ING Direct Goes Collateral

ING-DirectCollateral charge” is like a bad word to many consumers and mortgage professionals.

That’s why some were disappointed to hear today’s announcement by ING Direct Canada (ING) that all of its new mortgages will be registered as collateral charges.

The main rub with collateral charges is that it’s harder to switch lenders without paying legal fees. Collateral charges also impact people’s negotiating leverage at renewal and restrict borrowers from taking out second mortgages or HELOCs elsewhere (unless one’s property value skyrockets).

The upside, however, is that ING customers with collateral charges will now be able to refinance (with ING) without any legal costs.

Kim-Luxton-INGKim Luxton, Director, Broker Sales, confirmed today that ING will register all of its new mortgages collaterally, at 100% of the property value, starting December 10, 2011.

Here’s what that means:

  • Suppose your house is worth $200,000 and you get a $100,000 mortgage.
  • ING will “register” the mortgage for $200,000 (i.e., 100% of the property value).
  • That lets it lend you up to $100,000 more without refinancing with a lawyer.(Future borrowing is subject to qualification and normal loan-to-value limits.)

ING says it made this move because more people refinance than switch, and because collateral charges help clients avoid legal fees. It estimates the average savings in legal costs will be roughly $800 per refinance client.

So, are consumers better off with collateral charges? Here are some relevant stats:

  • 10% of mortgage borrowers took out equity in the past year (source: CAAMP). Not all of those had to refinance, however. Some used secondary financing.
  • 8.6% of mortgagors renewed on schedule at maturity (source: CAAMP)
  • Only 21% of borrowers who renewed or refinanced changed lenders (source: CAAMP)
  • 38.75% of broker approvals were for refinances. Only 3.9% were for switches (source: ING, quoting D+H stats)

These stats suggest there’s a majority of people who could benefit from free legals when refinancing. Nonetheless, there’s also a minority of ING customers who will now pay more when they:

a) leave ING at maturity, or

b) need to refinance elsewhere (as a result of ING’s 100% registration policy which prevents secondary financing through other lenders).

Among the people who don’t need to refinance, most stay with their existing lender anyway. That’s why lenders argue that collateral charges may be negative for some borrowers, but they’re helpful for the majority.

In ING’s case, instead of giving customers the choice of standard or collateral charges, it decided on a “simple” solution to make all of its mortgages collateral. TD did the same thing when it switched to collateral charges in October 2010.

ING says that decision is related to the launch of its upcoming HELOC, in which case using one registration method will “simplify and reduce documentation.” (That said, one brokerage executive we spoke with questioned why ING chose to launch collateral charges before it launched its HELOCs.)

Martin-Beaudry-INGFor customers who will now have to pay to switch lenders, there may come a silver lining, says ING’s VP Lending, Martin Beaudry. “Trends in the marketplace show that lenders are more and more willing to cover a reasonable portion, if not all, of the cost necessary to refinance a mortgage…(because) they figure the long term value of that customer is really good,” he said.

He’s right. As additional lenders jump on the collateral bandwagon, and as more consumers get HELOCs, lenders will increasingly start paying for refinances—just like they pay for transfers now.

(Incidentally, Beaudry says the extra cost of paying for a client’s refinance is “fairly small,” compared to the money lenders shell out as part of their free transfer programs.)

While relatively few lenders cover refi legal costs currently (without jacking up the interest rate), they may soon have to; that is, if they want to woo clients from their existing lender.

Attracting the competition’s mortgage customers isn’t easy. Eight in ten borrowers end up staying with their lender at renewal. There are two primary reasons for that:

1) people hate hassles, and

2) client retention is a top lender priority.

As a result, the demand for “free switches” is less than one might think.

ING expects no loss of broker support as a result of collateral charges. Luxton says these new measures actually help brokers “better compete” with the Big 5. She says that’s because brokers will now be able to offer ING clients a streamlined method of taking out equity with no legal cost. In addition, brokers will be compensated on the “top-up” portion when clients increase their loan amount by 20% or more.

