At least 132,500 borrowers who voluntarily terminated their federally insured mortgages last year might have been eligible for refunds known as "distributive shares" had the government paid such shares, according to figures compiled by the General Accounting Office.

Unfortunately, the Federal Housing Administration stopped making the rebates in November 1990. The money in question is held in reserve in the FHA's mutual insurance fund. In years gone by, the agency returned the excess to borrowers in the form of distributive shares.

Exactly how much each borrower received depended on a number of factors. But as long as you paid FHA insurance for at least six full years and the pool of mortgages to which your loan was assigned was profitable, you would get a refund.

In the late 1980s, however, the insurance fund was nearly out of money. It didn't even have enough cash on hand to cover claims that could have been made had the economy faltered, let alone enough to issue distributive shares. So in 1990, Congress authorized HUD to waive the payouts until it could rebuild its depleted reserves.

But lawmakers also gave HUD the discretion to begin paying distributive shares again whenever reserves exceeded the level necessary for actuarial safety and soundness. It has never done so, despite an independent audit found in 1996 that found the fund to be in excellent financial health.

The fund was so flush with cash that President Clinton ordered HUD to cut the up-front insurance premium by 0.25 percentage points for first-time home buyers who successfully completed a counseling program.

But Sec. Andrew Como has never seen fit to return excess premiums to borrowers that paid them in the first place. And now, the fund is fatter than ever. Even according to HUD's own figures, the fund enjoys has a capital reserve ratio of 3.81 percent, nearly double the Congressionally mandated 2 percent ratio. And the ratio could reach 4.06 percent in fiscal '01, HUD admits.

HUD believes that nothing more than a 3 percent cushion is sufficent before it should consider making rebates. But even a 3.81 percent, there still have been no distributive shares, largely because Sec. Cuomo would rather use the extra money to build affordable rental housing for low and moderate-income families.

In response to a request from Rep. Lazio, R-N.Y., who has introduced legislation to require HUD to give borrowers back the extra cash, the GAO has determined that anywhere between 132,500 and 186,000 FHA borrowers could have received distributive shares last year had they been made.

The smaller number represents the number of borrower who received their mortgages in fiscal 1991 or earlier and terminated them in fiscal '99. The larger number includes the 53,500 borrowers whose loans were originated in fiscal '92. But some of them may not have been eligible for rebates because they had held their loans for less than seven years.

GAO also estimates that the total annual premiums paid by these borrowers was between $271 million and $395 million. And since the FHA's chief actuary has said it is reasonable to assume that the rebates would have been equal to about 2 percent of the original value of the mortgages for eligible borrowers about $35,500 the typical distributive share would have been about $710, the agency told Rep. Lazio.

Published: September 19, 2000

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.