Brokers rejoice over policy change

by |
It’s about time, say brokers upon hearing the news that more transparency will be required of their major bank competitors going forward.

“Transparency is very important to the consumers as they can make an informed decision of whom they would like to conduct business with,” Angela Wong-Liao of Invis the Money Lady said on MortgageBrokerNews.ca. “Our broker channel has been bombarded with so many disclosure forms since January 2009 and I believe that the lenders -- whether it is a bank, credit union, trust company, investment firms -- should have similar disclosures when they are dealing directly with consumers as it is their fiduciary duties to do so.”

Canada’s eight largest banks recently promised to provide more information about collateral mortgages; including online educational resources and better training for bank employees to help them better explain the difference between collateral charge mortgages and their conventional counterparts.

“Our government is standing up for consumers and saving Canadians money,” Finance Minister Joe Oliver said of the voluntary policy.

And brokers believe the move signals one small step to better protecting clients – especially those who may encounter financial trouble.

“In this economy you never know when you may be downsized, laid off or some other unforeseen life event may happen; you need to have all your options available,” Gale Tracey of Mortgage Architects said. “The clients I have talked to had no idea that when they signed their collateral mortgage agreement they gave up 100 to 125 per cent of the value of their home.

“If they had needed to obtain a second mortgage to get them through a financial set back they would not have the equity or freedom to obtain a second mortgage.”
 
  • Christine on 2014-09-08 12:10:14 PM

    If the original registration was set up for an amount higher than the current mortgage, the customer may be able to take advantage of increasing their lending amounts without having to re-register.
    Not sure why you have suggested they can't get more money in this instance. What they can't do is have a broker flip flop them all over the place in the name of paycheck.

  • Toronto Broker on 2014-09-08 12:17:23 PM

    I think first and foremost the branches need to be trained better on mortgages. Coming from the bank, there are so many branch staff and even mortgage specialists that don't even know their own documents nor can they explain them and yet they're being entrusted with most client's largest assets and debt. One large bank specialist told me he had been there for 3 months and was knew to the industry. His answer to their training was he got a user name and password to access some online training. Wow! From there, yes it is great that the banks will have to disclose more.

  • SWO Broker on 2014-09-08 12:23:43 PM

    Hi Christine, Banker?
    A 2nd mortgage is not a new 2nd mortgage, it is in 2nd position. As you may or may not know a refinance is limited to 80% LTV. If a bank has registered to 100% or 120% that home owner can no longer place a 2nd mortgage behind the first to help them get out of debt. So it is actually a good strategy saving the clients from paying a penatly early on their 1st mortgage.

  • Jivan on 2014-09-08 12:27:34 PM

    Christine - while i can't speak for the industry in general I can speak for my self as a broker. We don't flip flop people in the name of a pay cheque. we look for the best value available to the client and direct them that way, beyond that we also have programs that allow for refinances with NO legal fees and NO appraisal cost at the BEST rate available. With NO Collateral Charge. Banks often sell the collateral charge with the statement of not having to see a lawyer to refinance. BUT what happens if the client no longer qualifies for a larger mortgage. Or what if they mortgage they were approved for is all that they qualified for. By having a registration take place higher than the face value of the mortgage the institution is not doing the client any favours. They are securing equity and ensuring that the clients have no option but to deal with them for any secondary financing needs. Sounds a lot worse than "flip flopping" to me.

  • Nola on 2014-09-08 12:28:06 PM

    Really Christine Most of us in the broker world do what is best for our clients so if telling them to re-advance their current mortgage is the best for them that's what we will do. But some circumstances prevent us from doing that which is due to credit etc. Now the client doesn't have access to their equity which requires the bank to sign a letter allowing which they will not sign. Pretty sad to say we do things in the name of a pay check!!!

  • Mike Rice on 2014-09-08 12:28:36 PM

    hmmmm so what is the Broker's responsibility? Can't tell me Brokers don't know which banks have collateral mortgages. Typical Broker mentality, blame the banks, and take no responsibility to inform their clients that they have been placed into a collateral mortgage. Time to start earning your fees and having some meaningful discussions with your clients. Sorry thats my inner voice speaking :)

  • Bruce McManus on 2014-09-08 12:29:46 PM

    Christine you are right in that they don't have to re-register but they do have to re-qualify and if they were laid off, this could be a problem. A private lender would not want to participate either if the bank was registered to 100-125% of value. In the end, the only option available to the home owner is to sell.

  • Mike Maguire on 2014-09-08 12:31:12 PM

    Christine: The problem is that if the client was to need a second mortgage because the current lender won't give them anymore money then they most likely cannot access second mortgage money because of the collateral charge. The second mortgage lender has no protection of how the collateral charge is used in the future. I hardly think forcing the lenders to be more transparent will make a difference. Some lenders can't even give you a choice and I have yet to talk to anyone in a branch that even understands the difference.

  • Jivan on 2014-09-08 12:43:07 PM

    Mike - Again can't speak for everyone, but we avoid the Collateral charge like the plague.
    Lots of lenders have regular first mortgages and then collateral charge lines of credit that must taken to get the best rate offering. They have been doing it for years. People will act on what they believe is best for them. But every bank employee i've helped has run away from collateral charges. Every single one. (that of course is my personal experience)

  • JSydneyH on 2014-09-08 12:47:40 PM

    Please take it easy on Christine. It is clear she doesn't understand the basics of credit underwriting and how lenders calculate their risk.

