mortgage securities vehicle authorized by the Tax Reform Act of 1986 that holds commercial and residential mortgages in trust, and issues securities representing an undivided interest in these mortgages. A REMIC, which can be a corporation, trust, association, or partnership, assembles mortgages into pools and issues pass-through certificates, multiclass bonds similar to a Collateralized Mortgage Obligation (CMO), or other securities to investors in the secondary mortgage market. Mortgage-backed securities issued through a REMIC can be debt financings of the issuer or a sale of assets. The Tax Reform Act eliminated the double taxation of income earned at the corporate level by an issuer and dividends paid to securities holders, thereby allowing a REMIC to structure a mortgage backed securities offering as a sale of assets, effectively removing the loans from the originating lender's balance sheet, rather than a debt financing in which the loans remain as balance sheet assets. A REMIC itself is exempt from federal taxes, although income earned by investors is fully taxable. As a tax-exempt entity, a REMIC may invest only in qualified mortgages and permitted investments, including single family or multifamily mortgages, commercial mortgages, second mortgages, mortgage participations, and federal agency pass-through securities.
Among the major issuers of REMICS are freddie mac and fannie mae,the two leading secondary market buyers of conventional mortgage loans, and also privately operated mortgage conduits owned by mortgage bankers, mortgage insurance companies, and savings institutions.
a pass-through vehicle created under the tax reform act of 1986 to issue multiclass mortgage-backed securities. REMICs may be organized as corporations, partnerships, or trusts, and those meeting qualificaitons are not subject to double taxation.
The purpose of a REMIC is to hold a fixed pool of mortgages and issue interests in itself to mortgage investors. AREMIC may be a partnership, corporation, trust, or separate pool of assets. REMICs are intended to become the exclusive means for issuing multiple-class mortgagebacked securities in a form that avoids the corporate double tax.
A REMIC will not, in general, be a taxable entity, although it must comply with tax requirements and is subject to a 100% tax on prohibited transactions. Regular interest holders will be taxed as if their interests were debt obligations subject to their share of the REMIC's income on an accrual basis. Gain or loss on the sale of a regular interest will be ordinary to the extent of their share of original issue discount. Residual interest holders generally receive their share of REMIC income as ordinary.
