TD Responds About Its Collateral Mortgages

TD-Canada-Trust-BankCBC’s undercover report last Friday cast a pall over TD’s collateral charge mortgages.

Interestingly, TD never responded to the CBC on camera. So we went to Farhaneh Haque, TD Canada Trust’s Director of Mortgage Advice, for her take on the report.

She told me, “The CBC Market Place piece omitted to include the benefits of a collateral charge…A collateral charge provides future flexibility” by letting customers refinance “without having to incur additional fees.”

farhaneh-haqueHaque adds that prior to October 2010 (when TD switched to 100% collateral mortgages) less than 1% of TD mortgage customers transferred to another lender using an “assignment with a conventional charge, whereas all customers who refinance with TD stand to benefit by re-using their collateral charge in the future.”

She says the majority of customers choose to refinance when moving to a new lender (as opposed to having their mortgage assigned). And when processing a refinance on a conventional charge, Haque says, “a new registration (effectively a fee) is applied.” This makes the loss of the “free switch” option less of a factor for TD customers with collateral mortgages, she suggests.

Haque expects that we’ll see more lenders go the collateral route. “The industry is moving away from conventional charges in favour of the flexibility offered by a collateral charge,” she predicts. “These have always been used for lines of credit and now most financial institutions in Canada use collateral charges for their combined credit products.”

Haque clarified another point as well. While collateral charge mortgage agreements can sometimes be used to satisfy delinquent non-mortgage debts (by forcing a borrower with equity to extract that equity or sell his or her home), TD doesn’t do that.

“…The real estate asset would only be used to payout the mortgage/HELOC facility…Using a collateral charge to pursue the borrower’s home equity to collect a credit card debt (for example) is not part of TD’s collection strategy.”


Here is our original story: TD…Collateral Mortgages.


Rob McLister, CMT

  1. “…The real estate asset would only be used to payout the mortgage/HELOC facility…Using a collateral charge to pursue the borrower’s home equity to collect a credit card debt (for example) is not part of TD’s collection strategy.”
    Yet.

  2. CBC was reporting on a story where a borrower was never told about the pitfalls of a collateral. It’s not their job to promote all the features of TD products. But it IS a TD employees” job to point them out. And when given the opportunity to do so- they did NOT. Four times. I think they proved their point that TD is only forthcoming on the features they want the clients to know about.

  3. I agree wiht Barb, we can debate collateral charges back and forth. There is no question they harm some and help others as Rob has pointed out.
    The evil is non-disclosure, tell the clients the truth factually and wihtout prompting. Make it policy to let the public know the facts out of the gate.
    Its just like Watergate or Monica Lewinski: its always the cover-up that kills you.

  4. I agree with Ron Butler here. Transparency is key in this day and age. Cover-up is never a good option.
    We discussed Collateral Charges today on CMHtv actually, with some great input from First Foundation’s Gord McCallum. Also, I dished out a wicked Scottish accent. Great information and entertainment for a Thursday evening.
    You can hear Gord’s insights by visiting canadianmortgagehangout.tv
    Disclosure is key for us Brokers. As mentioned, a collateral charge is not always a bad thing but as noted above…its only a matter of time before lenders exercise their contractual rights on collecting money when another tradeline is in default i.e. credit card.
    Stay awesome, Brokers!

  5. Good PR spin. Farhaneh comments still clearly show TD moved to Collateral Mortgages for their benefit, not the clients.
    If TD doesn’t “currently” use collateral charge mortgage agreements to satisfy delinquent non-mortgage debts, why have it in the agreement? What they do today is irrelevant when the option is fully executable for the life of the mortgage contract.
    My advice to consumers who choose a collateral mortgage is NEVER, EVER hold any unsecured debt with a collateral mortgage lender. Credit card issuers are already highly compensated for the unsecured risk they assume and there is a saying in collections, “possession is 9/10ths the law”. Nothing is better than a lender securing 100% of a borrowers equity.

  6. if you pay your debt you wont have to worry, but really, how much is your credit card? $5000, $10,000. if you are falling behind and cant pay it, refinance your mortgage to pay off your credit card with that collaterall charge, your paymentn will go down and so will your interest rate. Banks are not interested intaking your house!

  7. The problem now it that you cannot refinance over 80% ltv. If you are insured at 95% now in five years you will probably not be at 80%. TD now has you locked down.
    Also, if it is a collateral charge does it rate as a loan on your credit file. Equifax ignores mortgage ratings in scoring but if it is a loan then you will appear maxed out and your score can suffer. Not a big deal for most but if a few things slip then it will make it worse and when your score is the be all and end all to lenders it can be a big deal. Rob can you confirm how Equifax treats these ratings?

  8. In my experience when clients have asked specific, pointed, questions to both TD and BMO regarding collateral mortgages, the rep suddenly came down with a case of a mouth full of marbles. The TD rep on the CBC broadcast came down with the same ailment. This is precisely why borrowers should seek the advice of a mortgage professional broker/agent to sort through the fine print. One should not need a magnifying glass to read a contract that pertains to their money!
    In addition; to say that most banks will be changing their charge to collateral is indeed quite arrogant and incorrect.

