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The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited SecurityNational Mortgage Company (SecurityNational), a Federal Housing Administration (FHA)-approved direct endorsement lender, to determine whether it properly underwrote insured loans and whether its quality control function met requirements.

SecurityNational did not follow HUD regulations when underwriting 18 FHA-insured loans. One of the loans contained significant underwriting deficiencies because the borrower overstated their self-employment income and SecurityNational did not detect the borrower's misrepresentation. In addition, SecurityNational did not review all FHA-insured loans that defaulted within the first six months, nor did it perform its monthly quality control reviews in a timely manner.

We recommend that HUD require SecurityNational to reimburse it for the loss on the loan with a significant deficiency. We also recommend that HUD monitor SecurityNational to ensure that it effectively monitors its underwriters' actions and properly performs its quality control reviews.