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HUD to Refund $70 Million For Homeowner Mortgages

By Beth Berselli
The Washington Post

The Federal Trade Commission and the Department of Housing and Urban Development Monday kicked off a joint campaign to refund $70 million to homeowners with HUD-insured mortgages and to warn scam artists against using the Internet to fraudulently grab some of that refund money.

At a news conference at HUD headquarters, officials said 100,000 homeowners who purchased their homes with mortgages insured by HUD's Federal Housing Administration since 1977 may be due refunds. The checks, which average about $700, are owed to homeowners for upfront mortgage insurance fees they paid the FHA - but only if they paid off their FHA mortgages in less than seven years.

The FHA today insures about $400 billion worth of mortgages and covers more than 900,000 homes each year. Many of these borrowers would not otherwise have received loan approval.

HUD Secretary Andrew M. Cuomo said the department does its best to track down these so-called "lost" homeowners and get them refunds, but about 10 percent of homeowners cannot be found, often because they've moved. The situation is complicated by the fact that many homeowners aren't aware they are owed a refund.

Cuomo said HUD will use the Internet and a toll-free phone line to publicize the refunds. Additionally, the department will work with the Internal Revenue Service to find those people owed refunds.

Finding the homeowners, though, is just the first step of the HUD-FTC effort: Protection is the other side of the equation. "At the same time we want to get these funds from Uncle Sam's pocket to the pocket of the rightful owner - what we don't want is those funds lining the pockets of scam artists," Cuomo said.

Under the initiative, HUD and the FTC will crack down on the fraudulent activities of some so-called "tracers." These companies and individuals help homeowners get their refunds - for a fee. FTC Chairman Robert Pitofsky said tracers usually charge 10 percent to 30 percent of the homeowner's refund, for work people can easily do themselves.

Homeowners can call HUD and get their refunds for free, he said, without paying any fee.

Patricia Ann O'Brien, a homeowner in Mebane, N.C., echoed his comments, saying it's a "rip off" to use a tracer. O'Brien said she was approached by three tracer companies, all of which offered to help her get a refund if she would sign a contract pledging a portion of the refund check. O'Brien, who moved three times in four years, didn't even realize she was eligible for a refund. Yet she was suspicious enough of the companies to refuse their offers. HUD eventually found her and she received a refund check for $3,052 Monday at the news conference.

Though it's not illegal to use tracers or for tracers to be paid a fee for their service, FTC and HUD officials are concerned about deceptive claims by tracers. For instance, tracers can't represent themselves as government officials or tell homeowners they must pay a fee to get their refund.

Officials said they have identified 330 Web sites, news group postings and bulk e-mail messages from tracers that make questionable claims about the HUD refund process. Many of the Web sites, Pitofsky said, sell "get-rich" schemes with exaggerated claims about how much a person can earn as a tracer.

HUD has sent letters to five companies ordering them to "cease and desist" from making false statements on their Web sites. One company, USA Software of Chesapeake, Va., advertises on its Web site as "a government authorized program FHA/HUD to find borrowers who are due refunds." For $49.95, a person can obtain this software and learn how to "earn $$$ at home helping people retrieve their lost refunds."

Tom Henry, the company's president, said the possible violation was news to him. Before Monday, "we've never been told it's misleading," he said, adding that the software has been sold online for about five years.

"If there's some wording on there that bothers HUD, we'll take it off," Henry said.