B-168290, MAR 18, 1971

B-168290, MAR 18, 1971

ASSISTANCE PAYMENTS - FHA - MISCALCULATIONS ADVISING THAT DECISION B-168290, FEBRUARY 27, 1970, IS APPLICABLE TO CERTAIN SITUATIONS HEREIN DESCRIBED. THE FHA NEED NOT DEMAND REPAYMENT OF PAST ERRONEOUSLY PAID ASSISTANCE PAYMENTS, BUT MAY TREAT THE MATTER PROSPECTIVELY WITH A RESULTING CHANGE IN FUTURE PAYMENTS WHEN THE MORTGAGOR IS WITHOUT FAULT, THE OVERPAYMENTS RESULT FROM MISCALCULATIONS BY FHA OR MORTGAGEE AND THE MISCALCULATIONS ARE THE RESULT OF AN ADMINISTRIVE POLICY WHICH WAS SUBJECT TO MISINTERPRETATION AND THE ADMINISTRATIVE POLICY HAS BEEN CLARIFIED, PROVIDED FURTHER THAT THERE IS NOT INVOLVED THE VIOLATION OF ANY STATUTORY PROVISIONS.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER OF JANUARY 27, 1971, FROM YOUR GENERAL COUNSEL, CONCERNING THE APPLICATION OF OUR DECISION OF FEBRUARY 27, 1970, B-168290, TO CERTAIN SITUATIONS DESCRIBED IN HIS LETTER.

THE DECISION REFERRED TO INVOLVED AN APPLICATION FOR MORTGAGE ASSISTANCE PAYMENTS UNDER SECTION 235 OF THE NATIONAL HOUSING ACT, AS AMENDED, 12 U.S.C. 1715Z, BY A DIVORCEE WITH TWO MINOR CHILDREN. BOTH THE MORTGAGOR AND THE MORTGAGEE TREATED THE $150 PER MONTH CHILD SUPPORT PAYMENTS BEING RECEIVED BY THE MORTGAGOR AS "EFFECTIVE INCOME" FOR THE PURPOSE OF CALCULATING APPROPRIATE MORTGAGE ASSISTANCE PAYMENTS. THE COLUMBIA, SOUTH CAROLINA, FEDERAL HOUSING ADMINISTRATION (FHA), INSURING OFFICE, HOWEVER, CLASSIFIED THE CHILD SUPPORT PAYMENTS AS "UNUSUAL INCOME" AND COMPUTED THE MORTGAGE ASSISTANCE PAYMENTS ACCORDINGLY.

AS A RESULT OF THIS FHA ACTION, THE MONTHLY ASSISTANCE PAYMENT WAS FIXED AT $50.30, WHEREAS IT WOULD HAVE BEEN $37.85 PER MONTH, $12.45 PER MONTH LESS, IF THE CHILD SUPPORT PAYMENTS HAD NOT BEEN EXCLUDED FROM THE MORTGAGOR'S "EFFECTIVE INCOME." IN JULY 1969, THE WASHINGTON, D.C. OFFICE, FHA, ADVISED THE MORTGAGEE THAT THE COLUMBIA OFFICE HAD ERRED IN TREATING THE CHILD SUPPORT PAYMENTS AS "UNUSUAL INCOME" AND, AS A RESULT, THE MORTGAGEE HAD RECEIVED ON BEHALF OF THE MORTGAGOR, OVERPAYMENTS TOTALING $74.70 FOR THE SIX-MONTH PERIOD INVOLVED.

THE MORTGAGEE, AS REQUESTED, CREDITED FHA WITH THE AMOUNT OF $74.70 IN ITS NEXT MONTHLY BILLING BUT WHEN THE MORTGAGOR REFUSED TO REIMBURSE THE MORTGAGEE FOR SUCH OVERPAYMENTS, THE MORTGAGEE SUBMITTED A RECLAIM VOUCHER TO FHA FOR THE AMOUNT IN QUESTION.

THE ADMINISTRATIVE INSTRUCTIONS COVERING ADJUSTED ANNUAL INCOME PROVIDED THAT "UNUSUAL OR TEMPORARY INCOME" MAY INCLUDE "OTHER INCOME WHICH WILL BE DISCONTINUED." CONSEQUENTLY, SINCE CHILD CARE PAYMENTS GENERALLY ARE DISCONTINUED WHEN THE CHILD REACHES THE AGE OF MAJORITY, THE INTERPRETATION PLACED ON SUCH INSTRUCTION BY THE COLUMBIA OFFICE COULD NOT BE SAID TO BE CLEARLY ERRONEOUS, AND WE APPROVED THE PAYMENT OF THE RECLAIM VOUCHER.

