Written By: Stacey Sprain, Op-Ed Writer
I had a loan officer ask me this week “how does a borrower check the status on her MIP refund?” I informed the loan that HUD no longer automatically issues a refund check to borrowers whose FHA loans are paid off with non-FHA refinances. I was actually quite surprised the loan officer wasn’t aware that HUD’s prior stance regarding MIP refunds had gone by the wayside years ago. But I figure she is probably not the only one out there who perhaps forgot or missed the memo so viola! This week’s topic!
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Prior to HUD’s announcement of the elimination of MIP refunds as announced in Mortgagee Letter 2005-03 which was issued back in early 2005, HUD issued refund checks to borrowers who refinanced out of FHA mortgages when unearned premium existed from the up-front MIP they’d originally paid with their settlement. But they stopped issuing refund checks on mortgages endorsed for insurance on and after December 8th, 2004. Since then, borrowers who refinance out of FHA mortgages no longer received MIP refunds. Borrowers who refinance from FHA to FHA, however, receive a credit for the unearned MIP premium on the existing loan which is applied toward the new MIP premium for the new refinance.
Since the elimination of refunds, HUD only refunds borrowers when the MIP credit amount exceeds the amount of new MIP for a refinance loan. In those cases, HUD refunds the difference to the borrowers, usually within 45 days of their refinance settlement. See the example below for explanation.
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Existing FHA loan Unearned Premium: $1504
New FHA refinance New MIP: $1001
For this example, HUD would send a check to the borrowers for the difference between $1504 and $1001because HUD cannot allow for an MIP credit of a greater amount than the new MIP. This borrower would be refunded $503.
How are Refunds Processed?
• The mortgage company notifies HUD of the termination of the FHA mortgage insurance for the loan that is paid off.
• If the borrower is eligible for a refund, HUD will either request that the Department of the Treasury (Treasury) issue a check directly to the homeowner or send an Application for Premium Refund or Distributive Share Payment (form HUD-27050-B) so that the borrower can provide HUD with additional information about the case.
• Borrowers who receive a form HUD-27050-B must read and complete the application carefully, sign it, have it notarized, and return it to HUD along with proof that they were the owner of the property at the time that the insurance was terminated.
• After HUD receives the homeowners completed form HUD-27050-B and the necessary supporting documentation, the information is carefully reviewed. Upon completion of the review, HUD will either request that Treasury issue a check directly to the homeowner or will request additional information.
How to Check Refund Status
The homeowner should receive notification of refund within 45 days after the existing FHA loan is paid off. If not, the homeowner should check with the mortgage company to confirm that the request to terminate the mortgage insurance was sent to HUD. If the mortgage company confirms that the correct termination information was sent, the homeowner will need to contact HUD by calling 1-800-697-6967.
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Statutes of Limitation
For any FHA-insured loans with a closing date prior to January 1, 2001, and endorsed before December 8, 2004, no refund is due the homeowner after the end of the seventh year of insurance. For any FHA-insured loans closed on or after January 1, 2001 and endorsed before December 8, 2004, no refund is due the homeowner after the fifth year of insurance. For FHA-insured loans endorsed on or after December 8, 2004, no refund is due the homeowner unless they refinanced to a new FHA-insured loan, and no refund is due these homeowners after the third year of insurance. HUD is not liable for a distributive share that remains unclaimed 6 years from the date notification was first sent to the last known address of the mortgagor.
Are you or is Anyone you Know Owed a Refund?
You can search the refund database to see if you or someone you know is entitled to a refund by visiting the website athttp://www.hud.gov/offices/hsg/comp/refunds/. Simply enter a last name and click the search button. Thousand of unclaimed refunds are posted.
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Beware of Refund Scams
MIP refunds are processed by HUD at no cost to the homeowner. Homeowners should beware of people (known as "tracers") offering to help collect refunds for a fee. HUD offers additional information on scams at their website: .http://www.hud.gov/offices/hsg/comp/refunds/alerts.cfm.
About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution.
