If you've been approached by a private company to help track down funds you might be owed from paying off a Federal Housing Administration home loan, try taking on the chore yourself. The steps are much easier than they used to be, and the cash could come in handy when those holiday credit card bills come due.
The U.S. Department of Housing and Urban Development, which oversees all FHA loans, increased its research efforts three years ago to locate about 348,000 homeowners owed $250 million in FHA mortgage-insurance refunds. However, some homeowners could not be found, usually because they had moved and the new mailing address was not in HUD's records.
When a homeowner pays off an FHA-insured loan within five years, a portion of the mortgage insurance upfront premium is returned. It works much like a homeowner's fire insurance policy that's canceled before the term expires. If you pay $600 to insure your home for a year and move after eight months, a portion of the $600 is refunded.
Though HUD's website for refunds, www.hud.gov/offices/hsg/comp/refunds/index.cfm, and its toll-free line, (800) 697-6967, have helped to ease the load, many consumers are still unaware they have a check coming.
If you believe you are due a refund, try to dig out your old FHA loan number and then check online or by phone. Your proper name may not be enough, especially if it is common, like Sanchez or Smith.
Lenders require mortgage insurance when borrowers apply for more than 80% of the purchase price of the home. It insures the investor (the lender) in case the borrower defaults on loan payments. So if you sold your home and the new owner assumed the loan, you are not eligible for a refund. That's because there is still a risk of default. The insurance follows the loan and not the initial borrower.
On older FHA loans, mortgage insurance was part of the deal and had to be paid regardless of the equity position of the borrower. On newer FHA loans -- those placed after Jan. 1, 2001 -- mortgage insurance can be dropped when equity reaches 22% of the original appraised value and the borrower meets other guidelines.
Before 1983, borrowers were permitted to make monthly mortgage-insurance payments. The money from a large group of loans was pooled into a fund similar to a mutual fund. The fund was reviewed each year. If there was more interest earned on the investment than was used up by foreclosures that the insurance covered, then a dividend was declared. Each loan holder in that particular fund was due a share, called a "distributive share."
