Wall Street Rules Applied to REMIC Classification

Bna Tax Management Real Estate Journal, 2012

REMICs are securitized pools of mortgages that qualify for special flow-through taxation.

University of Pennsylvania Journal of Business Law, 2014

Lawmakers, prosecutors, homeowners, policymakers, investors, news media, scholars and other commentators have examined, litigated, and reported on numerous aspects of the 2008 Financial Crisis and the role that residential mortgage-backed securities (RMBS) played in that crisis. Big banks create RMBS by pooling mortgage notes into trusts and selling interests in those trusts as RMBS. Absent from prior work related to RMBS securitization is the tax treatment of RMBS mortgage-note pools and the critical role tax enforcement should play in ensuring the integrity of mortgage-note securitization.

Florida tax review, 2022

Dtıriııg the I970s. investment haııks began ta secııritize mortgages, parücttlarly hoıne ım>rtgages. Individıtal martgage loatıs were pooled togetlıer and then saki ajf, in pieces, to investars. The primary objeetive of the development of a secondary mortgage market was the improvement af lender liauidity. A mortgage-backed security is either an ownership daim in a pool of mortgages or an abligation that is secıtred by sıtch a pool. These ciaiıns represent securitizatUm of martgage loans. Mortgage-backed securîties are altrcıctive investtnents for investors for such reasons as high return and no defaıılt risk, diversification. and promotion of desirabie social goals. İn spite of these advantages, incıensed İnvestment in mortgage-backed securîties may be İnlıibited by such considerations as unattrııctive risk-adjıısted returııs and coınple,\ilies of mortgage-backed secıırities. The risks asstıciated with mortgage-backed securîties incinde the prepayment risk. contraction risk, and exlension risk. Mortgage-backed secıırities usuıılly yıelds ınorc than Treasııry securîties. The spread between 10year mortgage-backed secıırities and Treasııry secıırities is about 100 and 125 basis points. Över the business eyele. they oııtperform Treasıtries, but durîng heightened volatility, they perfornı nuıch worse. Mortgage-backed secıırities coıdd be used in emerging markets as alternalive investment instrumeııts as loııg as some issııes are coıısidered: A well fıınctioniııg syslem, state of hoıısing market, stability in İnterest rates, and costs. İpoteğe dayalı menkul kıymetler, Türkiye gibi gelişmekte olan piyasalar için yenidir. Bu menkul kıymetlerin hu piyasalarda çıkarılması için, iyi işleyen sistemin varlığı, gerekli hukuki çerçevenin oluşturulması, konut piyasasının durumu, faiz oranlarının İstikrarı ve maliyetler gibi konuların göz Önünde bulundurulması gereği vardır.

Social Science Research Network, 2015

This Paper will reintroduce, explore, and expand on the financing arrangement known as a Participation Mortgage. First, this Paper will cover the features, history, and policy purposes behind the mortgage. 3 Second, the Paper will focus on legal mechanics and drafting considerations of Participation Mortgages, so they may later be securitized. 4 Finally, the Paper will explore the possibility and legality of creating Participation Mortgaged Backed Securities to be sold in the secondary market. 5 2 The Participation Mortgage, here, is commonly referred to as a mortgage with an "equity kicker" and should not be confused with "Participating" or "Contributory" Mortgages. AMY MORRIS HESS, GEORGE GLEASON BOGERT & GEORGE TAYLOR BOGERT, THE LAW OF TRUSTS AND TRUSTEES § 675 (2014), available at Westlaw THE LAW OF TRUSTS AND TRUSTEES § 675. A Participation Mortgage is a single mortgage in which interests are sold by the mortgagee to various investors who receive certificates of participation. Id. It should be noted each of these subsections could have been a paper in its own right. However, for the purposes of brevity, not every state and federal, tax, securities, regulatory, or common law issue surrounding Participation Mortgages-for example, tax issues involving Real Estate Mortgage Investment Conduits-could be addressed fully. The sources cited in the notes can provide a fuller discussion. 3 See infra Part I and accompanying notes 6-16. 4 See infra Part II and accompanying notes 17-74. 5 See infra Part III and accompanying notes 75-165. 6 M.

