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We audited SecurityNational Mortgage Company’s Federal Housing Administration (FHA) loan origination because it was among the top lenders that originated FHA-insured loans with downpayment assistance from the City of Las Vegas.  A previous U.S. Department of Housing and Urban Development, Office of Inspector General (HUD OIG), audit (Evergreen Home Loans, 2016-LA-1011) found that Evergreen originated FHA-insured loans in connection with the City of Las Vegas’ downpayment assistance program that contained prohibited legal restrictions on conveyance.

SecurityNational improperly originated FHA loans for seven properties that contained prohibited restrictive covenants.  This condition occurred because SecurityNational did not have adequate policies and procedures in place to identify the prohibited restrictive covenants.  As a result, SecurityNational placed the FHA fund at unnecessary risk for potential losses of $381,823. In addition, HUD paid a claim on one of the seven loans, resulting in actual losses of $26,472.

We recommend that the Deputy Assistant Secretary for Single Family Housing require SecurityNational to (1) work with HUD to nullify the restrictions on conveyance that violate HUD policy or indemnify HUD against future losses of $381,823 for the seven  loans; (2) repay HUD $26,472 for a partial claim paid on one of the FHA loans that contained prohibited restrictive covenants; (3) develop and implement policies and procedures to identify prohibited restrictions on conveyance to ensure that it does not originate FHA loans with prohibited restrictive covenants; (4) provide training to its employees regarding HUD’s requirements related to prohibited restrictions on conveyance.  We also recommend that HUD’s Associate General Counsel for Program Enforcement pursue civil and administrative remedies, if legally sufficient.