As TD’s move to collateral charges surprisingly showed, this method of registration has had no adverse impact on market share in the broker channel. Given that, and the fact that collateral charges discourage switching, and the fact that they reduce a borrower’s negotiating leverage, more lenders will likely adopt them.

(One industry exec we talked to, who prefers to remain nameless, calls collateral charges a “client retention miracle.”)

As a matter of fact, at some point you might even see it become a point of differentiation for lenders to not have collateral charges.

Regardless of the benefits of collateral charges, the cons (for some clients) can’t be denied. That’s why we would have preferred that ING give clients that choice of collateral or non-collateral. Ask 100 clients and we’d guess at least 8 in 10 would want this choice. But ING’s collateral charges will help more people than they hurt, so we can’t take that away from them.

FAQS, Colorful words hang on ropeHere are some FAQs on ING’s new collateral charges:

  1. How will this affect existing ING mortgage customers?
    It won’t…until renewal. At maturity (if a customer stays with ING), ING will re-register the customer’s mortgage as a collateral charge, at no cost.
  2. What’s the process for requesting more funds?
    ING clients with collateral charges can use their broker to request more funds, or call ING’s help desk. It involves a new application and income verification (albeit, ING might only ask for a recent pay stub instead of full income proof).
  3. Is a new appraisal required to withdraw more equity?
    When a customer wants to increase his/her borrowing inside of a collateral charge, an appraisal may or may not be required. It’s a case-by-case basis, says Luxton. Beaudry adds: “Unless there is a major economic downturn, we would likely not require another (full) appraisal.”
  4. Will compounding change?
    No. ING mortgages will still be compounded semi-annually, including its variable-rate mortgages.
  5. Do ING clients with collateral charges have to get a HELOC?
  6. Can ING clients with a collateral charge add a HELOC later with no legal cost?
    Yes, if they qualify.

Sidebar: ING says its new HELOC will officially launch in “early 2012” (likely Q1). Once it does, ING will also roll out a new refinance program to help clients refinance with less cost and hassle.

Some may wonder how borrowing from a HELOC is consistent with ING’s “unmortgage” philosophy that advocates paying down debt. Beaudry admits, “We’ve had philosophical discussions (about) whether a HELOC is a product we can offer under our brand.”

“After much debate,” he said, ING concluded that not all debt is “bad debt.” Two examples of “good debt,” he noted, are debt consolidation and borrowing for renovations. Another example would be borrowing to purchase prudent investments.

Despite all that, ING’s HELOC will not be automatically readvanceable like its major competitors. Beaudry says that’s because, “We don’t want to make credit too easy to get.”

One last point. Beaudry foresees a noticeable jump in refinancing when rates start rising. He states: “We think refinances will increase significantly as consumers deleverage and get away from high interest rates.” That’s another reason ING felt the timing was right for this change.

Rob McLister, CMT

  1. ING had great mortgage conditions, but I notice some increase in rates there recently. I guess they’re done offering “the best rates” directly to customers.

  2. Another “advantage” of 100% collateral registration on title is the prevention of mortgage fraud via identity theft or other means.
    When a property appears to be 100% financed, there is no equity to steal.

  3. $800 savings in legal costs? You can hire a lawyer to do a straightforward condo closing for less than that. There’s no way removing and adding a charge on title is more than 1/2 hour of a paralegal’s time for a streamlined operation.

  4. There’s nothing wrong with having a HELOC as long as it’s used responsibly which is why I don’t understand why people are giving flack to ING over introducing it.
    If anything, I welcome ING offering more services and competing head on with the major banks. Plus ING has a stellar reputation with customer service and the importance of saving mantra attached to its brand so as long as they can continue come up with innovative products that create value for consumers over what the major banks offer and as long as they offer these products to brokers to help them compete, I don’t see why some perceive it as a negative development.
    As for collateral mortgages, there are obviously advantages and disadvantages of having them around. On one hand, most lenders don’t accept collateral charges on assignment so switching will cost clients more money. On the other hand, industry stats show that most people stay with their existing lender anyway. And retention has become such a focal point that lenders may eventually have to start offering free re-financing to clients to compete. So heading forwarding, financial institutions would be tweaking their product offerings to reflect the change in the trend and I wouldn’t be surprised to see more “A” lenders moving in the same direction eventually. It makes sense from a retention as well as administrative POV.
    Still, you kind of have to wonder how come there are so many refinances going on and whether we’re in a “refi bubble” just because rates are so low. Moreover, clients should be aware that just because they can refinance without legal fees doesn’t mean the process is cost-free. Even if the mortgage is registered as collateral, the prepayment penalties are applicable.

