IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c.29, as amended (the “Act”), in particular sections 15, 18, 21, and 39;

AND IN THE MATTER OF Forest City Funding Inc. and William Handsaeme

NOTICE OF PROPOSAL TO SUSPEND LICENCE and AMEND LICENCE
and IMPOSE ADMISTRATIVE PENALTIES

TO:
Forest City Funding Inc.
109-1 Commissioners Road East
London, ON N6C 5Z3

AND TO: William Handsaeme

TAKE NOTICE THAT pursuant to sections 18 and 21 of the Act, and by delegated authority from the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario (the “Chief Executive Officer”), the Director, Litigation & Enforcement (the “Director”) is proposing to suspend the mortgage broker licence (licence #M08000225) issued to William Handsaeme under the Act for a period of one year.

AND TAKE NOTICE THAT pursuant to sections 15 and 21 of the Act, and by delegated authority from the Chief Executive Officer, upon the expiration of his suspension the Director is proposing to amend the mortgage broker licence issued to William Handsaeme to impose the conditions that William Handsaeme:

Not be designated as a principal broker of any mortgage brokerage in Ontario for a period of three years;
Be prohibited from signing any “Disclosure to Borrower” document for a period of three years; and
Be prohibited from acting in any supervisory role while not designated as a Principal Broker.

AND TAKE NOTICE THAT pursuant to section 39 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to impose ten administrative penalties in the total amount of $100,000 on Forest City Funding Inc.:

Five administrative penalties of $10,000 each, in the total amount of $50,000, for giving false or deceptive information or documents when carrying on the business of dealing in mortgages, contrary to subsection 43(1) of the Act; and
Five administrative penalties of $10,000 each, in the total amount of $50,000, for acting in circumstances where it ought to have known that by acting it was being used by a borrower to facilitate dishonesty, contrary to subsection 14.2 of O. Reg. 188/08.

AND TAKE NOTICE THAT pursuant to section 39 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to impose an administrative penalty in the amount of $10,000 on William Handsaeme for causing Forest City Funding Inc. to contravene the Act, contrary to section 3 of O. Reg. 187/08.

Details of these contraventions and reasons for this proposal are described below. This Notice of Proposal includes allegations that may be considered at a hearing.

SI VOUS DÉSIREZ RECEVOIR CET AVIS EN FRANÇAIS, veuillez nous envoyer votre demande par courriel immédiatement à: contactcentre@fsrao.ca.

YOU ARE ENTITLED TO A HEARING BY THE FINANCIAL SERVICES TRIBUNAL (THE “TRIBUNAL”) PURSUANT TO SECTIONS 39(2) AND 39(5) OF THE ACT. A hearing by the Tribunal about this Notice of Proposal may be requested by completing the enclosed Request for Hearing Form (Form 1) and delivering it to the Tribunal within fifteen (15) days after this Notice of Proposal is received by you. The Request for Hearing Form (Form 1) must be mailed, delivered, faxed or emailed to:

Address:
Financial Services Tribunal
25 Sheppard Avenue West, 7th floor
Toronto, ON M2N 6S6

Attention: Registrar

Fax: 416-226-7750

Email: contact@fstontario.ca

TAKE NOTICE THAT if you do not deliver a written request for a hearing to the Tribunal within fifteen (15) days after this Notice of Proposal is received by you, orders will be issued as described in this Notice of Proposal. TAKE FURTHER NOTICE of the payment requirements in section 4 of Ontario Regulation 192/08, which state that the penalized person or entity shall pay the penalty no later than (thirty) 30 days after the person or entity is given notice of the order imposing the penalty, after the matter is finally determined if a hearing is requested or such longer time as may be specified in the order.

For additional copies of the Request for Hearing Form (Form 1), visit the Tribunal’s website at www.fstontario.ca

The hearing before the Tribunal will proceed in accordance with the Rules of Practice and Procedure for Proceedings before the Financial Services Tribunal (“Rules”) made under the authority of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, as amended. The Rules are available at the website of the Tribunal: www.fstontario.ca. Alternatively, a copy can be obtained by telephoning the Registrar of the Tribunal at 416-590-7294, or toll free at 1-800-668-0128 extension 7294.

At a hearing, your character, conduct and/or competence may be in issue. You may be furnished with further and or other particulars, including further or other grounds, to support this proposal.

