Regulator claims broker diverted clients to high-interest private lender
The Financial Services Regulatory Authority of Ontario (FSRA) has initiated enforcement proceedings against mortgage broker Harold Gerstel, his company Harold the Mortgage Closer (HTMC), and Esther Gerstel (EGI).
According to a notice of proposal issued by the regulator, FSRA alleges that Gerstel and HTMC "are not suitable to be licensed" under Ontario's Mortgage Brokerages, Lenders and Administrators Act.
"Gerstel contravened the Act by dealing in mortgages outside of his mortgage brokerage for remuneration, contrary to section 2(3) of the Act," the notice states.
FSRA further claims that EGI, a company solely owned by Gerstel's wife Esther, "was carrying on business as a mortgage lender without being licensed as a mortgage brokerage or exempt from the requirement to be licensed, contrary to section 4(2) of the Act."
The regulator is proposing to refuse renewal of Gerstel's mortgage broker license, revoke HTMC's brokerage license, and impose a compliance order on EGI. Administrative monetary penalties of $60,000 against Gerstel and $150,000 against EGI are also being proposed.
At the centre of FSRA's allegations is what it describes as a "scheme" orchestrated by Gerstel to leverage HTMC's credibility as a licensed brokerage to advertise to "vulnerable consumers", but then divert certain clients directly to the private lender EGI.
"Gerstel then engaged with the very same clients as a representative of EGI and arranged mortgages for EGI. In doing so Gerstel traded in mortgages outside HTMC," the notice read.
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It cited six borrowers between 2016-2021 who allegedly dealt directly with Gerstel representing EGI, being deprived of protections under the Act such as conflict of interest disclosures and suitability assessments.
The notice further claims the EGI mortgages carried "onerous fees and interest" with total borrowing costs between 30-80% per year. It states two borrowers lost their homes after EGI exercised power of sale.
"By carrying on business through Gerstel but not HTMC, EGI failed to carry on business solely through a mortgage brokerage or exempt person or entity. By orchestrating this scheme, Gerstel has contravened the Act and denied vulnerable clients the protections of the Act," FSRA said.
The regulator also accuses Gerstel of failing to cooperate with its investigation by not attending an examination under oath as required by a summons issued in February 2024.
Gerstel, HTMC and EGI have requested a hearing before the Financial Services Tribunal to dispute FSRA's allegations and proposed enforcement actions.
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