II 

108TH CONGRESS 

2D SESSION S. 2422 

To amend the Internal Revenue Code of 1986 to allow certain modifications 

to be made to qualified mortgages held by a REMIC or a grantor trust. 

IN THE SENATE OF THE UNITED STATES 

MAY 13, 2004 

Mr. SMITH (for himself and Mr. CONRAD) introduced the following bill; which 

was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to allow certain modifications to be made to qualified mortgages 

held by a REMIC or a grantor trust. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. CERTAIN MODIFICATIONS PERMITTED TO 

4 QUALIFIED MORTGAGES HELD BY A REMIC 

5 OR A GRANTOR TRUSTS. 

6 (a) QUALIFIED MORTGAGES HELD BY A REMIC.— 

7 (1) IN GENERAL.—Paragraph (3) of section 

8 860G(a) of the Internal Revenue Code of 1986 is 

9 amended by adding at the end the following new 

10 subparagraph: 
2 

•S 2422 IS 

1 ‘‘(C) QUALIFIED MODIFICATIONS.— 

2 ‘‘(i) IN GENERAL.—An obligation 

3 shall not fail to be treated as a qualified 

4 mortgage solely because of a qualified 

5 modification of such obligation. 

6 ‘‘(ii) QUALIFIED MODIFICATION.—For 

7 purposes of this section, the term ‘qualified 

8 modification’ means, with respect to any 

9 obligation, any amendment, waiver, or 

10 other modification which is treated as a 

11 disposition of such obligation under section 

12 1001 if such amendment, waiver or other 

13 modification does not— 

14 ‘‘(I) extend the final maturity 

15 date of the obligation, 

16 ‘‘(II) increase the outstanding 

17 principal balance under the obligation 

18 (other than the capitalization of ac19 crued, unpaid interest), 

20 ‘‘(III) result in a release of an in21 terest in real property securing the 

22 obligation such that the obligation is 

23 not principally secured by an interest 

24 in real property (determined after giv25 ing effect to the release), or 
3 

•S 2422 IS 

1 ‘‘(IV) result in an instrument or 

2 property right which is not debt for 

3 Federal income tax purposes. 

4 ‘‘(iii) DEFAULTS.—Under regulations 

5 prescribed by the Secretary, any amend6 ment, waiver, or other modification of an 

7 obligation which is in default or with re8 spect to which default is reasonably fore9 seeable may be treated as a qualified modi10 fication for purposes of this section. 

11 ‘‘(iv) DEFEASANCE WITH GOVERN12 MENT SECURITIES.—The requirements of 

13 clause (ii)(III) shall be treated as satisfied 

14 if, after the release described in such 

15 clause, the obligation is principally secured 

16 by Government securities and the amend17 ment, waiver, or other modification to such 

18 obligation satisfies such requirements as 

19 the Secretary may prescribe.’’. 

20 (2) EXCEPTION FROM PROHIBITED TRANS21 ACTION RULES.—Subparagraph (A) of section 

22 860F(a)(2) of such Code is amended by striking 

23 ‘‘or’’ at the end of clause (iii), by striking the period 

24 at the end of clause (iv) and inserting ‘‘, or’’, and 

25 by adding at the end the following new clause: 
4 

•S 2422 IS 

1 ‘‘(v) a qualified modification (as de2 fined in section 860G(a)(3)(C)).’’. 

3 (3) CONFORMING AMENDMENTS.— 

4 (A) Section 860G(a)(3) of such Code is 

5 amended— 

6 (i) by redesignating clauses (i) and 

7 (ii) of subparagraph (A) as subclauses (I) 

8 and (II), respectively, 

9 (ii) by redesignating subparagraphs 

10 (A) through (D) as clauses (i) through 

11 (iv), respectively, 

12 (iii) by striking ‘‘The term’’ and in13 serting the following: 

14 ‘‘(A) IN GENERAL.—The term’’, and 

15 (iv) by striking ‘‘For purposes of sub16 paragraph (A)’’ and inserting the fol17 lowing: 

18 ‘‘(B) TENANT-STOCKHOLDERS OF COOPER19 ATIVE HOUSING CORPORATIONS.—For purposes 

20 of subparagraph (A)(i)’’. 

21 (B) Section 860G(a)(3)(A)(iv) of such 

22 Code (as redesignated by subparagraph (A)) is 

23 amended— 
5 

•S 2422 IS 

1 (i) by striking ‘‘clauses (i) and (ii) of 

2 subparagraph (A)’’ and inserting ‘‘sub3 clauses (I) and (II) of clause (i)’’, and 

4 (ii) by striking ‘‘subparagraph (A) 

5 (without regard to such clauses)’’ and in6 serting ‘‘clause (i) (without regard to such 

7 subclauses)’’. 

8 (b) QUALIFIED MORTGAGES HELD BY A GRANTOR

9 TRUST.—Section 672 of the Internal Revenue Code of 

10 1986 is amended by adding at the end the following new 

11 subsection: 

12 ‘‘(g) SPECIAL RULE FOR CERTAIN INVESTMENT

13 TRUSTS.—A grantor shall not fail to be treated as the 

14 owner of any portion of a trust under this subpart solely 

15 because such portion includes one or more obligations with 

16 respect to which a qualified modification (within the mean17 ing of section 860G(a)(3)(C)) has been, or may be, made 

18 under the terms of such trust.’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to amendments, waivers, and other 

21 modifications made after the date of the enactment of this 

22 Act. 

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