Financial Fraud: A lender headquartered, Resolve Allegations That it Violated the False Claims Act by Originating and Underwriting Mortgage Loans Insured

Financial Fraud
underwriting mortgage loans insured

Utah-Based Lender Agrees To Pay $4.25 Million To Resolve Alleged False Claims Act Liability Arising From FHA-Insured Mortgage Lending

NEWARK, N.J. – A lender headquartered in Salt Lake City, Utah, has agreed to pay $4.25 million to resolve allegations that it violated the False Claims Act by originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, U.S. Attorney Paul J. Fishman and the U.S. Department of Justice announced today.

As part of the settlement agreement, SecurityNational Mortgage Co. (SecurityNational) admitted it certified loans for FHA mortgage insurance that did not meet HUD underwriting requirements regarding borrower creditworthiness and eligibility.

Since at least January 2006, SecurityNational has participated as a Direct Endorsement Lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.

“HUD relies on the Direct Endorsement Lenders like SecurityNational to make sure their loans are made only after a rigorous and thorough review,” U.S. Attorney Fishman said. “In this case, SecurityNational has admitted it approved loans that it had no business endorsing, potentially damaging a vital FHA program and other potential borrowers.”

“The FHA program provides important economic support for homeownership and community development,” Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, said.  “The Department has and will continue to ensure that program participants adhere to applicable requirements, and will pursue those that knowingly misuse the program for their own gain and to the detriment of homeowners and the public.”

SecurityNational admitted it endorsed loans that were not eligible for FHA mortgage insurance, including loans where:

  • the borrower was delinquent on federal debt and had an unpaid court-ordered judgment;
  • the borrower was four months delinquent on the underlying mortgage SecurityNational refinanced into an FHA loan;
  • the mortgage loan amount exceeded HUD’s loan to value requirements;
  • SecurityNational failed to document income used to qualify the borrower for FHA mortgage insurance; and
  • SecurityNational failed to analyze the borrower’s delinquent credit history.

As a result of SecurityNational’s conduct and omissions, HUD insured loans endorsed by each lender that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured.  HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

“Today’s settlements resolve allegations that these lenders, entrusted by American taxpayers to abide by FHA rules, failed to comply with certain FHA origination, underwriting and quality control requirements,” Inspector General David A. Montoya for HUD said.  “The settlements demonstrate a continued commitment to address the failures and halt the business practices that potentially harm the FHA program and its participants.”

The settlement with SecurityNational is the result of a joint investigation conducted by HUD, the HUD Office of Inspector General, the Civil Division, and the U.S. Attorney’s Office for the District of New Jersey.  The government is represented by Senior Litigation Counsel Anthony J. LaBruna and Assistant U.S. Attorney Mark Orlowski of the Civil Division of the U.S. Attorney’s Office for the District of New Jersey. A similar settlement in a case investigated by HUD, the HUD Office of Inspector General, the Civil Division, and the U.S. Attorney’s Office for the District of Colorado, was also announced today.

The claims asserted against SecurityNational are allegations only, and there has been no determination of liability.

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