TD under pressure for collateral mortgage

by |
In what brokers hope is a precedent, media pressure appears to have saved a borrower from the hefty discharge costs associated with a collateral mortgage.

“We asked TD to remove the $946,000 lien, but were told to hire a lawyer,” homeowner Shawn Aberle told the Toronto Star. “We found it unfair the problem was back on us and it wasn’t the bank’s problem to lower the lien amount.”

Aberle and his wife took out a $612,500 mortgage and line of credit with TD Bank, and allege that unbeknownst to them, the bank registered a collateral charge totalling $946,000.

And when health issues forced Aberle out of his job, the couple didn’t qualify to access an additional $50,000 in borrowing. Still, banks continue to tout the readvanceable nature of collateral charge mortgages as a major benefit for clients.

“Collateral mortgages provide our customers with flexibility when they need access to affordable credit,” TD spokeswoman Alicia Johnston told the Star. “And may allow customers to avoid additional registration costs when increasing or refinancing a mortgage or with future borrowing.”

However, the Aberles faced challenges when their income profile changed due to the illness.

As is too often the case, say brokers, Aberle had, in fact, been approved for financing from an alternative lender contingent upon the lien being lowered.

Aberle credits Toronto Star columnist Ellen Roseman for TD Bank agreeing to discharge the lien.

“Your name gets things popping,” he said after she had contacted TD Bank.

Collateral charges at TD have won the bank other negative media attention.

CBC’s Marketplace recently went undercover to TD Bank to see how transparent it was about collateral mortgages and the fine print associated with them.

In a follow-up to an original segment about collateral charge mortgages at the bank – which resulted in the major banks promising to be more up-front about the associated stipulations – CBC went undercover to two different TD branches to see how well its mortgage specialists explain the fine print and to “test” the bank’s promises.

At the first branch, the undercover journalist asked the specialist if there was any difference between a TD mortgage – which includes a collateral charge -- and one offered at other banks. The specialist failed to mention anything about collateral charges.
  • @kiltedbroker on 2015-04-09 11:43:33 AM

    Awesome! Ellen Roseman means business.

  • Tony Piattelli on 2015-04-09 11:50:20 AM

    Sounds to me that this is more like what an elderly gentleman told me when I first started working at one of the majors. When the sun is shining the banks are handing out umbrellas, the minute it starts to rain the banks go back to ask for the umbrella back. The banks aren't here to help you, they are around to make profit and minimize their risk. Just look at what Genworth and CMHC are doing in Alberta, they are precipitating a market collapse versus doing their job which is to provide mortgages to people who qualify based on their parameters not on whether they may lose their jobs. Anybody can lose their job, even the underwriters at Genworth and CMHC if they continue to stymie growth through objective approvals.
    As for collateral mortgages they work for many people who understand the benefits of being able to tap into their home equity on a regular basis and often used by financial planners. Not necessarily an evil thing, but needs to be fully explained and understood.

  • Ad Lakhanpal, Mort. Alliance on 2015-04-09 12:04:00 PM

    I am glad someone is noticing the risks associated with collateral mortgages that many banks have started to use without advising the ramifications to the clients. Among other disadvantages, such mortgages also make it difficult and expensive for the clients to switch lenders at the time of renewal. Perhaps MBN should request someone as influential as Ellen Roseman to do research and publish a column to educate the public. Brokers could use such a column to lend support to our efforts to educate the clients.

  • Kevin R on 2015-04-09 12:15:29 PM

    Well said Tony. People dont realize what we are going through here in Alberta as brokers. With CMHC out of the back end insurance game our mono line lenders have to rely on Genworth who have gone just brain dead when it comes to Alberta. I have been getting the most ridiculous turn downs out of Genworth with their horrible mindset with respect to Alberta. There is a lot BS going on in the back rooms with our lenders Insurers & Investors. This has to come out & the sooner the better.

  • Mortgage Specialist on 2015-04-09 12:26:01 PM

    Not sure how Collateral Mortgages are such a negative topic - they save our clients money for future borrowing. This couple would have been charged through another lender to set up where TD wouldn't have. Also, it's written right on the agreement how much the mortgage is registered for - it's an option if clients want to register for more, they are not obiliged to and is explained when they sign the contract.

  • Davo on 2015-04-09 12:48:14 PM

    TD is an utterly incompetent mortgage lender and needs to be driven from the market. The only way to get a thinking person to take a collateral mortgage over a traditional mortgage is to lie to them, to deceive them which is what is apparently happening. Why would anyone, broker or borrower, deal with TD if they are being lied to ?