Journal of Housing and the Built Environment, 2008

Residential mortgage securitization on the secondary mortgage market in the United States has grown enormously since 1970. This contribution describes the growth, especially the growth of the large special circuit housing finance system within the secondary mortgage market. Fannie Mae and Freddie Mac are at the heart of it. Different housing finance systems are introduced first in order to position the system of securitization. The technicalities of securitization are then briefly covered, before the focus shifts to the development of residential mortgage securitization in the United States. The reasons for expansion of the secondary mortgage market are traced, and especially of Fannie Mae and Freddie Mac and the benefits they offer to homeowners and the buyers of securities. The success of securitization by Fannie Mae and Freddie Mac does not seem to be based on a miracle of competition in the housing finance market, but largely on regulation and subsidization of these organizations. Nowadays, the question has become whether the undesired effects of this large part of the housing finance market outbalance the desired effects.

2010

The Journal of Real Estate Finance and Economics, 1988

In this paper we review the forms of mortgage securitization, analyze the demand for securitization, and demonstrate how securitization meets these demands by reducing intermediation costs. We argue that the increased use of securitization is a response to increased interest rate volatility and represents a contractual innovation that facilitates an efficient allocation of risk-bearing among households and intermediaries.

2013

According to Canadian tax law the interest payments on loans used for investment purposes are tax deductible while interest on personal mortgage loans is not. One way of transforming from non-tax deductible to tax deductible interest expenses is to borrow against home equity to make investments. This can be achieved through a re-advanceable mortgage and has been promoted by personal financial planners as a way of significantly decreasing the time required to pay off a mortgage and the associated total interest cost. However, the notion of risk associated with the investment holdings is not emphasized. Using simulation we study the risk associated with the re-advanceable mortgage strategy to provide a better description of the mortgagor's position. We assume that the mortgagor invests the entire proceeds from the line of credit into a single risky asset (e.g., stock or mutual fund) whose evolution is described by geometric Brownian motion (GBM). We find that this strategy reduces both the average mortgage payoff time and the total interest cost. However, there is considerable variation in the payoff times with a significant probability of a payoff time exceeding the mortgage term. Furthermore the higher the marginal tax rate, the more the average payoff time and interest cost are reduced implying that this strategy is more beneficial to high-wage earners. Using a simple stochastic model for job status we also investigate the effect of job loss on the payoff time distribution. In the event of job loss, the investment portfolio protects the homeowner from default as part of the investment portfolio can be sold to fund mortgage payments. Variable rate mortgages are also considered in our study. The mortgage rate models we consider are the mean reverting rate model without a diffusion term and the CIR process. There is not a big difference compared with the fixed-rate mortgage in the average payoff time for the mean reverting rate model with no diffusion. However, once the diffusion term is included, the average payoff time and the volatility of payoff time increase according to the volatility of CIR process. We also incorporate a housing price model in the re-advanceable scheme and see that it can decrease the average payoff time and average total cost, however, this comes at the cost of increased standard deviations of the payoff time and total cost distributions. Results of this study could be of interest to policy makers as they continue to adjust mortgage rules to induce desired behavior, such as reducing personal debt burdens. The modelling framework provided here can be adjusted to analyze the effect of potential policy actions on homeowners who borrow against home equity to invest.

The Journal of Real Estate Finance and Economics, 1988

Derivative mortgage securities have proliferated since planned amortization and floating rate CMO classes were introduced in late 1986. Other recently created derivative securities include reverse floaters and deep-discount bonds of CMOs, CMO residuals, and stripped and senior/subordinated passthroughs. These securities, which are derived from fixed-rate mortgages, were created to meet investor demands for maturity certainly, interest rate and prepayment hedging, and enhanced credit. The rapid growth of derivative securities reflects expansion of the investor base for fixed-rate mortgages. It also suggests that these mortgages will continue to be a viable housing finance instrument in a volatile interest rate environment. For the future, the increased creation of derivative securities will make the secondary mortgage market more efficient, facilitating the funding of fixed-rate mortgage originations.