Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued guidance allowing certain asset securitization vehicles to avoid a challenge to their tax status in the event disqualifying modifications are made to subprime mortgage loans held by the vehicle. Aimed at aiding current attempts to curtail the economic fallout of the subprime mortgage crisis, the revenue procedure's emphasis is on Real Estate Mortgage Investment Conduits (REMICs) which are widely used as securitization vehicles for mortgages.
Rev. Proc. 2007-72 relies on the recent publication by the American Securitization Forum entitled, "Statement of Principles, Recommendations and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans" (the Framework). The Framework provides a fast track mechanism whereby certain adjustable rate mortgages will be modified so that the interest on the loan will remain fixed for a period of time.
Under current law, the Framework's modifications to loans held by a securitization vehicles could affect the vehicle's tax status. Therefore, the IRS will not challenge the tax status of certain securitization vehicles if certain criteria are met. First, Rev. Proc. 2007-72 only applies where the following transactions occur on or before July 31, 2010:
A fast track modification of an applicable loan pursuant to the Framework.
A second-lien holder's action of subordinating its lien to any new lien that may arise under an applicable loan as the result of a fast track modification.
If either of these two transactions occur:
The IRS will not challenge a securitization vehicle's qualification as a REMIC on the grounds that the transactions are not among the exceptions listed in Code Sec. 1.860G-2(b)(3).
The IRS will not contend that the transactions are prohibited transactions under Code Sec. 860F(a)(2) on the grounds that the transactions are not among the exceptions listed in Code Secs. 860F(a)(2)(A)(i) through (iv).
The IRS will not challenge a securitization vehicle's classification as a trust on the grounds that the transactions manifest a power to vary the investment of the certificate holders.
The IRS will not challenge a securitization vehicle's qualification as a REMIC on the grounds that the transactions resulted in a deemed reissuance of the REMIC regular interests.
Rev. Proc. 2007-72 is effective December 6, 2007. If, however, the Framework is materially modified after December 6, 2007, the revenue procedure does not necessarily apply to fast track modifications under the revised Framework or to second-lien subordinations to accommodate those modifications.
Rev. Proc. 2007-72, 2007FED ¶46,742
Other References:
Code Sec. 860D
CCH Reference - 2007FED ¶26,662.01
CCH Reference - 2007FED ¶26,662.021
Code Sec. 7701
CCH Reference - 2007FED ¶43,091.68
Tax Research Consultant
CCH Reference - TRC RIC: 9,300
CCH Reference - TRC ESTTRST: 3,150