REASONS FOR PROPOSAL

I. INTRODUCTION

These are reasons for the proposal by the Director to:
1. Suspend the mortgage broker license issued to William Handsaeme (“Handsaeme”) for a period of one year;
2. Upon the expiration of this suspension, impose conditions on the mortgage broker licence issued to Handsaeme;
3. Impose ten administrative penalties in the total amount of $100,000 on Forest City Funding Inc. (“FCF”); and
4. Impose an administrative penalty of $10,000 on Handsaeme.

II. PARTIES

FCF is licensed as a Mortgage Brokerage under the Act (licence #10671). FCF has been licensed since April 15, 2008. In 2022, FCF brokered 5,739 mortgages (with a total value of approximately $2.37 billion), sponsored 48 full-time mortgage brokers, and sponsored 297 full-time mortgage agents.
Handsaeme is licensed as a Mortgage Broker (licence #M08000225) under the Act and is the Principal Broker of FCF.
Solidity Group Management Corporation (“Solidity Group”) is licensed as a Mortgage Administrator under the Act (licence #12202). Solidity Group also provides mortgage financing. In 2022, Solidity Group funded 71 mortgages with a total value of approximately $26 million.
Handsaeme is the President and sole director of FCF, and the President and one of two directors of Solidity Group.

III. FSRA’s EXAMINATION of FCF

From 2022 to 2023, and pursuant to subsection 30(1) of the Act, FSRA conducted an examination of FCF (the “Examination”). The Examination took place in two phases.

A. Examination Phase One

The first phase of the Examination involved a review of five transactions in which FCF had arranged a second mortgage (the “Transactions”). In all five of the Transactions, it was determined that:
1. FCF also arranged the first mortgage; and
2. Solidity Group was the lender for the second mortgage.
In examining the Transactions, the first phase of the Examination identified:
1. False or deceptive information regarding the arranging of mortgages;
2. False or deceptive information regarding “gifted” down payments; and
3. Misrepresentations regarding the mortgage product.

(i) False or deceptive information regarding the arranging of mortgages

The Examination determined that in all five of the Transactions, FCF knowingly assisted the borrower in obtaining a second mortgage that contravened the terms and conditions of the first mortgage.
In all five of the Transactions, the standard terms of the mortgage commitment for the first mortgages contained a term that explicitly prohibited secondary financing. As FCF arranged the first mortgages, FCF was aware of these terms of the first mortgages.
FCF assisted the borrowers in obtaining second mortgages. In doing so, FCF knowingly facilitated the borrowers violating the terms of the first mortgages.
Furthermore, in two of the Transactions, the dates of the second mortgage commitment pre-dated the closing date listed in the first mortgage commitment. Handsaeme confirmed that the first mortgagee for these transactions was not aware of the secondary financing being arranged behind its first mortgage.

(ii) False or deceptive information regarding “gifted” down payments

FSRA also determined that in four of the five Transactions, the second mortgage was used to pay back supposedly “gifted” down payments, in 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. Again, as FCF arranged both the first and second mortgages it was aware of the terms of the first mortgage.
Furthermore, in these four Transactions FCF deceptively submitted a “gift letter” to the first lender stating that the funds for the downpayments were non-repayable.
In contravention of this requirement, Handsaeme admitted to FSRA 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.
Accordingly, FSRA determined that, in four Transactions, FCF and Handsaeme knowingly assisted the borrowers in contravening the terms of the first mortgages and concealing the fact that the down payment funds were repayable.
In addition, the Examination determined that in one of these four Transactions, the FCF mortgage agent loaned funds to be used for the downpayment.
The FCF mortgage agent who arranged the second mortgage loaned the borrower’s parents $80,000. This $80,000 was then provided to the borrower, purportedly as a “gift,” as reflected in the “gift letter” FCF submitted to the lender.
On the close of the second mortgage, the mortgage agent was re-paid this $80,000 from the proceeds of the mortgage.

(iii) Misrepresentation of the mortgage product

In all five Transactions, FCF presented the second mortgages issued by Solidity Group as being a default-insured mortgage product. FCF and Solidity Group named this mortgage product “Premium Plus”, a reference to mortgage insurance premiums. The second mortgage commitments signed by the borrowers had a fee titled “premium”.
Additionally, all five Transactions contained a signed “Disclosure to Borrower” document (the “Disclosure Documents”) that was also required to be signed by the borrowers. The Disclosure Documents provide critical information to borrowers regarding the details of their mortgage, including total payments, fees, conditions, and conflicts of interest.
Handsaeme signed one of the Disclosure Documents from the Transactions.
In all five Transactions, the Disclosure Document disclosed a fee titled “Insurance Premium”. However, Solidity Group is not an approved default-insured mortgage lender. Accordingly, FCF and Solidity Group’s representation of administering a default mortgage insurance premium is inaccurate. In reality, these “Insurance Premiums” were lender fees for the second mortgages in all five Transactions.
Additionally, in four of the five Transactions, including the one for which Handsaeme signed the Disclosure Documents, the Disclosure Documents indicated there is an amount due which was represented to be a tax on the “Insurance Premium”. This “tax” was in fact an additional lender fee for the second mortgage.

