios in our models, additional provisions are expected to be required. If the future is more favorable than the models are predicting, it is reasonable to expect that a portion of the credit allowance will be reversed back into earnings. Slide 19 illustrates our liquidity risk management, with a high volume of liquid assets, supported by a high volume of near-term maturities. Slide 20 discusses some of the additional funding and liquidity options available to the company. Access to multiple sources of liquidity, as required by our sustainable risk culture, has never been more important than in this time of crisis. Finally, as you have come to expect, our capital and leverage ratios are comfortably in excess of regulatory requirements. This quarter, we added 75 basis points to our CET1 capital through our normal operations. And now I will turn the call back over to Yousry for closing remarks.

Y
Yousry Bissada
President, CEO & Non

Thank you, Brad. I began this call by talking about putting people first and making decisions based on long-term objectives. This approach to our operations is fundamental to our sustainable risk culture and our value of protect our home. It is during unprecedented events like this that we can truly take stock of what is important. For us, it is helping Canadians achieve their dream of owning and protecting their home. Although the future is uncertain, I am confident that we have the right strategy and resources to come through even stronger than before. I now turn it over to the operator for questions.

Operator

[Operator Instructions] Your first question comes from the line of Cihan Tuncay from Stifel.

C
Cihan Tuncay
Director

Just wanted to dig in a little bit more on the NIM. Brad, could you talk to how those dynamics between your -- the spreads that you're getting have changed between Q2 and what we've seen so far in Q3? Are those spreads maintaining or -- like on your mortgage rates and deposits? Or -- and potentially, is there anything you can do to lower your deposit rates even further going forward?

B
Bradley William Kotush
Executive VP & CFO

Thanks, Cihan. I think the deposit rates are, in particular, on the deposit boards, are competitive. And we've seen them decline. It's hard to predict if they've actually hit bottom. I think the bank can't -- well, I know the Bank of Canada has talked about what their expectations are in overall rates. So while we may see some decreases, it's unlikely that we will see the rapid decline that was apparent over the last quarter. The -- but we haven't seen a decrease in the spreads that we're able to earn for the past month. We hope to be able to continue that. But again, with competitive pressure, in particular, we're seeing more on the near-prime uninsured space. We are still working on maintaining our spread on those. Again, that's competitive, but we have not seen a decline in spreads since the last quarter.

C
Cihan Tuncay
Director

And then -- and maybe just a follow-up to that. It seems that sentiment, overall, has picked up somewhat from where we were several months ago. How do you think about where your deposit levels are today and just overall liquidity position? It looks like that was a little bit of a drag on NIM performance for the quarter. Just wondering how you think about liquidity going forward or, rather, any changes to your sentiment on liquidity now versus where you were in Q2.

B
Bradley William Kotush
Executive VP & CFO

I agree with your statement. I think people are feeling, I'll say, more confident. And we have -- we are carrying lower levels of liquidity than we had at the beginning of Q2.

C
Cihan Tuncay
Director

Okay. And maybe just one last follow-up question, if I could sneak one more in. It looks like there was an uptick in the efficiency ratio. Just wondering if you can talk about -- if there's any other levers you can pull on the expense side in the back half of the year. And then, maybe, also just go over why that efficiency ratio number went higher for the quarter.

B
Bradley William Kotush
Executive VP & CFO

Sure. I'll continue on. The last quarter, we had increased -- or we made a provision for legal contingencies. That was under $10 million that helped drive up our noninterest expenses. And we do expect to see some increase -- or we're forecasting some increased activity in relation to our IGNITE Program, which covers our SAP reimplementation as well as digital initiatives that we think to invest in the company for the long term. So we do think that we will see higher levels of noninterest expense relative to Q1 but slightly lower than we saw in Q2.

Operator

Your next question comes from the line of Geoff Kwan with RBC Capital Markets.

G
Geoffrey Kwan
Analyst

Just a question on the deferrals. And based on how you're describing how you're handling it, would it be accurate to say that the current deferral balance outstanding would represent people who are, let's call it, truly having financial difficulty and therefore, not using deferrals for financial flexibility?

B
Bradley William Kotush
Executive VP & CFO

I -- sorry, go ahead, Yousry.

