Real Estate Mortgage Investment Conduit

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Real Estate Mortgage Investment Conduit, or REMIC, is a United States investment-grade mortgage security that separates mortgage pools into different maturity and risk classes.

1 REMIC usage
2 Forms
3 Major issuers of REMICs
4 See also
5 External links

[edit] REMIC usage

REMICs, authorized under the Tax Reform Act of 1986, are investment vehicles that hold 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. Nonmortgage assets, such as credit card receivables, leases, and auto loans are ineligible investments. The Tax Reform Act made it easier for savings institutions and real estate investment trusts to hold mortgage securities as qualified portfolio investments. A savings institution, for instance, can include REMIC-issued mortgage backed securities as qualifying assets in meeting federal requirements for treatment as a savings and loan for tax purposes.

[edit] Forms

A REMIC can issue mortgage securities in a wide variety of forms: securities collateralized by Government National Mortgage Association (Ginnie Mae) pass through certificates, whole loans, single class participation certificates and multiclass mortgage backed securities; multiple class pass-through securities and multiclass mortgage backed securities; multiple class pass-through securities with fast-pay or slow-pay features; securities with a subordinated debt tranche that assumes most of the default risk, allowing the issuer to get a better credit rating; and Collateralized Mortgage Obligations with monthly pass-through of bond interest, eliminating reinvestment risk by giving investors call protection against early repayment.

[edit] Major issuers of REMICs

Among the major issuers of REMICs are the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (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.