Prevalence of collateral mortgages may surprise you

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Brokers don’t mince words when it comes to banks’ collateral charge mortgage practices but a recent poll shows just how prevalent they are in the mortgage broker industry as well.

72 per cent of brokers admitted to having placed a client in a collateral charge mortgage at some point, compared to just 28 per cent who have not.

However, of those polled only 20 per cent of brokers said they would place a client in a collateral charge mortgage in the future.

Still, brokers have been calling for more transparency from their big bank counterparts regarding collateral charge mortgages.

“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-Lao of Invis The Money Lady recently wrote on “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, etc. -- should have similar disclosures when they are dealing directly with consumers as it is their fiduciary duties to do so.”

That transparency, however, may be on the horizon.

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

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

The government’s latest move to hold banks more accountable is welcome news but there’s more that needs to be done, argue mortgage professionals.

“As a broker, we need to strictly follow the rules, but for those bank staff, it seems that they can do whatever they want,” comments one broker on
  • concerned broker on 2014-09-30 11:52:45 AM

    You would be surprised by the number of brokers who either do not know which lenders have collateral mortgages or that they do not disclose this to their clients. I've seen Disclosure statements from other brokerages and they do not mention the collateral charge at all. I've had other clients call me when they shop around and when I tell them that the TD/National Bank mortgage they are being offered by other brokers are collateral, they don't even know what I am talking about. Before we bash banks for their lack of disclosure, maybe we should look at ourselves first.

  • Nick Bachusky- on 2014-09-30 12:22:45 PM

    I spoke with a Financial Advisor from TD a minute ago about collateral mortgages and if they have received any additional training or documentation concerning them to give to clients. He told me that nothing has been changed in the past 3 years and he still doubts many employees there have a clue what they are.

  • Lisa on 2014-09-30 12:58:54 PM

    I agree that we are first to be knowledgeable about the products we offer to our clients. Having said that National Bank does not disclose ANYWHERE prior to the solicitor instructions that they automatically register a collateral mortgage unless written notice is given by the client to the solicitor at signing. The solicitor is then on the hook to disclose and as it is on page 2 and they don't realize it hasn't been disclosed to the client they are automatically registering as a collateral mortgage. To top it off, they are also registering title insurance on the appraised value. This is not transparency, just because they provide a last minute out for the client.

  • concerned broker on 2014-09-30 6:35:13 PM

    You are incorrect. You can choose to lower the value for title insurance purposes to the mortgaged amount. Clearly, you do not have much experience with National Bank. Please refrain from making one-off comments until you get your facts correct.
    On National Bank not disclosing that the mortgage is collateral until the paperwork gets to the lawyer, that is correct. However, as a professional, a mortgage broker should know the product they are offering to the client. If they do not, this is the brokers fault - not the lawyer nor the Lender. You are acting as the intermediary so do your job right and stop blaming others. Otherwise, there are plenty of bank branch jobs available for you.

  • Kuldip S Panesar Homeland Mortgage Corp. on 2014-10-01 3:24:27 PM

    Lenders should clearly mention in the approval letter of mortgage for collateral charge of the mortgage and face value of the mortgage to be registered . Then the clients have the option to chose whichever he like. If it is mentioned in the commitment letter broker will also explain to the client. T D bank is writing in the commitment letter for this and client has to chose any one he likes after discussing with broker. In my opinion the mortgage should be registered for the face value of the mortgage not a collateral charge. Clients should have not locked his equity in favor of the Lender.

  • Realtor/x banker on 2014-10-02 12:59:38 PM

    Great article and information but perhaps explain what the difference is between Conventional and Collateral Mortgages and how it may affect consumers

  • Mike Maguire on 2014-10-06 9:47:56 AM

    Realtor/x banker...

    Here is a link that explains the difference. Remember for the right client they can be a great product so not all bad but understanding the differences is key.

  • Ross Kay on 2014-10-06 4:35:16 PM

    NO HOMEOWNER post 2002 should have entered a collateral mortgage on anyone's advice unless they have a 60% equity position in the property.

    Collateral mortgages have clauses where devaluation and increased LTV ratios holds greater risk exposure than a non-collateral mortgage and LOC in combination. It is a big difference legally if problems arise later.

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