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On July 20, 2026, the Federal Housing Administration (FHA) published a draft mortgagee letter that would significantly revamp portions of the loss mitigation process for FHA-insured mortgage loans. If enacted, the draft mortgagee letter would create a new method of structuring a partial claim called a Partial Claim Reinstatement Advance Payment (RAP). RAP would allow servicers to offer partial claims without repackaging delinquent amounts into subordinate liens.
A partial claim is intended to bring delinquent borrowers current. Partial claims are currently structured so that the delinquent amounts the borrower owes are effectively repackaged as a zero-interest subordinate loan in favor of the U.S. Department of Housing and Urban Development (HUD). The servicer is responsible for processing and recording the note and mortgage associated with the subordinate loan.
If enacted, RAP 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 mortgagee must provide the RAP Repayment Agreement to HUD within 60 days of receiving payment for the insurance claim associated with the RAP. Otherwise, the draft mortgagee letter does not contemplate significant changes to the eligibility requirements for a partial claim.
However, RAP would present additional considerations for ongoing servicing of impacted loans. For example, the draft mortgagee letter requires the mortgagee to account for the RAP amount in borrowers’ periodic statements and payoff quotes. Similarly, if the mortgagee is notified of a borrower’s intent to prepay a mortgage, the RAP amount must be included as a separate line item in the payoff disclosure.
There are also unique considerations at maturity of a mortgage with a RAP. The draft mortgagee letter requires the mortgagee to “provide the Borrower with a RAP Terms of Repayment (RAPTOR) Plan” at least 45 days prior to loan maturity if the borrower is not able to repay the full RAP amount at the maturity of the original FHA-insured mortgage. The draft mortgagee letter provides a model RAPTOR Plan, but at a high-level, the terms for the RAPTOR Plan are laid out as follows:
- A maximum of 18 months for outstanding RAP balances of up to $5,000;
- A maximum of 36 months for outstanding RAP balances of $5,000 – $15,000; and
- A maximum of 48 months for outstanding RAP balances of over $15,000.
Once the borrower executes and returns the RAPTOR Plan, the mortgagee may elect to assign the RAP to HUD or continue servicing pursuant to the RAPTOR Plan.
The draft mortgagee letter contemplates the RAP demonstration lasting for five years following the publication of the mortgagee letter. A mortgagee participating in the RAP demonstration is not required to use RAP for all partial claims. Additionally, the mortgagee can be suspended from the RAP demonstration for various instances of noncompliance, including “untimely submission of more than 5 percent of the Mortgagee’s total RAP Repayment Agreements within a 12-month period.”
With this draft mortgagee letter, FHA seems to have identified the subordinate lien process associated with partial claims as a pain point for mortgage servicers. The RAP demonstration appears to be intended to alleviate such issues. FHA is requesting feedback on the draft mortgagee letter through September 3, 2026. Servicers should take the time to review the letter and contemplate appropriate feedback, as this presents a meaningful opportunity to address partial claim-related issues for FHA-insured mortgages.