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:

	APR disclosed	Approximate Minimum Actual APR
1.	2.74%	13.54%
2.	2.69%	13.13%
3.	5.28%	15.25%
4.	5.488%	10.93%
5.	10.90%	11.15%

B. Examination Phase Two

Following the first phase of the Examination, FSRA sent Handsaeme and FCF a letter describing the concerns identified above (the “Correspondence”).
Subsequently, and to determine if Handsaeme had brought FCF into compliance with the Act, FSRA requested and reviewed ten additional secondary mortgage transactions that had closed after receipt of the Correspondence. Only one of these secondary mortgage transactions had the same characteristics as the first five Transactions, i.e., FCF also arranged the first mortgage, and Solidity Group was the lender for the second mortgage.
Despite alerting Handsaeme to FSRA’s concerns in the Correspondence, FSRA determined that this transaction contained two of the three concerns that had previously been communicated to Handsaeme:
1. The issuance of the second mortgage contravened the terms and conditions of the first mortgage that prohibited secondary financing; and
2. The second mortgage was used to pay back a supposedly “gifted” down payment, in contravention of the terms and conditions of the first mortgage commitment.
However, FCF no longer included an “Insurance Premium” fee on the Disclosure Document and instead properly described these fees to borrowers as ”Lender Fees”.

IV. CONTRAVENTIONS OR FAILURES TO COMPLY WITH THE ACT

A. False or deceptive information

Subsection 43(1) of the Act states that no mortgage brokerage or mortgage administrator shall give, assist in giving or induce or counsel another person or entity to give or assist in giving any false or deceptive information or document when carrying on the business of dealing in mortgages in Ontario or the business of trading in mortgages in Ontario, when carrying on business as a mortgage lender in Ontario or when carrying on the business of administering mortgages in Ontario.
Through the Examination, FSRA has determined that FCF gave false or deceptive information or documents. Specifically, the second mortgage commitments signed by the borrowers falsely identified the mortgage product as being insured against default, and incorrectly calculated the APR.
Accordingly, the Director is satisfied that FCF repeatedly breached subsection 43(1) of the Act.

B. Dishonesty, fraud, etc.

Subsection 14.2 of O. Reg. 188/08 states that a brokerage shall not act, or do anything or omit to do anything, in circumstances where the brokerage ought to know that by acting, doing the thing or omitting to do the thing, the brokerage is being used by a borrower, lender, investor or any other person to facilitate dishonesty, fraud, crime or illegal conduct.
Through the Examination, FSRA determined that FCF had acted in circumstances where it ought to know that by acting it was being used by a borrower to facilitate dishonesty:
1. FCF arranged second mortgages by Solidity Group despite knowing that the mortgage commitment for the first mortgagee prohibited secondary financing; and
2. FCF arranged second mortgages by Solidity Group in order to repay funds loaned for a down payment, in contravention of the terms of the first mortgage commitment and the “gift letters”.
Accordingly, the Director is satisfied that FCF repeatedly breached subsection 14.2 of O. Reg. 188/08.

C. Causing Brokerage to Contravene the Act

Section 3 of O. Reg. 187/08 states that a mortgage broker or agent shall not do or omit to do anything that might reasonably be expected to result in the brokerage on whose behalf he or she is authorized to deal or trade in mortgages to contravene or fail to comply with a requirement established under the Act.
As principal broker of FCF, Handsaeme had heightened compliance obligations. These obligations, which are set out in Ontario Regulation 410/07, include:
1. A duty regarding compliance; and
2. A duty regarding policies and procedures.
Furthermore, Handsaeme signed off on all second mortgage commitments, including the Transactions.
As evidenced by FCF’s breaches of the Act, which continued in at least one transaction after FSRA staff sent the Correspondence to Handsaeme regarding its regulatory concerns, Handsaeme:
1. Failed to take reasonable steps to ensure that FCF, and each broker and agent authorized to deal or trade in mortgages on its behalf, complied with every requirement established under the Act; and
2. Failed to ensure that FCF’s policies and procedures were reasonably designed to ensure that the brokerage, and each broker and agent authorized to deal or trade in mortgages on its behalf, complied with every requirement established under the Act.
Accordingly, the Director is satisfied that Handsaeme contravened section 3 of O. Reg. 187/08.