  • broker tj on 2015-04-09 12:50:51 PM

    Dear Mortgage specialist .... you must be a bank mtg rep, as a professional broker would not repeat what you just said. The bank has registered for the higher amount, but they cannot to help the client...because he no longer qualifies.... but now the bank will try to stop the client from helping himself with the 'B' lender. TD should reduce their registered amount and allow the client to re-arrange his finances.
    I had the same thing happen with a National Bank mortgage, and the branch manager was so stunned, he sat back and watched the client go down in flames, and the mtg eventually went into Power of Sale. The banker assured himself that he did everything right and by the Book .... too bad there is no common sense in that book.

  • broker tj on 2015-04-09 12:56:27 PM

    This type of collateral mortgage is a retention tool, plain and simple. It forces the client to stay with the TD. It also allows the TD to be non-competitive at renewal, because TD knows you will have to spend money on lawyers fees, appraisals etc etc if you want to leave for a better deal with another lender.

  • Steve on 2015-04-09 1:48:19 PM

    Broker TJ... you call yourself a professional broker then you should know that less that 1% of mortgages nationally are assumed, therefore 99% are re-registered which would incurr the same legal cost furthermore appraisals have nothing to do with coventional vs collateral charge. Of course it's a retention tool... you don't try to retain your clients? It's called business. Had they client's been approved there wouldn't be a complaint. Of course the client's would not disclose if they had originally agreed for the charge to registered higher because it won't help their case..
    To Davo: Before you comment, why don't your check into who whitelabel, fund or purchase the debt of many of our monolines that actually keep them doing business.

  • Faye Drope on 2015-04-09 2:19:20 PM

    Collateral charges are not new. A few years ago they were all the rave with the "Smith Maneuver". What appears to be a benefit to the borrower may actually be a detriment. I have been critisized for not putting someone into a STEP (Scotia Total Equity Plan) as the need to refinance was expensive. However I now believe that Collateral Charges should be available but not the norm. TD is taking most of the flack here but Scotia, TD, Credit Unions and others also have this product. The Collateral charge might not be a topic here if 95% - 81% LTV's refinances were still available, unless of course you are doing private 2nds. Educating the borrower on the product they are receiving seems to be the real issue.

  • George Christopoulos on 2015-04-09 2:48:24 PM

    I have a client in a similar position. The bank registered the lien at 125% of the homes value.
    Being self employed he no longer qualifies for more money at TD.
    After three weeks TD said the same , you pay the lawyer. On a side note Nat Bank fixes this withing 1 week , at their expense.
    Three more weeks and TD's CAS unit misplaced the docs, the lawyer had to resend.
    Client is furious at being lied to and the general incompetence.

    Bank rep stop drinking the Green KoolAid , the world does not sit an a Green Couch.
    Putting complex products that have been designed to hinder clients financial movement into the hands of people that are clueless is very dangerous.

  • Michele Hall on 2015-04-09 3:05:43 PM

    @Mortgage Specialist -anyone walking in off the street will understand what they are signing, it is not well explained by the banks, in addition to this the client trusts the bank rep to look out for their best interest and will follow their lead. Watch the CBC market place. Collateral mortgage are never in a clients best interest .

  • Michele Hall on 2015-04-09 3:11:09 PM

    sorry should say anyone walking in off the street will not necessarily understand ... what

  • George Christopoulos on 2015-04-09 3:28:45 PM

    Here is an update on my client.
    TD agreed to lower the 125% lien but they still want it to be $200k higher than the original mortgage.
    My client is being held hostage by TD.

  • Michele Hall on 2015-04-09 3:37:08 PM

    Will he qualify to move the mortgage to a different lender and then TD bank can waive the penalty as they will not reduce the amount of the lien ? Curious does he have other borrowing with TD bank ? if he does , the collateral charge encompasses those as well and if he is delinquent on those but mortgage is up to date TD can force sale of the home .

  • Tracy Luciani Price on 2015-04-09 5:24:18 PM

    I am seeing the fallout from these collateral mortgages first hand. People are losing their homes because if they default on their lines of credit, even unsecured...the bank is going power of sale. Clients try to make mortgage payments...the bank instead pays an unpaid visa or line of credit (the highest interest security) first rather than the mortgage. This forces the power of sale for clients who really want to pay their mortgage but are having trouble. This is a nightmare for homeowners. Doesn't take much to find yourself on the wrong side.

