The Federal Housing Administration has released a draft mortgagee letter proposing a Reinstatement Advance Payment (RAP) Demonstration that would provide a voluntary alternative method for securing partial claim and payment supplement debt. The proposal would eliminate the need for a separate partial claim note and subordinate mortgage, reducing servicing and operational burdens while helping to streamline home sales, refinances, assumptions and transfers.
If enacted, the RAP demonstration will allow servicers to elect to avoid processing partial claims, including those processed with a loan modification or payment supplement, with a subordinate lien. Instead, the servicer will make a servicing advance of “principal, interest, other approved arrearages, and any applicable principal reduction” to bring the loan current. The servicing advance will be secured by the existing first lien mortgage and evidenced by a zero-interest RAP repayment agreement executed by the borrower.
The RAP demonstration will be authorized for a period of five years, with mortgagees required to continue complying with RAP requirements for all executed RAPs beyond the expiration date. Comment feedback on the draft mortgagee letter is due by Sept. 3.