  9. Is BMO a collateral charge mortgage lender? I am going in there today to renew for 2 or 3 year term. I am layman here andi live in BC so I’m thinking a 3 year closed should be 2.79? Maybe 2.69 for a 2 year? We have 100G left to pay on a house worth 680,000

  10. Guys, just as there are “bad brokers”, there are “bad FA’s” at every bank. We can’t paint them all with the same brush as the lady in the CBC news piece. To say that is NOT part of TD’s policy to disclose these details is simply naive. Obviously, it’s a retention tool, but in truth…how many true switches do we perform year by year…not too many.
    We all like to point the finger at the “evil bank”, but in truth, don’t you work at almost all costs to retain your clients too? How can we blame them?
    TD has a great product offering! They are aggressive when looking at our applications and they already have a “connection” with 60% of Canadians! Many times we steer clients clear of the Green Machine for the wrong reasons. It’s a great choice for many Canadians! Let’s get off our high horses and just book some deals!

  11. Very good advice from Banker, I for one, have seen the discharge statements where the bank has just thrown on the default Visa and PLOC balances and refused to discharge the mortgage until all was paid.

  12. I can’t even begin to count the ways the quality of service at TD Bank has been slipping. To be quite honest, it’s been a slow steady slide for both TD and Canada Trust since their merger.
    Worse of all, with every self-serving change they’ve made, they’ve always had the gall to put a misleading, positive PR spin on it.
    It’s no surprise that they’re starting to do the same with their mortgage products.
    After many years as a client, I’m slowly shifting my own personal accounts elsewhere. I encourage everyone else who isn’t happy with TD to vote with their dollar.
    If their bottom line is all that matters to them, then affecting it is the only way we’ll get their attention.

  13. It never gets old seeing a broker make unfair generalizations about banks does it?
    Your comment references any public company. Executives answers to the board and the shareholder interests. Since shareholders demand it, bottom line and market share is all that should matter to any company today and as a company, TD measures up well on both of those measures.

  14. Excellent point, Ron. As a FI executive, I have signed off on similar courses of action myself. Possession is 9/10ths the law.

  15. banker in an ivory tower…I am a shareholder so show me what I wanted, or even asked for as it pertains to this topic. I am anxiously awaiting your, or I guess my response.

  16. Sorry Mr.TD, you missed the word “default”. I have seen it from TD many times and by the way, there is really nothing wrong with that. The mortgagor defaulted on their debts so TD has a right to recover.

  17. The thing is banks and credit unions that offer HELOC have been registering it as collateral for years without ill effects.
    For TD, switching to collateral was definitely a retention move. But then again the entire industry is moving towards these kind of mortgages.

  18. At the end of the day, what’s good for their customer will be good for their bottom line.
    TD is free to do as they wish, it’s their bank and their policies. That being said, it’s my money, and I too have the choice of where to put it.

  19. TD is absolutely right that this will save money for homeowners. After all most of them couldn’t be paid to switch to another lender with a 1% lower interest rate on renewal.
    In fact a few hundred dollars in extra fees on rare occasions may be by far the smallest problem with this. Now banks like TD can make it even easier to borrow more money at any time using an existing mortgage. And even worse they can now issue a credit card with a high limit and interest rate knowing that they can dip into home equity if the borrower gets into trouble.
    If this was indeed part of the plan it could actually make the US financial industry look like responsible lenders. And one might wonder if the banks would start an argument over fees to distract people from the deeper implications. (great, I sound like Garth Turner now)
    Just goes to show… you can regulate an industry but you can’t really change it.

  20. The real issue is that with the recent changes to the mortgage rules and the state of consumer finances clients cannot put second mortgage on their properties when they are in need. This really has not been addressed and should be.
    I have had a few instances where clients have come into some financial difficulty and their credit bureaus have suffered. One of the first thoughts for clients to reduce payments is to go back to their current institution and ask to increase the amortization. TD has declined my clients due to credit score which puts them further into financial and emotional strain. How exactly are we supposed to help them when now TD has a collateral charge on their home for 100%? This is a great disservice to consumers and I am certain TD is not explaining this to clients.

  21. I go back to Sunny Day’s comments, there are good people and not so good people in this business, that includes brokers and FA’s in bank, credit unions etc. The real crux of this is to make sure the person you are talking to is knowledgable and experienced, just because they are sitting behind a desk that doesn’t mean the broker or FA has a lot of experience, ask what their credential are, how long have they been doing what they are doing. Did the person just get their broker’s licence six months ago? Did the FA only recently become an FA, maybe they were a client service agent before and don’t have a lot of experience. The client should take the ultimate responsitbility and ASK the obvious questions – Who are you? What is your experience? How long have you been doing this? If all short term, thank them for their time and ask to speak to someone who has the experience and the ability to answer questions and give proper advice. The client DOES have a choice here, they don’t have to agree to a collateral charge for 100 – 125% of the value of their home, they can aimply ask for the charge to reflect what they want to borrow. Most credit unions use collateral charges now, they call them “readvanceable mortgages”. Several of the FI’s have been using collareral charges for years, that’s all HSBC has been using for many years. Relax it’s a big to do about nothing, the FI’s are there to help their clients and get new ones, not there to hurt them, that includes the virtual or non-bricks and mortar banks as well.

  22. Hi there! Just wanted to note since this topic just aired again on CBC is that clients are not stuck with TD even if they are in a collateral mortgage even if their mortgage is over 80% LTV. You can still transfer their mortgage to another lender, such as First National. The only thing to note is there will be a legal fee to pay to register the new mortgage, but at least they don’t have to be stuck with TD or any other lender who registers collateral mortgages, even if their mortgage is over 80% LTV when you want to move them to another lender.

  23. You are correct, but you aren’t at the same time… Since the mortgage is being DISCHARGED then you do have a problem with anything over 80% LVR as new mortgage rules apply for this new mortgage. If under 80% the legal fees all in are about $800 in my area, so there is a real cost to the client.

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