SECTION 5. SCOPE

.01 This revenue procedure applies to a release of a lien on an interest in real property that secures a mortgage loan held by a REMIC in circumstances in which §§ 1.860G–2(b)(7)(ii) and 1.860G–2(b)(7)(iii) are not satisfied. A release of a lien that is effected by either a grandfathered transaction described in section 5.02 of this revenue procedure or by a qualified pay-down transaction described in section 5.03 of this revenue procedure qualifies for the benefits of this revenue procedure.

.02 A grandfathered transaction is any release of a lien on an interest in real property that satisfies the following two criteria—

time the sponsor contributes the obligation to the REMIC.

.04 In the absence of a lien release or certain other transactions that alter a legal right or obligation either of a REMIC or of the issuer of a mortgage loan that is held by the REMIC, the mortgage loan is not retested to determine whether the current value of its real estate collateral still satisfies the principally secured test.

.05 Under § 1.860G–2(a)(8), if a REMIC releases its lien on an interest in real property that secures a qualified mortgage, the mortgage ceases to be a qualified mortgage on the date the lien is released unless either—

(1) The mortgage is defeased in the manner described in § 1.860G–2(a)(8)(ii); or

(2) The lien is released in a modification that satisfies both of the following criteria:

(i) The modification either is not a significant modification as defined in § 1.860G–2(b)(2) or, under one of the exceptions in § 1.860G–2(b)(3), is not treated as a significant modification for purposes of § 1.860G–2(b)(1); and

(ii) Following the modification, the obligation continues to be principally secured by an interest in real property, as determined by § 1.860G–2(b)(7).

.06 Section 1.860G–2(b)(7) provides that, for purposes of §§ 1.860G–2(a)(8)(i), 1.860G–2(b)(3)(v), and 1.860G–2(b)(3)(vi), an obligation continues to be principally secured by an interest in real property following a transaction that alters the legal rights of the parties only if, as of the date of the transaction, the obligation satisfies either paragraph (b)(7)(ii) or paragraph (b)(7)(iii) of § 1.860G–2.

.07 An obligation satisfies § 1.860G–2(b)(7)(ii) if the fair market value of the interest in real property securing the obligation, determined as of the date of the modification, is at least 80 percent of the adjusted issue price of the modified obligation, determined as of the date of the modification. If, as of the date of the modification, the servicer reasonably believes that the obligation satisfies the criterion in the preceding sentence, then the obligation is deemed to do so. A reasonable belief does not exist if the servicer actually knows, or has reason to know, that the criterion is not satisfied.

For purposes of § 1.860G–2(b)(7)(ii), a servicer must base a reasonable belief on—

(1) A current appraisal performed by an independent appraiser;

(2) An appraisal that was obtained in connection with the origination of the obligation and, if appropriate, that has been updated for the passage of time and for any other changes that might affect the value of the interest in real property;

(3) The sales price of the interest in real property in the case of a substantially contemporary sale in which the buyer assumes the seller’s obligations under the mortgage; or

(4) Some other commercially reasonable valuation method.

.08 An obligation satisfies § 1.860G–2(b)(7)(iii) if § 1.860G–2(b)(7)(ii) is not satisfied but the fair market value of the interest in real property that secures the obligation immediately after the modification equals or exceeds the fair market value of the interest in real property that secured the obligation immediately before the modification. The criterion in the preceding sentence must be established by a current appraisal, an original (and updated) appraisal, or some other commercially reasonable valuation method; and the servicer must not actually know, or have reason to know, that the criterion in the preceding sentence is not satisfied.

.09 Under § 1.860G–2(a)(5), obligations secured by interests in real property include mortgage pass-through certificates guaranteed by GNMA, FNMA, FHLMC, or CMHC (Canada Mortgage and Housing Corporation) and other investment trust interests that represent undivided beneficial ownership in a pool of obligations principally secured by interests in real property and related assets that would be considered to be permitted investments if the investment trust were a REMIC, provided that the investment trust is classified as a trust under § 301.7701–4(c) of the Procedure and Administration Regulations.

.10 Under § 1.860G–2(b)(6), if a REMIC holds as a qualified mortgage a pass-through certificate or other investment trust interest of the type described in § 1.860G–2(a)(5), the modification of a mortgage loan that backs the pass-through certificate or other interest is not a modification of the pass-through certificate or

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deemed to be satisfied. A reasonable belief does not exist, however, if the servicer actually knows, or has reason to know, that the criterion is not satisfied. For purposes of this section 5.06, a reasonable belief must be based on the information or methods described in § 1.860G–2(b)(7)(ii)(A)(D).