Mortgage Scandal: Harold the Mortgage Closer Under Fire for Predatory Practices
Ontario is once again moving to shut down Harold Gerstel, also known as Harold the Mortgage Closer, accusing him of exploiting vulnerable individuals by charging interest rates that soared up to 76 percent on mortgages. The Financial Services Regulatory Authority of Ontario (FSRA) has taken enforcement action following a Toronto Star investigation that highlighted Gerstel’s dealings with the late Judy Allen. Allen, a senior citizen, ultimately lost her North York bungalow due to Gerstel’s exorbitant mortgage rates.
The FSRA’s deep dive into Gerstel’s activities uncovered five additional cases where the interest rates reportedly breached Canada’s Criminal Code, which sets a maximum legal interest rate at 60 percent. Elissa Sinha, the director of litigation and enforcement at FSRA, emphasized that Gerstel has manipulated his credibility as a licensed mortgage broker to prey on consumers, rendering him unfit for licensure.
The regulator aims to dismantle Gerstel’s operations, including Esther Gerstel Inc., the private lending firm led by his wife. Despite Gerstel’s claim of no direct involvement with his wife’s company, the FSRA alleges otherwise. The proposed fines for Gerstel’s enterprises total $210,000.
Gerstel, also recognized for his television ads under the alias Harold the Jewellery Buyer, denies the allegations, asserting that they are fabricated by individuals with hidden agendas. He maintains that his services cater to borrowers in dire situations who are unable to secure financing from traditional institutions.
The FSRA, a provincial body responsible for safeguarding Ontario consumers in various financial sectors, initially spotlighted Gerstel’s questionable practices in September. Gerstel’s attempt to quash these allegations in court failed, prompting the FSRA to uncover further evidence of misconduct.
One case involves “MW,” a condo renovator who, according to the regulator, had eight mortgages registered on two properties by one of Gerstel’s companies. Despite a total registered amount of $3.6 million, only $2.5 million was advanced, resulting in an effective annual interest rate between 50 percent and 64 percent.
The Toronto Star’s investigation into Judy Allen’s case revealed that the face value of her mortgage interest was 22 percent, but due to additional lending fees, the effective rate skyrocketed to 56 percent. The funds, allegedly directed to a renovator and his family, left Allen’s bungalow poorly renovated and unfinished.
Another instance involves “DG,” who sought out Gerstel through his TV advertisements while battling significant health issues and unemployment. DG’s five mortgages had a principal amount of $230,000, but only $137,000 was advanced, with effective interest rates ranging from 56 percent to 76 percent.
The pattern of high interest rates and low advances continues with “MD,” who needed a mortgage renewal. Gerstel’s companies registered four mortgages totaling $1.5 million but advanced only $1.2 million, resulting in interest rates between 30 percent and 75 percent. Fortunately, MD managed to refinance the mortgage at better terms with another broker.
Even smaller cases, such as “MA,” who mortgaged her home to cover short-term needs after being laid off, highlight Gerstel’s alleged exploitation. MA received only $42,000 of the $61,000 principal, with interest rates between 55 percent and 71 percent. Another individual, “WJ,” experienced a similar situation, with a $150,000 mortgage advancing only $100,000 and an effective interest rate of 52 percent.
In response to these mounting allegations, Gerstel has condemned the FSRA for “abuse of process” and vowed to seek costs and sanctions against the regulator’s officials. A pre-hearing conference is set for May 29 to schedule the full hearing.
This unfolding story raises critical questions about regulatory oversight and the protection of vulnerable consumers in the financial sector. As the FSRA continues its efforts, one must ponder: How can regulatory bodies enhance their vigilance to prevent such predatory practices in the future?
Canada’s Growing Pains: The Demographic Shock Intensifies
The federal government of Canada is grappling with a rapidly increasing population, primarily driven by international migration. Despite efforts to curb the influx, the population growth in 2024 is accelerating at an unprecedented rate. According to Statistics Canada’s Labour Force Survey, the population aged 15 and older grew by approximately 411,000 in the first four months of this year, marking a nearly 50 percent increase compared to the same period in 2023.
