What Is a Real Estate Mortgage In👍vestment Conduit (REMIC)?

A real estate mortgage investment conduit (REMIC) is a bundle of mortgages that is used to issue mortgage-backed securities, a type of debt instrument. For tax purposes, a REMIC is treated l🍒ike a partnership, with the taxable income passed to its partners.

From the investor's standpoint, a REMIC is a passive investment in real estate in the form of a bond that produces a regular stream of dividends.

Understanding Real Estate Mortg꧙age Investment Conduits (REMIꦓCs)

REMICs, like all mortgage pools, are complex investments. Mortgage pools are generally broken up into tranches, repackaged, and marketed to investors as individual securities. REMICs can take on several different forms.

Nꩵotably, t๊hey are generally deemed pass-through entities, like partnerships. As such, they are exempt from being taxed directly.

Real estate mortgage investment conduits (REMICs) hold commercial and residential mortgages in trust and issue interests in these securitized mortgages to investors. They are considered to be a safe option for investors who are averse to risk.

REMICs piece together individual mortgages into pools based on risk and maturity, just like 澳洲幸运5🔴官方开奖结果体彩网:collateralized mortgage obligations (CMOs). They are divided into bonds or other securities that are then sold to investors. These securities are traded on the 澳洲幸运5官方开奖结果体彩网:secondary mortgage market.

Some of the industry's most prominent issuers of real estate mortgage investment conduits include 澳洲幸运5官方开奖结果体彩网:Fannie Mae and Freddie Mac. The🧸se companies are backed by the federal government. Although they don'tไ issue mortgages they guarantee mortgages issued by other lenders in the secondary market.

Other REMIC issuers include mortgage lenders and insurance companies, as well as savings institutions.

REMICs may be organized as partnerships, trusts, corporations, or associations and are federally 澳洲幸运5官方开奖结果体彩网:tax-exempt entities. Investors who own these securities are responsible for the income through their individual income tax returns.

Tax laws prevent REMICs from making modifications to their mortgage loans. As such, the entity could lose its tax-exempt status if a loan within its pool is exchanged for another loan. That's because federal regulations require loans in a given pool to be constant.

Real Estate Mortgage Inves🍃tment Conduit (REMIC) vs. Collateralized Mortgage Obligation (CMO)

The financial services industry commonly categorizes REMICs as collateralized mortgage obligations (CMOs). In general, a CMO is a batch of mortgag🤪es that are bundled together and sold to investors as investments. But there are distinctions between the two.

CMOs are 澳洲幸运5官方开奖结果体彩网:separate lega꧟l entities for tax and legal purposes. A REMIC is exempt from federal tax. But that's only on the income investors collect from the underlying mortgages at the corporate level. Any income generated and paid out to investors is taxable, using Form 1066 when filing a REMIC.

🦄 Real Estate Mortga🦂ge Investment Conduit (REMIC) vs. Real Estate Investment Trust (REIT)

Both REMICs and 澳洲幸运5官方开奖结果体彩网:real estate investment trusts (REITs) are, from the investor's standpoint, ꦑpassive investments in real estate, but there the similarities end.

REITs are companies that own and operate a portfolio of income-generating properties, sucꦜh as office and retail space, condominiums, and mixed-use properties.꧑ Investors can purchase shares in REITs that are traded on exchanges like stocks.

REITs lease or rent out their properties and pay shares of the income to investors in the form of 澳洲幸运5官方开奖结果体彩网:dividends.

Like REMICs, REITs aren't taxed at the corporate level. Their investors must report any earnings from the investments on their annual 澳洲幸运5官方开奖结果体彩网:tax returns, which means they are taxed at the investor's individual tax rates.

The Bottom Line

The real estate mortgage investment conduit is an option for investors looking for a passive real estate investment. This is not a risk-free investment, but it is not to be confused with the mortgage-backed securities that tanked the economy in 2008-2009, which were bundles of subprime mortgages doomed to explode.