Many unaware that U.S. owes them refunds

Former FHA borrowers are due $350 million

But HUD says it can't find them

October 06, 2002|By Anne Lauren Henslee | Anne Lauren Henslee,SPECIAL TO THE SUN

Nearly half a million homeowners in the United States are owed more than $350 million by the federal government, and they don't even know about it.

The money, housed in a non-interest-bearing account in the U.S. Treasury, is the product of upfront Federal Housing Administration mortgage insurance premium overpayments, said a spokesman for the U.S. Department of Housing and Urban Development.

The unclaimed refunds, two-thirds of which are more than 2 years old, are the responsibility of HUD headquarters in Washington, and are waiting for former FHA borrowers to claim them. The catch is, according to HUD, the borrowers do not know the government owes them money, and many have moved without leaving a forwarding address.

Last year, 69,858 Maryland homeowners received more than $9 billion in FHA loans, according to market share data from Mortgage Data Web, an industry source. The average loan amount was $130,926. To date, the government has failed to find 3,200 Maryland beneficiaries whose unclaimed refunds total about $2.5 million.

The HUD Web site publishes a little-known list of lost beneficiaries, which has a search engine accessible by typing in a last name. The Sun randomly selected 10 Baltimore-area residents whose names were on the list. Of those, half were owed more than $1,000, and all but two were listed in the local telephone book.

So, why has the government had such a difficult time finding them?

Further, when so many Americans are owed hundreds of millions of dollars of their own money, why hasn't HUD allotted staff to locate them?

In response, HUD announced late last week that it had awarded a contract to Washington-based Walker & Co. LLP to step up efforts in finding the approximately 430,000 homeowners who are owed money.

HUD has located and paid off the majority of homeowners who are due refunds. In fiscal year 2002, HUD processed more than 650,000 mortgage insurance refunds nationwide totaling more than $680 million. Almost half of all refunds are paid to homeowners within one month of loan payoffs. With so many FHA mortgages and payoffs, industry officials agree, keeping tabs on all individuals who pay off their loans can be a challenge, especially if those individuals do not understand the rules of return for mortgage insurance premiums.

Some of the confusion might center on the intricacies of the mortgage process.

The FHA requires borrowers in the Mutual Mortgage Insurance Fund to prepay a portion of the risk-based insurance premium on the purchase of their home at closing. The fund is the department's most active single-family home loan program. FHA-backed mortgage insurance, similar to non-FHA private mortgage insurance, assumes the risk of loan default, enabling lenders to offer mortgages to homeowners who otherwise might not qualify.

In general, homeowners who acquired their loans after Sept. 1, 1983, paid an upfront mortgage insurance premium, did not default on their loans and paid off their mortgages within five years are owed the unearned portion of the upfront premium. The FHA commissioner determines how much of the upfront premium is to be refunded once loans are terminated

Refunds are based on the number of months the loan is insured.

How that portion is refunded depends on whom you ask among the private and public sectors responsible for ensuring that the money finds its way back to consumers.

HUD sources claim that mortgage lenders are responsible for notifying the borrowers when a refund is owed. When lenders fail to notify them, the opportunity to locate them later becomes less likely.

"The government is notified by the lender that the government loan is being paid off," said Bob Kaestner, vice president of consumer real estate for Bank of America and a spokesman for the Maryland Mortgage Bankers Association.

"When the government is notified that the loan is being paid off, they notify the customer that the customer is due a refund. Once they notify the customer, they send the lender a check for that amount, which the lender endorses back to the customer. From a policy perspective, Bank of America turns that around in 24 hours," Kaestner said.

Once the loan has been satisfied, the lender stops paying the mortgage insurance premium and notifies the FHA that the loan has been paid in full, he explained. "So, the government's responsibility is to notify the customer and the lender of the amount they will receive as a refund. That is the standard policy," he said.

The process does not always work, however, and an estimated 10 percent of those who pay off their FHA mortgages have neither received nor applied for their refunds. Because the FHA relies on the lending institution to provide the pertinent information, many homeowners are not paid. In an attempt to locate beneficiaries, the FHA sends out a series of letters giving notification of the refund. After two automated letters, the agency sends an occupant letter to the property address, seeking updated location information.

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