On any given day, about 85,000 people go about their business, unaware that they are due a sizable refund from the federal government.
They are among former borrowers who used the Federal Housing Administration mortgage insurance program to finance their homes. But unlike the 221,000 homeowners who step forward to claim a mortgage insurance premium refund worth a total of about $270 million a year, these borrowers are often oblivious to the possibility of a refund.
The federal government is not, at least not yet, trying to pocket the money, said an official with the Department of Housing and Urban Development, which oversees the FHA program.
"We are not in the business to keep that money. We are in the business to give it back," the HUD official said.
Two types of refunds are available to the property owners of record, including those who assumed an existing mortgage rather than obtaining a new home loan.
Former borrowers who prepay mortgages originated after August 1983 are guaranteed a refund because they paid for their mortgage insurance under newer FHA program rules that call for a one-time premium payment equal to 3.8 percent of the loan amount at settlement.
Pre-1983 borrowers face a more problematic situation. These homeowners financed the mortgage insurance premium on a monthly installment plan, so there is no prepaid amount for FHA to rebate.
However, the older program rules direct FHA to return any surplus, known as a distributive share, earned by pools of mortgages, which are made up of loans originated in the same year.
Many times, however, borrowers do not realize that an unclaimed distributive share is waiting for them.
It is easier, the HUD official said, to locate former borrowers due refunds on the one-time premium than it is to find borrowers owed distributive shares. "Not only are these newer loans, but people remember laying out $3,000 to $3,500 and it is itemized on the closing statement as a mortgage insurance premium," he said.
Moreover, borrowers cannot count on distributive shares like they can one-time premium refunds because fate plays a role in whether a refund will ever materialize, depending on how many borrowers in their year's group eventually default.
Two years ago, FHA began an outreach program to notify former borrowers of outstanding distributive share or one-time premium refunds. Until then, little effort was made to inform a borrower of any refund other than an obligatory notice sent out by the lender at the time the loan was repaid.
Now, FHA sends a letter to new borrowers shortly after they close on the mortgages in which they notify them that they may some day be entitled to a refund.
The agency also tries to contact the borrower with the refund news a minimum of three times over a two-year period. Each time it sends a claim form to a forwarding address supplied by the lender.
If the former homeowner does not respond, then the agency sends a letter to the current occupant of the property asking for updated address information on the seller.
By using that system, FHA is able to locate 95 percent of the former borrowers, the HUD official said.
The courts have ruled, however, that information about missing refund recipients becomes public knowledge after two years. At that point, FHA must supply anyone who asks with lists of beneficiary names, along with their most recently known addresses and refund amounts.
That development has spawned a cottage industry of third-party tracers who are not affiliated with the federal government, although some have illicitly made such claims. These private firms typically charge a finder's fee of 30 to 40 percent of the refund amount.
Many of these companies, the HUD official said, no longer bother to find missing borrowers because they have found it is more lucrative to sell handbooks telling other people how to make money as tracers. The agency is currently getting 2,000 requests a week for that information, according to the official.
However, the HUD spokesman said, individuals who suspect they might be due a refund can save a tracer's fee by contacting HUD directly. Individuals should write a letter that includes their name, day-time phone number and FHA case number, which can be found on the mortgage note or in the transaction papers recorded at a local courthouse. Mail to:
HUD-DSB, P.O. Box 23699, Washington, D.C. 20026-3699.
A staff of 20 workers handles 10,000 such inquiries a week, the HUD official said.