real estate mortgage investment channel ( REMIC ) is "an entity that holds a fixed mortgage collection and issues a lot of interest classes in itself for investors" under US Federal tax revenue law and " treated like a partnership for federal income tax purposes with revenues forwarded to its stakeholders ". REMICs are used for the collection of mortgage lending and the issuance of mortgage-backed securities and have been a key contributor to the success of backed mortgage backed securities markets over the last few decades.
REMICs federal income tax is set primarily under 26 U.S.C.Ã,§Ã, 860A-860G Part IV of Section M of Chapter 1 of Text A of the Internal Revenue Code (26 U.S.C.). To qualify as REMIC, organizations make "election" to do so by submitting Form 1066 with the Internal Revenue Service, and by meeting certain other requirements. They were introduced in 1987 as a typical vehicle for residential mortgage securitization in the United States.
Video Real estate mortgage investment conduit
PENGGUNAAN REMIC
REMIC is an investment vehicle that holds commercial and residential mortgages in the form of trust and issues of securities representing the undivided interest in this mortgage. REMIC assembles a mortgage into a pool and issues pass-through certificates, multilayas bonds similar to secured mortgage bonds (CMOs), or other securities to investors in the secondary mortgage market. The mortgage backed securities issued through REMIC can become debt financing from the issuer or asset sale. Legal form is irrelevant to REMIC: trusts, companies and partnerships may all choose to have REMIC status, and even a collection of assets that are not legal entities may be qualified as REMIC.
The Tax Reform Act eliminates the double taxation of income earned at the enterprise level by issuers and dividends paid to holders of securities, enabling REMIC to prepare mortgage-backed securities offerings that are sold as assets, effectively eliminating loans from lender's originating balance sheet, rather than debt financing where loans remain as balance sheet assets (as is the case for closed bonds). REMIC itself is exempt from federal taxes, even though the income received by investors is entirely taxable. Because REMICs are normally exempt from taxes at the entity level, they can invest only in eligible mortgages and permitted investments, including single or multifamily family mortgages, commercial mortgages, second mortgages, mortgage participation, and federal pass-through securities agents. Nonmortgage assets, such as credit card bills, rent, and auto loans are unqualified investments. The Tax Reform Act makes it easy for savings and trust agencies real estate investments to have mortgage securities as a portfolio investment of quality. A savings institution, for example, may incorporate mortgage-backed securities issued by REMIC as a qualifying asset in compliance with federal requirements for care as savings and taxes for tax purposes.
To qualify as REMIC, the entity or set of assets must make REMIC election, following certain rules for asset composition (by holding eligible mortgages and permitted investments), adopting reasonable methods to prevent disqualified organizations from holding remaining interest, and structures the interests of investors as the number of classes of regular importance and one - and only one - class of residual interest. The Internal Revenue Code does not seem to require REMIC to have regular interest classes.
Merger and Service Agreement (PSA)
The pooling and servicing agreement (PSA) is generally included in every REMIC. The PSA is a legal document that defines the rights and obligations of service providers, trustees, and other parties to a group of mortgage lending credited. A typical PSA is written, as part, as follows: "As soon as possible after the transfer of Mortgage Loan pursuant to this Agreement, and in any event within thirty days after the transfer, the Trustee shall (i) name the Trustee in each assignment of the Mortgage, as the beneficiary, and (ii) cause to be sent to be recorded in the appropriate public office for the real property records of the assignment of Mortgages to the Trustee, "
Eligible mortgage
Quality mortgages cover several types of liabilities and interest. An eligible mortgage is defined as "(1) any obligation (including any participation or ownership certificate in it) which is principally guaranteed by interest in the real property, and transferred to REMIC on the day of startup in exchange for regular or residual interest, or purchased within three months of the startup day under a fixed price contract applicable on the day of startup; (2) any regular interest in another REMIC transferred to REMIC on the day of startup in exchange for regular or residual interest in REMIC; (3) a replacement mortgage qualify, or (4) the regular interest of a particular FASIT. "In (1)," liability "is ambiguous; wide readings will include contract claims but a narrower reading will only involve what will qualify as a "debt obligation" under the Code. IRC defines "particularly secure" as having "substantially all proceeds from liability... is used to acquire or to enhance or protect interests in real property which, on the date of origination, is the sole security of liability" or has fair market value of interest securing at least 80% of the price of the adjusted problem (usually the amount lent to the mortgage) or at least that amount when contributed to REMIC.
