The Bush administration's new team at the Federal Housing Administration (FHA) is working on ways to solve one of the agency's most embarrassing, long-running problems: It has hundreds of millions of dollars that it wants to give away to homeowners who have used FHA mortgage insurance. But it's been unable to locate thousands of those homeowners, even though private "finders" seem to be able to do so.

The millions of dollars are insurance premium refunds owed to borrowers who've paid off their FHA mortgages. Every year FHA sends out between 300,000 and 400,000 premium refunds totaling more than $400 million. When an FHA loan is paid in full, the borrower's lender notifies the agency and provides the borrower's last mailing address. If the borrower is eligible, FHA sends out a refund application form.

But in thousands of cases, nobody answers FHA's letter. The agency then sends out two additional mailings over a period of months, hoping to obtain a forwarding address. If nobody claims the refund, the money just sits at FHA.

Lists of the names and last official addresses of refund-eligible homeowners state-by-state are available from the agency, and have spawned the growth of an informal "finders" industry. Finders use the "skip-tracing" techniques common in the debt collection field to locate the people whom FHA cannot.

Long Island homeowners Colleen and Gary Henry recently received pitches from several finders. Each offered to get them "the $515.47 that is rightfully yours" from the FHA. In exchange for the service, the Henrys would agree to give the finder 25 percent of the refund -- $128.86.

FHA officials say that while legal, finders pitches like this are completely unnecessary. The Henrys ultimately called FHA's toll-free number (1-800-697-6967) and began the claim process. They also could have visited HUD's website (http://www.hud.gov/refunds/index.cfm), where former FHA customers can determine whether they're eligible for a premium refund, and for how much.

The Bush administration says it wants to make the refund-payment process much easier for everybody. The problem is that most FHA customers don't realize they might qualify for a premium refund, and many move to new locations after paying off their loans and don't leave forwarding addresses.

Among the techniques actively under consideration by the Bush team at FHA:

• Accessing internal IRS databases to determine current mailing addresses of refund-eligible consumers. In one recent experiment involving about 200,000 homeowners, FHA turned up 20,000 homeowners on the IRS tax rolls who may be owed money by the agency.

• Hiring professional "finders" on contract to the FHA itself. These would be collection industry pros who are expert at tracking down debtors, but who'd now find themselves hired to deliver "good news" rather than the usual bad news.

• Changing the whole refund process to provide cash at the point of loan payoff -- at the settlement table itself -- rather than attempting to contact people long afterwards.

While FHA considers how it plans to fix the system, here's what you could do: If you, a client, friend or relative has ever paid off an FHA home mortgage, visit the HUD website or call the toll-free number. Make sure you or your friend have the FHA mortgage identification number and the address of the property.

Who knows? If it's your lucky day, you or your friend or relative just might be in line for a surprise bundle of money from the federal government.

For more articles by Ken Harney, please press here.

Published: June 25, 2001

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.