Stéfane Marion, chief economist at the National Bank of Canada, highlighted this alarming trend in a recent research note, stating, “The demographic shock is getting worse in Canada.” This statement underscores the significant and continuing impact of population growth on the country.
Canada is currently experiencing its fastest population growth in decades, driven almost entirely by the influx of international migrants, including temporary workers and students. Last year, the population surged by nearly 1.3 million people, or 3.2 percent, marking the quickest growth since the late 1950s. This surge presents a complex challenge for the federal government, which is attempting to manage the rapid demographic changes.
The Labour Force Survey, conducted monthly by Statistics Canada, provides crucial insights into these population trends. While the survey includes population figures, it is not considered an official estimate. The official population report, which is published quarterly, will be updated on June 19, providing a more comprehensive picture of Canada’s demographic landscape.
Despite the government’s efforts to limit migration, the robust population growth seen in early 2024 indicates that Canada remains a highly attractive destination. In a historic move, Ottawa plans to impose limits on temporary residents starting this fall, aiming to reduce their proportion to 5 percent of the total population over the next three years. Currently, temporary residents comprise 6.5 percent of the population.
Marion suggests that the anticipation of these new restrictions may have accelerated migration, with many choosing to come to Canada sooner than planned. This rush could exacerbate short-term challenges, particularly in housing affordability, a pressing issue in many Canadian cities.
Several economists predict that population growth could eventually decelerate to around 1 percent as the new immigration rules take effect. However, the immediate implications of the current surge are significant. The strain on housing, infrastructure, and social services is likely to intensify, requiring urgent and strategic responses from policymakers.
As Canada navigates this demographic transformation, critical questions arise. How will the nation balance the economic benefits of a growing population with the need to maintain social and economic stability? What measures can be implemented to ensure that infrastructure and services keep pace with rapid population growth? And, crucially, how can Canada sustain its reputation as a welcoming and inclusive society while managing these unprecedented demographic changes? These questions will shape the future of Canadian policy and society in the coming years.
China’s Bold Move to Revive the Housing Market
China has unveiled its most ambitious measures yet to address its ailing housing market, aiming to end a prolonged real estate crisis that has hampered its economy for years. Beijing’s new plan involves local authorities purchasing unsold homes to convert them into affordable housing for low- and middle-income families, a strategy already being tested in some cities.
This initiative, coupled with the elimination of minimum interest rates on mortgages and the reduction of down payments for potential homebuyers, signifies a significant policy shift. Ting Lu, chief China economist at Nomura, noted, “This is the beginning of the end of China’s housing crisis.”
The announcement spurred a surge in Chinese property stocks, with real estate giant Sunac China’s shares jumping 26% and Hong Kong-listed shares of China Vanke rising 19%. Despite once being valued at twice the size of the U.S. residential market, China’s property sector has been in free fall, with sales plummeting and construction nearly halting.
The downturn has seen over 50 developers default on international debts, leading to approximately 500,000 job losses. The government’s intervention as a buyer of last resort aims to bail out failed developments, reduce housing inventory, and restore consumer confidence in the market.
The broader objective is to stimulate consumer spending, which has been declining. Recent data showed retail sales growth slowed and property investment fell by nearly 10% year over year. China’s leadership has relied on manufacturing and exports to drive growth, which has intensified trade tensions globally.
The Wall Street Journal previously reported that China was considering buying distressed properties and converting them into affordable housing. However, questions remain about the scale of the program and the funding sources. Clearing the backlog of empty or unfinished homes, estimated to require hundreds of billions of dollars, seems a daunting task. Economists argue that only the central government or the People’s Bank of China has the financial capacity to support such an expansive initiative.
China has announced plans to issue long-dated bonds worth billions, though it hasn’t clarified if these funds will target real estate. Additionally, the central bank has introduced a relending program providing 300 billion yuan (about $41 billion) to banks to support home purchases by state-owned firms, a sum falling short of economists’ estimates for a comprehensive solution.
Previous measures, including interest-rate cuts and adjustments to property purchase rules, have failed to ignite a sustained recovery. Economists stress that addressing the housing backlog and completing stalled projects are crucial for alleviating China’s property issues and boosting consumer and business confidence.