Illegal Tasks to REMIC
"Because the documents of confidence are explicit in defining methods and dates for the transfer of mortgage lending to the trust and insisting that no party is involved in credentials taking steps that would jeopardize the REMIC status of trust, if the original transfer did not match the method and time for the transfer required by a trust document, such late transfers to trust will be void. "" If trust is expressed in an instrument that creates a trustee, any sale, conveyance or other trustee act contrary to trust, except as permitted by this article and by other legal provisions, does not apply. "
Allowed investment
Allowed investments include cash flow investments, eligible reserve assets, and foreclosure properties.
Cash flow investment is a temporary investment in a passive asset that earns interest (as opposed to obtaining dividends, for example) from payments on eligible mortgages that occur between the time that REMIC receives the REMIC payment and distribution of the money to its holders. Eligible payments include mortgage payments on principal or interest, payments on credit increase contracts, gains from mortgage releases, funds from foreclosure properties, payments for breach of warranty on mortgage, and prepayment penalty.
A qualified reserve asset is a form of an intangible property other than the remaining interest in REMICs held as an investment as part of an eligible reserve fund, which "is the required reserve required to provide full payment" REMIC fees or payments to interest holders due to to default, unexpected low return, or interest deficit from prepayment. REMIC typically chooses low-cost, safe, low-yield investments, so it is usually desirable to minimize reserve funds while maintaining "credit quality desired for REMIC's benefit."
Foreclosure properties are the real properties that REMICs gets by default. After obtaining a foreclosure property, REMICs have until the end of the third year to remove it, even though the IRS sometimes delivers the extension. The foreclosure property loses its status if the lease creates a certain type of rental income, if a construction activity does not commence before REMIC acquires the property, or if REMIC uses the property in trade or business without the use of an independent contractor and more than 90 days after obtaining it.
Regular interests
REMIC may include a number of classes with regular interest; these are often identified with letters such as class "A", class "B", etc., and are rated coupon and payment terms. It is useful to think of a regular interest as a debt that resembles; they tend to have a lower risk with a corresponding lower yield. Regular interests are taxed as debt. Ordinary interest should be set as such, issued on startup day, contains a fixed period of time, provide interest payments and how they are paid, and unconditionally entitles the holder to receive a certain amount of principal. Profit taxed to the holder.
Remnant interest
REMIC can have only one class of residual interest. Residual interest tends to involve ownership and resembles more equity than debt. However, residual interest may not be debt or equity. "For example, if REMIC is a collection of separate assets within a legal entity, the residual interest may consist of (1) REMIC asset ownership, subject to ordinary interest holder claims, or (2) if a regular interest is secured under contract, contractual to receive the distribution that is released from the lien of the indenture. "The risk is greater, because the remaining interest holder is the last paid, but the potential for the profit is greater. Residual interest should be set as such, issued on startup day, and not into ordinary interest (which can be easily avoided by not specified as ordinary interest). If REMIC makes a distribution to a residual interest holder, it must be pro rata; the pro rata requirement simplifies the problem because it usually prevents the residual class from being treated as multiple classes, which can disqualify REMIC.
Re-REMIC
In the financial crisis of 2007-2010, the ratings of many REMICs collapsed. To extract some of the higher ranks for risk regulatory capital purposes, some REMICs are converted into real estate revitalized mortgage investment channels ( re-REMICs ). In simple REMICIP, investors transfer ownership of mortgage backed securities to a new special purpose entity; by transferring a sufficient number of assets to the new structure, the new structure tranche can receive a higher rating (eg, "AAA" rating). However, a number of REMICs have subsequently seen their new AAA rating reduced to CCC.