V. GROUNDS FOR SUSPENSION OF LICENCE

Pursuant to subsection 18(1) of the Act, the Chief Executive Officer may, by order, suspend a licence:
1. If the licensee ceases to satisfy the prescribed requirements for issuance or renewal, as the case may be, of the licence;
2. If the Chief Executive Officer believes, on reasonable grounds, that the licensee is no longer suitable to be licensed having regard to the circumstances, if any, prescribed for the purposes of subsection 14(1) or 16(4), as the case may be, and such other matters as the Chief Executive Officer considers appropriate;
3. If the licensee contravenes or fails to comply with a requirement established under this Act; or
4. If such other circumstances as may be prescribed.
Section 10 of Ontario Regulation 409/07 prescribes the criteria the Chief Executive Officer is required to have regard to under paragraph 18(1)(a) of the Act. The Chief Executive Officer is required to have regard to:
1. Whether the individual’s past conduct affords reasonable grounds for belief that he or she will not deal or trade in mortgages in accordance with the law and with integrity and honesty.
2. Whether the individual is carrying on activities that contravene or will contravene the Act or the regulations if he or she is licensed.
3. Whether the individual has made a false statement or has provided false information to the Chief Executive Officer with respect to the application for the licence.
Handsaeme has contravened or failed to comply with a requirement established under the Act. Handsaeme, despite being Principal Broker, contravened section 3 of O. Reg. 187/08 by causing FCF to contravene the Act. Handsaeme:
1. Failed to take reasonable steps to ensure that FCF, and each broker and agent authorized to deal or trade in mortgages on its behalf, complied with every requirement established under the Act; and
2. Failed to ensure that FCF’s policies and procedures were reasonably designed to ensure that the brokerage, and each broker and agent authorized to deal or trade in mortgages on its behalf, complied with every requirement established under the Act.
Handsaeme continued these contraventions even being alerted to FSRA’s concerns in the Correspondence. In addition, Handsaeme signed at least one false Disclosure Document.
Handsaeme’s past conduct demonstrates that he will not deal or trade in mortgages in accordance with the law and with integrity and honesty. It is essential that Principal Brokers ensure that their brokerage comply with all requirements established under the Act.
Given this conduct, the Director is satisfied that Handsaeme is not suitable to be licensed as a mortgage broker.

VI. GROUNDS FOR IMPOSING CONDITIONS ON LICENCE

Subsection 8(3) of the Act states that a mortgage broker’s licence is subject to such conditions as may be imposed by the Chief Executive Officer or by the Tribunal.
Subsection 15(1) of the Act states that the Chief Executive Officer may amend a licence at any time.
As owner and principal broker for FCF, Handsaeme’s actions are indivisible from the actions of FCF. Further, Handsaeme has heightened compliance obligations as set out in Ontario Regulation 410/07. In particular, Handsaeme had a specific obligation to take reasonable steps to ensure that FCF, and each broker and agent authorized to deal or trade in mortgages on its behalf, complied with every requirement established under the Act.
As evidenced by FCF’s breaches of the Act, Handsaeme failed to meet this obligation. Of particular concern is the fact that Handsaeme’s failure to completely implement measures to avoid non-compliance even after FSRA Staff identified FCF’s breaches of the Act in the Correspondence.
Furthermore, after being presented with the results of the Examination Handsaeme stated that such practices were common in the industry.
Handsaeme has proven himself to be unsuitable to supervise other agents and brokers. For example, the provision of accurate Disclosure Documents is necessary to ensure that borrowers receive accurate information regarding their mortgage, including the true costs of their mortgage. By signing inaccurate Disclosure Documents, Handsaeme deprived borrowers of this information and created a risk of harm, including that borrowers not be able to repay their mortgage.
Therefore, the Director is satisfied that there are reasonable grounds for the belief that Handsaeme is not suitable to be designated as a principal broker, not an appropriate person to sign Disclosure Documents, and not a suitable person to supervise other agents and brokers.
For these reasons, and such further and other reasons as may come to FSRA’s attention, the Director proposes to impose the condition that, upon the expiration of his suspension, Handsaeme be restricted from being designated as principal broker for a period of three years, be prohibited from signing Disclosure Documents for a period of three years, and be prohibited from acting in any supervisory role while not designated as a Principal Broker.

