Payment of Claim Under Federal Housing Administration Loan Insurance Program

A decision was requested regarding payment of a claim for reimbursement of losses sustained by a bank when the payee of a property improvement loan defaulted. The bank requested Federal Housing Administration (FHA) reimbursement under insurance pursuant to 12 U.S.C. 1703, stating that it had reported the loan to FHA as required. However, FHA had no record of the loan insurance application, and the bank had not been billed for and did not pay the advance premium as required by statute. The bank admittedly erred in not recognizing on a timely basis the omission of the loan in the next monthly statement rendered by FHA. In the absence of a showing of actual negligence by FHA, the loan was not insured and reimbursement would be improper.