IRS Eases REMIC Servicing Rules

Mortgage servicers of REMIC securitizations no longer have to wait for a borrower to miss a payment before they contact and offer a homeowner a loan modification with a lower interest rate or principal reduction, according to an Internal Revenue Service ruling. Revenue Procedure (2008-28) opens the door for servicers to actively identify borrowers likely to end up in foreclosure without jeopardizing the tax status of a real estate mortgage investment conduit. "This is an important change that will allow more homeowners who may potentially get in trouble to be able to have their loans modified prior to default," said Anne Canfield, executive director of the Consumer Mortgage Coalition. The IRS recognizes that servicers have developed sophisticated programs to identify borrowers likely to default using data such as declining credit scores, falling house prices, or interest rate resets. Once they form a reasonable belief that there is significant risk of foreclosure, "then they can go ahead and contact the borrower before any payment goes late," IRS associate counsel Susan Baker said. Currently, REMIC regulations prohibit a loan modification before the borrower is in default.