More On TD’s Collateral Charge Policy

TD's-Collateral-Charge-Mortgage On Friday, TD further explained the logic behind its controversial across-the-board switch to collateral charge mortgages.

TD says it instituted collateral charges on its entire product line, in part, because “20 times” more customers refinance with TD than switch their mortgage using an assignment.

Moreover, the bank says collateral charges let customers refinance at TD, or change among TD products, without incurring legal fees.

“20 times” is a big ratio. However, compared to the average lender, TD has a disproportionate number of customers in collateral charges already. That’s relevant because lenders don’t accept TD’s collateral mortgages in assignment. Therefore, by default, there won’t be as many assignments coming from TD compared to lenders who register a larger proportion of “standard charges.”

In any case, TD’s internal refi-to-switch ratio is meaningless to those homeowners who want a regular low-cost mortgage and don’t intend to refinance.

All of this boils down to customer choice.  TD doesn’t allow the option of choosing between a standard or collateral charge (its mortgages are all collateral now), so you need to think ahead:

  • If your situation is such that:
    • You want a secured line of credit with your mortgage or you think there’s a high probability you’ll refinance during your term; or,
    • TD gives you the best overall deal (e.g. one that is at least $700-800 better than the next best option)…

…then TD may be a perfectly reasonable fit.

  • If instead, you:
    1. Won’t need to refinance during your term
    2. Don’t need a secured line of credit
    3. Like to shop around for the best deal
    4. Don’t want to pay legal fees if you switch lenders at maturity; and,
    5. Can get the same mortgage deal elsewhere…

…then TD is probably not the best choice for your mortgage.

As usual, there are always exceptions so speak with a mortgage professional for guidance specific to your circumstances.

  1. Not a great move in my mind. How many people will be explained this up front and what the costs will be if they decide to renew elsewhere when their mortgage matures? I think they are making a bad move by not giving customers the option to choose.

  2. Hi Rob,
    The equation that is still foggy with me is the amount being registered. Will lawyers advise to register at 125% of the property value or just the portion being borrowed (mortgage)? This has a real impact on the 2nd mortgage potential

  3. RBC’s Homeline and Scotia’s STEP are registered at a higher LTV than it actually is. So even if the client currently has, say, 40% equity in the subject property (hence an LTV of 60%), the lender actually registers the entire value as oppose to only 60%. Keep in mind this is if the mortgage is combined with a HELOC. With TD’s new policy, even standard mortgages are registered as collateral charges. As a result, the homeowner loses a great deal of flexibility because:
    1) It would be virtually impossible to have a mortgage in the second position,
    2) If the borrower wants to transfer to another lender, they would have to pay legal fees just for the privilege of having their current mortgage with TD
    TD are not stupid and would probably be very aggressive with their rate discretion to attract the business in the short-term. The problem is what happens when the mortgage has to be renewed. As Rob said last week, everyone needs to renew but not everyone needs to refinance. Do you think the bank’s own sales force would explain the pros and cons of a standard mortgage being registered as a collateral charge to clients? Personally, I doubt it. With TD knowing that clients would be facing upwards of $1,500 in legal and discharge fees to take their business elsewhere, the borrower would actually be at a *disadvantage* when negotiating the renewal (those that are actually savvy enough to negotiate instead of blindly signing off for another term at whatever rate the lender offered).

  4. We personally got a TD PLC with “free in house legal”. We went to the branch, the lawyer came in, said he was only there to witness our signatures and would not give any legal advice. We signed, the lawyer signed, rubber stamped and left. Now, we have a First Line PLC it was done through a independent lawyer who explained exactly what we were signing.
    Remember when TD automatically raised all their Lines of Credit 1%? Well my First Line PLC is still at prime.

  5. The other advantage is that Firstline is not a collateral charge and thus can be transferred. But it is the small things. TD, being a collateral charge rates the mortgage and line on your credit as if it is a loan. This effects your credit score. Firstline’s is a true mortgage so any rating is a mortgage rating and not used in the score.
    Maybe not a big deal, until something in your life falls apart and you have credit challenges and nor you have a large loan that is close to the limit effecting your score.

  6. my understanding is that collateral charges can be transferred, it just that most lenders won’t because they want their own version of the charge. Rob, could you verify that?

