Letter to HUD on Reinstatement Advance Payment

Dear Mr. Gormley:

The American Bankers Association (ABA) appreciates the opportunity to provide comments on the U.S. Department of Housing and Urban Development's (HUD) draft mortgagee letter (ML) to establish the implementation requirements for a Reinstatement Advance Payment (RAP) demonstration for use in connection with the Federal Housing Administration's (FHA) Partial Claims and Payment Supplements.

The draft ML proposes developing a five-year, voluntary RAP demonstration under which a mortgagee may use a RAP Repayment Agreement, rather than the current Traditional Partial Claim promissory note and subordinate mortgage, to document an FHA Partial Claim or Payment Supplement. Under the proposed RAP structure, the mortgagee advances funds to cure delinquent principal, interest, approved arrearages, and, where applicable, principal reduction. The deferred amount is non-interest-bearing, secured by the FHA-insured first mortgage, and serviced by the mortgagee until it is repaid, remitted to HUD, satisfied, or discharged.

ABA supports FHA's efforts to modernize its loss mitigation tools and supports testing a voluntary RAP structure that may reduce burdens associated with Traditional Partial Claims.  To ensure that mortgagees can implement the ML and borrowers are treated fairly and consistently, ABA offers the following comments and recommendations on the draft ML.

Summary of the Comment

While ABA and its members appreciate FHA’s effort to eliminate or reduce the administrative burdens associated with preparing and recording Traditional Partial Claim subordinate liens, the proposal materially shifts responsibility for administering the deferred balance from HUD to mortgagees.

Download the comment letter to read the full text.