RMBS settlement shares preserve REMIC tax treatment

Plain-English summary

A trustee for multiple residential mortgage-backed securitization trusts requested rulings about a bank settlement over alleged breaches of mortgage representations and warranties. Each settling trust's payment share would be based on past and expected mortgage losses and distributed under its existing governing agreement. The IRS ruled that the right to receive and receipt of the payment arose from the REMIC's mortgage loans and would not add a disqualifying new asset. The payment would be treated as received on qualified mortgages, and distributing it would not disqualify the regular or residual interests. Receipt also would not be a prohibited transaction or a taxable contribution after the startup date. The IRS did not rule that any trust otherwise qualified as a REMIC or that any mortgage loan was a qualified mortgage.

Ruling snapshot

• Question: Would allocated RMBS settlement payments disrupt the trusts' REMIC asset status, interests, or prohibited-transaction rules?
• Outcome: approved, for the four requested REMIC consequences
• Key authorities: IRC §§ 860D, 860F, 860G; Treas. Reg. §§ 1.860D-1 and 1.860G-1 through 1.860G-2

Full text (IRS public release)

                                                                  Department of the Treasury
                                                                  Washington, DC 20224
Internal Revenue Service
Number: 201749005                                                 Third Party Communication: None
Release Date: 12/8/2017                                           Date of Communication: Not Applicable
Index Number: 860D.00-00
                                                                  Person To Contact:
----------------------------                                      --------------------------, ID No. ----------------
---------------------                                             -----------------
-----------------------------------------------------             Telephone Number:
-----------------------------------                               ----------------------
------------------------------------                              Refer Reply To:
                                                                  CC:FIP:B06
                                                                  PLR-109706-17
                                                                  Date:
                                                                  September 05, 2017


Legend:

Trustee                    =        ------------------------------------------------------------------
                                    -------------------------

Trust Group A              =        -----------------------------------

Trust Group B              =        ---------------------------

Trust Group C              =        --------------------------------

State                      =        --------------

Year 1                     =        -------

Year 2                     =        -------

Year 3                     =        -------

Company                    =        --------------------------------

Bank                       =        -----------------------------------------

Exchange                   =        -------------------------------------

Date 1                     =        ------------------------

A                          =        ----

B                          =        ---
PLR-109706-17                                  2

C                     =     ----

Month                 =     ----------

Dear -------------:

        This letter is in reply to a letter dated February 17, 2017, in which Trustee, solely
in its capacity as trustee or indenture trustee of real estate mortgage investment
conduits (“REMICs”) identified on Appendix A hereto (each a “Taxpayer” and,
collectively, the “Taxpayers”), requests certain rulings in connection with each
Taxpayer’s qualification as a REMIC under §§ 860A-860G of the Internal Revenue
Code. Specifically, you have asked for the following rulings:

        1.       In the case of each Taxpayer for which a timely, valid and
        continuing REMIC election has been made in accordance with the
        applicable Governing Agreements (as defined below), none of (i) the
        execution of the Settlement Agreement (as defined below), (ii) the
        methodology for determining, and the right to receive, an Allocable Share
        (as defined below) of the Settlement Payment (as defined below), or
        (iii) the receipt of an Allocable Share of the Settlement Payment, will
        cause such Taxpayer to fail to meet the requirements of § 860D(a)(4).

        2.     In the case of each Taxpayer for which a timely, valid and
        continuing REMIC election has been made in accordance with the
        applicable Governing Agreements, the receipt of an Allocable Share of the
        Settlement Payment will be treated as a payment received on qualified
        mortgages within the meaning of § 1.860G-2(g)(1)(ii) of the Income Tax
        Regulations.

        3.       In the case of each Taxpayer for which a timely, valid and
        continuing REMIC election has been made in accordance with the
        applicable Governing Agreements, the distribution of an Allocable Share
        amount in accordance with the applicable Governing Agreements and the
        Settlement Agreement will not cause any regular interest in such Taxpayer
        to fail to qualify as a “regular interest” as defined in § 860G(a)(1) or the
        sole class of residual interest in such Taxpayer to fail to qualify as a
        “residual interest” as defined in § 860G(a)(2).