Maps Real estate mortgage investment conduit
Form
REMIC can issue mortgage securities in various forms: securities guaranteed by certificates issued by the Government of the National Mortgage Association (Ginnie Mae), full loans, single class participation certificates and multiclass mortgage-backed securities; double-class securities and mortgage-backed multiclass securities; securities of double-class securities with fast pay or slow pay features; securities with subordinated debt stages that assume most of the risk of default, allowing publishers to get better credit ratings; and Collateralized Mortgage Obligations with a monthly pass-through of bond interest, eliminating the risk of reinvestment by giving investors the protection of calls against early payments.
Benefits of REMICs
REMIC removes much inefficiency from mortgage guarantees (CMOs) and offers more options to publishers and greater flexibility. REMICs do not have minimum equity requirements, so REMICs can sell all of their assets rather than maintain a portion to meet the warranty requirements. Because regular interest automatically qualifies as debt, REMICs also avoid the risk of awkward reinvestment imposed by CMO publishers to show debt. REMICs can also make monthly distributions to investors where CMO makes quarterly payments. The remaining interest of REMIC enjoys more liquidity than the owners' trust, which limits the equity interest and the transfer of personal liabilities. REMICs offer more flexibility than CMOs, since issuers can choose legal entities and any type of securities. REMIC's multi-class capabilities also enable issuers to offer different service priorities along with different due dates, lower default risk and reduce the need for credit enhancement. REMICs are also quite user-friendly, since REMIC selection is not difficult, and extensive guidance in Code and in regulation offers "a high degree of certainty with regard to tax treatment that may not be available for other types of SBM."
REMIC Limitations
Although REMICs provide relief from entity-level taxes, their allowed activities are limited "to hold fixed mortgage bundles and distribute current payments to investors." REMIC has some freedom to replace eligible mortgages, declare bankruptcy, handle foreclosures and defaults, dispose of and replace a malfunctioning mortgage, prevent default on regular interests, pay regular interest when costs exceed the value of maintaining those interests, and undergo a qualification of liquidation, at where REMIC has 90 days to sell its assets and distribute cash to its holders. All other transactions are considered to be prohibited activity and subject to 100% penalty tax, such as all unqualified contributions.
To avoid 100% contribution tax, contributions to REMICs should be made on startup day. However, cash contributions avoid this tax if they are given three months after the startup day, involving qualified net or liquidation calls, made as collateral, or contributed by the remaining interest holders for eligible reserve funds. In addition, states may impose REMIC taxes under the state tax laws. "Many countries have adopted an overall or partial tax exemption for eligible entities as REMICs under federal law."
REMICs are subject to federal income tax at the highest corporate rate for foreclosure income and must file a return through Form 1066. The taxable income foreclosure is the same as that for real estate investment trust (REIT) and may include rent depending on profit making, related, rental from the property where REMIC offers atypical services, and revenue from foreclosed properties when REMIC functions as a dealer.
The REMIC Rules in some cases exacerbate the problem of ghost income for interest holders, which occurs when taxable profits must be realized without appropriate economic benefits to pay taxes. Phantom revenue arises based on the way tax rules are written. There is a penalty for transferring income to non-taxpayers, so REMIC interest holders have to pay taxes on gains they do not yet have.
REMIC main publisher
Among the major issuers of REMICs are the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae), two prominent secondary market buyers of conventional mortgage lending, as well as private mortgage channels owned by mortgage bankers, mortgage insurance firms, and savings institutions.
See also
- Trust investing in financial securitization (FASIT)
- Grantor Trust
- Liability on secured loans
- Trust of real estate investments (REIT)
References
External links
- REAL ESTATE MORTGAGE INVESTMENT CONDUITS in the United States Code
- REMIC information at Fannie Mae
Source of the article : Wikipedia
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