Trace FHA/HUD Mortgage Insurance Refunds

How to Trace FHA/HUD Mortgage Insurance Refunds

Contents

A Brief History of HUD 3
Where the Money Comes From 4
Why the Money is Available 5
This is Where YOU Fit In 7
Where to Start 8
Looking over the List 9
Why the Borrower Needs You 11
First Things First 12
Contacting Your First Clients 14
Introductory Lettors 18
The Contract 21
HUD/FHA Requirements 24
The Tracer Found Case 27
Tracing HUD/FHA Refunds Step By Step 30

A Brief History of HUD

The Department Of Housing and Urban Development (HUD) was originally called the Federal Housing Administration (FHA). The FHA was established in 1934. One of the objectives of the FHA was to make home mortgages a more desirable investment for lenders. The way the FHA accomplished this was to “insure” the mortgage loans that were made by FHA-approved lenderson homes that met the standards set by FHA.

The program does not actually lend the money to the borrower to purchase the home. What it does is back the mortgage loan which is funded by a lending institution. In the event that the homeowner does not repay the mortgage, FHA will pay off the loan, then repossess the home and attempt to resell it. In 1965 Congress changed the name of the Federal Housing Administration to Housing and Urban Development (HUD).

Where the Money Comes From

The Federal Housing Administration is part of the U.S. Department of Housing and Urban Development. The FHA has a mortgage insurance program that makes housing available to individuals of any income bracket, with or without military service. With FHA backing the mortgage loan, the home buyer can purchase a home with as little as 3% to 5% down. At the present time FHA will guarantee a home purchase up to $100,000 for a single family residence.

As mentioned earlier, the FHA does not actually lend the money to purchase the home. The FHA stands behind the mortgage loan, in the event the homeowner does not repay the mortgage, FHA will repossess the home and sell it to recover the loss. The way the program works is simple, in addition to the price of the home, each home buyer contributes a small amount of money to a pool. Each borrower of HUD/FHA pays 1/2 percent of the loan amount or 1/2 point. Example, on a $50,000.00 loan the amount would be $250.00. On a $100,000 loan the amount would be $500.00.

This pool can be considered a kind of insurance premium. The 1/2 percent goes into the FHA/HUD shared distribution section which covers any losses due to foreclosures of any FHA/HUD backed loans, and a few other expenses. In case of foreclosure, the borrower forfeits any refund due to them. However, in the case of a good loan, the money then sits drawing no interest until the loan is paid off and the borrower is contacted for a refund.

Why The Money Is Available

When an FHA loan is repaid either by paying the required number of monthly payments or by refinancing the loan, it is the responsibility of the borrower to notify the FHA that the note has been paid. It is also the responsibility of the borrower to notify the FHA of their current address.

When notified, HUD/FHA will then calculate the amount due the borrower, and mail them a form #2042, “Notice of Distributive Share of Premium Refund”. The borrower should then return the completed form with proof of ownership. This can be accomplished with many different forms of ownership such as a mortgagebond, deed of trust, security deed note, mortgage note, recorded deed, etc. After receiving the completed form and proof of ownership, the borrower can expect a check for the full refund in approximately 45 days.

Sound simple? Well the system was designed to be simple. However, there is one catch. Although in most cases it is explained to them at the act of sale, most people do not fully understand the mortgage insurance program. They do not realize that if they sell their home and someone else takes out a new mortgage, their loan is fully paid by the new mortgage. Many do not realize that if they refinance for a lower interest rate, the new mortgage will pay off the original debt. Many simply just forget that they have money waiting for them when they
retire their mortgage.

There are many different reasons, bur they all boil down to one fact. There are many unclaimed dollars sitting in the HUD/FHA shared distribution section, with approximately 95% of the FHA/HUD borrowers not asking for the return of their money. With the addition of new names monthly, and such few individuals being found and refunded the money due them, this fund grows each month at an
amazing rate. 35 pgs.

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