London mortgage brokerage, broker faces fines of $110K: Regulator

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A London company that brokered nearly 6,000 mortgages worth more than $2 billion in 2022 and its principal broker face potential fines of $110,000 following a two-year investigation by Ontario’s financial services regulator.

The Financial Services Regulatory Authority of Ontario said Tuesday it has started enforcement action against Forest City Funding Inc. and William Handsaeme.

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The authority alleges the company 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 in a notice of proposal dated Feb 9, 2024.

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.

Handsaeme did not respond to requests for comment.

Forest City Funding brokered 5,739 mortgages in 2022 with a total value of approximately $2.37 billion and sponsored 48 full-time mortgage brokers and 297 full-time mortgage agents, the authority said. The company at 1 Commissioners Rd. East has been licensed since 2008.

The Financial Services Regulatory Authority of Ontario said it conducted in investigation of the company in 2022 and 2023.

The regulator 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.

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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 all five cases, 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.

Furthermore, 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.

“As (Forest City Funding) arranged both the first and second mortgages it was aware of the terms of the first mortgage.”

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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 downpayments were non-repayable, the authority said.

“Handsaeme admitted to (the Financial Services Regulatory Authority of Ontario) that the purpose of the second mortgages issued by Solidity Group was to repay family members who provided the short-term funds for a down payment for the first mortgage,” the authority said.

In one of the transactions, a Forest City Funding mortgage agent loaned the borrower’s parents $80,000, the authority said.

“This $80,000 was then provided to the borrower, purportedly as a ‘gift,’ as reflected in the ‘gift letter’ (Forest City Funding) submitted to the lender,” the authority said.

“On the close of the second mortgage, the mortgage agent was re-paid this $80,000 from the proceeds of the mortgage.”

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.

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

“The incorrect disclosure to borrowers relating to “insurance premiums” and “tax” caused the annual percentage rate (APR) of the mortgages to be underreported, resulting in an incorrectly disclosed cost of borrowing to the borrower,” the authority said.

In one case, the annual percentage rate disclosed to borrowers was 2.74 per cent while the approximate minimal actual APR was 13.54 per cent, the authority said.

The Financial Services Regulatory Authority of Ontario says it proposes to suspend Handsaeme’s mortgage broker licence for one year.

The regulator proposes to impose 10 administrative penalties totalling $100,000 on Forest City Lending and one administrative penalty of $10,000 on Handsaeme.

The company and Handsaeme have requested a hearing about the proposal before the financial services tribunal, an independent adjudicative body made up of nine members, the authority said. 

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The regulator’s website lists Handsaeme as the principal broker of Forest City Funding, operating as Dominion Lending Centres FC Funding. His status is “authorized to sell.”

Forest City Funding describes itself on its website as an agency that has 350 agents who offer a “boutique approach to service.”

“Our goal at FC Funding is simple: to provide our clients with the best possible mortgage experience, and to empower our agents to succeed in the industry,” Handsaeme says. “We do this by putting people first, by fostering a culture of innovation, and by staying ahead of the curve in an ever-changing market.”

HRivers@postmedia.com

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