The economic impact of current events is widespread and in constant flux. The residential and commercial mortgage markets along with the corresponding mortgage and commercial mortgage backed securities (RMBS, MBS and CMBS, respectively) markets are no exceptions. Defaults, valuation impairments, and liquidity shortfalls have or will influence these asset classes. In response, lenders, landlords, servicers, local governments, the Federal Reserve, the Federal Housing Finance Agency (FHFA), Freddie Mac and Fannie Mae have been providing relief. Some of the relief can generally be summarized as:
All of the foregoing, along with the typical economics associated with down markets (defaults, liquidity shortfalls, valuation reductions, timing of foreclosures, etc.), impact the taxation of holders of mortgages and MBS/CMBS.
This article will highlight relevant tax and operational issues for holders of these assets as well as insights into how to address such issues.
Tax accounting for mortgages and MBS/CMBS during difficult economic times creates complex tax issues, only some of which are briefly highlighted in this insight. The issues are broad and impact the operations, the after-tax returns, liquidity and distributions. Although the markets are moving fast, being prepared with the appropriate policies, operations and systems can help alleviate some of the issues or reduce tax risks.