  • Ad lakhanpal,Mortgage Alliance on 2015-04-09 5:47:11 PM

    Several experience brokers have come forward with real life horror stories of how an unsuspecting and trusting client can end up suffering due to the way in which the banks use collateral mortgages.

    However,people who read this forum already know the issues. The objective should be how to make the general public aware of these pit falls. As I suggested in my original post,some one line Ellen Roseman should take up this cause in the public interest. I request Mortgage Broker News to send these postings to Ellen and request that she does an investigative expose' on this practice.

  • broker tj on 2015-04-09 9:34:45 PM

    Steve .... you don't even understand the subject matter. And to admit that using a collateral mtg is a tool to retain clients proves that you need unscrupulous measures to keep the clients, instead of good clean honest business practices that benefits the client... That my friend, is business.

  • Omer Quenneville on 2015-04-09 10:28:19 PM

    As a mortgage agent I am ashamed to be part of such ignorance within the industry. I have been warning my clients about collateral charges for years. Only now agents are talking about it. What professional we are to not know better.

  • Jim Walker on 2015-04-10 7:47:13 AM

    To "Mortgage Specialist" - pretty obvious you are a TD employee, probably a VP, because nobody below that level would even be reading this.
    A Collateral Mortgage is a different product then a traditional mortgage -its not better or worse, just different.
    The problem is, TD registers all mortgages that way for the purpose of retention, and they advertise it as.... well they don't because Joe Average borrower doesn't understand.

    This is a great tool for a responsible sophisticated borrower, but not Joe Average.

    Look at Tracy Prices comments - it's bad enough that a bank can sweep your accounts when you are in arrears, but when they have easy access to the equity on your property too - I have a hard time with that. Also brokertj - I am in complete agreement with you.

    If you really think about it, secured borrowing is less costly then unsecured borrowing. A collateral mortgage is giving the bank even a stronger hold on the borrowers' security. If the borrower wants access to the additional equity they have to re-qualify, but if the banks need access to it, you automatically qualify. Maybe there should be a discount on the interest rate for a collateral mortgage, since the lender has a tighter grip in the security.

  • Paul Therien - CENTUM on 2015-04-10 12:06:25 PM

    The one thing that this article clearly highlights for me, and should for everyone in our industry, is that we need to ensure we are doing our utmost to educate our customers on the implications associated with different mortgage products. Getting a mortgage has to be about so much more than just rate and payment, there are both short and long term implications that must be considered.

    It's up to us to let the consumer know what all of their options are and what the risk with each option is.

    I applaud the brokers who have commented on here that reinforce that thought and all brokers who provide this excellence in service to their customers.

    This is yet again another example of why using a mortgage broker is so important and has so much value for Canadians.

  • Paul Therien - CENTUM on 2015-04-10 12:06:32 PM

    The one thing that this article clearly highlights for me, and should for everyone in our industry, is that we need to ensure we are doing our utmost to educate our customers on the implications associated with different mortgage products. Getting a mortgage has to be about so much more than just rate and payment, there are both short and long term implications that must be considered.

    It's up to us to let the consumer know what all of their options are and what the risk with each option is.

    I applaud the brokers who have commented on here that reinforce that thought and all brokers who provide this excellence in service to their customers.

    This is yet again another example of why using a mortgage broker is so important and has so much value for Canadians.

  • Michele Hall on 2015-04-10 12:20:44 PM

    It interesting that the educated brokers have identified themselves but Bank rep has not ? What is he hiding from ?

  • John JG on 2015-04-10 12:36:52 PM

    I am not taking bank's side, but what lien did the bank register and what for?

    “We asked TD to remove the $946,000 lien, but were told to hire a lawyer,” homeowner Shawn Aberle told the Toronto Star.

    First of, this terminology is incorrect and generally speaking many people give in to ignorance while in ecstasy of accepting a mortgage or the "help from the bank". They blindly enter in to any agreement without reading it and understanding the nature of those arrangements. Usually it's good as is and we are happy that the bank helped us to move in to the house as we wouldn't own it without their help. And everything is fine until something goes wrong and only then they are forced to understand what predicament they have put themselves in to. I think it is childish and unethical to criticize the bank in this instance, unless there is an evidence of wrong doing. This is still a democracy although with too many regulations, many lost independence and responsibility over their own actions to rely on policy makers. Just like that guy who came from India and signed exclusivity agreement with a realtor, challenged his own ignorance in courts, making national head lines only to find out he owes. I think it is in the quality of the people, or rather lack off and those not at minimum level should at least hold public library cards and strive for higher education rather than becoming money generating machines without souls with sole desire to posses more and more and more. I am sure that any one of you guys would want to stick to your guns if you would lend your own money, unless in to community services or volunteering.

