Unregistered Mortgage Broker in Hot Water Over $500M in Questionable Home Loans
The Registrar of Mortgage Brokers has issued a cease-and-desist order against an unregistered mortgage broker linked to over $500 million in mortgage loans from 2009 to 2018.
Jay Chaudhary is accused of using registered brokers and real estate agents to arrange the questionable mortgages, some involving major lenders and documents altered to inflate income numbers.
Chaudhary was once registered but has not been licensed as a submortgage broker since 2008, when he was suspended for four months after lenders raised concerns.
The cease-and-desist order issued on Thursday concludes, “the size and scale of (his) unregistered broker activities supported by a network of regulated individuals, represents a significant risk to the integrity of the real estate and financial services marketplace.”
It accuses Chaudhary of duping borrowers into believing he was a broker who was dealing directly with lenders. He is accused of actually collecting referral fees and feeding false or altered documents to registered brokers who arranged mortgages on his behalf.
“He placed borrowers at risk of being placed into mortgages they cannot afford and lenders at risk of making loans they might not otherwise have made,” said the order.
An investigation into Chaudhary started after the Registrar of Mortgage Brokers received two complaints about his conduct in mid-2017, just as the federal Office of the Superintendent of Financial Institutions or OSFI was issuing its final B-20 guidelines.
The B-20, which came into effect in January 2018, is most commonly associated with stress testing by lenders to ensure borrowers can afford to make payments if interest rates rise.
But it also has stipulations for “federally registered financial institutions” to verify income, because it’s “a key factor in assessing the capacity to repay a mortgage loan, and verification of income helps to detect and deter fraud and misrepresentation.”
The cease-and-desist order gives details about multiple cases.
After registrar staff looked into the first complaints against Chaudhary, they found that 25 out of 26 mortgage applications submitted to mortgage lender CMLS Financial Ltd. on Chaudhary’s behalf by an unnamed registered broker included altered Canada Revenue Agency tax documents.
The order said an internal audit by North Vancouver-based BlueShore Financial of mortgage files submitted by this unnamed registered broker between 2012 and 2017 found that out of 48 of them, there were discrepancies in 15, with more than half of these being insured by the Canada Housing and Mortgage Corporation or Genworth Canada.
Later, assembling clues found in laptops and phones, files and yellow sticky notes, investigators found Chaudhary more widely rotated through different pseudonyms, contact numbers and email addresses to arrange mortgages based on falsified information, the order said. Aside from inflating income numbers, it said Chaudhary also used the names of accounting firms who said they were never involved in preparing documents such as the submitted tax returns.
One spreadsheet summarized Chaudhary’s activities since 2009, making references to “multiple transactions per year and identified at least 20 (registered) submortgage brokers and real estate (agents) as referral sources for the transactions.”