Primary Residential Mortgage Fraud Case: FHA Insurance for Loans That Did Not Qualify

In the Primary Residential Mortgage fraud case, the lender agreed to pay $5 million to resolve allegations that it knowingly originated and underwrote ineligible FHA-insured loans. Primary Residential Mortgage admitted endorsing loans with undocumented qualifying assets or income, omitted debts and unverified earnest-money deposits. If you worked on those kinds of files, you know how much can turn on the difference between a figure entered into an underwriting analysis and the documents supporting it.

The Justice Department announced the settlement on October 3, 2016. Primary Residential Mortgage Inc., headquartered in Salt Lake City, Utah, had participated in the Federal Housing Administration’s Direct Endorsement program since at least January 2006. This page follows the company’s underwriting admissions and separate payment agreement. SecurityNational Mortgage Company had its own settlement in the same announcement.

What Did Primary Residential Mortgage Admit?

Primary Residential Mortgage admitted certifying loans for FHA mortgage insurance that failed the Department of Housing and Urban Development’s requirements for borrower creditworthiness and eligibility. Its admissions reach the financial information an underwriter uses to decide whether a borrower qualifies, including the assets available, the income supporting repayment and the debts already owed.

The company admitted endorsing loans where it failed to document qualifying assets and left borrower liabilities out of the underwriting analysis. It also admitted failing to document income used to qualify borrowers. If you reviewed those files, you know the difference between entering an income figure and documenting it. We see a certification that approved what the file could not support.

The lender also admitted failing to verify a borrower’s earnest-money deposit and endorsing a loan where the borrower was delinquent on a second, pre-existing FHA mortgage. Those admissions concern different parts of the file: the money put toward the purchase and the borrower’s existing mortgage obligations. For someone in underwriting or quality control, either can explain why an approval should have stopped before the loan reached federal insurance.

Why FHA Relied on Primary Residential Mortgage’s Underwriting

FHA relied on Primary Residential Mortgage to establish eligibility before endorsement because the Direct Endorsement program delegated that review to the lender. As the Justice Department explained, the Federal Housing Administration did not review each loan for compliance with its credit and eligibility standards before endorsement. After a default, the mortgage holder could claim the resulting loss from the housing department, FHA’s parent agency.

A borrower supplies information, but the lender adopts an eligibility decision when it certifies the loan. For an insider, the useful comparison is the information available to the lender against the assurance it gave FHA. Primary Residential Mortgage’s admissions identify the kinds of missing support and omitted obligations that comparison can expose.

The File Behind Primary Residential Mortgage’s FHA Certification

The strongest account of an ineligible endorsement connects the underlying documents to the underwriting decision and the certification. We examine the original file, review history and information known when the lender certified the loan. In a case involving these admitted practices, that means following the qualifying assets and income, the liabilities included in the analysis, the deposit verification and the existing mortgage’s payment status.

Timing gives those records their meaning. An underwriting condition, the response to it and the final approval show what happened before endorsement, while a later quality-control review can show when the company learned more. We connect the review findings with their recipients and the company’s response. A corrected file tells us something different from the file the lender relied on when it obtained insurance.

The same certification problem appeared in another lender’s case. In its account of U.S. Bank’s FHA settlement, the Justice Department said the bank admitted repeatedly certifying loans that failed HUD underwriting requirements during 2006 through 2011. That case also involved deficient quality control and failures to report problems to the housing department. It shows why a review employee’s knowledge can matter after origination: the internal finding and the company’s response can explain how a defective loan stayed behind an assurance of compliance.

Primary Residential Mortgage’s Agreement and SecurityNational’s Separate Settlement

SecurityNational agreed to its own $4.25 million settlement in the same announcement. Both lenders admitted undocumented-income problems, but SecurityNational also admitted endorsing loans involving delinquent federal debt, an unpaid court-ordered judgment and a loan amount exceeding HUD’s loan-to-value requirements. Primary Residential Mortgage’s admissions concerned its own asset, income, liability, deposit and existing-mortgage problems.

HUD and its Office of Inspector General investigated Primary Residential Mortgage alongside the Justice Department’s Civil Division and the U.S. Attorney’s Office for the District of Colorado. The Justice Department said HUD insured ineligible loans endorsed by each lender that it otherwise would not have insured, then incurred substantial losses when it paid claims on those loans.

From Primary Residential Mortgage’s Endorsements to HUD Payments

Following a loan from endorsement to a government payment requires the endorsement and claim records together. The originating lender, the current mortgage holder and the servicer can be different companies. The underwriting employee may know why the loan was ineligible, while the claim history identifies the request for payment and the recipient. We bring those parts of the transaction together.

An insurance claim also has its own financial history. The mortgage’s payment history and the claim’s expenses and receipts let us follow what the government paid and what it later recovered on the loan. A servicing employee who knows the claim records can supply a different part of the story from the underwriter who knows the original file.

What Primary Residential Mortgage’s Case Shows an FHA Insider

An insider can explain where the financial information in a loan file stopped matching what the lender certified to FHA. Your knowledge of a missing verification, an omitted debt or a review finding can connect the underwriting work to the company’s decisions. Our whistleblower experts work with you to establish that connection and follow it through to government money.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We assess the recovery and reward opportunity alongside the evidence you know.

You Saw What the Approval Left Out

If an FHA approval used undocumented income, left debts out or passed over a delinquent mortgage, speak to one of our Whistleblower Experts about what the approval left out. We build your strongest FHA whistleblower case with you around the underwriting decisions, certifications and government payments, bring in mortgage fraud whistleblower lawyers with FHA experience, and stay beside you as the case moves forward.