Y
Yousry Bissada
President, CEO & Non

Geoff, first of all, so probably we'll both answer a little bit. As I mentioned in my comments, every deferral, we've now talked to every client and understand the situation and offered a number of options. And as you can see, the number of deferrals has come down significantly. So the ones who are still there are people who are having more difficulty, even though it's a smaller portion. But we are somewhat comforted in that, on average of the deferrals, the loan-to-value is still in the low 60s, 62%, 63%, and that their FICO scores are around 700. It slightly differs for what we call Accelerator, the A product versus the Classic, but very close, around 700. So we're working through it. We keep giving them options. We understand these are, as I say, case-by-case basis. And we do expect it's going to continue to go down as we help them work through it, short of a second wave of unemployment or COVID, but just the way it is going at the moment. Brad, anything to add?

B
Bradley William Kotush
Executive VP & CFO

No. Yousry, I think that was responsive to the question.

G
Geoffrey Kwan
Analyst

Okay. And I guess I'm trying to understand, if you have a situation where someone's lost their job and if you completely ignored what their credit score was, for example, what the loan-to-value on the mortgage would be, but in your assessment that this person would likely still be delinquent after 6 months if you were to do that, how are you treating them? Are you still willing to extend them the 6 months, if needed? Or if you have that view, like I said, that you think they're going to go delinquent, regardless, would you be looking to try to deal with that sooner?

Y
Yousry Bissada
President, CEO & Non

So we, first of all, would look at a number of options. We could increase amortization, which would reduce the payment. There's a number of things we would do, but we will act a bit of like their financial consultant. I mean if the mortgagor sees there is no out, and they're not going to get employed, and they're going to going be unemployed for a while, yet at the same time, they have 62% or 63% loan-to-value, there's a good chance the market is still very capable that they'll sell to get out of the debt and take what they've got. So back to the way you've asked the question, I mean, we can defer longer. It's an option for us. We wouldn't get the relief that the regulators have allowed for sort of this period of up to 6 months, starting back in March. We wouldn't get the relief. It looks like any other arrears. And then we would work it, as we would, in the regular process. Eventually, the mortgagor will be able to recover and pay back and/or capitalize what's been deferred, have a larger mortgage and because they're employed, pay back from them. And the worst and absolute last case is they sell the home, or we help them sell the home to get out. Does that answer it, Geoff, the option forecast?

G
Geoffrey Kwan
Analyst

Well, I guess, yes. I mean...

B
Bradley William Kotush
Executive VP & CFO

Sorry, Geoff, if I can -- just to sort of the initial part of your question, you were mentioning 6 months. We've never granted 6-month deferrals. We've only gone a maximum of 2 months. So we expect to have a lot -- as Yousry said, like we expect to have a lot of resolution in the credit situation of the deferrals and/or to get more insight as we go along, like we're adjudicating almost all of these loans. And our team is working with our borrowers. So we're very confident with the individuals in that deferral. And Yousry has already listed out a number of options that those borrowers would have.

G
Geoffrey Kwan
Analyst

Yes. I mean, worst case, i.e., granted it would be an extreme example. And yes, I mean, I know that you've given the deferrals firmly for a couple of months. But looking at the banks that have done 6 months, was -- if you had, again, a situation where you had a borrower that may not or would likely be delinquent, if you kept them to 6 months, even if you were to do all these different modifications were like that, that's still not going to solve it. And if they -- and if you could not convince them to sell their home, my question was like, would you look to take action earlier than that? Or is there something, other factors that you would still be willing to extend for the full 6 months that other lenders have granted, is what I'm trying to understand.

Y
Yousry Bissada
President, CEO & Non

Yes. No, I think I understand your question better. And if I don't, Geoff, tell me. No. So after 2 months -- before -- after about a month, we start talking to them again. And it's like an underwriting process for deferral. If we feel the situation is -- it is temporary, there is good solutions coming out the other end, we'll approve them for deferral. If we don't, then it goes into the arrears like any other mortgage that's having difficulties. So after 2 months, if we will re, for lack of a better word, underwrite them, we will relook at the file and extend up to 2 months and/or all these various options I've already talked about. And then, again, at the end of 2 months, we'll do it again to a maximum of 6. And then at that point, it would be going through. But if we -- to answer your question, specifically, if we felt someone had no opportunity, we wouldn't approve them for a deferral, and they'd begin in the process of being in arrears.

G
Geoffrey Kwan
Analyst

Got it. Okay. That's what I was getting at. Okay. And then just my other question was just on Accelerator. It was higher than what you've kind of normally done. How to think about what that profile might look like over the next couple of quarters?

