Anonymous Writes in response to TD Collateral: Green Fuzzy Handcuffs:
Wow, you’re either really misinformed or deliberately twisting everything. The other banks are not sitting on the side lines waiting to see if TD’s changes works. Scotia has been doing it for years as their STEP mortgage, that’s why TD has made it switch. It’s just a matter of time that the other banks do it also. You’re just making into a big issue because it limits the ability of brokers to put people into 2nd mortgage with B lenders or private lenders at horrific rates.
If you really wanted to look after your clients as a true professional, maybe you would do the right research. Client’s can still move their mortgage to another lender at renewal… 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 and it doesn’t cost thousands unless your lawyer is ripping you off. Additionally, the bank has the same options for collecting missed payments under a collateral charge as that of a conventional charge.
At the end of the day… this will save clients from brokers that don’t have their best interest at heart. A few less clients for brokers to place into their 7% rates even though they have good credit, or to lie to about not getting approved by one lender just because that lender’s commission to the broker is less than anothers.
If you’re so righteous about your point of view, then post my response so people have the chance to see the other side of things.
Response:
Dear Anonymous writer writing me from a TD Bank IP address,
Thank you for taking the time to write and share your experience and frank opinion. While there are a lot of arguments that you bring up in your response to my post, I would like to focus on just the crux of the matter. The figurative handcuffs that I am referring to.
Let us consider a typical mortgage at maturity which has been registered in the traditional fashion. Assuming that a borrower is in no need of additional funds the borrower has two options. They can:
1) accept the renewal offer from their existing lender with no cost, or
2) shop around to an institution offering a more competitive rate. In this option, the majority of lenders have transfer programs in place whereby they pay for closing costs including transfer and appraisal fees. Sometime even the $200-$300 discharge fee is covered.
The current system is healthy for borrowers. It creates competition and ensures that a borrower’s existing lender stays honest and offers their clients competitive rates at renewal. Of course lenders don’t like it because it causes leakage.
Mr. or Ms. Anonymous, writing me from a TD Bank IP address, I can assure you that the spite of observers and mortgage brokers is not because we will “have a few less clients for brokers to place into our 7% rates etc. bash broker, bash broker, bash broker, etc”. This issue is about borrowers. Me and you or anyone else reading this post.
By changing the way mortgages are registered (you are right, other lenders are doing it as well, however, the difference being 1) it is an option and 2) they aren’t encouraging registration up to 120% of market value!), the mortgage is not transferable to a new institution. Since it isn’t transferable, a client would have to arrange a new mortgage with another lender incurring roughly:
1) Legal fees $699 plus disbursements & tax so total around $1,200
2) Plus appraisal $250 + tax
3) Plus a discharge fee of roughly $250.
What we are so critical about as an industry is that effectively a transaction that didn’t cost a borrower a penny before will now cost them roughly $1,700.
Now that leakage problem that the bank was suffering regarding clients leaving at maturity has been plugged.
Pre collateral charge, a retention department would have to work its tushy off to make sure a client stayed at renewal. They have to play the rate game and continuously cut the offered rate to match anything available in the market. This is good for a borrower because it means lowest possible rate.
Post collateral charge, TD can offer a posted rate and say to a borrower “go ahead switch banks. It’ll cost you though.” Bad for borrowers.
I am not self righteous nor do I have a personal vendetta against TD Bank. I am just a mortgage broker who, like so many other good mortgage brokers in Canada, works hard to cut through the rhetoric of lenders and demystify mortgage financing for our clients.
Regards
Christopher Molder
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