Cities like Hangzhou and Nanjing have already implemented plans to buy or renovate private homes for public housing. Nonetheless, a nationwide program must be extensive to succeed, given the volume of unsold and unfinished homes. Nomura estimates there are between 20 million to 30 million unfinished homes, costing at least $440 billion to complete. Arthur Budaghyan from BCA Research suggests a figure as high as 5 trillion yuan, requiring swift and substantial investment.
On Friday, China began selling the first tranche of a planned 1 trillion yuan in ultralong bonds to support the economy and strategic projects. Carlos Casanova from Union Bancaire Privée anticipates some funds will aid local governments in financing the home-buying plan. He believes this initiative could signal the market’s nadir and encourage a gradual revival in sales and prices, providing a beacon of hope for beleaguered homeowners.
Despite these measures, the immediate outlook remains grim. New figures showed average new-home prices fell by 0.58% in April, the largest monthly decline in a decade, and property investment dropped 9.8% year over year. Retail sales growth also slowed, reflecting consumers’ cautious spending amid economic uncertainty.
China’s industrial sector, however, showed resilience, with production rising significantly. Yet, the country’s shift towards manufacturing and exports, driven by a weak currency, has led to increased exports at low prices, exacerbating trade tensions, particularly with the United States. President Biden recently announced new tariffs on Chinese imports, further straining economic relations.
As China embarks on this bold housing rescue mission, the critical questions remain: Will these measures be enough to stabilize the housing market and revive consumer confidence? Can the government effectively fund and manage such a vast program? The answers will determine the future trajectory of China’s economy and its real estate market.
How to Solve a Housing Crisis: Three Solutions to Help Get Toronto’s Housing Market Under Control
The urgency of Toronto’s housing crisis cannot be overstated. Approximately 85,000 Toronto households are on waiting lists for subsidized housing, precariously housed and living just one rent or paycheck away from losing their shelter. The average home price in the Greater Toronto Area (GTA) was $1,177,777 in the first quarter of this year and is expected to increase by another 10 percent by the year’s end. A decade ago, only nine percent of Toronto residential properties were valued between $750,000 and $1.5 million or more. By last year, that figure had soared to 67 percent, putting homeownership out of reach for many.
As home prices have surged, so have rents. The asking rent for a two-bedroom apartment in Toronto this month is $3,224, a staggering 58 percent increase over the past three years. These soaring housing costs, which far outstrip personal income growth, are stifling the GTA’s economic growth. When shelter costs consume more than 50 percent of household income, it severely restricts consumer spending, a blow to a retail economy still recovering from the COVID pandemic.
Addressing this crisis requires bold and urgent action. Here are three promising solutions:
1. Boosting the Supply of Skilled Construction Workers
Canada needs an estimated 3.5 million new homes by the end of the decade to meet housing demands, but this won’t be possible without significantly increasing the supply of skilled labor. BuildForce Canada estimates a shortfall of more than 85,000 construction workers by 2033.
The construction industry has always relied heavily on skilled tradespeople from abroad, yet Canada’s immigration policies have historically favored university-educated applicants over those with trades certification. From 2016 to 2021, only two percent of primary admissions for permanent residency were skilled tradespeople, down from nine percent in the 1980s.
To address this imbalance, a few key reforms are needed:
– Remove the education bias in immigration selection and actively promote Canada’s need for skilled trades workers, regardless of their academic credentials.
– Include laborers and helpers in the Express Entry pathway for permanent residency, as these roles are critical entry-level jobs in construction.
– Establish a national standardized system for assessing foreign credentials to ensure labor mobility across provinces.
– Award extra immigration points to candidates with skills in high demand, ensuring formal consultation with sectors like construction and healthcare to identify labor needs.
These changes could close the gap between the demand and supply of construction workers, helping to expedite housing projects across the country.
2. Utilizing Prime Public Land for Affordable Housing
High land costs are a major barrier to new housing construction. Part of the solution lies in making underused public land available for housing development. The BC Builds program is an example of this approach, aiming to create up to 10,000 affordable rental units on government and Indigenous land. This initiative includes low-cost financing for developers and a faster approval process.
Toronto’s Housing Now plan, aiming to create more than 15,000 new homes on 22 publicly owned sites within 10 years, has moved slowly, highlighting the need for greater urgency. Similarly, surplus properties held by the Toronto District School Board and other government agencies could be better utilized for affordable housing rather than being sold at market rates.
