Banks to be more transparent with controversial product

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A major broker gripe about a big bank mortgage policy has finally been addressed by Finance Minister Joe Oliver and more transparency about the practice is forthcoming.

Canada’s eight largest banks have promised to provide more information about collateral mortgages; including online educational resources and better training for bank employees to help them better explain the difference between collateral charge mortgages and their conventional counterparts.

“Our government is standing up for consumers and saving Canadians money,” Joe Oliver said of the voluntary policy.

The Department of Finance requires lenders to provide more disclosure for collateral charge mortgages than traditional mortgages. The website reads:

While many consumers continue to choose a traditional mortgage to secure their home loans, many are increasingly choosing collateral charge mortgages. The impacts of having a collateral charge mortgage may differ from traditional mortgages. For instance, switching between lenders may be more difficult. To make an informed choice, consumers need sufficient information to clearly understand the costs and consequences of collateral charge mortgages relative to traditional mortgages. The government will require enhanced disclosure, better equipping borrowers to understand these impacts.

However, many brokers have complained about client ignorance surrounding these particular mortgages.

“(Clients) are effectively entering into an ‘all indebtedness’ mortgage, which brings any other debts to that specific lender under the umbrella of the registered security against the real estate,” Dustan Woodhouse, a B.C.-based broker with Dominion Lending Centres wrote in the March issue of CMP Magazine. “In other words co-signing a credit card or car loan for somebody that stops making payments with the same lender holding the mortgage can ultimately result in a foreclosure notice against the original client’s property.

“This is often not clearly spelled out on a mortgage commitment.”
  • Mortgage Agent Geoff on 2014-09-04 4:19:57 PM

    hmmm...banks not providing customers with complete or accurate info. Where have I heard that before? Oh yah...almost every customer in front of me. Its frustrating that companies with such influence both on customer behavior and national financial policies are allowed to get away with such "inadvertant" slip ups without penalty.

  • Gale Tracey AMP, Mortgage Architects on 2014-09-05 11:41:36 AM

    In this economy you never know when you may be downsized, laid off or some other unforeseen life event may happen. You need to have all your options available. The clients I have talked to had no idea that when they signed their collateral mortgage agreement they gave up 100 to 125% of the value of their home. If they had needed to obtain a second mortgage to get them through a financial set back they would not have the equity or freedom to obtain a second mortgage. THIS DISCLOSURE SHOULD BE MANDATORY WITH ALL BANKS AND CREDIT UNIONS AND REPEATED AT THE LAWYERS OFFICE.

  • kac on 2014-09-05 12:52:33 PM

    recently a client tried to transfer on renewal a cmhc 95% mortgage that was registered as a collateral mortgage which no where did the approval forms indicate that is what was being registered and the credit union refused to send an assignment of the existing charge document and would only send a payout figure for the discharge of the mortgage which made it impossibe for the client to switch lenders as a refinance was not a possibility at above 80% ltv,the clients were so angry they contacted the regulatory body and filed a complaint and as a result the credit union issued a demand notice for repayment even though the client was not in default,the client then filed another complaint and long story short the credit union finally issued the assignment of transfer form and the client was able to leave so obviously the credit union had the ability to comply and just did not want to. I can't fathom to wonder what would happen to a licensed broker had they held the client hostage in this fashion. As far as i am aware the lenders only acknowledge the fact that the collateral mortgage is re-advanceable to the clients and in a lot of cases neglect to inform them they actually have to re-apply and qualify for extra funds should they need them and it is not just call the institution and ask them to drop a sum of money in their accounts.

