The American Bankers Association today expressed support for the Federal Housing Administration’s proposed voluntary Reinstatement Advance Payment, or RAP, demonstration as a potential way to reduce the administrative burden associated with traditional partial claims. However, ABA also warned that the proposal would shift significant new servicing, compliance and operational responsibilities from the U.S. Department of Housing and Urban Development to mortgage servicers, and urged FHA to address numerous implementation issues before the program becomes available.
Under the demonstration, instead of documenting an FHA partial claim or payment supplement with a traditional subordinate promissory note and mortgage, a mortgagee would have the option to use a borrower-executed RAP repayment agreement, secured by the FHA-insured first mortgage and serviced by the mortgagee.
To ensure that mortgagees are fully equipped to participate in the demonstration and borrowers are treated fairly and consistently, ABA made several recommendations to FHA, including providing clear and comprehensive guidance on the enforceability and recordation of RAP agreements, clarifying mortgagees’ responsibilities for servicing the RAP balances and deferred balances, and improving the compensation provisions to reflect the substantially expanded obligations that the RAP imposes.
ABA also advised HUD to work with Ginnie Mae, Treasury, IRS and relevant capital-markets stakeholders to issue guidance on investor reporting, re-pooling, liquidity and tax treatment of RAP-affected FHA loans.