  7. I work for TD, the ‘cons’ to this new policy are quite interesting:
    1)Won’t need to refinance during your term (who knows if you’ll need to refinance during your term? How many clients know this up front? At least if you do need to, it wont cost you extra)
    2) Don’t need a secured line of credit (that’s fine, many clients don’t need one, TD will give you a mortgage.)
    3)Like to shop around for the best deal (TD is very competitive, try me…)
    4) Don’t want to pay legal fees if you switch lenders at maturity (Many lenders like Resmor & First National have mortgages that are not transferable to the major banks, so you’ll end up paying legal fees)
    5) Can get the same mortgage deal elsewhere… (not sure how this is a con? if you can get the same deal elsewhere, why not choose TD? 5 years in a row best bank in customer service, longest hours of any bank etc…)
    At the end of the day ALL banks & lenders want to keep their clients, each lender has/uses different tactics to try & keep them. This one, helps TD try to keep its clients. I know personally that some other lenders have far worse tactics that impact the client negatively.

  8. This is a dirty trick if you ask me. TD also no longer allows their own clients in most circumstances to speak with them on the phone about their own mortgage now. The client is forced to come all the way to the branch so that TD can attempt to sell them something else when the client just wants to refinance. We hear complaints all the time about it.

  9. I am supprised that no-one has spoken about other potential consequences of having a Collateral mortgages.
    With a Collateral mortgage, under Canadian law, a lender may seize equity to cover other debts you have with that same lender. So in essence, you’re unknowingly securing all of your loans, credit cards, unsecured lines of credit, car loans, even your overdraft… All of this being done with the Bank’s single collateral loan.
    Am I missing anything in the disclosure statement that should be going out to TD clients at sign up?
    I wonder if the person who dreamed up this idea is the same one that dreamed up the idea of charging clients for an having an unsecured PCL that isn’t drawn.

  10. On item #4, can you please explain why mortgages from Resmor and First National are not transferrable to major banks at maturity?

  11. Curious TD has easyline a 1800 number you can call to ask about your mortgage which is a secure line. Proves you are who you are via passwords. When you call the branch we don’t know who you are so due to privacy we must get you to come to the branch. And yes we will try to “sell you something”, depends on if you need it and its suitable, thanks.

  12. … Bob, not all collateral charges are the same. Nothing has changed other then the ability to reuse it (if needed and upon normal qualifying). The charge clearly notes it is only for ONE product – no different then a conv mtg charge. Terms cannot change til client renews or refinances , semi- annual compunding etc…
    Only 3% of people switch a mtg. most banks and broker lenders will pay those fees or lawyers/ FCT will complete for a few hundread dollars.
    this is good for anyone that sells TD mtg products – brokers, branches, mtg reps

  13. Where I was going with that was in the event of Default. (This is the Law… not TD Policy) There are two things that can happen with a Collateral Charge that cannot happen with a Regular Charge.
    First: Default interest would be charged at the Face rate (Prime + 10% ) currently 13%
    Second: In the Bankuptcy proposal, all borrowings the client may have with TD would be wrapped within the Collateral Charge registered amount. So lets say that unsecured TD Visa would now be paid off in priority to any other unsecured debts like a BoM M/C, CIBC Visa etc.
    Granted, at this point in time the client is in so deep that there is no way of getting out from their Financial crisis, but there is a degree of protection offered under that Collateral Charge that is not available under a Regular Charge.
    Check with a Trustee in Bankruptcy if you think I am incorrect as they are the ones having to deal with the aftermath…

  14. Hi Wayne,
    Thanks for the clarification. In regards to your response:
    1) Most of the clients I’ve done a mortgage for didn’t need to refinance during the term. There are other options if the need for additional funds arises. I don’t know why there are “20 times” more clients at TD who refinance than those who are switching. Perhaps the sales force is doing its job and getting people to refinance a bit more often than they need to. Perhaps you can provide further clarification.
    2) Yes, indeed, but you still register a standard mortgage as a collateral charge. And you provide the originator with the option to register a higher-than-actual LTV upon signing. How do you know if the client actually needs or will use the funds? If the property value decreases they can’t use it anyway.
    3) If TD is very competitive, they would provide discounted rates to *ALL* their clients (just like brokers) and not on a discretionary basis which is the more profitable model for you. You’re not competitive if a client comes to you with a commitment from a broker and ask you to match. Besides, brokers who are top 1% with ING, Firstline, Laurentian, MCAP, etc. would easily beat whatever discretion TD throws.
    4) Precisely the reason why no one does business with Resmor any more :p
    5) Because most mortgage customers don’t exactly need the branch after the fact if they have been advised thoroughly prior to signing. While your customer service awards are commendable, the fact that you stay open late is of little relevance as most brokers are mobile and would meet clients at home or office, morning or evening, weekends, etc.
    Indeed, at the end of the day it’s all about competition. The banks as well as the lenders I work with, all they care about is getting the mortgage on the books. They don’t care if the client actually understands what’s going on. They assume the client is aware of all the terms and conditions because the client signs the loan agreement. At the end of the day a client needs someone to advise *them* from a neutral perspective and not someone who works directly for the lending institution. From a conflict-of-interest point of view, I just don’t see how a mortgage adviser at the bank would act in a client’s best interests.

