Big bank tested on collateral charge transparency

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CBC’s Marketplace went undercover to one big bank to see how transparent it was about collateral mortgages and the fine print associated with them.

In a follow-up to an original segment about collateral charge mortgages at TD Bank – which resulted in the major banks promising to be more up-front about the stipulations associated with these types of mortgages -- CBC went undercover to two different TD branches to see how well its mortgage specialists explain the fine print and to “test” the bank’s promises.
At the first branch, the undercover journalist asked the specialist if there was any difference between a TD mortgage – which includes a collateral charge -- and one offered at other banks. The specialist failed to mention anything about collateral charges.

“I’ll be perfectly candid with you, most of the banks that you’ll go into, the sort of terms and rates and everything are going to be pretty similar,” the bank employee said.

And in a follow-up, the reporter asked if it is easy to move the mortgage to another lender once the original term was up.
“It is, but I don’t know if it actually advantages you if you’re constantly shopping around on rates you’re losing out on sort of the substance of the relationship, and that’s what really improves on things,” the bank employee said.

At a second branch, the specialist was asked to explain collateral charge mortgages.

“TD has a charge, a registered charge on your property. So that’s what the mortgage is tied against is the home. So if we lend you money that’s what the charge is,” a second employee said. “It’s a charge, right, it’s technically collateral, so the bank has that collateral on your … property. And that’s why we’re able to … lend off low interest rates.”

Collateral charge mortgages have earned the ire of brokers and clients when it comes to requalifying and porting mortgages.

However, some brokers have pointed to the positives of collateral charge mortgages as well.

To view the CBC’s entire segment, click here
  • Dustan Woodhouse on 2015-03-03 12:21:40 PM

    Approx 51 seconds into the report the journalist makes a material error. They state that a collateral charge mortgage 'allows the homeowner to borrow more than their home is worth' - False.

    It is also unfortunate that so much emphasis was put on one institution. Nearly all of the Big banks and Credit Unions alike register in this fashion, and all have unlicensed staff processing mortgages with which they have an extremely difficult time explaining clearly things like what a collateral charge means to a client, what is an interest rate differential penalty, what is the difference between bi-weekly and accelerated bi-weekly etc.

    Like anything in life we are best served by dealing with an individual that is a focused expert with regard to whatever the one thing is for which we seek information.

    Specialists, not generalists.

  • John D. on 2015-03-03 12:35:42 PM

    Just goes to show again that people should not get their mortgages from the banks directly. Use a broker/agent who specializes in mortgages and can properly explain everything. In saying that, if the agent cannot properly explain, go elsewhere.
    These people in the branches are Jack/Jill of all Trades and most do not know, others will lie or lessen the 'negative' aspects as they have strict goals to meet to keep their job and earn bonus.

  • Becky P on 2015-03-03 12:45:41 PM

    This comes 6-7 years too late, old news and many lenders will now transfer in collateral charge mortgages. Agreed this is just one of many subjects that unlicensed and inexperienced bank 'specialists' cannot properly explain to clients. Just one more reason for our clients to come to us for a professional experience.

  • Business for Self on 2015-03-03 1:04:40 PM

    I always respect a site that can focus on the benefits of using a broker. Instead this site seems to bash the banks as a strategy.
    Are there that few positive highlights of working with a broker Vs. a Mortgage Specialist that MBN cannot even fillup a weeks worth of aticles without resorting to bank bashing.........that is too bad. People need to know that benefits. I have asked Mortgage brokers to tell me about collateral charge mortgages as well, they were not able to anwer my questions accurately.
    Buyer beware, and make sure you are working with a qualified specialist, no matter what channel you choose, bank or broker.

  • Angie - Td Canada Trust on 2015-03-03 1:16:28 PM

    Collateral Charge - register a charge against the property for 125% of its current net worth.
    What this does it allows the homeowner to borrow money against the home in the future as values go up without paying any legal fees. A collateral charge also protects the lender and the client from anyone else to register a charge against the home whether legally or fraudulently. There are no issues to port, transfer or discharge mortgage

  • Layth Matthews on 2015-03-03 1:24:50 PM

    Are collateral charges against the home used to facilitate other consumer debt? or just to increase the mortgage without closing costs?

  • Jay on 2015-03-03 1:35:38 PM

    Angie from TD...

    There is one GLARING issue to port, transfer or discharge your TD collateral charge mortgage (which is ALL of them, regardless of registering at 125% of the appraised value or not).

    It's the fact that the client will be charged to refinance themselves out of your bank, rather than a switch at no cost. Yes, there are lenders that say they're able to 'switch' a collateral charge mortgage (RMG, First Nat)... But it's still a refinance in the end.

    So there ARE issues with the way you register your mortgages. It's a way TD and others get their hooks into clients and afford them zero outside flexibility going forward.

    Don't worry though, the masses are being educated by brokers that know what they're doing.

  • Victor Simone on 2015-03-03 1:54:54 PM

    I'm glad I don't have to sell certain lenders to remain in business.

  • Lior on 2015-03-03 2:21:56 PM


    "A collateral charge also protects the lender and the client from anyone else to register a charge against the home whether legally or fraudulently"

    If it's legal then the homeowner obviously wanted to register another mortgage and a collateral mortgage registered at a higher value would prevent that from happening. If they can't qualify with TD why limit their options?

