Laurentian Bank’s broker arm is reporting a significant uptick in demand for its home equity lines of credit, most likely new business for brokers and not merely the re-routing of clients normally bound for the refi market.
“May was the single best month in HELOC sales ever, representing a combination of new purchases and HELOCs on existing mortgages” Mark Zochowski, VP of business development at B2B, told MortgageBrokerNews.ca, pointing to a number of factors driving that growth. Chief among them, he said, is the flexibility of the offering, the rate – prime + 25 basis points – and the collective impact of lender advertising campaigns hawking HELOCs.
“Also a lot of brokers are looking to differentiate themselves,” said B2B Product Manager Mary Hayes. “This HELOC allows them to do that.”
Brokers arranging HELOCs at all set themselves apart from an industry all but shut out of that end of the market.
The B2B product, a Laurentian-branded HELOC, is one of only a handful made available through the broker channel, something limiting broker participation in what CAAMP now pegs as a $215 billion industry, with 22 per cent of Canadian mortgages carrying some form of line of credit.
“We have a limited offering compared to bank branches and their mobile specialists, especially on the east coast where the number of lenders are reduced compared to other provinces such as Ontario, Alberta and British Columbia,” Leslie Penney, VP of business development at APlus Mortgage, told MortgageBrokerNews.ca. “With a select few lenders offering HELOC’s, it’s clear as to why our market penetration is minimal.”
B2B’s success at attracting brokers to the product comes despite concern among others about collateral charges associated with HELOCs.
While readvanceable mortgages allow clients to re-borrow the principal they’ve paid off on their mortgage, up to 80 per cent of the value of the property, and to avoid upfront legal costs, they also allow the lender to register a collateral charge on the home usually 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. Most mono-lines and banks – as well as private lenders – refuse to accept the transfer of collateral mortgages, forcing homeowners to pay additional fees to register a new conventional or collateral mortgage in order to move the loan from the lending institution.
While, HELOCs aren’t for all clients, “they do have a place in the broker arsenal of products,” said Gord McCallum, owner of First Foundation Residential Mortgages in Edmonton. “It’s important that the broker really understand the client needs in order to determine if the HELOC is appropriate.”
Another industry veteran agrees, although broker training around more complex transactions is absolutely imperative, said David O`Gorman, broker/owner of MortgageLand Inc. in Markham, Ont.
“It’s great to see a broker-oriented financial institution like Laurentian/B2B bring a product to market that meets a need," he told MortgageBrokerNews.ca. "The reality is if a product suits a borrower’s needs and the broker/agent has provided adequate information for the borrowers to make an informed decision, then there is no issue. Clearly collateral mortgages fill a need, just as do reverse mortgages. However the reality is the vast majority of mortgage agents in Ontario are graduates of a less-than-rigorous, provincial government-approved, five-day educational program, so most don’t have the experience or the education to be able to understand the risks and future costs to the borrower inherent in a collateral mortgage. They see a `cheap` product offering a quick pay day"
O'Gorman is suggesting broker/owners need to take on a leadership role here, advising their agents about their responsibilities to clients as well as highlighting the ins and outs of collateral mortgage deals.
"To my principal broker colleagues, I would recommend that they ensure their agents/brokers a) develop an approved “script” to explain verbally to their borrowers the risks, limitations and potential future costs of a collateral mortgage and b) have a written disclosure, specifically for collateral mortgage loans, that clearly details the costs and risks to the borrower of a collateral mortgage and have the borrower sign and acknowledge the disclosure,” said O'Gorman.