        4.     In the case of each Taxpayer for which a timely, valid and
        continuing REMIC election has been made in accordance with the
        applicable Governing Agreements, the receipt of an Allocable Share
        amount will not be treated as a “prohibited transaction” within the meaning
        of § 860F(a)(2) or as a contribution that is subject to the tax imposed
        under § 860G(d)(1).
PLR-109706-17                                  3

Facts

Background

       Trustee acts as trustee or indenture trustee for A residential mortgage-backed
securitization (“RMBS”) trusts (each a “Trust” and together, the “Trusts”), each of which
is comprised by one or more Taxpayers that, in each case, has elected to be treated as
a REMIC within the meaning of § 860D. Each of the A RMBS Trusts is evidenced by
either a separate pooling and servicing agreement (“PSA”) or an indenture (“Indenture”)
and related sale and servicing agreement (“SSA”). In addition, each Trust and related
Taxpayer may have entered into mortgage loan purchase agreements and other
applicable agreements governing the rights and obligations of the parties to the related
mortgage-backed securitization (each of the PSAs, Indentures and SSAs, mortgage
loan purchase agreements, and other related agreements, a “Governing Agreement”
and collectively, the “Governing Agreements”). Under the Government Agreements,
Trustee serves as trustee or indenture trustee for each Taxpayer. The laws of State
govern the rights and obligations of the parties to the Governing Agreements, including
Trustee. The annual accounting period for each Taxpayer is the calendar year, and
each Taxpayer utilizes the accrual method of accounting for maintaining its accounting
books and filing its U.S. federal income tax return.

       Company is a bank holding company whose shares of common stock are traded
on the Exchange. Company and its subsidiaries (collectively, “Bank”) constitute a
banking and financial services organization.

      Each Taxpayer functions as a residential mortgage loan securitization vehicle.
Taxpayers were established during the period of Year 1 through Year 2 for the primary
purpose of raising financing in the securitization market with respect to pools of
residential real estate mortgage loans originated or acquired by Bank, the sponsor of
the mortgage securitizations.

      The securitization process for each Trust and its related Taxpayer generally
occurred as follows:

        1.     One or more Bank entities, as seller (the “Seller”), sold portfolios of
        residential mortgage loans (the “Mortgage Loans”) to another Bank entity
        (the “Depositor”).

        2.    For Trusts governed by PSAs, the Depositor conveyed the
        Mortgage Loans to Trustee, acting on behalf of the Trusts and the
        Taxpayers, to be held in trust. For Trusts governed by an Indenture and
        SSA, the Depositor conveyed the Mortgage Loans to a statutory trust for
        the benefit of the noteholders, and the statutory trust, assigned to Trustee,
PLR-109706-17                                   4

       as indenture trustee, all of the statutory trust’s right, title and interest in
       and to the Mortgage Loans.

       3.      Several classes of Trust certificates or notes representing various
       entitlements to the underlying mortgage pool’s cash flows then were
       issued and sold through an underwriter or underwriters to investors (the
       “Investors”).

       4.     In certain instances, all or part of a class of issued certificates or
       notes may have been retained by Bank for a period of time.

       5.     For each Trust, a master servicer, servicer, or both, including
       applicable subservicers (the “Servicer”) was charged with responsibility
       for, among other things, collecting debt service payments on the Mortgage
       Loans, taking any necessary enforcement action against borrowers, and
       remitting payments on a monthly basis for distribution to the Investors.

       In each securitization, an election was made to treat the Mortgage Loans
and certain related assets held by the applicable Trust as one or more REMICs
under the Code.

       The Governing Agreements for each Taxpayer and securitization contain
a series of representations and warranties made for the benefit of each Trust. In
general, these include representations that the Mortgage Loans had certain
characteristics, such as loan-to-value ratio, property condition and mortgagor
credit metrics; that the Mortgage Loans were underwritten in all material respects
in accordance with certain underwriting guidelines; that the Mortgage Loans
conform in all material respects to their descriptions in the investor disclosure
documents; and that the origination, underwriting, servicing, and collection
practices of the Seller and each Servicer have been lawful and customary in the
mortgage lending and servicing business.