    They can choose to register at 1,000% it makes no difference, the mortgagor can only capitalize on new money if the value of the home increases to justify the amount. The bank still qualifies them at that point and the mortgagor is subject to discharge and penalties if the mortgage term is broken.

    Let's talk about bigger implications and what happens if the homeowner doesn't qualify and they need money. Now that the it's registered at 125% they can't use their equity unless the whole thing gets redone. Instead of adding a second mortgage and minimizing the costs the first has to be paid out and as a result the bank collects a hefty penalty when a second mortgage would have prevented that cost.

    That's one issue.... an even bigger issue is a collateral mortgage combines the unsecured debt, debt that is unrelated to the mortgage, with the mortgage. If a mortgagor defaults on their unsecured debt, for whatever reason, the bank can exercise power of sale on the home.

  • Angie on 2015-03-03 4:20:40 PM

    When taking a mortgage application i allow my clients to make their own decision how they want the mortgage registered, I do not put a collateral charge on for the higher amount unless my client instructs me to. I have been doing this for 25 years and I will not put my clients into any situation that they do not want to be in.

  • Kuldip S Panesar Homeland Mortgage Corp. on 2015-03-03 5:27:21 PM

    Collateral means security pledged for taking the loan . But here the term is used for registering a charge on the title of the property more than the mortgage amount is funded. Most of the Lenders ( Banks and Credit Unions ) register their charge 125 % of the mortgage amount . Lenders argue that when the value of the property will go up , they will increase the mortgage amount and the Client will save legal expenses. In this situation the borrower cannot move to other Lender for second mortgage because they have registered the mortgage more than the actual mortgage mount . Secondly when the mortgage is refinanced with other lender or transferred , previous charge holder will include unsecured debt in the payout statement and sometimes it may be become more than the 80 % of the value of property. Here is not possible for refinance with any other Lender . we are to explain the clients in detail . I personally feel , it is not in favor client to register the charge more than the mortgage amount funded.

  • Angie - Td Canada Trust on 2015-03-04 1:59:54 AM

    Kuldip please remember if a client refinances unsecured debt into a mortgage this can be done whether a conventional charge for the mortgage amount or collateral charge of 125% of the property value is registered with Land Titles, the LTV 80% does not hinge on the charge registered against the property but the appraised value determines the 80% LTV that can be lent on. Markets as do interest rates... both fluctuate we have no control over that. Whether a broker or a mortgage specialist we both deal with banks and who ever is doing the mortgage should properly guide their clients and yes explain the pro's and con's and let the client decide how he would like to have the charge registered. This is no different than explaining and letting the client choose whether to take a fixed mortgage, variable, open or closed mortgage.
    Maybe there is a reason clients are getting turned down and it is not to their best interest to take a second mortgage elsewhere in the first place. You can look at this the same way as a collateral charge is it the right thing to do?

  • Ron Butler on 2015-03-04 8:50:11 AM

    The story of collateral mortgages should be summed up as a potential advantage to consumers combined with a definitive advantage to the lender. Nothing wrong with collateral mortgages if they are presented with honesty, transparency and full disclosure.

    There is a consumer advantage to do additional property lending without legal fees and there is a profound disadvantage to the consumer by reducing the ease of transferring a mortgage at maturity. In TD's case they do not offer any product other than a collateral mortgage so it is all the more important the client be properly informed and warned. I think the journalists have correctly shown that full disclosure at TD is sadly lacking.

    Clients deserve to know that on maturity their mortgage will be more difficult and costly to effect a transfer and their options to look for better rates will therefore be degraded.

    Telling the truth is what any bank owes its clients and in the cases investigated here full disclosure was largely absent.

  • Ken on 2015-03-04 10:45:02 AM

    I believe that the segment is more about the lack of disclosure and knowledge in the banks branch network than just picking on TD. Its obvious that that TD (and probably the others as well) have not followed through on their pledge to improve disclosure about collateral mortgages and that should be more the focus here.
    I retired from one of the big 5 a few years ago and the show illustrates an issue that I believe applies throughout these networks.
    That is, they do not teach sales staff the whys and hows of products. Training at the one I was with had very little focus on basic things such as the difference between collateral mortgages and regular charges, how to calculate interest, why credit is underwritten as it is etc. The training delivered was about what script to use and when and what to say when each screen comse up in the client interaction process. If a client didn't fit within the square that the bank was trying to place them in the training given to the sales staff did not give them any basis to formulate a solution or to properly overcome a client objection and or why that would work.
    I am not saying that all branch staff are not able to knowledgeably discuss issues like this, there are still a number of knowledgeable and informed people in the networks but as they move on the people coming in are not being given proper training or background. I've seen staff who are tellers one day and FSR's the next and with the lack of staff being thrown into a mortgage discussion on day 1 with little or no preparation.

    The other issue is the intense pressure staff have to produce numbers and volumes and rather than being able to dedicate time to learning and development they are thrown out to the public who have a perception that bank staff are all knowledgeable and will take anything said as legitimate. Not fair to the staff nor the consumer.
    Its not just branch staff either, I think there are some of the bank Mobile Mortgage Reps that would have difficulty explaining the difference as well, not all but some.

    Its a symptom of all banks focus on staff and expense reduction rather than improving knowledge and providing better disclosure.

  • Jesse D on 2015-07-16 11:38:14 AM

    Can't blame the bank employees too much. They should be honest and know what they are doing so they take some blame but the banks targets for them are so high and their jobs on the line if they don't hit target, so they do what the must.

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