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FHA proposes Reinstatement Advance Payment to streamline partial claims
The plan would replace subordinate lien documentation with servicer advances added as a non-interest balance on the FHA-insured first mortgage, and could offer repayment terms up to 48 months.
The Federal Housing Administration is proposing a new partial-claim structure, called Reinstatement Advance Payment, or RAP, to change how mortgage servicers document and handle FHA partial claims and related payment supplements, HousingWire reports.
Under the draft, FHA would test replacing the traditional zero-interest subordinate lien used today for partial claims. Instead, servicers would advance funds on the borrower’s behalf and record the amount as a non-interest balance on the existing FHA-insured first mortgage, with borrowers signing a RAP repayment agreement rather than separate promissory note and subordinate mortgage paperwork.
FHA says the shift would reduce the burden on mortgagees tied to obtaining and recording subordinate claim notes and mortgages, and it would align with standard industry practice. The agency also says it could facilitate sale, refinance, assumption, and transfer processes because there would no longer be a subordinate lien to resolve, removing challenges associated with nonjudicial foreclosures.
For borrowers, FHA says the loss-mitigation experience would be designed to look the same and that the RAP advance remains a zero-interest obligation generally due only at maturity, sale, refinance, payoff, or termination of FHA insurance. The proposal would also allow borrowers to make partial or full payments toward the RAP balance at any time without penalty, and it introduces a RAPTOR repayment option with terms up to 48 months depending on the balance amount.