Real Estate Mortgage Investment Conduit

About Real Estate Mortgage Investment Conduit:

Real Estate Mortgage Investment Conduit (remic) was an entity whose purpose is to hold a fixed pool of mortgages and issue interests in itself to mortgage investors. A REMIC may be a partnership, corporation, trust, or separate pool of assets. REMICs are intended to become the exclusive means for issuing multiple-class mortgage-backed securities in a form that avoids the corporate double tax. Substantially all of a REMIC's assets must be qualified mortgages (mortgages secured by real estate), but it may also hold some short-term liquid assets that produce interest income, assets held in a special reserve fund, and foreclosed properties.

All interests in a REMIC must be classified as regular or residual. Regular interests entitle the holders to interest and principal income, through debt, stock, or some other ownership form. Residual interests provide income that is more contingent in nature.

A REMIC is not, in general, a taxable entity, although it must comply with tax requirements and is subject to a 100% tax on prohibited transactions. Regular interest holders are taxed as if their interests were debt obligations subject to their share of the REMICs income on an accrual basis. Gain or loss on the sale of a regular interest is ordinary to the extent of the holder's share in the original issue discount. Residual interest holders generally receive their shares of REMIC income as ordinary income.