To expedite the process, a comprehensive Public Land Bank should be created to catalog all available public land for housing across the country, incorporating housing subsidy programs from all government levels. By keeping this land under public ownership and leasing it for housing development, speculation can be prevented, ensuring long-term affordability.
3. Embracing Prefabricated Housing
Prefabricated housing, which involves building components in a factory before assembling them on-site, offers a faster and more cost-effective method of construction. Despite the efficiency and lower material waste of prefab construction, its adoption in Canada remains low due to perceptions of poor quality and limited design options.
In reality, prefab homes are durable and come in a variety of designs, including bungalows, multiplexes, and large estate homes. Countries like Sweden, Germany, and Japan have successfully integrated prefab construction into their housing markets, with significant portions of new homes being prefabricated.
Prefab construction can be completed in about six months, significantly quicker than the two to three years typical of traditional on-site builds. Costs are also lower, ranging from $100 to $200 per square foot, compared to $165 to $260 for conventional houses in Toronto.
To support the growth of the prefab industry, government accelerator funds should be utilized to help builders scale up production. Developing a national housing catalogue of pre-approved prefab designs could further streamline the building process.
Today’s housing crisis has been decades in the making, as the market prioritized oversized houses and luxury condos over starter homes and social housing. Reversing this trend requires a concerted effort to build affordable homes, supported by innovative solutions like those outlined here. By addressing labor shortages, utilizing public land, and embracing prefab construction, we can take meaningful steps toward solving Toronto’s housing crisis and ensuring a stable, affordable housing market for all. The question now is: Will policymakers act swiftly and decisively to implement these solutions?
Canada’s Housing Market: A Boon for Affordability Amid Slow Sales
Canada’s housing market is experiencing a notable shift, with a rise in the number of houses for sale in April contributing to a “calmer housing market.” This trend, according to BMO’s chief economist, Douglas Porter, could improve the chances of a Bank of Canada rate cut, potentially easing financial pressure on homebuyers.
New data from the Canadian Real Estate Association (CREA) shows that new listings rose by 2.8 percent from March to April. However, seasonally adjusted sales dropped by 1.7 percent over the same period. This combination of increased supply and decreased demand pushed the total number of home listings up by 6.5 percent.
Porter emphasizes that “calm is good” when it comes to the housing market. The subdued activity, particularly in Canada’s most expensive cities, has played a significant role in this trend. Montreal and Toronto saw month-over-month sales declines of 3.4 percent, while Calgary, Ottawa, and Halifax experienced drops of approximately six percent. This lack of buyer enthusiasm has helped to keep prices in check, with a 1.8 percent decrease compared to April 2023.
The cooling of the housing market is a welcome development, especially given the extreme unaffordability that has plagued it in recent years. For many Canadians, high housing costs have made homeownership an elusive dream. The recent trends offer a glimmer of hope that affordability may improve, albeit gradually.
One of the most significant implications of this market calmness is its potential impact on interest rates. Porter notes that cooler home prices and an increase in listings make it less likely that a future rate cut would trigger a surge in prices. This slight increase in the chances of rate relief could be beneficial for potential buyers, making mortgages more affordable.
However, the outlook for housing affordability remains uncertain. Porter highlights the sluggishness in new building as a critical concern. This year, housing starts are expected to struggle to reach last year’s mark of 240,000, which is only half of the federal government’s target for 2024. The majority of new housing starts over the past year have been multi-unit buildings, which typically take longer to complete. This indicates that new supply is unlikely to alleviate affordability issues in the near term.
The interplay between supply, demand, and interest rates is crucial in shaping the housing market’s trajectory. While the current calm offers some respite, it also underscores the need for strategic interventions to address long-term affordability. Policymakers and industry stakeholders must consider innovative solutions to boost housing supply, streamline construction processes, and ensure that the market remains accessible to a broader segment of the population.
As we observe these trends and contemplate their implications, a pressing question arises: Can Canada balance the delicate dynamics of housing supply, affordability, and economic stability to create a more equitable housing market for all? The answer to this question will determine the future of housing in Canada and the financial well-being of its citizens.
-TanTeam
