On July 20, FHA posted a draft Mortgagee Letter proposing a five-year reinstatement advance payment (RAP) demonstration as an alternative method for structuring partial claim and payment supplement debt in FHA-insured Title II single family forward mortgage programs. Under the RAP demonstration, a mortgagee that executes a RAP repayment agreement with a borrower would make a servicing advance on the borrower’s behalf to cover delinquent principal, interest, other approved arrearages, and any applicable principal reduction, with the advance secured by the FHA-insured first mortgage as a non-interest-bearing balance rather than through a separate partial claim promissory note and subordinate mortgage. The draft letter states that the RAP structure would reduce mortgagees’ burden of obtaining and recording notes and subordinate mortgages, facilitate sale, refinance, assumption and transfer transactions by eliminating the subordinate lien, and improve the collectability of partial claim amounts to protect the Mutual Mortgage Insurance Fund.

The draft letter specifies that all mortgagees will be eligible to voluntarily participate in the RAP demonstration, but participating mortgagees will not be required to use a RAP for every partial claim or payment supplement. The draft letter also specifies that a participating mortgagee could face immediate suspension from the demonstration for new RAPs based on patterns of noncompliance or untimely submission or remittance of RAP repayment agreements exceeding 5 percent of its total volume within a 12-month period. Under the demonstration, the mortgagee would retain the RAP repayment agreement and remain responsible for servicing the partial claim or payment supplement debt and for collecting the amount due from the borrower.

Under the draft letter, 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. The draft letter also proposes a “RAP Terms of Repayment” (RAPTOR) plan allowing borrowers unable to repay their full RAP balance as a lump sum at mortgage maturity to repay over a scheduled period, with maximum terms ranging from 18 months for balances up to $5,000 to 48 months for balances exceeding $15,000, and sets mortgagee incentive fees of $500 for a partial claim RAP and $1,750 for a payment supplement RAP, in addition to reimbursement of up to $250 for title-related expenses where required for enforceability or first lien status.