After well over a decade in the market, TD is finally bringing its popular marquee product to brokers: the FlexLine HELOC.

Mortgage brokers have been bugging TD business development managers for this product for years. Until now, the bank has reserved HELOCs for its proprietary sales forces, to give them an edge.

In about three months—January 10, 2022—that will change, the company says.

“We’ve been talking about it in a meaningful and strategic way for the last two and a half years,” says TD’s Vice President, Broker Services, Devon Ajram. “The project itself has been in the works for about 18 months.”

Ajram says the launch will “empower the consumer to choose their channel of choice.” The bank recognizes that broker market share is growing impressively and sees a key opportunity to ramp up HELOC revenue and attract new cross-saleable customers simply by releasing the HELOC to brokers.

The move has the potential of upsetting Scotiabank’s apple cart. Scotia has dominated the HELOC business in the broker channel since it launched its STEP product years ago.

“Scotia’s lead is not lost on us at all,” Ajram says. “This is a major strategic initiative that will help us grow and build market share…It is a net new product that we’re bringing into a channel that is seeing tremendous growth.” He doesn’t expect “there will be a lot of cannibalization,” however—whereby brokers refinance or redirect clients away from other lenders to put them into TD’s FlexLine.

The Features

TD’s FlexLine is basically a powerful mortgage and credit line in one.

Its main features:

• Multiple Segments: Borrowers can have one or more mortgage portions plus a line of credit with multiple sub-accounts, up to 40 segments in all (see caveat below).
• Terms: All TD terms are supported, from 1- to 10-year fixed terms as well as TD’s 3- and 5-year variables. The HELOC segment is open and can have interest-only payments.
• Readvanceability: TD’s HELOC is instantly readvanceable. That means when the borrower makes a principal payment on the mortgage portion, their available credit in the revolving LOC portion automatically increases. At Scotiabank, readvancing can take weeks. That delay is a serious issue for borrowers employing advanced strategies like the Smith Manoeuvre.
• Portable: Yes, and it can be increased without any sort of penalty if a customer needs more money (see caveat below).
• Rates: TD’s rates are comparable to Scotia’s, and the bank has pricing parity in both the broker and retail channels.
• Fees: There are no monthly fees for the HELOC, unlike the Manulife One, for example.
• Funds Availability: Funds can be moved online via mobile app and by writing an old-fashioned cheque.
• Compensation: TD’s LOC compensation should be very similar to Scotiabank’s. That’s no accident. The broker gets paid on the limit as well as on the average 90-day balance.

The Caveats

Now for the quirks. Due to technology limitations—which will eventually be solved, the bank assures us—the broker channel version of the product will have these limits at the time of launch:

• Brokers can only close a FlexLine with a single mortgage portion and a single line of credit account
  • To get a hybrid FlexLine (i.e., half-fixed and half-variable) or a FlexLine with two or more LOC accounts, the customer must close with a single mortgage and a single LOC account and then go into a branch to set up the extra mortgage portion or LOC account(s). That’s a meaningful inconvenience to customers who want multiple segments, and an annoyance to brokers.
  • Quick Tip: If your client wants a hybrid, submit the deal with a fixed mortgage portion and the rest of the funds in the open HELOC. That way the branch can re-allocate part of the HELOC borrowing into a discounted variable rate after closing. At worst, the client will get the best rates advertised by TD on the new segment(s).
• Ports and increases must be processed through the retail channel (brokers cannot currently submit them)
  • That’s obviously a turnoff to brokers who fear: (A) inconveniencing their customers, and (B) that the retail side may steal their customers. But at least there are portability options for customers. “We do intend on bringing the portability feature [to broker-originated FlexLines] down the road,” says Ajram. “It’s definitely something we understand is important to have as an option.” It was just a “time to market” constraint, he said, as the technology to make this happen could not have been rolled out with TD’s underwriting partner (First National) fast enough to hit the January 2022 launch target.
• HELOCs in second position will not be supported at launch.
  • They are available on TD’s retail side, however.

All in all, I suspect these limitations will not stop TD from seeing colossal broker adoption of this product.

The Bigger Picture

“There’s this huge validation here for the importance of the industry and its place in mortgage origination in Canada,” says Ajram. “To have a major Canadian bank make a substantial investment and bring one of its most important products to the channel, I think that’s a clear indication of mortgage brokers’ importance in the space.”

TD originates tens of billions of mortgages in its other channels too, but the volume expansion we’re seeing among brokers is significant, he says. That’s particularly true over the last year and a half since the pandemic hit. Of the over $400 billion in annual mortgage originations in Canada, Ajram ballparks that brokers are on pace to account for up to half of that number eventually.

“We are happy to be diversified and playing in this market in a meaningful way,” he says. Brokers remain a fast-growing source of business for banks and the most popular channel among the all-important first-time buyer and new immigrant segments.

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