  15. 1) Lior, I did not come up with those numbers but, I think it makes sense that clients would rather refinance with TD than to switch banks. Customer retention is a high priority I’m sure with any bank/lender.
    2)We don’t know what the future needs are of the client, that was my counter-point to the article. It’s seen as a negative if the client wants to switch or refinance elsewhere. If the client DOES want to refinance later, they do not have to pay additional legal fees. As for the value of the property decreasing, that would be a ‘negative’ to anyone with any lender whether they were with TD or not. The negative impact doesn’t increase because the mortgage is a collateral one, if a property decreases in value.
    3) I’m not a branch rep, I am a mobile specialist, we are more competitive with rates. As for brokers, the common issue I hear is that the mortgage is booked where the broker gets paid more, not where the client wants ‘book’ the mortgage.
    5) You’re only referring to the process right up until funding. What about after the closing? Who can the client go to when they have a question or have a need? Customer service goes beyond the closing date ;) Granted, with the internet & telephone banking the need is smaller for 1:1 service post closing but, it does exist & a lot of customers find value in that.
    I agree with your ‘advice’ comment. However, not all brokers are neutral. Just because I work for TD doesn’t mean I provide less advice & it also doesn’t mean I can’t be neutral.
    The best advise for any client is to shop around. Talk to a mortgage professional who works for a bank, talk to a broker (there are pros & cons for each, lets be honest). Compare the advice & rates offered. Make a decision that works best, makes you comfortable & ensures your needs are met.

  16. Unfortunately with the amount of fraud & impersonations its a risk the bank does not want to take at the branch level.
    As someone else indicated, if you call Easyline, the operator can authenticate you with a PIN#(or phone code) and their conversations can be recorded if needed.
    To be honest you’re likely to get someone on the phone through Easyline quicker than you are calling the branch directly.

  17. TD sent out an email that said “A new lender may not want to take an assignment of a collateral charge, but it is an option. In any event, most lenders prefer there own version of security.”
    To me that means it is technically possible to switch a collateral charge but practically speaking it doesn’t happen. Do you dispute that?
    I just can’t see how this is good for brokers, let alone borrowers who don’t care about refinancing.

  18. The new Loan agreement is very clear. It is for one product only, ie. MTG. Not a charge which notes “all assets and undertaking, ie. GSA”. Therefore the charge doesn’t cross over to unsecured assets.
    95%+ of the above posts are wrong.

  19. TD states “most lenders prefer their own security.” That seems to clearly suggest that most lenders won’t accept a TD collateral mortgage without re-registering it, which commonly means the client must pay legal fees.
    I am still unclear from your answer. Do you concede this point or not?

  20. Hmm, seems like TD should have spent some more cash training their reps how to deal with some of the shortcomings of the collateral charge registration.
    Over all, I don’t think its that big a deal, but given that there is so much competition out there, IE: people switch lenders for 5bps savings on a rate, it seems like having to pay legals with a switch could very well make TD a less attractive option in a lot of peoples eyes.

