“(Collateral mortgages) should be explained to clients and they should sign an acknowledgement (and) not just one of many acknowledgements they sign but one that is clearly understood and is explained to them,” Omer Quenneville of Centum Regal Financial Corp. told MortgageBrokerNews.ca.
Brokers tend to feel like the regulatory deck is stacked in favour of their banking counterparts and are calling for tighter restrictions, especially pertaining to collateral mortgages.
“Basically, they just go ahead and tie up the client’s house for far more than they really should,” John Van Driel of Mortgage Shopper explained. “They need to stop doing that and if they’re going to do that they should make it pretty darn clear to the client that they’re doing that because it’s unconscionable.”
Collateral mortgages allow the lender to secure more than the value of the home when a borrower takes out a mortgage and, according to a number of brokers, the client is often never told.
“I personally think collateral mortgages are a trap because you can’t transfer a mortgage out of a bank once you have a collateral mortgage; it has to be discharged and you have to pay the discharge penalties in order to be able to do that and then re-register with a new bank,” Quenneville said. “Once they have that imposed upon them, then of course the rates won’t be as flexible as they could be if you were able to go and shop around.”
Quenneville also argues the need for a take-home information sheet on the implications of collateral mortgages on renewals and the restrictions on moving a mortgage to a rival lender.
And although both brokers clamour for more balanced regulations, neither is holding his breath.
“We know that it’s the banks that run the industry, so therefore they can influence what the regulators do and there are definitely some obvious signs that (the regulators) are making it difficult for us (brokers) and trying to squeeze us out of the picture," Quenneville said. "The banks are influencing the regulators, no question in my mind, and making it tougher for brokers.”
One broker believes the banks are intentionally pulling the veil over customers’ eyes and is calling for a specific client signoff on collateral mortgages and not just at the time of signing.