Brokers applauding Marketplace investigation

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By Don Horne

Brokers are applauding CBC’s Marketplace for its investigation of collateral charges at a major Canadian bank.

“It’s about time this was brought to light,” says David O’Gorman, president and principal broker of MortgageLand. “We have sent a letter to (Federal Finance Minister Jim) Flaherty’s office about collateral charge mortgages – this was around the last election – and it was only weeks later that we got shuffled off to the Consumer Agency of Canada.”

Ultimately, that complaint went nowhere, although that’s not the case with the CBC investigation.

TD Canada Trust, which only sells collateral charge mortgages, was caught on camera when an undercover reporter went into a TD branch with a hidden camera, asking the mortgage rep what made their mortgages different from other lenders.

Only after repeated questioning from the reporter did the TD rep disclose that the bank’s mortgage was a collateral charge, saying in the Friday episode: “This could be considered a con for clients who want flexibility to have the choice of transferring out (to another lender).”

In a perfect world, says O’Gorman, one of the industry’s most vocal critics of the growing use of collateral charges, “we would not deal with closing houses, but use lawyers – and always spell out clearly what kind of a mortgage and charges are involved,”

A thorn to brokers, collateral charges are tripping up the home resale market as well.

“It also screws up real estate agents when they try to sell a house, when they suddenly see there is a lien on the house,” he points out, as the collateral charges are effectively a lien on the home for 100 per cent of the home’s value, or sometimes more.

While readvanceable mortgages allow clients to re-borrow the principal they’ve paid off on their mortgage – up to 80 per cent of the value of the property and to avoid upfront legal costs – they also allow the lender to register a collateral charge on the home usually for 100 per cent of the value. That effectively means the mortgage must be entirely discharged in order for a borrower to transfer it to a new lender at renewal or for refinancing.

Most mono-lines and banks – as well as private lenders – refuse to accept the transfer of collateral mortgages, forcing homeowners to pay additional fees to register a new conventional or collateral mortgage in order to move the loan from the lending institution.

“You can have someone put $40,000 down on a home with a remaining balance of $200,000, but with a collateral mortgage you can have a lien greater than the total value of the house,” says O’Gorman.

TD corporate had no comment to the CBC on camera about collateral mortgages.

Current TD approvals disclose that their mortgages are a “collateral charge”, but it is concerns over how clearly the rep explains the ins and outs of that mortgage that sparked the Marketplace investigation.


  • Barbara Buote on 2013-01-30 5:16:23 AM

    Let's go a step further into investigations of the practices of the likes of TD and have a client figure out how their penalty will be calculated. Just take a look at their "disclosures" that refer to posted rates, etc. I cannot tell you how many clients of mine (certainly none that I ever put with TD) are facing massive penalties when they really only have a relatively short term remaining and their rate is not far off the mark for the remaining term.

  • Brad on 2013-01-30 5:20:14 AM

    The other MAJOR point is that collateral loans are normally demand loans. So for any reason, the bank can "call" the loan for full repayment at any time for any reason. I have not checked with TD, but I have checked with Scotiabank when they first introduced collateral mortgages and was told that the demand clause was only there if there were problems with the loan. But the wording did not say they needed a reason to call the loan. In fairness, I have not checked recently to see if there have been any changes to this clause. Has anyone checked to see if the demand clause is in TD collateral mortgage?

  • Omer Quenneville on 2013-01-30 5:42:46 AM

    I would like to point out that Scotia and ING now do similar type of mortgages. As mortgage brokers we should be leading this public awareness and not following or waiting for CBC to take the lead. This is a good example for using a mortgage broker. I have been warning clients for years about this practice.

  • Paolo Di Petta | on 2013-01-30 6:27:32 AM

    Agents and Brokers have been trying to bring this to the forefront for a long time now. It's nice to see that CBC has taken the initiative to reveal the true nature of Canada's banks.

    Agents and Brokers take note - the other two segments of that program are equally important in developing our value proposition. While the banks push consumers towards "one-stop shopping", we need to push back. And this expose gives us the ammunition.

    The fact is that when consumers put all their eggs in one basket, they give up choice.

    We've seen the same thing happen in telecommunications. Both Bell and Rogers have offered "Combo Packs" with discounts for bundling services (phone/cable/cellular/internet), only to creep up the price of their services the next year (and recoup their losses). You can often save more than the "bundling discount" by splitting up your service providers and choosing the most competitive player in each arena.

    It's time we educate consumers that their real power lies in not being lured into bundling traps. Their power lies in fostering competition - notably, by the use for Mortgage Brokers and Agents for their mortgages, and other independent advisors for other financial products.

    That being said, maybe our industry needs to get a little more friendly with other industry groups in the financial arena to level the playing field vs the Canadian Bankers Association.