The Dispute

        In a letter dated Date 1 to Bank, a group of institutional investors (the
“Institutional Investors”) alleged that a significant number of the Mortgage Loans, with
respect to which the Institutional Investors held investment certificates or notes, had
been sold or deposited into RMBS trusts, including the Trusts, based on false and/or
fraudulent representations and warranties by the mortgage originators, the Seller,
and/or the Depositor. These assertions were based in part on the alleged excessive
early default and foreclosure rates on and in respect to the Mortgage Loans.

       Bank and the Institutional Investors engaged in extensive negotiations over a
period of B years in an effort to reach a settlement relating to the alleged breaches of
PLR-109706-17                               5

the Governing Agreements. The negotiations resulted in a settlement (the “Settlement”)
memorialized in a Settlement Agreement (the “Settlement Agreement”) between the
Institutional Investors and Bank.

      The Settlement Agreement defines “Accepting Trustee” as a trustee that has
accepted the Settlement Agreement on behalf of an RMBS trust, or on behalf of one or
more separate Mortgage Loan groups contained within an RMBS trust. Trustee is an
Accepting Trustee under the Settlement Agreement.

       The Settlement Agreement defines “Settlement Trust” as each RMBS trust,
including each Taxpayer, for which the applicable Settlement Trustee accepted and
signed the Settlement Agreement with respect to all Mortgage Loans held by the trust
and in the case where the applicable Settlement Trustee accepted and signed the
Settlement Agreement on behalf of one or more, but not all of the Mortgage Loan
groups contained within an RMBS trust, each such separate Mortgage Loan group for
which the applicable Settlement Trustee accepted and signed the Settlement
Agreement.

       Under the Settlement Agreement, any RMBS trust or specific Mortgage Loan
group contained within an RMBS trust for which the Settlement Agreement was not
accepted is referred to as a “Non-Settling Trust.” No Taxpayer constitutes a Non-
Settling Trust. Each Settling Trust, and each Non-Settling Trust, is treated as a
separate “trust” for purposes of determining payment under the Settlement Agreement.
Settling Trusts and Non-Settling Trusts belong to one of three trust groups in the
Settlement Agreement: Trust Group A, Trust Group B, and Trust Group C.

      In Month Year 3, Trustee accepted and signed the Settlement Agreement,
subject to, among other conditions, final court approval, on behalf of Taxpayers.

The Settlement Agreement

        The Settlement Agreement provides for a settlement payment to be allocated
among all of the Settlement Trusts (the “Settlement Payment”) and a release of claims
against Bank that arise under or are based upon the Governing Agreements or that
relate to the origination, sale, delivery, servicing, and/or administration of Mortgage
Loans to or in each Taxpayer. The Settlement Agreement contains certain releases
regarding the servicing of the Mortgage Loans within the Settlement Trusts.

        The Settlement Payment will be allocated among the Settlement Trusts in
accordance with an agreed allocation formula that is based on the past and expected
future losses associated with the Mortgage Loans held in all of the RMBS trusts. An
independent financial advisor (the “Expert”) retained by the Accepting Trustees will
perform any calculations required in connection with the allocation formula, and those
PLR-109706-17                                6

allocation calculations will be treated as final and accepted by the parties, absent bad
faith or manifest error.

        The Settlement Payment allocations are determined by reference to the amount
of “net losses” incurred by each Settlement Trust and each Non-Settling Trust. The
Expert will calculate the amount of net losses for each Settlement Trust and for each
Non-Settling Trust that have been incurred and are estimated to be incurred from each
trust’s inception to its expected termination. The Expert will determine the net loss for
each Settlement Trust and Non-Settling Trust that is a member of Trust Group A, Trust
Group B, or Trust Group C (the “Individual Trust Loss”).

        For each Settlement Trust and each Non-Settling Trust that is a member of Trust
Group A or Trust Group B, the adjusted individual trust loss (the “Adjusted Individual
Trust Loss”) is its Individual Trust Loss. For each Settlement Trust and each Non-
Settling Trust that is a member of Trust Group C, the Adjusted Individual Trust loss
equals the applicable Individual Trust Loss less 90% of the net losses associated with
certain solvent mortgage loan originators that sold Mortgage Loans to Bank for inclusion
in Trust Group C. The originators that sold such Mortgage Loans to Bank may bear
ultimate primary liability for the net losses attributable to representation and warranty
breaches with respect to such Mortgage Loans. As a result, Bank’s liability for net
losses with respect to such acquired Mortgage Loans is viewed for purposes of the
allocation formula as a secondary liability and the Adjusted Individual Trust Loss for
each Settlement Trust and each Non-Settling Trust in Trust Group C is reduced to
reflect Bank’s lesser responsibility for such losses.