THE GENERAL COUNSEL STATES THAT HIS OFFICE HAS BEEN REQUESTED TO GIVE A LEGAL INTERPRETATION OF THAT DECISION IN ITS APPLICATION TO A NUMBER OF SPECIFIC CASES. THE CASES INVOLVED, AND HIS INTERPRETATION OF OUR DECISION IN ITS APPLICATION TO SUCH CASES, ARE DESCRIBED IN HIS LETTER AS FOLLOWS:

"MOST OF THE CASES INVOLVE QUESTIONS AS TO COMPUTING THE MORTGAGOR'S ADJUSTED INCOME. ADMINISTRATIVE INSTRUCTIONS CONTAINED IN CIRCULAR FHA 4441.6, ISSUED MAY 16, 1969, AND CIRCULAR FHA G 4400.8, CHANGE 6, ISSUED APRIL 30, 1970, COPIES ENCLOSED, STATE THAT 'UNUSUAL INCOME' MAY BE DEDUCTED FROM THE MORTGAGOR'S ADJUSTED INCOME WHEN SUCH INCOME WILL BE OR HAS BEEN DISCONTINUED, IF SUCH DEDUCTION IS DOCUMENTED IN THE FILES. THESE INSTRUCTIONS REQUIRE THE MORTGAGEE AND FHA INSURING OFFICE PERSONNEL TO MAKE A DETERMINATION AS TO WHAT, IF ANY, INCOME IS UNUSUAL OR TEMPORARY. SOME OF THE DETERMINATIONS MADE PROVED ERRONEOUS.

"FHA POLICIES ARE BEING SUBSTANTIALLY REVISED (DRAFT COPY ENCLOSED). FORTHCOMING REGULATIONS AND CIRCULARS WILL ELIMINATE ALL DEDUCTIONS FOR 'UNUSUAL INCOME.' IN ADDITION, SECTION 235 MORTGAGORS WILL BE REQUIRED TO RECERTIFY ANNUALLY AS TO INCOME AND FAMILY COMPOSITION. SUCH RECERTIFICATION WAS PREVIOUSLY CONDUCTED ON A BIENNIAL BASIS. SECTION 235 MORTGAGORS WILL ALSO BE REQUIRED TO REPORT ANY CHANGE IN THE EMPLOYMENT OF ANY ADULT MEMBER OF THE FAMILY AND ANY CHANGE IN FAMILY COMPOSITION. THERE HAS BEEN NO SUCH REQUIREMENT IN THE PAST.

"THE PRACTICAL EFFECT OF AN OVERPAYMENT IS THAT THE MORTGAGEE MUST RETURN THE OVERPAYMENT TO FHA. THE RETURN OF THIS OVERPAYMENT IMMEDIATELY CAUSES A DEFAULT IN MORTGAGE PAYMENT INSOFAR AS THE MORTGAGOR IS CONCERNED. THE MORTGAGOR, WHO ENTERED INTO THE MORTGAGE TRANSACTION RELYING UPON THE FACT THAT A SPECIFIC AMOUNT OF FUNDS WOULD BE PAID ON HIS BEHALF BY FHA, HAS CHANGED HIS POSITION BY MOVING INTO THE PROPERTY AND ASSUMING OBLIGATIONS THAT HE MAY NOT OTHERWISE HAVE ASSUMED. THE QUESTION IS PRESENTED WHETHER, AS A RESULT OF AN ERROR MADE BY FHA OR THE MORTGAGEE, HE MUST NOW, IN ADDITION TO MAKING HIS ADJUSTED MORTGAGE PAYMENT, REIMBURSE THE MORTGAGEE FOR THE OVERPAYMENT. MOST LOW INCOME MORTGAGORS FIND THAT THEY ARE PLACED IN A POSITION OF BEING UNABLE TO COMPLY WITH THE REPAYMENT DEMANDS OF THE MORTGAGEE, AND DEFAULT AND FORECLOSURE RESULT. THIS IS, OF COURSE, A SERIOUS SITUATION, PARTICULARLY SINCE LOW INCOME MORTGAGORS ARE INVOLVED.

"AS WE INTERPRET THE COMPTROLLER GENERAL'S RULING, FHA IS PERMITTED IN SUCH A SITUATION TO DISCONTINUE OR DECREASE THE ASSISTANCE PAYMENT, THE DECREASE OR DISCONTINUANCE BECOMING EFFECTIVE WHEN FHA NOTIFIES THE MORTGAGEE THAT AN ERROR HAD BEEN MADE.

"WE FURTHER INTERPRET THE LETTER TO MEAN THAT FHA DOES NOT HAVE TO DEMAND REPAYMENT OF PAST ERRONEOUSLY-PAID ASSISTANCE PAYMENTS BUT THAT IT MAY TREAT THE MATTER PROSPECTIVELY WITH A RESULTING CHANGE IN FUTURE PAYMENTS WHEN THE MORTGAGOR IS WITHOUT FAULT, THE OVERPAYMENTS RESULT FROM MISCALCULATIONS BY FHA OR THE MORTGAGEE, THE MISCALCULATIONS ARE THE RESULT OF AN ADMINISTRATIVE POLICY WHICH WAS SUBJECT TO MISINTERPRETATION, AND THE ADMINISTRATIVE POLICY HAS BEEN CLARIFIED."

INSOFAR AS THE MORTGAGEE IS CONCERNED, WE HAVE BEEN INFORMALLY ADVISED BY A REPRESENTATIVE OF YOUR DEPARTMENT THAT APPLICATIONS FOR MORTGAGEE ASSISTANCE PAYMENTS SUBMITTED BY A MORTGAGEE MUST BE APPROVED BY FHA. CONSEQUENTLY, AND PROVIDED THAT SUCH OVERPAYMENTS DID NOT RESULT FROM A CLEARLY ERRONEOUS INTERPRETATION OF PUBLISHED ADMINISTRATIVE POLICY WE AGREE THAT OUR EARLIER DECISION MAY BE APPLIED IN THE MANNER OUTLINED IN THE GENERAL COUNSEL'S LETTER, PROVIDED THERE IS NOT INVOLVED THE VIOLATION OF ANY STATUTORY PROVISION.