I 
108TH CONGRESS 
2D SESSION 
H. R. 4113 
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 HOUSE OF REPRESENTATIVES 
APRIL 1, 2004 
Mr. FOLEY (for himself and Mr. POMEROY) introduced the following bill; 
which was referred to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to allow cer-
tain modifications to be made to qualified mortgages 
held by a REMIC or a grantor trust. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. CERTAIN MODIFICATIONS PERMITTED TO 
QUALIFIED MORTGAGES HELD BY A REMIC 
OR A GRANTOR TRUST. 
(a) QUALIFIED MORTGAGES HELD BY A REMIC.— 
(1) IN
GENERAL.—Paragraph (3) of section 
860G(a) of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new 
subparagraph:
‘‘(C) QUALIFIED MODIFICATIONS.— 
‘‘(i) 
IN
GENERAL.—An 
obligation 
shall not fail to be treated as a qualified 
mortgage solely because of a qualified 
modification of such obligation. 
‘‘(ii) QUALIFIED MODIFICATION.—For 
purposes of this section, the term ‘qualified 
modification’ means, with respect to any 
obligation, any amendment, waiver, or 
other modification which is treated as a 
disposition of such obligation under section 
1001 if such amendment, waiver or other 
modification does not— 
‘‘(I) extend the final maturity 
date of the obligation, 
‘‘(II) increase the outstanding 
principal balance under the obligation 
(other than the capitalization of ac-
crued, unpaid interest), 
‘‘(III) result in a release of an in-
terest in real property securing the 
obligation such that the obligation is 
not principally secured by an interest 
in real property (determined after giv-
ing effect to the release), or
‘‘(IV) result in an instrument or 
property right which is not debt for 
Federal income tax purposes. 
‘‘(iii) DEFAULTS.—Under regulations 
prescribed by the Secretary, any amend-
ment, waiver, or other modification of an 
obligation which is in default or with re-
spect to which default is reasonably fore-
seeable may be treated as a qualified modi-
fication for purposes of this section. 
‘‘(iv) DEFEASANCE
WITH
GOVERN-
MENT SECURITIES.—The requirements of 
clause (ii)(III) shall be treated as satisfied 
if, after the release described in such 
clause, the obligation is principally secured 
by Government securities and the amend-
ment, waiver, or other modification to such 
obligation satisfies such requirements as 
the Secretary may prescribe.’’. 
(2) EXCEPTION
FROM
PROHIBITED
TRANS-
ACTION
RULES.—Subparagraph (A) of section 
860F(a)(2) of such Code is amended by striking 
‘‘or’’ at the end of clause (iii), by striking the period 
at the end of clause (iv) and inserting ‘‘, or’’, and 
by adding at the end the following new clause:
‘‘(v) a qualified modification (as de-
fined in section 860G(a)(3)(C)).’’. 
(3) CONFORMING AMENDMENTS.— 
(A) Section 860G(a)(3) of such Code is 
amended— 
(i) by redesignating clauses (i) and 
(ii) of subparagraph (A) as subclauses (I) 
and (II), respectively, 
(ii) by redesignating subparagraphs 
(A) through (D) as clauses (i) through 
(iv), respectively, 
(iii) by striking ‘‘The term’’ and in-
serting the following: 
‘‘(A) IN GENERAL.—The term’’, and 
(iv) by striking ‘‘For purposes of sub-
paragraph (A)’’ and inserting the fol-
lowing: 
‘‘(B) TENANT-STOCKHOLDERS OF COOPER-
ATIVE HOUSING CORPORATIONS.—For purposes 
of subparagraph (A)(i)’’. 
(B) Section 860G(a)(3)(A)(iv) of such 
Code (as redesignated by subparagraph (A)) is 
amended—
(i) by striking ‘‘clauses (i) and (ii) of 
subparagraph (A)’’ and inserting ‘‘sub-
clauses (I) and (II) of clause (i)’’, and 
(ii) by striking ‘‘subparagraph (A) 
(without regard to such clauses)’’ and in-
serting ‘‘clause (i) (without regard to such 
subclauses)’’. 
(b) QUALIFIED MORTGAGES HELD BY A GRANTOR 
TRUST.—Section 672 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new 
subsection: 
‘‘(g) SPECIAL RULE
FOR CERTAIN INVESTMENT 
TRUSTS.—A grantor shall not fail to be treated as the 
owner of any portion of a trust under this subpart solely 
because such portion includes one or more obligations with 
respect to which a qualified modification (within the mean-
ing of section 860G(a)(3)(C)) has been, or may be, made 
under the terms of such trust.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amendments, waivers, and other 
modifications made after the date of the enactment of this 
Act. 
Æ