Two Lenders Settle Allegations They Improperly Underwrote FHA-Backed Loans

Salt Lake City-based mortgage lenders Primary Residential Mortgage Inc. (PRMI) and SecurityNational Mortgage Co. have agreed to pay $5 million and $4.25 million, respectively, to resolve allegations that they knowingly originated and underwrote mortgages insured by the Federal Housing Administration (FHA) that did not meet applicable requirements, the U.S. Department of Justice announced Monday.

Both lenders participated in the FHA’s Direct Endorsement Lender program, which streamlines the mortgage process by allowing qualified lenders to submit mortgages for FHA insurance directly without having to put each loan through the usual due diligence checks “up front.”

As part of the settlements, the lenders admitted they certified loans for FHA mortgage insurance that did not meet underwriting requirements.

“The FHA program provides important economic support for homeownership and community development,” said Benjamin C. Mizer, principal deputy assistant attorney general and head of the Justice Department’s civil division, in a statement. “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.”

“PRMI obtained [U.S. Department of Housing and Urban development, or HUD] insurance by intentionally claiming its loans met HUD’s quality standards while knowing many of its loans did not meet those standards,” added Bob Troyer, acting U.S. attorney for the district of Colorado. “When those loans failed, it was the government who suffered the loss. We will continue our efforts to hold housing lenders accountable for fraudulent conduct.”

The release states that the alleged improprieties date back to at least 2006, but it does not state how long the poor underwriting practices lasted.

In a statement, David Zitting, CEO and president of PRMI, said the company was “pleased to reach a resolution of this matter and believe it permits us to move forward with our business confidently.”

“We recognize the important role our government plays in strengthening real estate finance, protecting consumers and making homeownership opportunities available to Americans,” Zitting added.

PRMI said it fully cooperated with the inquiry and agreed to the settlement “in order to avoid the expense, uncertainty and inconvenience of litigation.”

“This settlement does not affect PRMI’s HUD-approved mortgage status,” the company said in a statement. “PRMI will continue to offer FHA-insured loans, consistent with its goals to help expand homeownership opportunities for communities across the nation.”


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