HUD sued over alleged failure to refund mortgage insurance premiums

The U.S. Department of Housing and Urban Development (HUD) is being sued in federal court over accusations that it failed to refund nearly $385 million in mortgage insurance premiums (MIP) to borrowers over a period of more than two decades. The lawsuit was previously reported by National Mortgage News and Law360.

The proposed class-action lawsuit brought by Florida resident Tricia Sarmiento claims that HUD has failed to issue refunds tied to MIP payments on mortgages backed by the Federal Housing Administration (FHA), and it has made the process of requesting a refund slow and complicated.

HUD regulations state that the termination of an FHA loan within seven years of a home purchase or refinance triggers overpayment of the mortgage insurance premium, 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 2020 data from the OIG that was cited in the lawsuit, about 60,000 borrowers in Florida are owed a total of $22 million. Nationwide, that number soars to more than 754,000 borrowers and a total of $384.7 million in unclaimed refunds. More than 200,000 of these loans were terminated more than 20 years ago.

In the lawsuit, the plaintiff says that she terminated her FHA loan in 2001 and was not informed at the time that a refund was owed, nor was she aware that she had to submit an application for a refund.

Sarmiento reportedly requested the documentation for a refund on Jan. 31, 2022, but has yet to receive it more than two years later. She is owed more than $1,000, the lawsuit claims.

The plaintiff demands that HUD repay the overdue MIP refunds and urges the department to reform “a system which has been plagued by failure,” the lawsuit states. HUD allegedly took an “unjustified length of time,” up to two to three years, before borrowers received their refund applications.

“It is a fight for transparency, accountability and fairness,” the filing reads. “The federal agency’s failure to uphold its duties has deprived thousands of homeowners of substantial refunds.”

This is a developing story.