REMICs eliminate many of the inefficiencies of mortgage bonds (CMOs) and offer issuers more options and more flexibility.  RESCS do not have minimum capital requirements, allowing REMPs to sell all their assets instead of holding them to meet collateral requirements. Since ordinary interest rates are automatically considered debt securities, REMICs also avoid the unpleasant reinvestment risk that CMO issuers bear to display their debts. REMICs can also make monthly distributions to investors for whom CMOs make quarterly payments. REMIC`s residual interests are more liquid than owner trusts, which limit equity participations and transfers of personal liability. REMICs offer more flexibility than CMOs, as issuers can choose any legal entity and any type of securities. A REMIC itself is exempt from federal tax, although the income received by investors is fully taxable. Because CEPNs are generally exempt from tax at the business level, they can only invest in qualified mortgages and eligible investments, including single or multifamily mortgages, commercial mortgages, dual mortgages, mortgage holdings, and federal pass-throughs. Non-mortgage assets, such as credit card claims, leases and auto loans, are ineligible investments. The Tax Reform Act has made it easier for savings banks and Real Estate Investment Trusts to hold mortgage securities as eligible portfolio assets.
For example, a savings institution may include mortgage-backed securities issued in remic as eligible assets to meet federal savings and lending requirements for tax purposes. REMICs are investment vehicles that hold commercial and private mortgages in trust and issue securities of unshared interest in these mortgages. A REMIC assembles mortgages into pools and issues pass through certificates, collateralized mortgage obligation (CMO)-like multi-class bonds or other securities to investors in the mortgage secondary market. . . .