Lenders should be limited to a standardized menu of penalty calculations to avoid the kind of client confusion leading to a class-action suit against CIBC, said one veteran mortgage professional.
“MBLAA (Mortgage Brokerages, Lenders and Administrators Act, 2006) requires brokers to disclose the penalties to borrowers, but does not require lenders to provide this info to the brokers efficiently,” said Ad Lakhanpal, a broker with Mortgage Alliance in Oakville. “The ideal situation would be to develop a few standard options for penalty calculations and let the lenders select one of them to give them flexibility of product design. Until that happens, at least they should be required to state their method of calculating penalties, very clearly, in their commitment letters.”
As it is now, the penalties clients face in switching or paying out fixed-rate mortgages before the term’s end may be anything but clear.
That may pose more of a problem three to five years down the road given renewed interest in fixed rate mortgages, now at historic lows. Those mortgages are subject to IRD penalties and not just the three-month equivalents of variable rate mortgages.
More clearly defined penalties would benefit the overwhelming majority of new buyers expected to enter the market this year, lured by those same low fixed rates.
That interest may have a downside.
Lawyers spearheading twin class-action suits against CIBC over “vague prepayment terms” have already fielded interest from hundreds of the bank’s mortgage clients -- that as a case management judge in B.C. gets assigned to the legal action.
“There have been hundreds of inquiries about these cases to our office and that of our co-counsel in Ontario,” Kieran Bridge, a Vancouver lawyer with the Construction Law Group, told MortgageBrokerNews.ca, pointing to borrowers who paid out CIBC mortgage from April 2005 onward.
Firstline clients are among those concerned that they may have been adversely affected by the lender’s prepayment policy.
A Case Management Judge has also been assigned, what Bridge calls a key, mandatory step in moving class actions forward in British Columbia.
“We applied in November for a judge to be appointed, in order to move the case ahead, and are pleased this has happened,” he said.
The twin lawsuits were filed in B.C. and Ontario last October, alleging some CIBC mortgage borrowers have been unfairly penalized by unclear prepayment terms giving rise to two substantive complaints.