        The Expert will calculate the sum total of the Adjusted Individual Trust Losses for
all Settlement Trusts and Non-Settling Trusts (the “Total Adjusted Trust Losses”). The
Expert will then calculate the Adjusted Individual Trust Loss for each Settlement Trust
and each Non-Settling Trust divided by the Total Adjusted Trust Losses (the “Trust
Allocated Settlement Percentage”).

       The Expert will calculate the allocable share of the Settlement Payment for each
Settlement Trust and for each Non-Settling Trust by multiplying the amount of the
Settlement Payment by the Trust Allocated Settlement Percentage for each Settlement
Trust and Non-Settling Trust (the “Allocable Share”). Only the Settlement Trusts will
receive an Allocable Share of the Settlement Payment.

        Within C days of the completion of the Expert’s calculation of each Settlement
Trust’s Allocable Share, and at the direction of the relevant Trustee, Bank will wire each
Settlement Trust’s Allocable Share into the related Settlement Trust’s collection or
distribution account for further distribution to the Investors in accordance with the
distribution provisions of the applicable Governing Agreements.
PLR-109706-17                                 7

        Each Taxpayer represents that the distribution provisions of the Settlement
Agreement do not alter the rights or obligations of the Taxpayer or REMIC interests
therein and that the distribution of Allocable Shares to the Investors is consistent with
the distribution provisions contained in the Governing Agreements that provide for the
distribution of subsequent recoveries or unscheduled principal amounts received. The
Settlement Agreement requires that the distribution of the Settlement Trust’s Allocable
Share to its Investors be consistent with the applicable provisions contained in the
Settlement Trust’s Governing Agreements that provide for the distribution of subsequent
recoveries or unscheduled principal amounts received, as the case may be. The
Settlement Agreement provides that each Settlement Trust’s distribution of Allocable
Share amounts to the Investors be characterized as distributions of principal in respect
of REMIC regular interest classes entitled to receive such distributions. Distributions to
the Investors who hold regular interest classes entitled to receive principal will be made
either in the order of seniority of such classes or on a pro-rata basis in accordance with
applicable senior-subordinate principal distribution priority rules.

        In the event a Settlement Trust’s distribution waterfall provisions and its current
Allocable Share amount available for distribution would combine to result in a
distribution of any amount on or in respect of any trust’s residual interest class, whether
on the date of the distribution of an Allocable Share or on any subsequent distribution
date that is not the final distribution date under the applicable Governing Agreement,
such amount shall not be paid on or distributed to such residual class. Instead, the
amount would be retained in the applicable Settlement Trust’s distribution account, and
on the next distribution date, would be distributed to the applicable regular interest
Investors entitled to receive a principal distribution of subsequent recoveries or
unscheduled payments of principal.

       Consistent with the Governing Agreements, the Settlement Agreement requires
the Accepting Trustee for each Settlement Trust to apply an aggregate notional amount
equal to the amount of the Settlement Trust’s Allocable Share in the reverse order of
previously allocated losses, to increase and restore the balance of each applicable
class of principal entitled REMIC regular interest classes to which realized losses have
been previously allocated, but in each case by not more than the amount of such losses
previously allocated to that REMIC regular interest class pursuant to the Governing
Agreements. The Investors will not be entitled to payment in respect of interest on the
amount of such increases for any interest accrual period relating to the distribution date
on which such increase occurs or any prior distribution date. This requirement in the
Settlement Agreement is intended only to increase and restore the balances of the
regular interest class securities and does not affect the distribution of the Settlement
Payment.
PLR-109706-17                                 8

Law and Analysis

Issue #1 and #2: Qualified Mortgages, Permitted Investments, and Payments Received
on Qualified Mortgages

       Section 860D(a) provides that the terms “real estate mortgage investment
conduit” and “REMIC” mean any entity that meets several requirements including that,
as of the close of the third month beginning after the startup day and at all times
thereafter, substantially all of the assets of the entity consist of qualified mortgages and
permitted investments.