VII. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES

The Director is satisfied that imposing administrative penalties on Handsaeme and FCF under section 39 of the Act will satisfy one or both of the following purposes under section 38(1) of the Act:
1. To promote compliance with the requirements established under the Act.
2. To prevent a person or entity from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under the Act.
The Director is satisfied that the following administrative penalties should be imposed:
1. On FCF:
  1. Five administrative penalties of $10,000 each, in the total amount of $50,000, for giving false or deceptive information or document when carrying on the business of dealing in mortgages, contrary to subsection 43(1) of the Act; and
  2. Five administrative penalties of $10,000 each, in the total amount of $50,000, for acting in circumstances where it ought to know that by acting it was being used by a borrower to facilitate dishonesty, contrary to subsection 14.2 of O. Reg. 188/08; and
2. On Handsaeme, $10,000 for causing FCF to contravene the Act, contrary to section 3 of O. Reg. 187/08.
In determining the amount of the administrative penalties, the Director has considered the following criteria as required by section 3 of Ontario Regulation 192/08:
1. The degree to which the contravention or failure was intentional, reckless or negligent.
2. The extent of the harm or potential harm to others resulting from the contravention or failure.
3. The extent to which the person or entity tried to mitigate any loss or take other remedial action.
4. The extent to which the person or entity derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure.
5. Any other contraventions or failures to comply with a requirement established under the Act or with any other financial services legislation of Ontario or of any jurisdiction during the preceding five years by the person or entity.
In respect of the first criterion, the Director is satisfied that FCF and Handsaeme’s actions were intentional. FCF and Handsaeme knew of the provisions of the first mortgage commitments that prohibited secondary financing and required that any “gifted” funds be non-repayable. Despite this knowledge, FCF arranged secondary financing from Solidity Group that violated these provisions. In addition, FCF deliberately and knowingly characterized the second mortgages from Solidity Group as being insured, whereas in reality they were not, and provided false information on the Disclosure Documents. As Principal Broker, Handsaeme had a heightened obligation to know the regulatory requirements, and ensure that those working at FCF followed them.
Furthermore, FCF and Handsaeme failed to completely correct their non-compliant actions even after FSRA had identified concerns in the Correspondence. These continued breaches of the Act show that FCF and Handsaeme’s actions were intentional, and not inadvertent.
In respect of the second criterion, the Director is satisfied that FCF and Handsaeme’s activities had the potential to cause significant harm. Issuing secondary funding contrary to the terms of the first mortgage increases the risks of borrowers defaulting on their mortgage. Had the issuer of the first mortgages learned of the second mortgages, it could have called the mortgages and forced the sale of the borrowers’ homes. Furthermore, the actual APR of these mortgages was significantly higher than disclosed. This also increased the risk of mortgage default.
In respect of the third criterion, the Director has considered that the misconduct appears to have been somewhat addressed after FSRA sent the Correspondence to FCF.

In respect of the fourth criterion, as a result of FCF and Handsaeme’s failure to comply with the Act, Solidity Group received fees from the second mortgages of approximately $91,000:

	Lender Fee Charged – Incorrectly labelled Mortgage Insurance Premium	Tax on “premium” incorrectly disclosed	Mortgage Set-up Fee	Total Fees for second mortgage
1.	$7,627.50	$613.80	$847.50	$9,088.80
2.	$22,610.00	$1,808.80	$847.50	$25,266.30
3.	$21,470.00	N/A	$847.50	$22,317.50
4.	$22,450.28	$1,796.02	$847.50	$25,093.80
5.	$8,218.42	N/A	$847.50	$9,065.92

In respect of the fifth criterion, the Director is unaware of any further contraventions or failures to comply in the preceding five years by FCF and Handsaeme.
The Director is satisfied, having regarded all the circumstances, that the proposed amounts of the administrative penalties are not punitive in nature, and the amounts are consistent with one or both purposes of section 38 of the Act.

DATED at Toronto, Ontario, April 8, 2024

Original signed by

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer

Si vous desirez recevoir cet avis en français, veuillez nous envoyer votre demande par courriel immediatement a : contactcentre@fsrao.ca.

Last updated: August 14, 2024. A Correction was made to the date the notice of proposal was signed. FSRA is committed to transparency. We have also undertaken an internal review of our processes.

NOTICE OF PROPOSAL TO SUSPEND LICENCE and AMEND LICENCE and IMPOSE ADMISTRATIVE PENALTIES