Y
Yousry Bissada
President, CEO & Non

So Accelerator is something we've been working on for quite a long time to put us in a position that we are to date. As you know, Geoff, Accelerator doesn't really make sense to put on balance sheet, given the NIM spread. It's more a off-balance sheet securitization. So our Treasury team has worked hard to put in place opportunities for us to do Accelerator mortgages and get them off-balance sheet. So I think it's now going to be programmatic for us. We will continue to be in this space. It will probably never outshine our Classic, which is our bread and butter. But we expect to be more competitive, more like -- more as we have done in the past quarter as opposed to the way we looked a year ago in the Accelerator market.

Operator

[Operator Instructions] Your next question comes from Rasib Bhanji from TD.

G
Graham Ryding
Research Analyst of Financial Services

It's Graham Ryding here. But just on the -- when you adjust the borrower's payment, in a situation like that, does that still qualify as a deferral situation? Or does that move into -- how do you group that or treat that mortgage? Is it treated as impaired at all? Or how do you treat it in your reporting where you're managing the book?

Y
Yousry Bissada
President, CEO & Non

Yes. So -- Graham, if you -- the way you adjust the payment is you can change the amortization or you can go to biweekly versus monthly, if that helps. So if you change the amortization and recalculate the payment and they're making payments, they're not an arrears. They may have capitalized what they've deferred so far, 1 or 2 or 3 months, or they may have paid back and then resumed from there. Every situation is slightly different. If you recalculate the payment based on moving amortization, and they don't pay or don't partially pay, then it looks like an arrears, it's no longer a deferral.

G
Graham Ryding
Research Analyst of Financial Services

Got it. Okay. That makes sense. And then on the credit side, I just want to confirm that you did make some changes to your sort of macro assumptions that go into your credit model? And do those deteriorate somewhat from what was in your credit model as of Q1 '20?

Y
Yousry Bissada
President, CEO & Non

Sorry, Graham. I'm not sure I fully understand. Did we change our underwriting guidelines? Is that what you mean?

G
Graham Ryding
Research Analyst of Financial Services

No, no, no. In your credit -- in your view of forecasting credit losses and whatnot, the macro assumptions that you use around unemployment rate and house prices and GDP, did those decline relative to what you had assumed as of Q1 '20?

Y
Yousry Bissada
President, CEO & Non

Okay. I think Brad is best to answer that.

B
Bradley William Kotush
Executive VP & CFO

Yes. Sure, Graham. Yes, so we've got our scenarios for base upside and downside. And from March 31 to June 30, the average unemployment rate had increased. And the HPI, or Housing Price Index (sic) [ House Price Index ], declines -- moderated, our models have a bigger effect on -- or the average unemployment rate drives the probability of default. So any increases in average unemployment rate tend to offset mitigation in house price declines. So for example, our base case at March 31 had an unemployment rate -- average unemployment rate of 8.62%, at June 30, that was 10.07%. And similarly, for the HPI, the base was a decline of 8.16%, and at June 30, that was 5.48%.

G
Graham Ryding
Research Analyst of Financial Services

But the unemployment was -- had more of a influence than the house price?

B
Bradley William Kotush
Executive VP & CFO

Yes. That's correct.

G
Graham Ryding
Research Analyst of Financial Services

And did I -- it looked like your changes in your macro assumptions actually led to a decline in your residential PCLs but an increase in your commercial PCLs. Did I interpret that correctly?

B
Bradley William Kotush
Executive VP & CFO

We're actually up in single family, commercial and other consumer. We had a small recovery in credit card.

G
Graham Ryding
Research Analyst of Financial Services

Okay. Okay. And then just my last question, just on Oaken. The new originations that you brought in through the Oaken channel in the quarter, were those all digitally sourced given your branches were shut down? And when do you expect the branches to reopen?

Y
Yousry Bissada
President, CEO & Non

Yes. They were digitally sourced because we were shut down. We shut down the branches immediately. We're following the protocols of each city and our own guidelines in terms of when we will reopen. It's probably over the next few weeks, but no certainty on that until everything has been cleared.

Operator

Our next question comes from the line of Stephen Boland from RJ.

S
Stephen Boland
MD & Equity Research Analyst

Yousry, Brad, I'm not sure who's best to answer this. But I guess I'm trying to understand, Yousry, in your opening remarks, that you mentioned that -- I can't remember, it was the Toronto Housing Board, or whoever said that there's an expectation that housing prices would decline. So for those people on deferrals, you also mentioned that you factor in the loan-to-value, and if they're at 60% or 70%, then you may give them some leeway. So how do you balance that, the thought of declining housing prices, and your margin on the loan-to-value declining? Is there a point where you say, at 80%, we're going to foreclose regardless of what is happening? Like is that going to be a big factor in terms of when you take further action against some of these homeowners?