         Section 860G(a)(3)(A) defines qualified mortgage to include any obligation
(including any participation or certificate of beneficial ownership therein) which is
principally secured by an interest in real property and which (i) is transferred to the
REMIC on the startup day in exchange for regular or residual interests in the REMIC,
(ii) is purchased by the REMIC within the 3-month period beginning on the startup day
if, except as provided in regulations, such purchase is pursuant to a fixed-price contract
in effect on the startup day, or (iii) represents an increase in the principal amount under
the original terms of an obligation described in clause (i) or (ii) if such increase —(I) is
attributable to an advance made to the obligor pursuant to the original terms of a
reverse mortgage loan or other obligation, (II) occurs after the startup day, and (III) is
purchased by the REMIC pursuant to a fixed price contract in effect on the startup day.

       Section 860G(a)(5) defines “permitted investments” to mean any cash flow
investment, qualified reserve asset, or foreclosure property. Section 860G(a)(6) defines
“cash flow investment” to mean any investment of amounts received under qualified
mortgages for a temporary period before distribution to holders of interests in the
REMIC.

       Section 1.860D-1(b)(3)(i) provides that, for purposes of the asset test of
§ 860D(a)(4), substantially all of a qualified entity’s assets are qualified mortgages and
permitted investments if the qualified entity owns no more than a de minimis amount of
other assets. Section 1.860D-1(b)(3)(ii) sets forth a safe harbor rule which provides that
the amount of assets other than qualified mortgages and permitted investments is de
minimis if the aggregate of the adjusted bases of those assets is less than one percent
of the aggregate of the adjusted bases of all of the REMIC’s assets.

       Section 1.860G-2(g)(1)(ii) states that, in determining what is a cash flow
investment, the term “payments received on qualified mortgages” includes, among other
payments, payments by a sponsor or prior owner in lieu of the sponsor’s or prior
owner’s repurchase of a defective obligation, as defined in § 1.860G-2(f), that was
transferred to the REMIC in breach of a customary warranty.
PLR-109706-17                                 9

       Section 1.860G-2(f)(1) defines a defective obligation as a mortgage subject to
certain defects including that the mortgage does not conform to a customary
representation or warranty given by the sponsor or prior owner of the mortgage
regarding the characteristics of the mortgage, or the characteristics of the pool of
mortgages of which the mortgage is a part.

       Each Taxpayer’s right to receive its Allocable Share under the Settlement
Agreement arises from the Mortgage Loans. The Allocable Share for each Taxpayer is
a contract claim that stems directly from the rights held by Trustee on behalf of each
Taxpayer and its status as a REMIC. Therefore, a Taxpayer’s right to receive an
Allocable Share is not an asset that is newly acquired by a REMIC after its startup date.
The execution of the Settlement Agreement, the methodology used to determine a
Taxpayer’s Allocable Share, and the receipt of the Allocable Share by a Taxpayer, arise
from each Taxpayer’s interest in the Mortgage Loans and its status as a REMIC, and,
therefore, will not cause any Taxpayer to fail to meet the requirements under
§ 860D(a)(4).

       The Allocable Share under the Settlement Agreement is the result of a dispute
between the Institutional Investors and Bank regarding whether the Mortgage Loans
conveyed to each Taxpayer violated customary representations and warranties under
the respective Governing Agreements. For purposes of the REMIC rules, a defective
obligation includes mortgages that do not conform to a customary representation or
warranty given by the sponsor or prior owner of the mortgage regarding the
characteristics of the mortgage, or the characteristics of the pool of mortgages of which
the mortgage is a part. Each Taxpayer’s right to the Allocable Share under the
Settlement Agreement is akin to a payment received by such Taxpayer from a sponsor
or prior owner in lieu of the sponsor or prior owner’s repurchase of such a defective
obligation. Therefore, pursuant to § 1.860G-2(g)(1)(ii), the Allocable Share will be
considered a payment received on a qualified mortgage pursuant to § 1.860G-
2(g)(1)(ii).

