Tax Considerations

The following is a brief discussion of material federal income tax consequences of the purchase and ownership of REMIC securities. It does not purport to be all-encompassing, nor does it purport to deal with the federal income tax consequences for all categories of investors, some of which may be subject to special rules. This discussion does not address state income tax consequences for investors. Ginnie Mae and its financial advisor do not assume any responsibility for information relating to tax matters. Consequently, investors should consult their own tax advisors in determining the federal, state, local, foreign, and any other tax consequences in connection with the purchase, ownership, or disposition of REMIC securities.

A REMIC is a tax entity and is usually formed as a trust for federal income tax purposes. The assets of the REMIC consist of a fixed pool of mortgages or other mortgage-backed assets in which investors hold multiple classes of interests. To be treated as a REMIC, the trust must meet certain continuing qualification requirements, and a REMIC election must be in effect. A REMIC Trust generally will not, for federal income tax purposes, be subject an entity-level tax.

Regular Interests

Generally, a regular interest is a REMIC class whose terms are analogous to those of a debt instrument, and it is generally treated as one for federal income tax purposes. Interest accrued will be treated as ordinary income to the holder. Regular interest holders must report income from regular interests under an accrual method of accounting, even if they otherwise would have used the cash receipts and disbursements method.

Certain classes of regular interests may be issued with Original Issue Discount (OID). OID is the excess of a class-stated redemption price (the sum of all payments to be received on a class other than qualified interest payments) at maturity over its issue price. Holders of regular interests which were issued with OID should be aware that tax reporting to investors includes OID for federal income tax purposes. It is included on an annual basis under a constant yield accrual method that reflects compounding. In general, OID is treated as ordinary interest income and must be included in income in advance of the receipt of cash to which it relates.

A subsequent purchaser of a regular interest at a discount from its outstanding principal amount (or, in the case of a regular interest having OID, its adjusted issue price) will acquire the security with a "market discount." The purchaser generally will be required to recognize the market discount (in addition to any OID remaining with respect to the security) as ordinary income. A purchaser of a regular interest who purchases the security at a premium over the total of its deemed principal payments may elect to amortize the premium under a constant yield method that reflects compounding based on the interval between payments on the security.

Residual Interests

Generally, a residual interest is an interest in the rights and responsibilities of the REMIC with respect to the taxable income or loss of the related REMIC Trust. As a residual interest, a residual security (or R class) has a right to the income generated by the related REMIC assets in excess of the interest expense and OID related to the regular interests and other REMIC Trust expenses.