Y
Yousry Bissada
President, CEO & Non

Good to talk to you again, Steve. I haven't talked to you in a while. So what I was referring to is there's a lot of various people predicting real estate declines, such as CMHC. CMHC has been quite public about what they believe are going to be the decline in values over the next year, 1.5 years. But that hasn't happened yet. So far, there have been increases in values. In GTA and GVA, the market has been exceptionally hot. And I referred in the script, the Toronto Real Estate Board numbers for the month of July are the highest they've been in the last 10 years, when you compare the last 10 Julys, so by a lot, by almost 1,000 more sales. So it hasn't happened yet. So we're actually going the other way. So somebody whose loan-to-value is 62%, it may be coming down based on what's going on right now. But having said that, we don't know if they're going to be right in the future or not. So the way we look at it is we know approximately our cost if we have to go and sell that home. We know approximately what it will take. We factor that in. And then we see if there's lots of room or enough room for movement in the LTV. So at 62%, on average, there's plenty of room for the -- for us before we take a dollar of loss, quite a bit of room. And the provisions, as they stand based on IFRS 9, as we've discussed, are all about forward looking. We're not experiencing anything bad in our current portfolio more than normal. 2 basis points of loss is about normal for the last few years. It is all about forward looking. And as Brad mentioned, the unemployment, that's expected. The HPI, that's expected, which looks at every single loan. But it would take a substantial decline in the values and a substantial amount of default before we actually used all that allowance. But accounting's accounting, and we're sticking to it and keeping conservative all the way through. I always like to check if I answered your question because I digress a little bit. But did I answer your question on the first part?

S
Stephen Boland
MD & Equity Research Analyst

Yes. I mean, I think -- yes, I think you did. In terms of -- I mean is it your view then, like, that housing crisis will continue to be steady, up or down? I mean what's your view as opposed to some of the sources?

Y
Yousry Bissada
President, CEO & Non

Yes. That's so hard to answer, Steve. I don't have that crystal ball. And -- but what I do know is that we are prepared for a decline. That's what all these allowances are doing. They're prepared for a decline, and we're ready for it with the high unemployment. But there are so many factors that I just can't put together. Is there going to be a second wave? Or is unemployment going to spike? Is the market going to shut down again? I can't -- I'm not an economist to kind of add all these in. But all we do is, as we always say, is we look at one deal at a time. The market has been very hot. We have been -- done much more prudent underwriting in this hot market, and are very comfortable with what we're doing and can withstand a lot of variation in the future. We've got a very strong balance sheet now to withstand that now and for a long time.

Operator

You have a follow-up question from Cihan Tuncay from Stifel.

C
Cihan Tuncay
Director

Just a couple of quick follow-ups for me. Yousry, do you have a sense at all of -- given the strong origination volume that you just spoke about, do you have a sense at all if there's -- if you're seeing increased demand for single-family homes versus suburban caused by COVID? I mean are we seeing some of this increase, whether it's on the fresh pricing level or overall activity level? Do you have any sense at all whether or not COVID is leading to a structural change in demand flow from urban to suburban, how your views on that would support the outlook for house prices?

Y
Yousry Bissada
President, CEO & Non

Yes. So we're hearing from realtors and brokers of some activity in that regard. I don't think it's significant enough to declare a shift. But there are people who are saying, "I'm going to work from home for a long time and/or for the rest of my career. That's all I want. So I don't need to be in a 400-square-foot condo in downtown Toronto. I'll go move where I can get some green, in St. Catharines or Ancaster, somewhere further up." So we're hearing some of that. And I think more of it will happen. Whether it becomes significant yet, it's too early to say. Are you there, Cihan?

C
Cihan Tuncay
Director

Yes. Sorry. That's -- I was on mute there. Yes, I just wanted to follow up on that. I didn't have any other follow-up questions.

Y
Yousry Bissada
President, CEO & Non

Yes. Thanks.

Operator

And I show no further questions at this time. I will now turn the call back to Ms. MacRae for any closing remarks.

J
Jill MacRae
Director of Investor Relations

Well, thank you all for attending our conference call today. And if you have any follow-up questions, you can contact or e-mail Investor Relations. Thanks again. Be well, and have a good day.

Operator

Ladies and gentlemen, this does conclude Home Capital Group's Second Quarter Financial Results Conference Call. We thank you for your participation and ask that you please disconnect at this time.