LB&I Tier III Issue: REMICs
Industry: Financial Services
The Service is looking into the issue of REMIC sponsors’ understatement of reportable gain on the retention and the sale of regular interests. Under the statutory and regulatory scheme, undervaluing REMIC regular interests retained by the sponsor results in a change in the relative allocation of basis to all the other REMIC regular interests under the proportionate to fair market value basis allocation formula. The Service will be reviewing the sponsor's economic models and assumptions (such as the loss rate, the prepayment rate, and the discount rate) used to value the residual interests in order to determine if the fair market value and basis allocations are appropriate for the retained regular interests.
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