Insiders surprised, ‘shocked’ by allegations against mortgage company

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A London mortgage broker says dodgy mortgage deals that use what is known as a gifted deposit – repaid with a banned second mortgage – happen more often than you might think.

London mortgage broker and vlogger Mark Mitchell spoke out this week after the Financial Services Regulatory Authority of Ontario announced it had initiated enforcement action against Forest City Funding Inc. and its president William Handsaeme, alleging that the company had used “false or misleading information and documents” when negotiating mortgage loans.

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“I won’t say it’s common, but it happens a lot more often than we see in the media,” Mitchell said. “I get calls quite often where borrowers are looking for something like this. When I say no, they won’t just hang up. They will go to the next broker.

Forest City Funding, located in 1, chemin des Commissaires. east of London, brokered 5,739 mortgages in 2022 worth more than $2 billion, the authority said. The company has sponsored nearly 350 full-time mortgage brokers and agents.

The authority said Tuesday that the brokerage firm and Handsaeme, its principal broker, would face potential fines of $110,000 following a two-year investigation.

The company allegedly acted “when it should have known that in acting it was being used by a borrower to facilitate dishonesty,” the authority said in an offer notice dated February 9, 2024.

Ron Butler, a Toronto mortgage broker and Angry Mortgage podcaster, said the financing Forest City Funding is accused of in five transactions examined by the regulator is “a very old type of mortgage fraud.”

“It’s been around for 25 years,” he says. “We saw more of it back then.

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“Today, the majority of mortgage fraud involves income document fraud aimed at obtaining a larger mortgage loan. »

Handsaeme, identified by the authority as the sole director of Forest City Funding, allegedly incited the company to engage in behavior which, according to the authority, violated the Mortgage Brokerages, Lenders and Administrators Act.

The authority said it is proposing to suspend Handsaeme’s mortgage broker license for one year.

Handsaeme did not respond to requests for comment.

Butler said he was “totally shocked” to hear the accusations against Handsaeme and Forest City Funding following an investigation into five transactions. in which Forest City Funding arranged the first mortgage and a company linked to Handsaeme was the lender for the second mortgage.

“I know Bill Handsaeme – he’s rich and very successful,” he said.

Mitchell said the allegations against Forest City Funding also surprise him.

“It’s a very big company and Bill Handsaeme has been in the industry for years,” he said.

Mitchell said some borrowers’ motivation to own a home might be so great that they are willing to circumvent the system that prohibits taking out a second mortgage to pay off a deposit offered by their parents or another lender. .

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“It’s because they want to get in the house so badly and they think they can afford to make these payments,” he said. “They think the law and regulations are wrong and they can easily get away with it, so there’s nothing wrong with circumventing the proper channels.”

But banks and insurance companies impose debt-ratio regulations for good reason, Mitchell said.

“This is so they have a rough idea of ​​what they can afford before they risk not being able to pay their mortgage,” he said.

But inevitably something like rising inflation, interest rate hikes or job loss happens, leading to an increased risk of losing a home, he said.

“It’s bad for everyone,” Mitchell said.

In the highly competitive world of mortgage brokerage, an agent may be tempted to “cut corners,” he said.

“Desperation leads to desperate actions,” Mitchell said.

But it is very difficult for authorities to track and investigate cases of misconduct by mortgage brokers.

“It’s a hard thing to follow,” Mitchell said. “How would you know this is happening?”

The lender does not know where the gift came from. So there are very few ways to fall for this type of fraud.

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THE Financial Services Regulatory Authority of Ontario investigated Forest City Funding in 2022 and 2023. The regulator examined five transactions in which Forest City Funding arranged the first mortgage and a company called Solidity Group was the lender for the second mortgage.

“In all five transactions, (Forest City Funding) knowingly assisted the borrower in obtaining a second mortgage that contravened the terms and conditions of the first mortgage,” the authority said in the notice of proposal.

The terms of the first mortgage prohibited secondary financing, authorities said.

“While (Forest City Funding) arranged the first mortgages, (Forest City Funding) was aware of these terms of the first mortgages,” the authority said.

The company also helped borrowers obtain second mortgages, authorities said.

“In doing so, (Forest City Funding) knowingly assisted the borrowers in violating the terms of the first mortgages,” the authority said.

In four of the five transactions, the authority said, the second mortgage was used to repay allegedly “gifted” deposits, in violation of the terms of the first mortgage’s covenants.

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“All first mortgage covenants contained the requirement that any funds provided for a deposit be donated and non-refundable,” the authority said.

Forest City Funding arranged the first and second mortgages to be aware of the terms of the first mortgage, the authority said.

In all four transactions, Forest City Funding “deceptively submitted” a “gift letter” to the first lender stating that the down payment funds were non-refundable, the authority said.

“Handsaeme even admitted to authorities that the purpose of the second mortgages issued by Solidity Group was to reimburse family members who provided the short-term funds for a down payment for the first mortgage,” the authority said.

Solidity Group, the lender for the second mortgages in the five transactions reviewed by the authority, financed 71 mortgages worth a total of about $26 million in 2022, the authority said.

Handsaeme is chairman and one of two directors of Solidity Group, authorities said.

Solidity Group listed fees on the disclosure documents for the five second mortgages which included charges for an “insurance premium” and a “tax” on the insurance premium which were in effect additional charges to the lender , the authority said.

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“Incorrect disclosure to borrowers regarding ‘insurance premiums’ and ‘taxes’ resulted in an underestimation of the annual percentage rate (APR) of mortgage loans, which resulted in incorrect disclosure of the cost of borrowing for the borrower,” the authority said.

In one case, the annual rate reported to borrowers was 2.74 percent, while the approximate minimum actual APR was 13.54 percent, the authority said.

Handsaeme requested a hearing on the proposal before the Financial Services Tribunal, a nine-member independent adjudicatory body, the authority said.

The authority published the date of the hearing on its website.

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@HeatheratLFP

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