  • M Tavistock on 2013-01-30 7:35:48 AM

    It's about time that someone has noticed what the banks are doing. As a customer, I went through weeks of hell before I understood what my bank was doing with my re-finance. Ing kept on telling me that this will be much better for me. I just didn't understand how this would be much better for my family when I am being maxed out by my bank. I asked for a $200,000 re-mortgage and got a collateral loan of 358,000, the full value of the appraisal. This meant that if I needed a loan sometime in the future (ie car purchase) I would be forced to go to Ing. Also, a collateral mortgage will lower your lending score because it is being viewed as borrowing to the max. The lien on the house presents a large problem when selling and the lawyer fees when trying to get out of this are much higher in general. By the way, I was being forced to close down a secured line of credit with another lender, even though I had a zero balance. Ing's solution was to offer me their line of credit while we were going through the paperwork, for an addition fee, of course. My lawyers fees had soared to over $1600 until I put an end to everything. I do also want to say, that during this process that took weeks, we were never told that Ing gone from Standard Mortgages to Collaterial Mortgages. We had a Standard Mortgage with Ing for the past 5 years. As customers, we are now very leary and careful, especially when we deal with banks. We were lucky that we fought and removed ourselves from the situation, but what about young couples starting out. I guarantee that they will not understand the implications of what they signed until they need to borrow money (ie. car loan).
    This is a simplified view of what "we" as customers went through.

    Hope this helps someone out there.

  • CDN Guy on 2013-01-30 10:23:40 AM

    I find it amusing that brokers are making an issue over the collateral charge and the disadvantages it may offer the consumer, but its the same broker who will support a collateral charge lender that may have a great rate, say the 10yr rate. I guess that's still ok when the finders fee are up there.

  • Ontario Consumer on 2013-01-30 12:23:38 PM

    CBC should do an expose on the distorted representation of mortgage brokers.

  • A. McLeod on 2013-01-30 1:45:21 PM

    That was a great share Tavistock! Another issue I have noticed with these collateral charges is when a client whose credit was in rough shape after some tragic events, or maybe just their income is reduced, now even though they have much equity in there home, because of the collateral charge, they don't qualify for a 2nd mortgage, that would have been a short term fix until his credit was rebuilt, as Tavistock mentioned they want to be your only lender

  • BOB KITCHENER on 2013-01-31 4:56:56 AM

    the reporter was excellent the way she approached the bankers . The input of the CBA official was very biased , how else could she respond ? They are funded by the banks and are only there to support them . Too bad the banking ombudsman's job has disappeared

  • anonymous on 2013-01-31 5:41:50 AM

    Credit unions also do collateral mortgages.

  • Paolo Di Petta | on 2013-01-31 6:55:05 AM

    @CDN Guy - I can honestly say that I've never offered a collateral mortgage to any of my clients, and that instead, I warn them against it.

    Most lenders are close enough (or better) in compensation that it simply doesn't makes sense to offer collateral mortgages.

    Not to mention, a smart Agent/Broker thinks long term - trapping our clients in a bad product is bad for our reputation, and gives the bank an easier way of poaching our client at renewal.

    Even if compensation was double the going rate, losing a lifetime client and all of their referrals is much more costly than a quick buck upfront.

  • Leo Escobar | Virtual Mortgage Broker on 2013-01-31 2:54:24 PM

    That was the main reason why I discontinued sending my deals to TD a few years back. This collateral charge does not help client or the brokerage community. We need a win-win with the lenders.

  • An Informed Consumers Perspective on 2013-02-01 1:32:35 PM

    Sounds like most responses are from brokers so I'll tread lightly - Let me provide a consumers point of view...
    All Financial Institutions offer this type of registration.
    What should be happening with every discussion is review of the pros and cons of registering a collateral vs. conventional mortgage at the application stage. Certainly not after the fact.
    Personally our Credit Union was upfront about the benefits of registering a collateral mortgage. It allowed a refinance and a new secured line of credit that was done well after we signed for our mortgage without any additional legal fees - at the most competitive rates.
    Doesn't sound so bad to me?!!!
    I agree that it might not be the right method registration for every home owner but it absolutely has its benefits.
    Hate to be the devils advocate but the reason mortgage brokers are up in arms is because their clients (the consumer) will contact their Financial Institution / Advisor in the event they need to refinance during or after the term of their mortgage vs. going back to the broker.
    The broker therefore misses out on the opportunity to refinance the business (and with that misses the opportunity to get paid for placing it elsewhere).
    Correct me if I'm wrong but as far as I understand the cost/fees to discharge a collateral mortgage is the same as a conventional mortgage.
    Also wanted clear up that the collateral charge amount has no impact on your credit score only the amount that is utilized. The only things reported are the products that are registered with that collateral charge. Using the ING example - Registration is for $358K and your new mortgage is $200K (you also have a home equity line of credit for $50K) then ING will report your $200K mortgage and the $50K limit and balance owing on your line of credit.
    Food for thought!