    The banks will admit the collateral charge mortgage is part of their client retention and risk mitigation strategies; it has nothing to do with saving the clients money if they have to readvance funds. The clients I have worked with do not have a problem paying $700 in legal fees if I can save them $2, $3 or more thousands in unnecessary interest, so it isn't about saving their clients money.

    I also doubt that Christine understands the banks can use their collateral charge to increase your mortgage if you miss their credit card payment or are overdrawn on your chequing account, because the collateral charge is not a standard mortgage which would prevent them from increasing the balance of the mortgage without your express permission.

    I hope you're looking for more education on this, Christine.

  • Deepak on 2014-09-08 12:56:21 PM

    Mike, it is also important that the bank employees earn their bi-weekly paychecks by having the knowledge they so greatly lack at the branch levels and even with some mortgage specialists. Jack of all trades, master of none comes to mind here.

  • Interested Reader on 2014-09-08 12:57:39 PM

    Christine...seems you have struck a nerve with some brokers...while I don't agree all brokers flip flop their clients, I do know that a lot employ this strategy...I was one of those clients until I realized the idiot I had for a broker...they were in it for a paycheck...not what was best for me...

  • Mike Rice on 2014-09-08 12:57:45 PM

    I think the pot is calling the kettle black. If "after" the broker has a discussion with their client and they come to a mutual agreement that a collateral mortgage is not the best for them, then don't sent it to an f/i that has a collateral mortgage. Am i missing something or are there Brokers out there that do not understand their clients needs and their fi's products before sending an application to an f/i first?

  • Mike Maguire on 2014-09-08 1:05:32 PM

    The problem is that you can't always avoid it. Sometimes it is in the interest of the client who can use more complex credit scenarios and for those people the collateral charge is great. Problem arises when you need to deal with a lender for a certain product and don't have a choice of the type of charge. But I guess if we want to play in their sandbox we have to play by their rules. My bigger concern is the enormous lines of credit handed out to consumers. They have caused more then one client to take on debt that otherwise they would have not of and lived within their means and done with out."It's not debt- it's equity" Being in this job for alot of years the most satisfying time is when a client comes in and wants to pay off their mortgage. No money to be made or as Christine says to flip flop but it shows that we did our job right.

  • Angela Wong-Liao - Invis Inc on 2014-09-08 1:07:51 PM

    I had a bad experience in regards to second mortgage financing last year.
    A client has a house worth over $2.8million and he had only $800,000 mortgage balance outstanding with HSBC, original mortgage amount was $1million, but when I tried to get a second mortgage for $500,000 with Community Trust for my client, the sub-search find out that HSBC had registered a $2million collateral mortgage on this property instead of $1million.
    I advised my client to approach HSBC and find out whether they can advanced more funds to him but HSBC declined.

  • Jon on 2014-09-08 2:23:09 PM

    Funny how brokers complain about banks offering Collateral Mortgages when 2 of the top 5 are banks who offer Collateral mortgages. This information was supplied by http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2014/06/broker-lender-share-q1-2014.html

    Market Share
    1 Scotiabank
    2 First National
    3 Home Trust
    4 Street Capital
    5 TD Canada Trust

    Not all brokers are good & not all bank mortgage specialists are bad, just saying.

  • Mike Maguire on 2014-09-08 2:28:14 PM

    Jon: Scotia uses a collateral charge on its STEP product because legally it is the only way it can work but still has traditional conventional registrations. TD however does not offer a choice or mortgage types.

  • Faye Drope on 2014-09-08 5:40:01 PM

    A few months back I placed my client with Coast Capital Savings and the mortgage was set up as a collateral charge. My clients didn't want a collateral charge so the Credit Union changed it to a Standard charge. So why can't a client have the option? I applaud CCSCU for their flexibility.

  • Victor Simone on 2014-09-08 7:58:32 PM

    The last thing my mortgage business needs is a smarter banker. Those folks keep us in business, just the way they are.

  • Kent Farnsworth on 2014-09-09 8:22:54 AM

    I do believe that it's amusing what Christine stated to be her understanding of the benefit of a collateral charge mortgage. It is an excellent example of the type of deceptive training that bank employees and specialists receive so that they can better compete with mortgage brokers, as incorrect and potentially damaging to the client as it may be.

  • ron on 2014-09-09 9:20:54 AM

    Time you get informed Christine.
    Sounds like you work for a bank, lacking knowledge.

  • Warren Ross on 2014-09-09 10:05:18 AM

    Christine - Collateral charge mortgages can be good for some people, and for some people its not. As mortgage brokers, we offer our clients the option. Can you? If not, would you sell someone a collateral mortgage if it wasnt' right for them for your pay check? or would you refer them to one of us? Don't bother answering, I think we know the answer already.

  • Andrew on 2014-09-09 1:31:44 PM

    Is it not a brokers responsibility to ensure that their clients are fully informed of the options, including having a full and complete understanding of what a collateral charge is and how it can impact them?

    I see brokers blame the banks fully, but in many of the examples it is the brokers customer. If you ask me it says more about the broker and their lack of providing education to their clients then it does about the banks.

  • kk on 2015-01-17 9:41:06 PM

    Ok smart asses..... What happens when the bank registers say@ 195k appraisal @ 265k paid 205k and the collateral mort balance @ 149k no other debt against the particular title. No access to heloc. Locked. Has to be room for private 2nd NOT?????

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions