SFA Submits Request to IRS for Extension of COVID-19 Revenue Procedures

On September 27, SFA submitted a letter to the Internal Revenue Service (IRS) requesting existing guidance expiring at the end of September be extended. The guidance relieves issuers and holders of outstanding debt instruments from severe tax consequences that could arise from widespread forbearance and loan payment accommodations introduced as result of COVID-19. In the letter, SFA specifically cites the Revenue Procedure 2021-12 published in January 2021 which creates a safe harbor and extends COVID-19 relief granted to certain debt instruments under earlier Revenue Procedure 2020-26 as the basis for its request.


Key Takeaways:

  • The letter focuses on requesting an extension introduced under the CARES Act of 2020 for financing structures including mortgage loans held in real estate mortgage investment conduits (REMICs), fixed investment and grantor trusts.


  • SFA raises the concern that the timing of the expiry of Rev. Proc. 2021-12, which covers mortgages entering forbearance on or before September 30, 2021, should sync to the expiry of government-directed loan accommodations.


  • Amid the influx of borrowers requesting forbearance during the pandemic, SFA argues that not extending the Rev. Proc. creates market uncertainty that will have a significant impact on lenders and servicers’ ability to act immediately in support of borrowers requesting payment relief due to COVID‐19 related hardships.


  • SFA warns negative tax consequences may result from loan modifications at the issuer level and may have significant adverse effects for REMICs and the investors in such REMICs.