  • pfb on 2014-01-03 12:52:17 PM

    I just found out that my Scotia mortgage, that I got 3.5 years ago is also a collateral charge mortgage. Why is TD taking all the hits for this when the other banks are doing it too?

  • Kenneth Pazder on 2014-01-03 2:25:21 PM

    In BC, pretty much ALL banks (and all credit unions) have switched to the use of collateral mortgages.

    The advantages to the banks are that these mortgages can't be "switched" (transferred ) to other lenders and subject to the customer qualifying, they can be re-advanced or an additional loan or line of credit can be added without additional legal fees or other costs. This encourages the borrower to re-borrow with the same bank and it also eliminates the need for a second mortgage.

    The customer in turn saves legal fees if he needs more money as he can simply sign new loan documents at the branch without having to modify or re-sign a new mortgage.

    The registered collateral mortgage need not be altered.

    The comments that the "whole property value" is tied up are not accurate. A collateral charge ONLY charges the property with the actual amount borrowed NOT the registered amount. The registered amount is set high on purpose (either for the appraised value of the property or even higher -BNS does not even put an amount in at all) so that the customer has lots of room to increase the loan amount without having to alter the registered mortgage.

    In addition, when the mortgage is discharged, ALL of the secured loans (mortgage, line of credit, car loan etc.) have to be paid out.

    As most people now sign these collateral mortgages using title insured bank programs at the branch (to save legal fees), they generally WAIVE legal advice and often get either no explanation or an inaccurate explanation of the terms of the charge.

    That is what you call "a penny wise and a pound foolish", but as real estate lawyers for many years, we see that all the time in our practice.

  • Omer Quenneville on 2014-01-04 7:49:14 PM

    24% of brokers send business to Scotia because the commission is good and they put themselves before thier clients needs. Scotia doesn't do all collateral charges like TD, Scotia offer both if the client is smart enough to ask or know. Most don't know.

  • Lior on 2014-01-06 6:51:24 AM

    "This encourages the borrower to re-borrow with the same bank and it also eliminates the need for a second mortgage."

    Does not necessarily eliminate the need for a second mortgage. It eliminates the option of placing a second mortgage with a non-bank lender. Banks are not in the second mortgage business. If a consumer no longer qualifies for additional funds with a lender who registered the mortgage as collateral for a higher amount, they are SOL utilizing the remaining equity unless that mortgage gets redone.

    "Correct me if I'm wrong but as far as I understand the cost/fees to discharge a collateral mortgage is the same as a conventional mortgage."

    There are additional fees to discharge. Moreover, a collateral charge wraps up the secured and unsecured debt a consumer has with a lender. So if the consumer has a collateral mortgage and let's say someone steals their identity and commits fraud using their Visa or personal LOC. If the lender deems the borrower as having been negligent (with today's cunning ransomware and fake anti-malware even computer literate consumers are an easy prey) and the borrower refuses to pay the amount owing, the lender can pull a power of sale to recover the debt. Simply put, fail to pay your Visa or LOC for whatever reason and you may end up losing your home. So for the lenders, a collateral mortgage is not just a retention tool as Kenneth stated, it is also a protection tool.

  • Paolo Di Petta | on 2014-01-06 7:11:52 AM

    @Kenneth Pazder

    I think Lior covered it well, but I also invite readers to check my post at discussing the downsides of collateral mortgages.

    It's also important to note, that while the banks don't always tie up the whole property value, they often try to (and in some cases, exceed the property value).

    And while that means they can re-advance funds, that is subject to the bank's approval - the funds aren't guaranteed. What this means is the bank could hold a collateral mortgage and refuse to readvance, while the customer would no longer be able to secure any secondary financing from another lender.

    It's clear that collateral mortgage, and a few other recent tactics are due to the changing landscape in Real Estate. Banks are trying to keep good customers by holding them hostage instead of rewarding them.

  • Omer Quenneville on 2014-01-06 9:04:28 AM

    To "AN INFORMED CONSUMERS PERSPECTIVE". It sounds like you heard the banks side and they did a very good job at selling you. Let's see how you feel at renewal time when another bank offers you a better rate and you can't transfer your mortgage. If it is so good, why do banks hide it, why don't banks explain it to all customers. While I agree it is an option, it is not an option for me or most of my clients when properly explained. A collateral mortgage reduces your options, reduced options = higher cost later after they got you trapped.

  • Kenneth Pazder on 2014-01-06 1:11:53 PM

    To reply to a few of the posts above.

    First, most bankers don't understand their own collateral mortgages, so expecting the bank staff at the counter (as the MARKETPLACE reporter tried to do) to explain how a TD mortgage is "different" from others is a stretch.

    As I pointed out, many borrowers opt for a "title insured, bank mortgage program" whereby legal advice is waived. The customer saves a few hundred dollars and does not have a clue what he signed. This has been going on for the past 10 years in Canada (much to the chagrin of lawyers who would have been hired to register the mortgages (an would have explained the terms to the borrowers in the process).

    Secondly, a first collateral mortgages DOES NOT preclude the placement of a second mortgage. If a second lender serves a s.28 Notice pursuant to the BC Property Law Act on the first lender, the amount of the first collateral mortgage is effectively "frozen" and if the first lender (i.e. TD, Scotia, RBC or other) chooses to increase its first mortgage thereafter ALL INCREASES RANK BEHIND THE NEW SECOND MORTGAGE CHARGE (unless the first lender has obtained a priority agreement from the second lender).

    Third, if you are a good customer, MOST OF THE TIME, your bank will match another bank's mortgage offer at renewal time, provided that you have taken the time to check a competitor's best rate first.

    Three out of four customers simply sign the bank's renewal offer, without checking the competition (DESPITE insisting on the LOWEST rate when they first purchased).

    However, if your collateral mortgage is up for renewal and your own bank will NOT match a competitor's rate, you can still pay out and discharge the existing collateral mortgage and re-finance with the new lender.

    Depending on how much the new lender wants your business (and how big your mortgage balance is), the new lender (or your mortgage broker, if you are using a broker) may pay the additional cost of placing a new mortgage.

    If not, like any other financial decision, you factor in your costs vs. your savings by switching to the new lender, and if it still makes financial sense, you pay out and discharge your existing collateral mortgage anyway and say goodbye to your old bank (however, the new lender you are transferring to will probably also be using a collateral charge!!).

    Lastly, most collateral mortgages are "all indebtedness" mortgages which purport to secure ANY MANNER OF DEBT which a customer has or will have in the future with the bank (not just the "mortgage or line of credit" components). A bank VISA for example would also qualify as a debt to the bank, so technically, defaulting on a VISA payment could permit the bank to call the borrower's mortgage loan. To date, this has not been a problem that I have heard of, but whenever we sign up a collateral mortgage for a borrower, I always have him obtain a letter or other confirmation from the lender that notwithstanding the terms of the mortgage, unless otherwise agreed by the borrower and the bank, no other indebtedness (save the mortgage loan and/or line of credit component as the case may be) shall be secured by the mortgage charge.

    At the end of the day, a collateral mortgage is a complex legal document which should be reviewed by the borrower's lawyer before he signs it. To save money, most people don't bother.

    But in my books, that's "a penny wise and a pound foolish."

  • Paolo Di Petta | on 2014-01-07 11:59:13 AM


    Re: "First, most bankers don't understand their own collateral mortgages, so expecting the bank staff at the counter (as the MARKETPLACE reporter tried to do) to explain how a TD mortgage is "different" from others is a stretch."

    If they can't answer basic questions about their own product which has such a profound affect on people's lives, then point blank, they shouldn't be selling it.

    re: "Secondly, a first collateral mortgages DOES NOT preclude the placement of a second mortgage. If a second lender serves a s.28 Notice pursuant to the BC Property Law Act on the first lender, the amount of the first collateral mortgage is effectively "frozen" and if the first lender (i.e. TD, Scotia, RBC or other) chooses to increase its first mortgage thereafter ALL INCREASES RANK BEHIND THE NEW SECOND MORTGAGE CHARGE (unless the first lender has obtained a priority agreement from the second lender)."

    That's where you misunderstand what I'm saying. With readvancable loans, the amount registered doesn't change. Even if you pay down 20% of a loan registered at 80% LTV, the bank can re-advance that 20% with priority over the 2nd mortgage. Most prudent private lenders won't even look at a deal like that, because their actual LTV can be changed dramatically.

    RE: "Third, if you are a good customer, MOST OF THE TIME, your bank will match another bank's mortgage offer at renewal time, provided that you have taken the time to check a competitor's best rate first. "

    "Most of the time" - First of all, that's completely wrong. As someone who has seen their share of renewal letters, banks rarely lead with a competitive rate. You might be able to get them to match it after you walk in, but if "you are a good customer", then you shouldn't have to play these games with them.

    I think collateral charge mortgages are a step towards being less competitive. They no longer have to match rates, all they need to do is make the cost of switching more expensive than the cost of staying. They no longer have to offer the BEST rate, just the least inconvenient rate.

    Personally, I don't like the idea of being trapped by banks. An ounce of prevention is worth a pound of cure, so not getting into a bad situation is often easier than dealing with it later when you've eliminated your other options.

  • Steve Stevens on 2013-02-05 4:18:37 AM

    So why do brokers send 24% of their business to Scotia if collateral charges are bad ???

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