FHA’s proposed partial-claim change could simplify some refinances
The Federal Housing Administration is considering a new way to document certain deferred mortgage debt that could simplify future sales, refinances and transfers for some borrowers who receive FHA loss-mitigation assistance. The proposal is not in effect.
HUD posted the draft Mortgagee Letter on July 20, 2026, and is accepting stakeholder comments through September 3, 2026. If finalized, the Reinstatement Advance Payment, or RAP, would operate as a five-year demonstration for certain FHA-insured Title II single-family forward mortgages.
What HUD proposed
Under the draft, participating mortgage servicers could use a RAP Repayment Agreement for eligible partial claims and payment supplements. The agreement would document the deferred balance through the FHA-insured first mortgage instead of using a separate zero-interest promissory note and subordinate mortgage.
Participation would be voluntary. A mortgagee that joins the demonstration would not have to use RAP for every partial claim or payment supplement, and could decide whether to use it case by case.
HUD says the proposed structure could reduce the burden of obtaining and recording subordinate notes and mortgages. The agency also says that removing a separate subordinate lien could facilitate sales, refinances, assumptions and transfers. Those are stated goals and expectations for a proposed program, not measured results from an operating demonstration.
How FHA partial claims work now
FHA loss-mitigation options are designed to help borrowers who have fallen behind retain their homes. A standalone partial claim generally places past-due amounts in an interest-free debt secured by a subordinate lien. HUD’s borrower guidance says the balance generally is not due until the last mortgage payment, a sale, an assumption, a title transfer or certain types of refinance, whichever occurs first.
A payment supplement uses a partial claim to resolve delinquent payments and temporarily reduce the borrower’s monthly payment for three years. The assistance can help bring a loan current or lower payments, but it does not erase the underlying repayment obligation.
Why refinancing is a central issue
The draft would secure the RAP balance through the existing FHA-insured first mortgage and replace separate lien documents with the RAP Repayment Agreement. That could remove one subordinate-lien issue that must be reviewed and resolved during a transaction.
The proposed rules include special treatment for FHA-to-FHA refinances. In most cases, an outstanding RAP balance would have to be paid in full. For an FHA Streamline Refinance, the mortgagee could instead establish a new RAP Repayment Agreement or obtain a legal opinion confirming that the existing agreement remains valid and enforceable.
For other FHA-to-FHA refinance transactions, the draft says the outstanding RAP amount must be paid in full, although it may be included in the maximum mortgage calculation under applicable FHA rules. The mortgagee would be responsible for obtaining the outstanding RAP amount from the servicer.
Borrowers considering an FHA refinance should request a payoff statement and ask the servicer specifically how any existing partial-claim or RAP balance would be handled.
What would not change
The deferred balance would remain owed by the borrower. Under the draft, it would generally become due when the mortgage matures, the property is sold, the loan is refinanced or paid off, or FHA insurance ends. The proposal changes the documentation and lien structure; it does not eliminate the debt.
The draft contains placeholders for a final Mortgagee Letter number, effective date and demonstration expiration date. Those details are not finalized.
Who could be affected
The proposal would matter mainly to FHA-insured borrowers who receive eligible future loss-mitigation assistance, participating mortgage servicers, lenders, title professionals and people buying or refinancing homes with an existing FHA-related deferred balance. It would not automatically apply to every FHA borrower or require every servicer to participate.
What happens next
Stakeholder comments are due September 3, 2026. HUD says it will consider the feedback before publishing a final Mortgagee Letter and corresponding Federal Register notice. Until that process is complete, the RAP draft is not official FHA policy and cannot be used with an FHA-insured mortgage.
For borrowers who already have a partial claim, the proposal does not change existing paperwork or repayment terms. If HUD finalizes the demonstration and a servicer elects to participate, future borrowers receiving eligible assistance could see a different documentation process while still owing the deferred amount when the applicable repayment event occurs.
Sources
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