  • Faye Drope on 2015-04-10 1:56:37 PM

    Some people need to get off their high horse!! "Ashamed to be part of this ignorance"
    I too explain to each client what they are entering into. The product does have its merits and you cannot deny this. So when discussing the two options with the clients most don't see the pitfalls they see the benefits. What may not have come across in my previous email was that the whole conversation is happening now because it is an issue now. It would not have been an issue before when we could refinance to 95%. If those rules hadn't have changed this conversation wouldn't be happening. An ever changing climate we engage in. That is why I believe in the broker industry, we're here to advise the client of their choices. But sometimes due to issues whether it be credit, or lack of and many other reasons sometimes we do not have a choice to place them with a Standard mortgage so this issue will need to be addressed.

  • Michele Hall on 2015-04-10 2:09:10 PM

    I am sorry I do not agree. The changing rules have very little to do with this . TD does this for retention ! I have been in this business for 25 years and the Re draw ability is not worth the consequences. I had a client who had a mortgage with BNS- collateral. The mortgage and taxes were up to date. They had suffered a health issue , they also had loc an visa with Scotia in arrears. SCOTIA FORCED SALE OF THE HOME FOR THE VISA AND LOC !!! Clients should be given the choice of charge they wish to have registered. Bad on the banks for not offering the choice or explaining both options to the clients so they may make an informed decision. Recently I had a client who went to TD for mortgage and was approved, They were never told about the collateral charge her friend on Facebook saw my post about this and advised her to talk to me about her options. So there you go !!! Also remember it is more difficult to switch a collateral charge vs standard charge !

  • John JG on 2015-04-10 2:43:31 PM

    Clients do have a choice. They can deal with us the Agents and Brokers. They only exercise their free will in attempt to get better deal, cheaper money, better service or whatever their perhaps mistaken reasons are and I don't really know but obviously lot of them choose to deal directly with the bank. I am not sure why would this be the bank's fault. I wonder how many hypocrites are hiding among us glamorizing the role of a mortgage broker in the industry for no other reason than personal gains at that side of the business, while pounding their own private mortgage clients, with fees and penalties they agreed to AND rightfully so! And how about $946,000 in mortgage Mr. Aberle took on? Is that with 5% down or maybe 10% plus inflated salaries to qualify and perhaps fraudulently push through the system. . . maybe with help of the mortgage person at the same bank? Too many unknowns, yet our broker community is readily and unequivocally prepared to take a stand and criticize only to satisfy their own desire and promote idea of borrower broker relationship rather than borrower bank. More money? Perhaps another media with more suitable audience would be your answer. No wonder Mr. Aberle is trying to steer public opinion and cause irreparable damages to the bank who he may have been dedicated to for the services the bank have initially provided him with and are probably asking for nothing more than to stick to the agreement under which they were prepared to lend. Or is there something else that I'm missing? Is it the bad bad bank and poor and innocent borrower who failed to educate himself with the details of the agreement? Is this the bank's fault when the borrower does not read what he is signing? Anyway, I hope I could steer this pot a little by being the mortgage agent and the Devil's advocate as I myself is diligently looking for new clients and more on my bottom line. I will never fool myself thou, that this is the way to do it.

  • Tony Piattelli on 2015-04-10 2:58:28 PM

    It's great to see that everybody has an opinion regarding collateral mortgages unfortunately the real question regarding the above mentioned situation is: Why didn't they take the disability insurance? This would have prevented their situation in the first place. Let's understand that collateral mortgages do serve a purpose for those who have had both the benefits and issues with them. If utilized properly they make sense for numerous reasons. It's up to the client to ensure that they are protected from the financial risks via life/disability/critical illness insurance and the broker to help them understand the risks if they don't protect themselves.

  • Michele Hall on 2015-04-10 3:01:56 PM

    Again I have been in this industry for almost 25 years !!! Back in the 90's collateral mortgages were only done on exception. When I go my mechanic I trust him to look out for my best interest as he is specialized and trained to work on my car. As children we were brainwashed into believing our banks would look out for our best interest ! and in the 70's it felt that way ! Today people trust their banks sadly, and because they do not know that much about mortgages they rely heavily on what the bank tells them. My kids are of the generation that they google and question everything. My daughter works for one of the banks and asked me about the rate they quoted her for vrm at prime plus one. I told her what I could do and she of course will work with me. As brokers we try to educate consumers and I personally work with a ton of integrity... I will tell my client if their bank is offering them a better deal because that is how I role. I agree client should have asked more questions.... reality is Bank should have had him read and sign disclosure then maybe I think that they would have a leg to stand on ... sorry just my opinion !

