IRS Extends COVID-19 Relief for Securitizations

To address the unforeseen continuation of the COVID-19 pandemic and related ongoing economic disruption, the Internal Revenue Service (“IRS”) has issued Revenue Procedure 2021-12 retroactively extending the expiration date of the covered period in Revenue Procedure 2020-26 from December 31, 2020 to September 30, 2021.  Revenue Procedure 2020-26 provides broad relief concerning the tax impact to real estate mortgage investment conduits (“REMICs”) and fixed investment trusts (“Grantor Trusts”) with respect to certain mortgage loan forbearances and related modifications granted to borrowers in connection with hardship resulting from the COVID-19 pandemic.  The safe harbors outlined in Revenue Procedure 2020-26 provide comfort that covered forbearances will not result in qualification issues for or the application of certain taxes with respect to REMICs or Grantor Trusts.  For more details about the relief granted by Revenue Procedure 2020-26, see our client alert of April 17 on this topic.

Under Revenue Procedure 2020-26, the safe harbors provided by the guidance applied to forbearances that were requested or agreed to during the period between March 27, 2020 and December 31, 2020 (the “Covered Period”).  Revenue Procedure 2021-12 extends the Covered Period through September 30, 2021 (the “Extended Covered Period”), which allows new forbearances and related modifications or extensions of existing forbearances to benefit from the safe harbors provided under Revenue Procedure 2020-26.  The Extended Covered Period provides needed tax certainty to impacted securitization vehicles as industry participants continue to seek to ameliorate the impact of the COVID-19 pandemic on mortgage borrowers and securitization vehicles and their issuers and investors.

If you have questions about the Revenue Procedures discussed in this alert, please contact one of the lawyers listed in this alert.