  5. all the big 5 banks are going collateral, RBC did the same brokers get used to it, as for legal fees savings for ING this is nothing new , TD, RBC does the same. Come on brokers read between the lines, the brokers bus. is going back to the 90s, the only lenders avail shortly will be white label lenders, big 5 simply dont want to be assoc with brokers any longer because of cross sell simple as that. CIBC , RBC, BNS, BMO & TD on huge hiring sprees for MMS. Ask any of current MMS for a big bank what the main focus of the job is? 60% mortgage volume 40% mortgage life/critical illness. its no longer mortgage volume any longer the spreads are not enough for profit banks want mortgage/insurance reps. Brokers simply not profitable due to shirt off your back discounts. ask any MMS .

  6. You might be right about the majority of the big five right now, but margins will improve in the next few years. Who wants to go with the big five anyways if brokers can crush their rates and save the client big! big 5 is ssssoooo overrated!

  7. RBC only registers collateral mortgages for its Homeline re-advanceable product. All other mortgages are registered as mortgages.
    I also questions where you get your ratios of 60/40 volume to insurance. Maybe 70/30 at most (and that is pushing it), but definately not 60/40.

  8. Assuming all of the major banks do this, does it not basically kill the independent second mortgage market?
    I’m assuming that few banks would normally be willing to reduce their collateral charge in favour of a second lender, especially if they had high interest credit card, line of credit and other debt they might be able to cover under the same collateral charge. Comments?

  9. LOL, funny bigsaintallthat, i work for the the big 5 & we take brokers to the woodshed on rate all day long. brokers are not even competition. good to see u just sell rate, thats awesome , keep up the good work you set em up baby I’ll knock em down

  10. It definitely poses a problem. Most of my business is private 2nd mortgages, and we’ve run into the situation with collateral charges already.
    Some Institutions will reduce the charge to reflect the outstanding mortgage balances, and some will not. It’s a case by case scenario. I’ve had some lenders refuse to reduce the charge, even when the 2nd mortgage was to bring the first mortgage current. They didn’t seem to care, and was fine letting the client lose their home.

  11. I am a BDM for a bank that deals with Brokers and I find that comment extremely offensive AND arrogant. I know it is true so keep talking and hopefully brokers will listen.

  12. you forget that brokers take their offers mostly from the big 5. Very few can finance mortgages themselves :)

  13. when they all make same rules, you won’t escape :) and the worst is that you have no choice but to sign somewhere.

  14. nice one Rainman you started it with ” we beat the big 5 with rate verbal garbage” same old broker crap i flush down the toilet daily, if you guys could ever figure out that you will never beat the bank. have you not got it in your head that most of the funds you guys get come from US?? RBC will simply put its foot down & youre done like dinner. happens everyday. we dont like to but hey its you guys & your rate, rate, rate. our MGR just gives us the word & you guys are toast. I mean come on would a customer rather deal with ING or some other no-name lender, calling india for customer service.. come on really.. some of guys make me laugh with your “Mr T” starter kit like attitudes.

  15. If your mission is to make banks look good, you’ve failed.
    If your mission is to make yourself appear credible, you’ve failed even worse.

  16. Your bank manager is too busy trying to sell people posted rates to approve your discretion requests.
    Here’s a novel idea for you. Quote people fair rates upfront instead screwing 20 customers to give one person a good deal.

  17. Hi Folks, To stay on topic let’s keep the discussion centred on collateral charges and/or ING. There are several other threads where we can wrestle over the relative benefits of brokers and banks. My thanks, RM

  18. sure, you knock em down and I am on a beach drinking corona with all the money i make. thank god i don’t work for the big 5.

