SECURITY
NATIONAL FINANCIAL CORPORATION
5300
South 360 West, Suite 250
Salt Lake
City, Utah 84123
Telephone
(801) 264-1060
January
15, 2009
VIA
EDGAR
U. S.
Securities and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E.
Washington,
D.C. 20549
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Attn:
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Sharon
M. Blume
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Assistant
Chief Accountant
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Re:
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Security
National Financial Corporation
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Form
10-K for the Fiscal Year Ended December 31, 2007
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Form
10-Q for Fiscal Quarter Ended June 30, 2008
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File
No.
0-09341
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Dear Ms. Blume:
Security National Financial Corporation
(the "Company") is in receipt of the letter dated December 18, 2008 with respect
to the above-referenced Form 10-K for the fiscal year ended December 31,
2007 and Form 10-Q for the fiscal quarter ended June 30,
2008. Although responses to the comments in the letter are required
to be made within ten business days from the date of the letter, this will
confirm that on December 30, 2008 Christina Harley, Staff Accountant, acquiesced
to extending the time for the Company to file responses thereto until January
16, 2009. The Company's responses to the comments are set forth
below. For ease of reference, the Company has set forth the comments
and its responses as follows:
1. We
have reviewed your response to prior comment four from our letter dated
October 16, 2008. It is our understanding that on the dates the loans were
sold, you had received purchase commitments for those loans from third-party
investors. However, you state that you generally received notices within six
months from those investors that they were not going to settle the loans. Please
tell us whether the purchase commitments specified a date upon which the loans
were to be settled. Additionally, tell us why it took as long as six
months for investors to determine they were not going to settle the
loans.
January
15, 2009
Page 2
Response:
Purchase commitments generally specify
a date 30 to 45 days after delivery upon which the underlying loans should be
settled. Depending on market conditions, these commitment settlement
dates can be extended at a cost to the Company. Generally, a ten day
extension will cost .125% (12.5 basis points) of the loan amount. The
Company’s historical data shows that 99% of all loans are generally settled as
agreed within 16 days after delivery. During the fourth quarter of
2007, there was a lot of market turmoil. Several of the intended
purchasers were attempting to back out of their commitments to buy loans and, as
a result, the Company was vigorously pursuing the enforcement of those
commitments. It sometimes took as long as six months to exhaust all
efforts to enforce the loan commitments, which included researching the reasons
for rejection, attempting to sell the loans to secondary investors, and
appealing the decision to determine if the investor would provide an
exception. In the event investors determined they were not going to
settle the loans, the loans were reclassified and transferred to the long term
investment portfolio at the lower of cost or market value.
2. Please
tell us your policy in general for repurchasing loans transferred to the
warehouse and subsequently transferring those loans from the held-for-sale to
held-for-investment category. For example, as noted above, in some instances you
did not receive notice from a third party investor that they would not settle a
loan for six months. As a loan remaining in the warehouse for a long period of
time could indicate salability or documentation problems, tell us why you would
not repurchase the loan from the warehouse and transfer it from held-for-sale to
held-for-investment prior to six months.
Response:
As stated above, the Company's policy
is to pursue efforts to enforce purchase commitments with third party investors
concerning mortgage loans and to cure any documentation problems with respect to
such loans at a minimal cost for up to a six month time period. The
Company believes that six months allows adequate time to remedy any
documentation issues, to enforce purchase commitments, and to exhaust other
alternatives. However, once purchase commitments have expired and
other alternatives to remedy are exhausted, the loans are repurchased and
transferred to the long term investment portfolio at the lower of cost or market
value, which could be earlier than the six month time period.
3. Please
expand on your statement that the misclassification at December 31, 2007 of the
loans repurchased in 2007 as "Mortgage Loans Sold to Investors" did not have any
effect on the carrying amount of those loans since they were repurchased at par.
Tell us how you complied with the guidance in paragraph 6 of SFAS 65 which
requires mortgage loans transferred to a long-term investment category to be
transferred at the lower of cost or market ("LOCOM") on the date of the
transfer. Any difference between the carrying amount of the loan and its
outstanding principal balance should be recognized as an adjustment of yield by
the interest method. Ensure that your response addresses how you determined the
cost and market values of the loans on the dates they should have been
transferred (included in your table on page 6 of the response) to "Mortgage
Loans Held for Investment."
January 15,
2009
Page 3
Response:
We wish to revise our previous response
to state as follows: Once a mortgage loan is determined to be unsettled, the
Company then repurchases the loan and transfers it to the long term investment
portfolio at the lower of cost (par value) or market value. A par
rate represents no premium or discount being paid or received for the mortgage
loan. The Company determines the market value of loans by considering
the prices similar mortgages are sold in the current market, the fair value of
the underlying collateral, and any related mortgage insurance. Since
the Company normally holds collateral with sufficient equity or mortgage
insurance, the unpaid principal balance (or par value) is almost always lower
than the market value. However, if market value is lower than par
value, the loans are transferred at market value to the long term investment
portfolio.
4. Please
tell us how you considered whether misclassification of the loans repurchased in
2007 and 2008 would have an impact on your quarterly results for each quarter
during 2007 and 2008.
Response:
Because the loans are shown on the
balance sheets for each reporting period at the lower of cost or market value,
the only effect on the filed statements would be a change of
classification. Beginning with the second quarter of 2008, the
Company's policy has been to review on a quarterly basis the outstanding
mortgage loans that have not yet been purchased by third party investors
pursuant to the terms of purchase commitments. For those loans not
settled or otherwise remedied for more than six months, the Company recorded all
of these loans at the lower of cost or market value, and then transferred such
loans to the long term investment portfolio. The Company's management
has reviewed the misstatements related to each of the Company's quarterly
balance sheets for 2007 and the first three quarters of 2008 and, based on this
review, has determined that the misclassification of the loans that should have
been recorded as repurchased during such periods did not have a material impact
on the financial position for any such periods.
In connection with the Company's
responses to the comments, the Company hereby acknowledges as
follows:
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The
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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The
staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
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The
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United
States.
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January 15, 2009
Page
4
If you have any questions, please do
not hesitate to call me at (801) 264-1060 or (801) 287-8171.
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Very
truly yours,
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| By: /s/ Stephen M. Sill | ||
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Stephen
M. Sill
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Vice
President, Treasurer and
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Chief
Financial
Officer
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