Risky Play? Or Well-Calculated?

TD’s new collateral charge mortgage policy finally hit the mainstream press (see this Globe article).

The response thus far seems more negative than positive.

It will be interesting to watch how TD’s share of broker business changes in the next 12 months.

TD-Canada-Trust-MortgagesOther things being equal, this policy has a real potential of reducing TD’s broker volumes. Brokers will now be less inclined to refer standard mortgages to TD given the obstacles to clients changing lenders at maturity.

Moreover, of the broker deals TD does get, a higher proportion could be deals that can’t easily get done elsewhere. That could lower the quality of TD’s broker-originated mortgage portfolio.

All of this raises two intriguing questions:

  1. Did TD not foresee the potential implications of this change?
  2. If TD did foresee a drop in broker volumes and quality of deals, why did it move ahead with this?

We have TD mortgage specialists in our loop that tell us TD is giving them all the training and rate discretion they need to compete with brokers. The collateral charge policy is bound to make some people question TD’s commitment to the broker channel.

On the other hand, perhaps TD will offer brokers something new to keep spirits up (like adding trailer fees, cutting rates, or letting brokers sell the HELOC product). If not, then as much as we hate to admit it, this could be a turning point in TD’s broker business.

  1. Great post Rob. I asked myself when I saw the news last week will TD be the next BMO in the broker channel? I guess only time will tell. It would be interesting to know today what % of the total mortgages TD does comes from the broker channel.

  2. Are you implying that brokers might recommend a product that was no good for the customer if TD offered trailer fees?

  3. TD is not committed to brokers on the A-side. They just want us to get them B-business so they can have another revenue stream. They’re not offering any incentives to send them business anyway and with their new policy of registering all mortgages as a collateral charge, they look even less attractive than ever.

  4. Thanks Banker99,
    I don’t have TD’s channel contribution numbers but TD is (or at least was) the #3 lender in the broker channel earlier this year. So while brokers may not do the majority of TD’s volume, they do a lot. Some expect that ratio to decline notably as TD continues to invest in its mobile sales force.
    Cheers,
    Rob

  5. Thanks Rob. No doubt this is not a friendly broker product. Its is funny your opening line sates risky or well calculated? TD is #2 in the bank world for a reason. Most changes are well thought out and well calculated. I think what they lose in broker share (at the end of the day do they really care?) they will make up for in retention.

  6. TD has been aggressively growing their internal mortgage sales force for a number of years now. In my opinion it’s pretty clear the future direction of TD’s role in the broker channel, and that’s looking not IF but WHEN they will depart. Although they still depend heavily on the broker channel for mortgage volume, and cross selling opportunity. Their strategic decisions have certainly had a negative impact for all brokers across Canada.

  7. Scotia, TD, HSBC, Credit Unions in British Columbia. So many lenders register their mortgages as collateral mortgage charges and brokers still send them business.
    I foresee juicier carrots from TD in the broker world.

  8. @Catherine
    The lenders you mention usually use collateral charges when credit lines are attached to the mortgage.
    That is fine because people expect to refinance when moving a mortgage with a bundled line of credit.
    The issue here is that TD is making ALL of its mortgages collateral charges and not giving customers any choice about it.
    People who don’t expect to refinance have no need whatsoever for a collateral charge. It only restricts them.

  9. Our team has never viewed TD as a big player or someone we would send business to on a regular basis for the very reason that they are a big bank and that they have not allowed brokers to ever compete on the same level as their internal sales force (i.e. no HELOC) but on the other hand lets be honest and say what you want, an internal sales person is not competing at the same level we are.. they can’t be when they are making .50bps a deal- there is no way that any top talent that base their business on anything but rate would choose to work for an internal sales force… to fully service your clients you have to have more than one bank’s offerings, it’s as simple as that.. TD bank has and never is a threat in our eyes, nor are any of their sales people…

  10. Perhaps all of the FIs should blacklist the external brokers, and use the savings to provide their clients with better rates and invest in their advice-based strategies?

  11. First of all, if you think banks would pass along any of the small savings you don’t know banks.
    Secondly, brokers are the main reason people get great rates today. Before brokers, people paid posted rates.

  12. Its good that Brokers will be less inclined to refer standard mortgages to TD.
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    Debt Ratio

  13. Rob,
    Let me see if I have this straight. If you get a mortgage with TD under the new plan, it means that you can access more of your equity later in the term with out and hassles of additional legal fees, but if you want to either break your mortgage or go to another lender at the end of the term you have to pay an additional legal fee? So I pay $700 or so to get this mortgage, $700 to get out of it at the end and then another $700 to get a new mortgage somewhere else? Do I have this right?

  14. Hi JC,
    If you got a TD mortgage on a purchase or refinance you would pay legal fees (as with most lenders).
    If you switched a standard existing mortgage to TD, then like most lenders TD would cover the legal cost.
    If you broke your TD mortgage early and refinanced with TD, you would not pay legal fees. (That’s true as long as your new mortgage was less than or equal to the value TD originally registered.)
    If you moved your mortgage elsewhere (either mid-term or at renewal) then you would pay legal fees.
    Hope that helps.
    Cheers…
    Rob

  15. Mike,
    If a customer accepts the disadvantages as a tradeoff for some other benefit, then recommending TD becomes a judgement call on the broker’s part. Other things being equal in that scenario, trailers could tilt the scales in TD’s favour. This is a similar concept to the model that’s widely-used in the financial planning industry.

  16. If you broke your TD mortgage early and refinanced with TD, you would not pay legal fees. (That’s true as long as your new mortgage was less than or equal to the value TD originally registered.)
    As a client, I like this.

  17. In the broker channel this product works for some clients and would not work for others, just like TD banking clients. The downside here is TD is limiting their business by not offering both a standard and Collateral Mortgage product. As a Broker when placing mortgages it is our duty to inform clients of the advantages of a product as well as the disadvantages. With TD’s new products this will have to be a detailed discussion with any client before they are placed in a TD product.

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