Certain modifications permitted to qualified mortgages held by a REMIC or a grantor trust

(a)

Qualified mortgages held by a REMIC

(1)

In general

Paragraph (3) of section 860G(a) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

(C)

Qualified modifications

(i)

In general

An obligation shall not fail to be treated as a qualified mortgage solely because of a qualified modification of such obligation. (ii)

Qualified modification

For purposes of this section, the term qualified modification means, with respect to any obligation, any amendment, waiver, or other modification which is treated as a disposition of such obligation under section 1001 if such amendment, waiver or other modification does not— (I)extend the final maturity date of the obligation, (II)increase the outstanding principal balance under the obligation (other than the capitalization of accrued, unpaid interest), (III)result in a release of an interest in real property securing the obligation such that the obligation is not principally secured by an interest in real property (determined after giving effect to the release), or (IV)result in an instrument or property right which is not debt for Federal income tax purposes. (iii)

Defaults

Under regulations prescribed by the Secretary, any amendment, waiver, or other modification of an obligation which is in default or with respect to which default is reasonably foreseeable may be treated as a qualified modification for purposes of this section. (iv)

Defeasance with government securities

The requirements of clause (ii)(III) shall be treated as satisfied if, after the release described in such clause, the obligation is principally secured by Government securities and the amendment, waiver, or other modification to such obligation satisfies such requirements as the Secretary may prescribe.

(2)

Exception from prohibited transaction rules

Subparagraph (A) of section 860F(a)(2) of such Code is amended— (A)by striking or at the end of clause (iii); (B)by striking the period at the end of clause (iv) and inserting or; and (C)by adding at the end the following new clause:

(v)a qualified modification (as defined in section 860G(a)(3)(C)).

(3)

Conforming amendments

(A)Section 860G(a)(3) of such Code is amended— (i)by redesignating clauses (i) and (ii) of subparagraph (A) as subclauses (I) and (II), respectively; (ii)by redesignating subparagraphs (A) through (D) as clauses (i) through (iv), respectively; (iii)by striking `The term' and inserting the following:

(A)

In general

The term

; and

(iv)by striking For purposes of subparagraph (A) and inserting the following:

(B)

Tenant-stockholders of cooperative housing corporations

For purposes of subparagraph (A)(i)

(B)Section 860G(a)(3)(A)(iv) of such Code (as redesignated by subparagraph (A)) is amended— (i)by striking clauses (i) and (ii) of subparagraph (A) and inserting subclauses (I) and (II) of clause (i); and (ii)by striking subparagraph (A) (without regard to such clauses) and inserting clause (i) (without regard to such subclauses). (b)

Qualified mortgages held by a grantor trust

Section 672 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(g)

Special rule for certain investment trusts

A grantor shall not fail to be treated as the owner of any portion of a trust under this subpart solely because such portion includes one or more obligations with respect to which a qualified modification (within the meaning of section 860G(a)(3)(C)) has been, or may be, made under the terms of such trust.

(c)

Effective date

The amendments made by this section shall apply to amendments, waivers, and other modifications made after the date of enactment of this Act.