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.
When that doesn't work, names and last-known addresses of beneficiaries are placed on a publicly available list if the FHA fails to contact them after two years from the payoff date.
Under provisions of the Freedom of Information Act, HUD makes that list available to individuals or companies looking to profit from assisting in the recovery of refunds. Tracers, as they are commonly known, are individuals or companies that pay HUD for lists of beneficiaries, whom they in turn notify of the mortgage insurance premium refunds and offer to assist them in their claims, for a fee.
A small-print tagline on the HUD Web site states that the agency does not endorse third-party tracers, yet the FHA telephone recording on refunds includes instructions specifically for tracers.
HUD publishes state-by-state lists of beneficiary names, last-known addresses and case numbers. The department then sells those listings to the public and third-party tracers, who must first go over a set of instructions provided by HUD before contacting beneficiaries.
Several local FHA beneficiaries acknowledged being contacted by tracers. Some said they had lost interest in attempting to claim the refunds simply because they were suspicious of what the tracers had told them.
A Westminster couple claimed they were not owed refunds, but instead had refinanced their FHA mortgage and had the refunded amount transferred to their new FHA mortgage.
They said the error had been "resolved years ago," yet their names as of this month were posted on the HUD FHA refund list. They regularly receive solicitation calls from tracers.
After being contacted for this story, several other couples discovered their names also remained on the list, despite their insistence that they had credited the refund amount when they refinanced their mortgages. HUD is looking into those claims.
Recently, HUD released a statement warning consumers of the often unnecessary expense and use of third-party tracers. Tracer fees, it stated, typically range from 10 percent to 30 percent of the refunds, costing consumers hundreds of dollars and sometimes $1,000.
Further, HUD encourages homeowners to do the legwork themselves.
The process of discovery begins with logging on to the HUD Web site, www.hud.gov, clicking on FHA Refunds, entering a name on the searchable database, and waiting for the system to retrieve the available information.
Listings also are available by contacting the National Technical Information Service, an agency of the U.S. Department of Commerce's Technology Administration, at 888-584-8332. For those without access to a computer, HUD recommends calling the support center at a toll-free number, 800-697-6967.
The next step is to contact HUD directly. The department then will mail the necessary forms and instructions to the beneficiaries. Processing time for an application takes a minimum of 120 days, according to HUD's telephone recording.
The contract with Walker & Co. is expected to increase HUD's chances of finding the addresses of homeowners whose refunds remain unpaid.
The information, according to HUD, will bring the department one essential step closer to contacting them, reduce time and resources spent searching, and instead enable HUD to concentrate its efforts on returning the money to its rightful owners.
In the meantime, hundreds of thousands of Americans don't know what they're missing.
Follow-up
If you did not receive a check or an application within 45 days after paying off your loan and were notified by your lender that you are due a mortgage insurance premium refund, confirm that your mortgage lenders sent HUD a request for termination.
If they confirm that the correct termination information was sent, contact HUD.
If you do not receive a refund or any other documentation from HUD within 60 days from the date you mailed your claim form, contact HUD immediately.
How to contact HUD:
800-697-6967
8:30 a.m. to 8:30 p.m. Monday through Friday
All inquiries should include your name, FHA case number, payoff date, property address and a daytime telephone number.
SOURCE: U.S. Department of Housing and Urban Development, www.hud.gov