Real estate mortgage investments explained.

While the debate over whether the worst housing crisis is ahead of us or behind us continues, and regardless of the cause, regardless of one’s opinion, it is important to understand the different types of investments related to real estate and mortgages. Real estate mortgage investments (REMICs) are one such investment.

The bottom line is this. A person decides to invest in family, secondary, corporate and other mortgages. People everywhere paid their mortgages to their local bank every month, and the bank got all the money. An investor comes and buys a loan from a bank, and the investor starts bringing in that income.

If that loan goes bad—if it goes bad—the investor has spent so much money that he decides to buy a lot of different loans to reduce the percentage of the loan that is due. But even if the mortgage delinquency is terminated, he still wants to spread the risk of these mortgage investments because he has spent all of his money. So, it takes a step further by taking a piece of each mortgage, rolling those pieces into one security, and selling that security to other investors.

So far, none of these are REMICs. The resulting bundles are called mortgage-backed securities (a somewhat self-explanatory term). However, if a company wants to participate in mortgage-backed securities, which also increases their flexibility and reduces risk, they create a REMIC. A REMIC is actually a trust, company, partnership or other entity for the specific purpose of investing and raising loans.

Here are some key benefits to REMIC

· There is no minimum equity requirement, meaning a REMIC can sell all of its assets.

· Investors can be paid monthly; Other types of investments cap payments quarterly.

A REMIC does not have to pay federal taxes, even if the investors make it on income.

· Risk is spread between each security, so if one mortgage defaults, the overall effect is smaller.

Some disadvantages include:

REMICs cannot easily switch loans at will; Once a REMIC is created and the loans are sealed, you are stuck with them.

REMICs are subject to state taxes depending on the state.

· If all mortgages go into default, as has happened in the past few years, most of the investment amount can be lost.

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