Under a recent ruling by the comptroller general, the Department of Housing and Urban Development says it will be able to refund an estimated $500,000 in insurance premiums to home buyers.
About 1,200 homeowners who had been denied the refunds will receive from $100 to $700 each, and other owners who have not yet applied also may be eligible for the refunds, HUD said.
When a home loan insured by the Federal Housing Administration is paid off, the homeowner is eligible for a portion of the insurance premiums he or she has paid over the life of the loan, HUD said.
Until the recent ruling by Comptroller General Charles Bowsher, homeowners had to file claims for refunds within six years of paying off their FHA-insured loans. As a result of the new decision, there now is no time limit on filing the claims, according to Donald Demitros, FHA director of mortgage insurance accounting.
The statute of limitation on all claims against the federal government is six years. A HUD request to exempt FHA insurance-premium refunds from the limit was denied in the mid-1970s, but another request, submitted in April 1985, has been granted, Demitros said.
Lenders are required to notify HUD when homeowners have repaid their loans and become eligible for the refunds, called distributive shares. HUD then sends the owners a form asking them to sign it to verify that the loan is terminated, he said.
"We have difficulties with some lenders" who fail to make reports, he said. In other cases, the lenders have failed to report borrowers' names or addresses properly, making it difficult to locate eligible homeowners, Demitros added. Others are more conscientious, however, and write to the borrowers at the same time they notify HUD that loans are repaid, he added.
Congressmen and individual homeowners have protested the six-year limit in recent years, urging a change, according to Demitros.
Banks and other lenders pass on to HUD the insurance premiums they collect with mortgage payments. The money is used by the agency to pay claims and other costs of the FHA insurance program, according to the HUD announcement. In recent years, income from the invested premiums has begun to exceed the expenses when the loan is about 12 years old, Demitros said. The agency then begins to make annual computations of the amount available for refund as distributive shares.
The loans made each year are considered as a separate group in determining refunds. A group of mortgages with a high default rate, requiring FHA to pay insurance claims to the lender and take over the foreclosed property, will provide smaller refunds to borrowers who got their loans in that year, according to Demitros.