Moving clients with high-ratio collateral mortgages is now virtually impossible given Flaherty’s mortgage rules changes, says one of Canada’s highest volume brokers, pointing to lender interpretation of refinancing limits.
“It’s something brokers need to know – that lenders, except for one that I know of – are now refusing to accept the transfer of collateral charge mortgages even when fully discharged and even when the client isn’t looking for a refinance,” Jim Tourloukis, president of Advent Mortgages, told MortgageBrokerNews.ca. “They’re basing that on their interpretation of the LTV cap on refinances being dropped to 80 per cent and that any high-ratio collateral mortgage must be treated as a refinance, even if the borrower is looking to transfer the same principal amount.”
The lenders' reasoning is straightforward enough, although effectively keeps clients permanently tethererd. In order to move a collateral mortgage to another lender at maturity, that loan can only be treated as a refinance as collateral mortgages cannot be transferred, or switched.
Further, says Tourloukis, the recent changes by the Finance Minister no longer allow high-ratio mortgages above 80 per cent LTV to be refinanced.
“The result of this is that a client with a high ratio collateral mortgage will not be able to move their mortgage to another lender upon maturity, he says, “to the extent that's to the extent the home’s value keeps the mortgage high ratio.
It's bad news for clients left at the mercy of the lender in terms of rates and re-advances.
Tourloukis and others are worried that hard truth could leave brokers open to increased levels of litigation specifically tied to the limitations on collaterals.
The Unionville broker – a perennial member of the Top 5 in CMP’s annual ranking of brokers by funded volume – is also mindful that the increased difficulty of moving collateral clients will encourage some brokers to be more deliberate in placing borrowers.
“We urge all brokers to consider this potential issue for their clients,” he told MortgageBrokerNews.ca. “Three lenders who offer collateral mortgages only to their clients, and because of these rule changes, we limit the number of high ratio mortgages we send to these lenders.
"For the ones that we do send, we make this issue clear to the client so that there are no surprises to the client at maturity by adding this issue to our disclosure form, which the client signs.”