The Federal Housing Administration (FHA) is considering a new approach to documenting and servicing partial claims and Payment Supplements. On July 20, 2026, FHA published a draft Mortgagee Letter proposing a Reinstatement Advance Payment (RAP) Demonstration for stakeholder review and feedback.

If finalized, the demonstration would provide FHA-approved mortgagees with an alternative to the separate note and subordinate mortgage traditionally used to secure a borrower’s partial claim.

How the Proposed RAP Structure Would Work

Under the proposal, participating mortgagees could document the borrower’s obligation through a RAP Repayment Agreement secured by the existing FHA-insured first mortgage. The mortgagee would retain the agreement and remain responsible for servicing the obligation and collecting amounts due from the borrower.

Participation in the demonstration would be voluntary. All FHA-approved mortgagees would be eligible to participate, and participating mortgagees could decide whether to use the RAP structure on a case-by-case basis.

Why the Proposal Matters

Eliminating the separate partial claim note and subordinate mortgage eliminates much of the document preparation, execution, and recording requirements associated with FHA loss mitigation.

FHA also anticipates that the proposed structure would simplify subsequent transactions and servicing activity, including:

• Property sales
• Refinances
• Mortgage assumptions
• Servicing transfers
• Nonjudicial foreclosures

Because the RAP does not create a separate subordinate lien, parties would no longer need to resolve a second lien prior to closing or transfer.

While the proposal reduces subordinate lien tracking, it also shifts long-term administration back to participating mortgagees. Rather than relying on HUD to hold and service a traditional partial claim, the mortgagee retains the RAP Repayment Agreement and remain responsible for servicing and collecting the obligation.

Mortgagees evaluating possible participation should therefore consider the potential effect on their servicing systems, borrower communications, payment processing, record retention, transfer procedures, documentation, and compliance controls.

What Happens Next

The RAP Demonstration is not yet effective. FHA is accepting stakeholder feedback through September 3, 2026, using the instructions and response worksheet available on its Single Family Housing Drafting Table.

Following public comment review, FHA expects to publish a final Mortgagee Letter and corresponding Federal Register, establishing the demonstration's effective date and official requirements.

Until then, mortgagees should treat the RAP structure as a proposal rather than a current FHA servicing option. Servicers may nevertheless want to begin evaluating how the approach, if finalized substantially as proposed, could affect their documentation and servicing operations.

Review FHA’s draft Mortgagee Letter and feedback instructions →

Assess the proposal’s potential impact on your servicing and documentation workflows with guidance from Sandler Law Group.