Issue #3: Regular and Residual Interests

        Section 860G(a)(1) defines a “regular interest” in a REMIC to mean any interest
in a REMIC which is issued on the startup day with fixed terms and which is designated
as a regular interest if (A) such interest unconditionally entitles the holder to receive a
specified principal amount (or other similar amount), and (B) interest payments (or other
similar amount), if any, with respect to such interest at or before maturity (i) are payable
based on a fixed rate (or to the extent provided in regulations, at a variable rate), or
(ii) consist of a specified portion of the interest payments on qualified mortgages and
such portion does not vary during the period such interest is outstanding.
PLR-109706-17                                 10

       Section 860G(a)(2) defines a “residual interest” in a REMIC to mean an interest
in a REMIC which is issued on the startup day, which is not a regular interest, and
which is designated as a residual interest.

     Section 860G(a)(9) defines the term “startup day” to mean the day on which the
REMIC issues all of its regular and residual interests.

       Section 1.860G-1(a)(1) provides that, for purposes of § 860G(a)(1), a REMIC
designates an interest as a regular interest by providing to the Internal Revenue Service
the information specified in § 1.860D-1(d)(2)(ii) in the time and manner specified in
§ 1.860D-1(d)(2). Section 1.860G-1(c) provides that a residual interest is an interest in
a REMIC that is issued on the startup day and that is designated as a residual interest
by providing the information specified in § 1.860D-1(d)(2)(ii) at the time and in the
manner provided in § 1.860D-1(d)(2). A residual interest need not entitle the holder to
any distributions from the REMIC.

       Section 1.860G-1(a)(4) provides that, for purposes of § 860G(a)(1), a regular
interest in a REMIC has fixed terms on the startup day if, on the startup day, the
REMIC’s organizational documents irrevocably specify (i) the principal amount (or other
similar amount) of the regular interest, (ii) the interest rate or rates used to compute any
interest payments (or other similar amounts) on the regular interest, and (iii) the latest
possible maturity date of the interest.

        A REMIC regular interest must be issued on the startup date with fixed terms. A
REMIC residual interest is an interest in the REMIC issued on the startup date that is
not a regular interest. Taxpayers represent that the distribution provisions of the
Settlement Agreement do not alter the rights or obligations of any of the Taxpayers or
the Investors’ interests therein and that the distribution of Allocable Shares to the
Investors is consistent with the distribution provisions contained in the Governing
Agreements that provide for the distribution of subsequent recoveries or unscheduled
principal amounts received. Distributions that are made pursuant to these provisions
are treated as and constitute distributions of underlying Mortgage Loan principal
collections. The Settlement Agreement also provides that, should a principal payment
become payable to a class of REMIC residual interests on a distribution date that is not
the final distribution date under the applicable Governing Agreement, such payment will
be maintained in the distribution account, and Trustee shall distribute the retained
amount on the next distribution date to the applicable regular interest Investors entitled
to receive a principal distribution of subsequent recoveries or unscheduled payments of
principal. Accordingly, the distribution of an Allocable Share to the Investors will not
cause any regular interest in a Taxpayer to fail to qualify as a regular interest or the sole
class of residual interest in the Taxpayer to fail to qualify as a residual interest.
PLR-109706-17                                 11

Issue #4: Tax on Contributions after Startup Date and Prohibited Transaction

        Except as provided in § 860G(d)(2), § 860G(d)(1) imposes on any amount that is
contributed to a REMIC after the startup day a tax equal to 100 percent of the amount
contributed. Section 860G(d)(2) provides that the tax on contributions after the startup
date shall not apply to any contribution which is made in cash and is (A) a contribution
to facilitate a cleanup call (as defined in regulations) or a qualified liquidation, (B) a
payment in the nature of a guarantee, (C) a contribution during the 3-month period
beginning on the startup day, (D) a contribution to a qualified reserve fund by any holder
of a residual interest in the REMIC, or (E) any other contribution permitted in
regulations.

        Section 860F(a)(1) imposes a tax equal to 100 percent of the net income derived
from prohibited transactions. Section 860F(a)(2) defines prohibited transaction to mean
one of the following: (A) disposition of any qualified mortgage transferred to the REMIC
other than a disposition pursuant to (i) the substitution of a qualified replacement
mortgage for a qualified mortgage (or the repurchase in lieu of substitution of a
defective obligation), (ii) a disposition incident to the foreclosure, default, or imminent
default of the mortgage, (iii) the bankruptcy or insolvency of the REMIC, or (iv) a
qualified liquidation; (B) the receipt of any income attributable to any asset which is
neither a qualified mortgage nor a permitted investment; (C) the receipt by the REMIC
of any amount representing a fee or other compensation for services; or (D) gain from
the disposition of any cash flow investment other than pursuant to any qualified
liquidation.