  • rhéau séguin on 2014-09-05 12:55:05 PM

    also include Desjardins witch they can do wath they want they are a co-op and does not go under any of those rules and regulations, so Mister Oliver can not do noting with them, they are the worst mortgage contract on the market, noting to advantage the clients

  • rhéau séguin on 2014-09-05 12:55:06 PM

    also include Desjardins witch they can do wath they want they are a co-op and does not go under any of those rules and regulations, so Mister Oliver can not do noting with them, they are the worst mortgage contract on the market, noting to advantage the clients

  • rhéau séguin on 2014-09-05 12:55:07 PM

    also include Desjardins witch they can do wath they want they are a co-op and does not go under any of those rules and regulations, so Mister Oliver can not do noting with them, they are the worst mortgage contract on the market, noting to advantage the clients

  • M. Robertson on 2014-09-05 1:00:49 PM

    What I find most interesting is that brokers complain about this product, and claim that THEIR customers are not informed enough about the product... Isn't that the job of the mortgage broker? To make sure that as your customer I FULLY understand all of my options pertaining to different products?

    I can remember other articles where brokers profess that they are not here for just rate, that they are not just order takers. That brokers are here to educate the consumer.

    So start educating. Tip #1 - tell your customers to ASK questions. Tip #2 - tell them to actually READ the documents BEFORE they sign them.

  • kac on 2014-09-05 1:35:07 PM

    quite amusing when the commitment put forward from the financial institution indicates nothing about a collateral charge anywhere in the print that the clients is asked to sign,when and if there is information regarding the collateral charge it is most certainly the brokers or LENDERS job to explain the pros and cons,if it is omitted from the approval forms it would be a very tough thing for the most educated of brokers to explain.

  • Gale Tracey AMP, Mortgage Architects on 2014-09-05 1:53:15 PM

    M Robertson, most clients in this situation went directly to Bank/Credit Union and DID NOT use a broker. They talked to a Personal Banker or an Account Manager who could have been a Teller yesterday. I must say there are a lot of very experienced bankers/account managers but they do not always inform the clients fully on this product and client doesn't find out until mortgage matures or they need to refinance.

  • Joanna Barron on 2014-09-05 3:24:13 PM

    I am a new broker, and came from one of the 'big' banks as a mort specialist-3yrs. the 'big' bank does not explain to even the specialists that from the back office they are registering all form B's as 'running accounts' even on default insured. these too cannot be switched out. they can answer to the govt so far, they are not necessarily registering as a 'collateral' charge however it means the same thing for the client. Cannot switch out, only re-fi. I just had a client from the 'big' bank, and I luckily found First National that would recognize it was a switch (no new money) and they would still honour the 90% LTV and 30 years left on amort and I paid the legal fees as if it was a re-fi. nice to see other lenders now finding a work around for these 'running accounts/collateral charges'. shame on the big banks. glad to be a broker and working for the client.

  • Angela Wong-Liao - Invis Inc on 2014-09-07 8:30:01 AM

    I am a strong believer that both broker channel and the lenders are in the same playing field. Transparency is very important to the consumers as they can make an informed decision of whom they would like to conduct business with. Our broker channel have been bombarded with so many disclosure forms since Jan 2009 and I believe that the lenders, whether it is a bank, credit union, trust company, investment firms, etc, should have similar disclosures when they are dealing directly with consumers as it is their fiduciary duties to do so.

  • Wow on 2014-09-07 2:09:45 PM

    Clients usually only look at the interest rate but don't care about other terms and conditions.

    As a broker, we need to strictly follow the rules, but for those bank staff, it seems that they can do whatever they want.

  • D Louzon on 2014-09-08 8:31:11 AM

    There are so many arguments on where the responsibility lies but I am in full agreement with M. Robertson. Educate clients to ASK questions and READ what they are signing, after all buying a house is likely the most expensive purchase they will ever make. All to often some brokers are very quick to lay the blame with the financial institution, and I have seen this many times myself as I work for a fi. Yes the original disclosure should have included all disclosure and some staff need more training but the same goes with some brokers. Some brokers I dealt with don't give full disclosure until you dig with more questions. The best advise we can provide clients is to ASK questions, so instead of laying blame why can't we all work together and educate the client to ASK more questions and READ what they are signing.

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