“Collateral charges are registered against a person’s credit rating, like a loan. So therefore it should not be covered under the CMHC; a mortgage is a mortgage and is a shared interest in a property – it should not be treated as a loan,” Omer Quenneville of Centum Regal Financial told MortgageBrokerNews.ca.“So if a bank chooses to do this to protect their interest then they should have to forego the CMHC protection, in my opinion; CMHC isn’t there to protect loans.”
The positives and negatives of collateral charges tied to mortgages have been debated ad nauseam by mortgage brokers and the latest was spawned by a CBC investigation
about the lack of disclosure one big bank provides for these products.
And according to Quenneville, the government should not be insuring a product that, in his opinion, is meant to protect big bank interests.
“It has very little do with protecting the customers’ interest and by putting a collateral charge on a property it enables banks to do all kinds of things including collections on other debts by using that collateral charge,” Quenneville said. “And it even shows up on a person’s credit rating whereas a traditional mortgage will not show up because it’s not a loan, it’s a shared interest.”
But would collateral charge mortgage products become less common if CMHC refuses to insure them?
“Absolutely, I think they would be much less prevalent if CMHC refused to insure collateral charges,” Quenneville said.
Government interference in the mortgage industry has a history of frustrating brokers, but one leading player believes CMHC changes could be the key to reining in collateral charge mortgages.