  • Michele Hall on 2015-04-10 3:02:09 PM

    Again I have been in this industry for almost 25 years !!! Back in the 90's collateral mortgages were only done on exception. When I go my mechanic I trust him to look out for my best interest as he is specialized and trained to work on my car. As children we were brainwashed into believing our banks would look out for our best interest ! and in the 70's it felt that way ! Today people trust their banks sadly, and because they do not know that much about mortgages they rely heavily on what the bank tells them. My kids are of the generation that they google and question everything. My daughter works for one of the banks and asked me about the rate they quoted her for vrm at prime plus one. I told her what I could do and she of course will work with me. As brokers we try to educate consumers and I personally work with a ton of integrity... I will tell my client if their bank is offering them a better deal because that is how I role. I agree client should have asked more questions.... reality is Bank should have had him read and sign disclosure then maybe I think that they would have a leg to stand on ... sorry just my opinion !

  • Omer Quenneville on 2015-04-10 3:38:35 PM

    A mortgage is not a loan, it is a shared interest in the property that should come with a certain amount of protection for the home owner provided they make their mortgage payments on time. In the event they miss payments then and only then should the bank be allowed to dictate anything that goes on with the property but not what happens to the equity. Collateral charges is changing it from a shared interest to a piece of collateral that the bank can dictate what happens to the equity. Not only is it considered collateral but the bank is insured by taxpayers for the loan by CMHC which should only be reserved for mortgages..

  • Lior Hershkovitz, Mortgage Edge on 2015-04-11 10:09:58 AM

    I agree with Michele Hall, one of the disadvantages of collateral mortgages is that they wrap the homeowner's secured and unsecured debts under one charge, and the consequence of that is if the unsecured debts go into default the lender can now initiate power-of-sale on the home to recover these debts.

    This is the biggest drawback of this product. It gives the lender collateral for debt that is unsecured. Health, personal, or employment issues can affect anyone and often with little to no warning. Do you really want to give your mortgage lender that much power over your life just for the convenience of saving $600 if you ever want to take out additional equity? Consumers have to understand that to capitalize on additional equity is not as clear cut as picking up the phone and calling the bank. The borrower must still qualify based on credit, income, debt ratios, and the property needs to have appreciated in value. It is basically a new mortgage.

  • John Greenlee on 2015-04-12 11:32:54 AM

    As Paul said above - education is the most important asset a Broker has. The Marketplace news story has shown that TD (in this case) simply isn't educating the client in many cases.

    Most people, when they discover the limitations of a mortgage product or how certain terms and conditions may affect them, will choose a mortgage that is more flexible for their situation.

    Granted, sometimes you can lead a horse to water and it won't drink it. That is why we have disclosure statements. There is nothing wrong with putting in your disclosure statement that you have advised your client to not take the product they are signing for.

  • Barb on 2015-04-13 8:01:51 AM

    one issue not mentioned is the Finance Dept made a ruling that banks were to explain charges and penalties better and that is not being done. I asked a friend who's been with TD 30 years about how she explains differently now and she was perplexed? Explains very little about collateral, explains no differently than previously and had very little understanding herself about the difference in charges. Had no idea it couldn't be transferred out at renewal. Very typical of most bank employees. Have to agree with Tony too- the mtg had disability insurance available. If you didnt protect yourself, no one else to blame.

  • George Christopoulos on 2015-04-16 11:18:55 AM

    And here my fellow brokers and bank rep's is the real reason for collateral charges. Client is being offered P -.50.
    Straight from my client to you.
    Doug,

    Keep in mind that I'm offering this rate for May 1st for free. RBC is offering you their rate on August 1st and it will require a hard inquiry on your credit bureau, income verification along with a legal fee and a full appraisal of your house too. I'm getting you an extremely competitive rate today for free. Their rate is marginally better, will be in three months and will require a whole lot of time, cost and effort. By the time it's all said and done you will pay more out of pocket to move there.

    Just confirming what brokers already know.


  • romano on 2015-04-23 12:31:49 PM

    so simple the truth will sent you free thank you!!!!!!!

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