  19. united we stand and divided we fall. brokers are complaining all the time about lenders changing rules and policies that affect the broker industry in a negative way. But if brokers somehow united and stop sending business to a particular lender, it would be interesting to see what would happen i.e. boycott ING and TD

  20. ING is different from TD in the sense that they rely on broker origination much more than TD. For TD, brokers are a necessary evil while for ING brokers really are “partners” because they get a huge share of their mortgages from independent brokers. So I would wait and see what the HELOC and refinance program is all about.
    ING has typically capitalized on their lower overhead to pass the savings to consumers. But ING also differentiates itself with simplicity. One reason their mortgages are priced a bit higher than other lenders who offer fully discounted rates is because they don’t offer any shorter rate holds than 120 days. But when you compare 120 days vs. 120 days of other lenders, they are very competitive if not the same.
    The big banks would sell a higher rate to any schmuck they can; ING won’t. So this is why I would wait and see what their new products offer before writing them off altogether because of the collateral mortgage.

  21. No offense but you sounds like a little kid in an AOL chatroom… “flush you down”, “you guys are toast”….. does your manager know you’re using company time to post b.s. on the web?

  22. this is great for ING (especially since this is usually sold as a benefit at closing “we’ll just register a higher mortgage/loan and when you need more money – just call!”) But it can actually be very annoying.

  23. As an Agent I will look at this from my point of view as a client and then as an agent. In the end the debate about collateral charges or non-collateral charges is about client suitability.
    As a mortgage holder- I would not want to be stuck to one institution. As my mortgage comes up for renewal I am always looking for the best deal out there. Granted as an agent I have more tools then the average consumer but I also did this PRIOR to becoming an agent. Please note, I said best deal, not necessarily the best rate.
    Speaking as an Agent- this is where Agents and Brokers have to make sure their client is suitable for the deal they are signing. Suitability is a big issue.
    If your client likes the idea of being able to come back to YOU, the Agent/Broker, to negotiate a refinance with ING or get a HELOC then you have to educate them as such that this would be the process. They should also be educated on the fact that if something happens in the future such as loss of job etc where the client needs secondary financing but can’t qualify with ING (or whomever) that secondary financing may be impossible under a collateral mortgage. With education this shouldn’t be an issue for an Agent/Broker as the collateral charge can create a better Client/Agent relationship.
    If the client doesn’t like this idea and wants to be able to freely move from institution to institution or be able to use a different institution for secondary financing in the future then a collateral mortgage wouldn’t work for them.
    Looking for the best deal available for each specific client should be the objective of any Agent/Broker/Bank. Agents/Brokers should look at this as a platform for creating some customer loyalty. That way if the day comes that the client is completely un-happy with the institution they are with then you can have them come to you to move them elsewhere.
    As a side note roughly 25% of my business is derived from the fact the client wasn’t given proper information from their previous Broker/Agent/Bank. Knowing products and educating the client is the biggest part of anyone’s job in this industry. Look past the pay cheque, because if you don’t you won’t have one.

  24. Agree with Lior. ING is not TD, and since 80% (or more) of their business comes from the broker channel, I don’t see them likely to bite the hand that feeds them.
    I also don’t see their clients calling their call centre overseas for refis, and if you are doing the proper follow up work you will be able to retain and refi the client yourself with them at full compensation.
    ING also does not have a branch network that will solicit and upsell the client like TD does, so it comes back to ING being a balance-sheet lender who relies on deposits in order to lend out on the mortgage side.

  25. So if i go with ING can i still get a conventional mortgage (i.e. not a collateral one)? Which banks currently (other than TD) use collateral mortgages?
    Thanks in advance,

  26. You can request a non-collateral mortgage if you switch your mortgage to ING and don’t make any changes to it.
    If you get a brand new mortgage with ING then it will be collateral.
    Many banks and most credit unions use collateral mortgages.
    Most lenders that brokers use are non-collateral.

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