IRS Issues Tax Ruling on GSE ‘Single Security’ Exchanges

As part of the Federal Housing Finance Agency’s “single security initiative” to standardize the terms for mortgage pass-through certificates issued by Fannie Mae and Freddie Mac, holders of existing related GSE securities will have an opportunity to exchange them for the new standard security. This program is expected to begin in 2019.

In a revenue ruling issued today, the Internal Revenue and Treasury Department provided guidance stating that the related exchange will not constitute a taxable exchange, though certain questions still remain related to any “make whole” or other incentive payments the GSEs may provide.