Lawsuit Against HUD Alleges Neglect In Refunding Mortgage Insurance Premiums

The Department of Housing and Urban Development (HUD) is accused of its purported failure to provide refunds on mortgage insurance premiums (MIP) to borrowers who chose to end their FHA-insured mortgages prematurely. Nearly $400 million in owed refunds to homeowners has been reported as of 2020, per Law360. 

Florida resident Tricia Sarmiento's proposed class-action lawsuit alleges that HUD has neglected to provide refunds linked to MIP payments for mortgages supported by the Federal Housing Administration (FHA), further asserting that the refund request process has been intentionally sluggish and convoluted.

Per HUD regulations, the termination of an FHA loan within seven years of a home purchase or refinance triggers overpayment of the MIP, with the department required to refund the unearned amount.

A 2022 audit by the HUD Office of Inspector General (OIG) discovered a lack of adequate procedures related to the repayment of premiums. 

According to data from the OIG cited in the lawsuit, approximately 60,000 borrowers in Florida are entitled to refunds amounting to $22 million as of 2020. Nationwide, the unclaimed funds tally up to $384.7 million, with 200,576 borrowers terminating their mortgages over 20 years ago.

HUD watchdog audits conducted in 2020 and 2022 have highlighted these practices, revealing the department's lack of established protocols and sufficient procedures for reimbursing MIPs to borrowers.

"It is a fight for transparency, accountability and fairness," the suit said. "The federal agency's failure to uphold its duties has deprived thousands of homeowners of substantial refunds."

HUD declined to comment on the pending litigation.