Allegations against mortgage brokerage shine harsh spotlight on sector

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A regulatory agency’s allegations of wrongdoing by a well established London mortgage brokerage raise larger questions about the industry, including how many other mortgages arranged by the company may have allegedly been compromised, an industry expert says.

“If it’s true, it’s hard to believe it’s a one-off,” says Cameron Field, a former Toronto police officer and vice-president with the Vidocq Group, a consulting firm that helps companies manage risk, including financial crime risk.

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The Financial Services Regulatory Authority of Ontario (FSRA) said in a news release on May 7 it has started enforcement action against Forest City Funding Inc. and its principal broker William Handsaeme following a two-year investigation.

The authority said Forest City Funding, a London mortgage brokerage, gave “false or deceptive information and documents when dealing in mortgages,” contrary to the the Mortgage Brokerages, Lenders and Administrators Act.

The company also is alleged to have acted “when it ought to have known that by acting it was being used by a borrower to facilitate dishonesty,” the authority said.

Handsaeme, identified by the authority as principal broker and sole director of Forest City Funding, is alleged to have caused the company to engage in the conduct the authority says violated the act.

The authority is proposing fines of $100,000 against Forest City Funding and $10,000 against Handsaeme, who also faces a possible one-year suspension of his mortgage broker licence. The authority’s allegations have not been proven.

Forest City Funding brokered 5,739 mortgages in 2022 worth more than $2 billion, the authority said. The company at 1 Commissioners Rd. East in London has been licensed since 2008.

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The company sponsored nearly 350 full-time mortgage brokers and agents.

The authority detailed the findings of its investigation in a notice of proposal dated Feb 9, 2024. 

The authority said it reviewed 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 four of the five transactions, the authority said, the second mortgage was used to pay back supposedly “gifted” down payments, a contravention of the terms of the first mortgage commitments.

The allegations against Forest City Funding and Handsaeme have caused a stir in the mortgage industry. An insider said Forest City Funding is one of the largest brokerages in Canada and Handsaeme is a well-known mortgage broker with more than three decades of experience.

The alleged violations by Forest City Funding “are a really good snapshot of a growing and large fraud trend in Canada and that is mortgage fraud,” Field said.

The alleged financial dishonesty raises big questions about any previous dealings Handsaeme has been involved in, he said.

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“It’s a commentary on greed if the allegations are true,” Field said.

Handsaeme did not respond to requests for comment.

Brokers who are found to have violated the Mortgage Brokerages, Lenders and Administrators Act of Ontario may have many different reasons for their actions, Field said

“(The person) could be compromised by organized crime, there could be other personal issues in relation to an inability to manage finances for whatever reason, and we can’t discredit good old greed,” he said.

Field added:  “Some people have some questions about the (mortgage) industry.

“I think there is some concern there is a problem to some extent,” he said. “It’s to the point where it has come to the attention of every financial institution in Canada.”

A few years ago banks tightened up requirements to get a mortgage, Field said.

“We’ve also seen an economic downturn where people want to get around the mortgage requirements,” he said.  “But we need to think larger – mortgage fraud is not just unqualified people who can’t get mortgages – it’s also organized crime laundering money using fake documents to get mortgages so they can get legitimate property and sell it and launder the money.”

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Chirag Mehta, director of operations at True North Mortgage, said his Calgary-based agency has seen dozens of fraudulent applications for mortgages.

“Right after the pandemic when housing markets started to boom we saw an influx of those types of deals which we stopped all of them or most of them,” he said.

There are two different fraudulent documents borrowers can forge, Mehta said.

“One is letter of employment, the company doesn’t exist or people don’t work there,” he said  “The other one is bank statement fraud – showing money is in there but they are borrowing money from friends or family.

“Our policy is we call employers, check bank statements – we verify with the bank directly.”

Carl Davies, head of fraud and identity at Equifax Canada, said Ontario has the highest mortgage fraud rate among all provinces.

“Rates are 30 to 40 per cent higher than other provinces,” he said.

Mortgage fraud becomes more of an issue when people aren’t getting mortgages due to obstacles such as high interest rates, Davies said.

A few years ago a CBC investigation found mortgage agents in the GTA manufacturing forged documents so their clients could get mortgages, he said.

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“It is a problem especially in a time where volume was dropping very low,” Davies said. “Now you’ve got lots of brokers fighting for a small number of transactions.”

Rob Butler, who runs the Angry Mortgage YouTube blog, said the allegations made against Forest City Funding and Handsaeme are something he had not come across before in his 29 years as a Toronto-area broker.

“I’m seeing more and more evidence that the FSRA (Financial Services Regulatory Authority of Ontario) is serious about fraud in the mortgage business. I also think they are smart and they are careful,” he said.

“The second mortgages were all designed to be gifts,” he said. “In some ways it’s crazy because you are creating extra mortgage stress for the borrower and it may not work out in your favour.

“This stuff should not happen. Borrowers are exposed. Lenders are exposed.”

London mortgage broker and vlogger Mark Mitchell said despite the severity of the alleged offence, he thinks Handsaeme won’t face any major backlash if he’s sanctioned.

“It isn’t much of a penalty,” he said. “It’s more just loss of reputation.”

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But Mitchell, who said he regularly gets requests for the type of mortgage Forest City Funding is alleged to have arranged, believes the longtime London broker likely came under the regulatory board’s radar due to a whistleblower.

“Somebody, somewhere said something,” he said. “I think the brokerage will be under closer inspection . . .  over the next how many years.”

The Financial Services Regulatory Authority of Ontario said high risk factors for investigations include the nature and size of the business, as well as its geographic spread.

“FSRA may also conduct reviews on licence holders who are the subject of a disproportionately high number of complaints, are the subject of media reports, or are considered high-risk,” the agency said in an email.

Any suspected criminal activity will be referred to law enforcement, the agency said.

London police said they are not investigating Handsaeme.

THE ALLEGATIONS AGAINST FOREST CITY FUNDING INC. AND WILLIAM HANDSAEME

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

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“In all five of the 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 a notice of proposal dated Feb 9, 2024.

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

“As (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 get second mortgages, the authority said.

“In doing so, (Forest City Funding) knowingly facilitated the borrowers 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 pay back supposedly “gifted” down payments, a contravention of the terms of the first mortgage commitments.

“All of the first mortgage commitments contained a requirement that any funds provided for a down payment be gifted and not repayable,” the authority said.

Forest City Funding arranged both the first and second mortgages so it was aware of the terms of the first mortgage, the authority said.

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In the four transactions, Forest City Funding “deceptively submitted” a “gift letter” to the first lender saying the funds for the down payments were non-repayable, the authority said.

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

Handsaeme is president and one of two directors of Solidity Group, the authority said.

Forest City Funding and Handsaeme have requested a hearing about the authority’s proposal before the financial services tribunal, an independent adjudicative body made up of nine members, the authority said.

A date for the hearing hasn’t been posted on the authority’s website.

HRivers@postmedia.com

@HeatheratLFP

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