       As discussed above, the receipt of the Allocable Share by a Taxpayer arises
from the Mortgage Loans and each Taxpayer’s status as a REMIC. The Allocable
Share arises in connection with each Taxpayer’s interest in the Mortgage Loans and is
neither a contribution of cash to the REMIC nor is it listed as a prohibited transaction in
§ 860F(a)(2). As a result, the receipt of the Allocable Share by a Taxpayer will not be
treated as a prohibited transaction within the meaning of § 860F(a)(2) or as a
contribution subject to tax under § 860G(d)(1).

Conclusion

       We hereby rule as follows:

       1.     In the case of each Taxpayer for which a timely, valid and
       continuing REMIC election has been made in accordance with the
       applicable Governing Agreement, none of (i) the execution of the
       Settlement Agreement, (ii) the methodology for determining, and the right
       to receive, an Allocable Share of the Settlement Payment, or (iii) the
       receipt of an Allocable Share of the Settlement Payment will cause the
       Taxpayer to fail to meet the requirements of § 860D(a)(4).
PLR-109706-17                                12


       2.     In the case of each Taxpayer for which a timely, valid and
       continuing REMIC election has been made in accordance with the
       applicable Governing Agreement, the receipt of an Allocable Share of the
       Settlement Payment will be treated as a payment received on qualified
       mortgages within the meaning of § 1.860G-2(g)(1)(ii) of the Income Tax
       Regulations.

       3.       In the case of each Taxpayer for which a timely, valid and
       continuing REMIC election has been made in accordance with the
       applicable Governing Agreement, the distribution of an Allocable Share
       amount in accordance with the applicable Governing Agreement and the
       Settlement Agreement will not cause any regular interest in such Taxpayer
       to fail to qualify as a “regular interest” as defined in § 860G(a)(1) or the
       sole class of residual interest in such Taxpayer to fail to qualify as a
       “residual interest” as defined in § 860G(a)(2).

       4.     In the case of each Taxpayer for which a timely, valid and
       continuing REMIC election has been made in accordance with the
       applicable Governing Agreement, the receipt of an Allocable Share
       amount will not be treated as a “prohibited transaction” within the meaning
       of § 860F(a)(2) or as a contribution that is subject to the tax imposed
       under § 860G(d)(1).

        This ruling’s application is limited to the facts, representations, Code sections,
and regulations cited herein. Except as specifically ruled upon above, no opinion is
expressed concerning any federal income tax consequences related to the facts herein
under any other provisions of the Code. Specifically, we do not rule whether any
Taxpayer qualifies as a REMIC under §§ 860A-860G or whether any Mortgage Loan
qualifies as a qualified mortgage as defined in § 860G(a)(3).

       This ruling is directed only to the taxpayers that requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent. In accordance with the
provisions of a Power of Attorney on file, we are sending a copy of this ruling letter to
your authorized representatives.
PLR-109706-17                                13

      The rulings contained in this letter are based upon information and
representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

                                         Sincerely,


                                         _John W. Rogers III ______________
                                         John W. Rogers III
                                         Senior Technician Reviewer, Branch 6
                                         Office of Associate Chief Counsel
                                         (Financial Institutions & Products)




Enclosure:
      Copy for section 6110 purposes
PLR-109706-17                                          14

                                                   EXHIBIT A


   ---------------------
   --------------------------------------------------
   ---------------------
   ---------------------
   ------------------------------------------------------
   --------------------------------------------------
   ---------------------
   ---------------------
   ------------------------------------------------------
   -------------------------
   --------------------------
   --------------------------
   ---------------------
   --------------------------
   --------------------------
   --------------------------
   ----------------------
   ----------------------
   ----------------------
   ----------------------
   --------------------------
   ------------------------
   -------------------------
   --------------------
   --------------------
   --------------------
   --------------------
   -----------------------------------------
   ------------------------
   --------------------
   --------------------
   ---------------------
   --------------------------------------------------
   ----------------------------------------
   -----------------------
   -----------------------
   -----------------------
   -----------------------
   -----------------------
   ----------------------------------------------------------------