  21. Hi Wayne,
    1) Obviously you didn’t come up with these numbers. As Rob mentioned, I too find the ratio of refinancing vs. switching at TD to be somewhat disproportionate compared to other lenders who are competing in the same segment. While I agree retention is a high priority for everyone, it’s also about ensuring clients maintain a certain degree of flexibility with their mortgage. While the new policy may be beneficial for clients who *may* need to refinance in the future, it is not beneficial for those who like to keep their options open. In the last paragraph you said that “the best advise for any client is to shop around.” Guess what? TD’s new policy penalizes those who want to shop around and work with a lender that provides favorable products/terms over TD.
    2) I understand your concerns regarding the refinancing issue. What I don’t understand is how are you making it easy for a client who likes to shop around or work with a lender other than TD. You’re focusing on retention and that’s fine. In this competitive market everyone wants to focus on retention. What I don’t understand is how can TD justify this measure as a retention tool when in fact it penalizes some of their clients who want to keep their options open, which is something that you are encouraging yourself!
    3) As far as the A-segment goes, virtually all lenders pay the same for a given term and the compensation is fairly consistent across the board. What drives business is volume. Same goes for the B-side. Over there it’s about who can do the deal as oppose to who pays the highest as there would be a brokerage fee added anyway because some lenders don’t pay a finder’s fee. More complex mortgage structuring (i.e. commercial) is exclusively fee-based.
    5) As I have indicated earlier, brokers can meet with clients in person at the time and place of their convenience. The difference between a bank employee and myself is after the mortgage is funded, I have no other product to sell (aside from service, of course, staying in touch and sending period updates). If a client needs advice about insurance or investments, we provide these services as well.
    6) You’re correct, just because you work for the bank doesn’t mean you provide inferior advice. The problem here is the conflict of interest. Your job is to sell for the institution that feeds you. That institution is paying you to get clients and get business on the books. They are paying you to represent their interests over the client’s, which is something you must do because you don’t have a choice.
    I agree, though, applicants should always examine your options carefully.

  22. in regards to legal/notary fees, a law office/notary can charge as low as $500 for a switch. Don’t remember one of my clients was charged $1500. And again, this will save TD’s clients having to pay legals again and again and again

  23. You brokers should focus on helping your customers and remember that banks are the reason we are able to lend. Smaller companies fold every other day, we’re lucky we live in a country that has such strong banking systems. End of story.

  24. What a dumb and inaccurate statement. Actually, its not the banks money that they lend. You should remember that your banks customers are the reason you are able to lend. PERIOD!

  25. Not a great move in my mind. How many people will be explained this up front and what the costs will be if they decide to renew elsewhere when their mortgage matures? I think they are making a bad move by not giving customers the option to choose.

  26. @Wayne
    1) Intelligent people can look at their financial prospects and gauge future cash flow needs. Someone who is confident they won’t need to change their mortgage mid-term is disadvantaged by choosing TD. Why would someone like this go to TD knowing they can’t escape without paying a lawyer?
    3) “the common issue I hear is that the mortgage is booked where the broker gets paid more, not where the client wants ‘book’ the mortgage.”
    Isn’t this the pot calling the kettle black? Mortgage specialists at banks get paid more when they sell higher rates! Funny how you leave that part out.
    5) Wayne, now you’re really cracking me up:
    “it also doesn’t mean I can’t be neutral.”
    What percentage of time do you refer prime customers to other lenders?
    Enough said.

  27. Chris,
    Your opening line is precious: “Dear Annonymous writer writing me from a TD Bank IP address”
    LOL.
    Anyway, you’re dead on with this: “Post collateral charge, TD can offer a (higher than normal) rate and say to a borrower ‘go ahead switch banks. It’ll cost you though.’ Bad for borrowers.”
    I think the keys here are two-fold:
    1) While other lenders have been doing collateral charges for a while now (predominantly for line-of-credit linked products), TD is imposing this “feature” on regular old mortgages.
    2) If this move is so great for borrowers why doesn’t TD offer clients the choice. If it’s really the best thing since clean underwear then TD will get lots of takers.
    I don’t buy the argument that offering customers the option would be too difficult to implement. TD is a $603 billion bank with one of the biggest IT and support departments in the world.
    Customers are not offered a choice because it doesn’t benefit TD to do so. We have the utmost respect for TD as a company and don’t blame it for wanting to improve retention, but this sure as heck isn’t the way we’d do it.
    Cheers,
    Rob

  28. Hilarious post, Chris!
    Interesting note from this individual:
    “collateral mortgages are assumable, its just that most lenders choose not to assume them and would rather discharge the mortgage and setup a new one”
    Yes, they are indeed assumable. And yes, most lenders don’t accept mortgages registered as collateral charge on assignment – including TD! FFS! Talk about someone needing to do their research!
    “and it doesn’t cost thousands unless your lawyer is ripping you off.”
    The standard fee to register a new mortgage is about $1,000. Granted, some lawyers do it for slightly less but when the lender’s discharge fees are factored in, the borrower pays well over $1,000 to discharge the mortgage.
    Anyway, enough feeding the trolls.

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