William Handsaeme, the owner of Forest City Funding, a prominent Ontario mortgage brokerage, has been suspended and fined for blatant document fraud. The Financial Services Regulatory Authority of Ontario (FSRA) has taken decisive action against Handsaeme, whose brokerage boasted an impressive $2.4 billion in volume in 2022.
The FSRA’s investigation uncovered a full-blown case of mortgage fraud orchestrated by Handsaeme himself. The regulatory body has made it clear that it is taking a stance against document fraud in the mortgage industry.
The FSRA has imposed fines totaling over $100,000, targeting both the brokerage and Handsaeme personally. The fine is made up of five administrative penalties of $10,000 each “for giving false or deceptive information or documents when carrying on the business of dealing in mortgages” and five administrative penalties of $10,000 each “for acting in circumstances where it ought to have known that by acting it was being used by a borrower to facilitate dishonesty.”
In addition, the regulatory body also imposes an administrative penalty of $10,000 on Handsaeme.
Handsaeme’s mortgage broker license will be suspended for one year under the Act, and he will be barred from serving as a principal broker of any mortgage brokerage in Ontario for three years, prohibited from signing any “disclosure to borrower” document for the same duration, and restricted from assuming any supervisory role while not designated as a principal broker.
It’s important to note that the FSRA’s findings solely implicate Handsaeme, with no suggestion of involvement by other mortgage brokers or agents associated with Forest City.
The fraudulent activities uncovered by the FSRA were intricate, involving the arrangement of second mortgages through Solidity Group. The FSRA explains that Handsaeme is the president and sole director of Forest City, and the president and one of two directors of Solidity Group.
False or deceptive information
In all five transactions scrutinized by FSRA, Forest City was found to have knowingly facilitated borrowers in obtaining second mortgages that violated the terms of the first mortgages. Despite being aware of the explicit prohibition of secondary financing outlined in the first mortgage commitments, FCF proceeded with arranging second mortgages, thereby aiding borrowers in breaching their contractual obligations.
Moreover, in two of these transactions, the second mortgage commitments were backdated, concealing the fact from the first mortgagees. Handsaeme acknowledged to FSRA that the first mortgagees were unaware of the secondary financing arranged behind their initial mortgages, further highlighting the deceptive nature of Forest City’s actions.
Additionally, FSRA determined that in four out of the five transactions, the second mortgages were utilized to repay purportedly “gifted” down payments, contrary to the terms of the first mortgage commitments. Forest City deceptively submitted “gift letters” to the first lenders, falsely portraying the funds for down payments as non-repayable. Handsaeme admitted that the purpose of the second mortgages was to repay family members who provided the short-term funds for down payments.
Furthermore, in one of these transactions, a Forest City mortgage agent loaned funds for the down payment, which were later repaid from the proceeds of the mortgage.
In all five transactions, Forest City misrepresented the second mortgages issued by Solidity Group as default-insured mortgage products, termed “Premium Plus,” referencing mortgage insurance premiums. Despite the absence of approval as a default-insured mortgage lender, Forest City presented these mortgages as such.
Moreover, the disclosure documents provided inaccurate information regarding “Insurance Premiums” and “taxes,” resulting in underreported annual percentage rates (APRs) and incorrectly disclosed costs of borrowing to borrowers.
Following the initial phase of the examination, FSRA corresponded with Handsaeme and Forest City outlining the identified concerns. Subsequently, FSRA conducted a review of ten additional secondary mortgage transactions that occurred after receiving the correspondence to assess compliance efforts. Out of these, only one transaction resembled the previously flagged concerns, wherein Forest City arranged both the first mortgage and the second mortgage with Solidity Group.
Despite prior alerts from FSRA, this transaction still exhibited two of the three previously communicated concerns: the issuance of the second mortgage violating the terms of the first mortgage, and the use of the second mortgage to repay a purportedly “gifted” down payment against the terms of the first mortgage commitment.
Forest City Funding, with its roster of over 300 mortgage agents and brokers, is one of the largest brokerages in Canada.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
