National Bank of Canada made headlines last week after it was revealed it had quietly removed borrowers’ ability to “port” their existing mortgage to a new home.
In an exclusive interview with CMT, Tarek Naguib, VP of Retail Financing Solutions, explained what prompted that decision, and also confirmed that the feature will be reinstated for its mortgage clients by the end of this week.
“It was in the context of the rising-rate environment that we started to see that our practice with mobile mortgages was not optimal. So, we started to look at some of the features we were offering and we compared it to industry standards, and we realized there were some aspects of it that needed to change,” Naguib said. He pointed specifically to the bank’s industry-leading port time of 180 days.
“We recognized that the portable mortgage option is an important solution for our clients. Therefore, at that point, we needed to take a step back,” he said.
Naguib explained that took place back in June. While National Bank has offered mortgage portability for the past 25 years, less than 1% of its clients used the feature last year.
Mortgage portability is a common feature offered by many lenders that allows homeowners to transfer their current loan from one property to another.
This can be appealing to borrowers with a low interest rate, especially in a rising-rate environment, as it allows them to keep their pre-exisitng rate and term. It’s also a way to avoid breaking the existing mortgage, which could result in a prepayment penalty.
Asked about criticism that the bank had not informed clients, Naguib said the decision had been communicated to internal teams as well as to brokers that have access to National Bank products.
“I can’t comment on their internal communication practices, but we did communicate with our contacts at the brokerage houses,” he said.
National Bank doesn’t participate fully in the broker-direct channel since it left in 2016. However, since early 2019 it has had an exclusive agreement with M3 Group providing its Quebec brokers with access to National Bank mortgages. That agreement was later expanded in April of this year to include all M3 Group brokers in Ontario.
The reason National Bank wasn’t formally required to communicate the change directly to clients is because, unlike the other big banks, portability isn’t included in NBC’s mortgage terms and conditions.
But Naguib told CMT that’s also something the bank is currently looking at.
“It’s not part of the contract right now, but it is part of our ongoing review process,” he said.
More details to come on the reinstatement of the portability feature
Naguib said the bank expects to have its portability feature back in place by this Friday, and will provide more information about it in the coming days.
“It’s being communicated as we speak to our internal teams and the brokers,” he said. “And we’re going to obviously provide more clarity in the days to come in terms of the portability conditions and everything else, just to make sure that everyone’s aligned.”
But since June, when the change was made, Naguib said the bank has been accommodating most of its clients on a case-by-case basis.
“I don’t have the numbers, but I would say that many of them we ended up accommodating,” he said, specifically referring to clients that had a transaction in process. “Those are the ones that we dealt with on an immediate basis.”
In one specific example reported by the Globe and Mail, a couple was reportedly unable to transfer their existing mortgage to a new loan for a purchase they had planned to make, resulting in them having to abandon the purchase.
“We understand that the client that made the report did not have an active transaction on file,” Naguib explained.
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