London brokerage, former president fined $82.5K for ‘dishonest’ deals

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Ontario’s financial services watchdog has fined a well-known London mortgage brokerage $75,000 and its former president $7,500 and suspended his licence for a year following a two-year probe.

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Ontario’s financial services watchdog has fined a well-known London mortgage brokerage $75,000 and its former president $7,500 and suspended his licence for a year following a two-year probe.

Forest City Funding and William Handsaeme contravened the Mortgage Brokerages, Lenders and Administrators Act by “giving false or deceptive information and documents when dealing in mortgages,” the Financial Services Regulatory Authority of Ontario said Tuesday.

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Forest City Funding made transactions 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.

Originally the authority said the brokerage, and Handsaeme, its principal broker at the time, could face potential fines of $110,000.

Handsaeme is no longer principal broker or a member of the board of directors for Forest City Funding, following the purchase of a majority interest in the company by Dominion Lending Centres as of May 23, the authority said.

The company also implemented a number of changes including appointing a new compliance officer and implementing monthly compliance audits.

Located at 1 Commissioners Rd. at Wharncliffe Road in London, Forest City Funding brokered nearly 6,000 mortgages worth more than $2 billion in 2022. the authority said.

As well as losing his licence for a year, Handsaeme is prohibited from being designated as a principal broker or acting in any supervisory role of a mortgage brokerage in Ontario for three years. He also is prohibited from signing any disclosure to borrower document for a period of three years.

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Handsaeme didn’t respond to a request for comment.

London mortgage broker and vlogger Mark Mitchell said the penalty for Forest City Funding and Handsaeme is “a slap on the wrist.

“I’m not sure to what extent that is going to stop anybody that was going to do it anyway. I mean how much was made off one of those mortgages,” he said. “I prefer we all play by the same rules.”

The authority 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.

“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 the notice of proposal.

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.

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“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.

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.

“Handsaeme even admitted to the authority 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.

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.

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At the time Handsaeme was president and one of two directors of Solidity Group, the authority said.

Solidity Group listed, on disclosure documents for the five second mortgages, 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 (APR) disclosed to borrowers was 2.74 per cent while the approximate minimal actual APR was 13.54 per cent, the authority said.

While Handsaeme originally requested a hearing he withdrew that request, the authority said.

hrivers@postmedia.com

@HeatheratLFP

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