ING’s decision to register all mortgages as collateral charge boils down to just two things, its VP of lending told MortgageBrokerNews.ca: savings and simplicity.
“We have done a fair bit of homework in terms of coming up with this decision,” Martin Beaudry said Monday, after announcing the system-wide switch effective Dec. 10. “We are on the verge of introducing our HELOC – something our valued broker partners have requested– and we looked at registering them conventionally, but that simply would not have worked.”
The development of that product, due early next year, ultimately encouraged the lender to adopt the readvanceable mortgage across all of its product line, a way of ensuring clarity and “simplicity” for the client as well as ING, from its “own administrative perspective,” he said.
Another driver of the decision was the savings in legal costs for borrowers looking to refinance.
Still, ING brokers have registered concerns about the challenge collateral charges present in trying to move clients to other lenders.
While readvanceable mortgages allow clients to re-borrow the principal they’ve paid off on their mortgage and to avoid upfront legal costs, the lender registers a collateral charge on the home 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. That step translates into additional legal costs.
Beaudry argues that the industry is, in fact, moving in the direction where that new lender is willing to absorb a portion of those legal costs in order to win the switch.
“So this concern is being addressed more and more,” he told MortgageBrokerNews.ca.
At least one high-volume broker using ING agrees.
“I see lenders as increasingly willing to eat the legal costs for a client having to discharge their mortgage,” Dan Eisner, CEO for True North Mortgage, told MortgageBrokerNews.ca.
The added legal step may, in fact, facilitate switches, he said, suggesting lenders may show more willingness to respond to a lawyer-initiated request for payout statements.
But many brokers remain opposed to collateral charge mortgages, arguing they’re primarily used as a retention tool at the same time they do little to guarantee a borrower access to the equity in their homes when they really need it.
“With readvanceable mortgages, the lenders are doing it to offer the client something else down the road,” Larry Frondall, a broker and underwriter for several MICs, told MortgageBrokerNews.ca. “The problem is that the need for that something down the road doesn’t come about until the client hits some trouble and then the bank is unwilling to readvance the funds.”
Other opponents point to a lack of broker knowledge about collateral charges, concerned that translates into ill-informed clients.
ING has already moved to address any broker deficit, with its BDMs focused on bringing their clients up to speed on a product Beaudry argues will better connect brokers to Canada's $215 billion HELOC market.