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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.

 

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

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

  • An Informed Consumers Perspective on 01/02/2013 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!

  • Leo Escobar | Virtual Mortgage Broker on 31/01/2013 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.

  • Paolo Di Petta | dipettamortgage.com on 31/01/2013 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.

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

    Credit unions also do collateral mortgages.

  • BOB KITCHENER on 31/01/2013 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

  • A. McLeod on 30/01/2013 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

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

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

  • CDN Guy on 30/01/2013 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.

  • M Tavistock on 30/01/2013 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.

  • Paolo Di Petta | dipettamortgage.com on 30/01/2013 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.

  • Omer Quenneville on 30/01/2013 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.

  • Brad on 30/01/2013 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?

  • Barbara Buote on 30/01/2013 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.

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