SecurityNational Mortgage Fraud: A Delinquent Mortgage Passed the FHA Check

SecurityNational Mortgage agreed to pay $4.25 million to resolve a False Claims Act mortgage fraud case involving ineligible FHA-insured loans. The Justice Department announced it alongside Primary Residential Mortgage’s separate $5 million agreement over FHA underwriting. SecurityNational admitted certifying loans that failed HUD’s borrower creditworthiness and eligibility requirements, including a refinance of a mortgage already four months overdue. If you worked on the underwriting, endorsement or later insurance claim, you may recognize the gap between what the file showed and what the lender approved.

The Justice Department announced the settlement on October 3, 2016. SecurityNational Mortgage Company, headquartered in Salt Lake City, Utah, had participated as a Direct Endorsement lender since at least January 2006. This case follows its admitted loan defects through the decision to obtain federal insurance. Our FHA mortgage fraud page explains the broader underwriting and claims process.

What Did SecurityNational Admit About Its FHA Loans?

SecurityNational admitted endorsing loans that were ineligible for FHA mortgage insurance. The Justice Department’s announcement identified the defects in terms an underwriter could recognize in the file:

• Federal debt and a judgment. A borrower was delinquent on federal debt and had an unpaid court-ordered judgment.
• An overdue mortgage refinanced into FHA insurance. The borrower was already behind on the underlying mortgage when SecurityNational refinanced it into an FHA loan.
• Excessive loan-to-value. The mortgage amount exceeded HUD’s loan-to-value requirements.
• Income without documentation. SecurityNational failed to document the income used to qualify a borrower for FHA mortgage insurance.
• Delinquent credit history left unanalyzed. SecurityNational failed to analyze a borrower’s delinquent credit history.

The Justice Department said SecurityNational admitted refinancing an already delinquent mortgage. We see an old payment problem arriving with a new federal backstop.

For an employee who saw the income or credit decision, the useful account connects the missing support or unexamined history to the approval and certification that followed. These are the underwriting decisions behind the False Claims Act allegations. A person who knows which income went into the calculation, which debt appeared in the file or who cleared an underwriting condition can help explain how the lender arrived at an approval the file did not support.

Primary Residential Mortgage’s admissions in the same announcement included undocumented borrower assets, omitted liabilities and unverified earnest-money deposits. Both lenders admitted failing to document qualifying income, but Primary Residential’s asset and deposit admissions add another way the approval could outrun the borrower’s supporting records.

How the FHA Endorsement Put Government Money Behind the Loan

A Direct Endorsement lender has authority to originate, underwrite and endorse mortgages for FHA insurance. The Justice Department explained that FHA relied on these lenders to verify compliance with its credit and eligibility standards before endorsement, without reviewing each loan first. The lender’s approval therefore carried the decision about whether the mortgage qualified for federal insurance.

The claim came later. If an insured loan defaulted, its holder could submit an insurance claim to HUD, the Federal Housing Administration’s parent agency, for losses resulting from the default. The originating lender, the holder and the servicer handling the claim can be different companies, which makes it important to connect the certification and the payment request to the same mortgage.

In its account of the settlements, the Justice Department said SecurityNational and Primary Residential Mortgage had caused HUD to insure loans it otherwise would not have insured. It said HUD then incurred substantial losses when it paid insurance claims on those loans. That connects the underwriting admissions to public money: the eligibility decision happened inside the lender, and the insurance bill reached HUD afterward.

The Certification Has Its Own Signer and Date

FHA loan paperwork separates the borrower’s statements from the lender’s underwriting and endorsement certifications. The April 2023 version of HUD’s loan addendum, for example, identifies the mortgagee and other participating lending entities, then separates borrower statements, credit underwriting, property underwriting and endorsement certifications. Those divisions help identify who supplied information and who adopted it for the insurance decision.

For an older loan, the signed certification used at endorsement supplies the lender’s actual promise. The employee who assembled the income support may know what was missing. The underwriter may know why a condition was cleared. The certifying representative may know which version of the file supported endorsement.

What Evidence Connects the Loan File to the Government Claim?

The strongest mortgage whistleblower evidence connects the original loan information to the lender’s certification and the later insurance claim. For the conduct SecurityNational admitted, that means the income support, debt and payment history, loan-to-value analysis, underwriting decision and endorsement record. The useful comparison is what the lender had when it approved the loan and what it represented when it obtained FHA insurance.

HUD’s Inspector General said the settlements resolved allegations that the lenders failed to comply with FHA origination, underwriting and quality-control requirements. For an employee who reviewed loans after approval, a quality-control finding can connect the defect to what management knew. We examine when the finding reached management, the response, and any correction or reporting decision alongside the affected loan. Those records can connect a reviewer’s observation to a decision inside the company, rather than leaving the finding detached from the mortgage and claim it concerns.

The evidence can also sit in different files held by different businesses. A lender’s retained underwriting and claim support can preserve information beyond what accompanied a submission to the agency. Claim versions, payment records and later recoveries then show what the government was asked to pay and what happened to that money.

From the FHA Claim to the Whistleblower Recovery

The government insurance claim is the payment event that connects this case to taxpayers. For an FHA claim, we also examine any mortgage or property the government acquired and any later recoveries, because those records help establish the government’s actual loss.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We build the case with you around the underwriting decisions you saw and the federal claims they produced.

You Know What the FHA Approval Left Out

If you saw an overdue mortgage, unsupported income or a credit warning pass through an FHA approval, talk with our whistleblower experts about that loan. We build the case around what you know, bring in FHA mortgage fraud whistleblower lawyers who understand underwriting certifications and insurance claims, and stay beside you through the pursuit of a recovery.