REMIC VIOLATION: IRS PONDERS $TRILLIONS IN UNREPORTED MBS PROFITS

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EDITOR’S COMMENT: There is little question in my mind that if the IRS persists in this inquiry they will discover $trillions in reported profits on which no tax was paid — intentionally by the persons and companies involved.

Just as importantly, the IRS at some point will thus announce that the REMICS don’t actually own the loans, that if the loans were transferred the investors own them via a taxable partnership rather than a REMIC, and that the handling of the money gave rise to trillions in unreported income — some of which is directly accountable as reductions against principal owed by borrowers but ignored by the banks in their quest to become America’s largest landowner.

The big surprise may come when and if the IRS determines that the partnership includes the intermediaries and not just the investors, which is what we have been saying all along here.

SEE FULL REUTERS ARTICLE AT IRS WEIGHS PENALTIES ON MBS TRUSTS

Exclusive: IRS weighs tax penalties on mortgage securities
By Scot J. Paltrow

WASHINGTON (Reuters) – The Internal Revenue Service has launched a review of the tax-exempt status of a widely-held form of mortgage-backed securities called REMICs.

The IRS confirmed to Reuters that the review comes in response to mounting evidence that banks violated tax requirements by mishandling the transfer of mortgages to REMICs, short for Real Estate Mortgage Conduits.

Should the IRS find reason to take tough action, the financial impact could be enormous. REMIC investments are held by pension funds, in individual retirement plans such as 401(k)s and by state and local government entities.

As of the end of 2010, investments in REMICs totaled more than $3 trillion, according to data supplied by the Securities Industry and Financial Markets Association.

In a brief statement in response to questions from Reuters, the agency said: “The IRS is aware of questions in the market regarding REMICs and proper ownership of the underlying mortgages as set out in federal tax law, and is actively reviewing certain aspects of this issue.”

The statement said the IRS would not make any further comment. An IRS spokesman declined to say anything about the extent of the review, or whether the agency is likely to take action.

The review, however, is a sign that the widespread bank misdeeds in home foreclosure cases are spilling over to threaten the interests of investors in mortgage-backed securities. The banks originated the mortgages and packaged them into securities.

These banks’ transgressions, confirmed in court decisions and through recent action by federal bank regulators, include the failure to formally transfer ownership of mortgages to the trusts that invested in them and the subsequent creation of fraudulent mortgage assignments and other false documents.

These investment trusts already have suffered big drops in income because of vast numbers of mortgage defaults after the housing boom collapse. They have been hurt too because in an increasing number of instances they have been blocked by courts from foreclosing on defaulted mortgages. The courts ruled that because the trusts never received the required documents establishing that they owned the mortgages, they have no standing to foreclose.

Tags: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, IRS, LOAN MODIFICATION, modification, quiet title, REMICS, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND
Posted in bubble, Corruption, Eviction, securities fraud |