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.