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Rev. Proc. 2020-26: Safe harbors, loan forbearance programs under CARES Act (COVID-19)

Safe harbors, loan forbearance programs under CARES Act

The IRS today released an advance version of Rev. Proc. 2020-26 that sets forth safe harbors under which modifications to certain mortgage loans in connection with a forbearance program related to the coronavirus (COVID-19) pandemic are not treated as replacing the unmodified obligation with a newly issued obligation, or as manifesting a power to vary for purposes of determining the federal income tax status of certain securitization vehicles—such as investment trusts and real estate mortgage investment conduits (REMICs)—that hold the loans.

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Rev. Proc. 2020-26 also sets forth a safe harbor under which certain securitization vehicles are not treated as having improper knowledge of an anticipated default on the grounds that they acquired a mortgage loan with respect to which the borrower had participated in a forbearance program.

Read Rev. Proc. 2020-26 [PDF 137 KB] 

Overview

The “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) (Pub. L. No. 116-136) provides that during the covered period, borrowers with federally backed mortgage loans and multifamily borrowers with federally backed multifamily mortgage loans experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency may request and obtain forbearance on their loans.

Today’s revenue procedure reveals that the IRS and Treasury Department have received requests for guidance as to whether:

  • The forbearance of federally backed mortgage loans, federally backed multifamily mortgage loans, and non-federally backed mortgage loans held by investment trusts and REMICs will jeopardize the federal tax qualifications of the securitization vehicles; and
  • Federally backed mortgage loans, federally backed multifamily mortgage loans, and non-federally backed mortgage loans for which servicers have provided forbearances to borrowers that are experiencing financial hardship due to the COVID-19 emergency may be acquired by a REMIC without the acquiring REMIC being treated as having improper knowledge of an anticipated default for purposes of the rules governing REMIC foreclosure property.

Rev. Proc. 2020-26 provides that for mortgage loans held by REMICs, forbearances (and all related modifications) as described by today’s revenue procedure:

  • Are not treated as resulting in a newly issued mortgage loan for purposes of Reg. section 1.860G-2(b)(1)
  • Are not prohibited transactions under section 860F(a)(2), and
  • Do not result in a deemed reissuance of the REMIC regular interests

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