Capital Markets Accounting Developments Advisory 2008-13

October 29, 2008
Revenue Procedures 2008-28 and 2008-47
IRS guidance on REMICs and investment trusts subject to mortgage loan modifications

Market turmoil has created the debate as to whether mortgage lenders should foreclose on troubled debtors or modify the mortgage in some way to avoid foreclosure. The mortgage modifications typically take the form of forgiving past due amounts, reducing outstanding principal balance or lowering interest rates.

Various proposals have been introduced to alleviate some of the impediments such as the American Securitization Forum Statement of Principles, Recommendations, and Guidelines for a Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (the "2008 ASF Report"). In addition, the IRS and Treasury have issued various revenue procedures that are designed to alleviate any perceived or real impediments to securitized mortgages being modified.

Although mortgage modifications are often the best course of action, there are often legal, accounting, economic and tax concerns that can impede the ability to modify. This is especially the case where mortgages are securitized. The IRS has recently issued guidance that is designed to alleviate concerns over tax issues associated with securitized mortgage modifications.