Rev. Rul. 72-376

Advice has been requested whether the conclusions of Revenue Ruling 71-399, C.B. 1971-2, 433, are applicable to the purchase and sale of mortgage participation certificates by the Federal Home Loan Mortgage Corporation (FHLMC) under the circumstances set forth below.

In order to reduce the complexity of purchasing mortgage participation interests in groups of mortgages owned by N, an insured savings and loan association, FHLMC adopted the procedure of purchasing a single mortgage participation certificate from N representing an undivided interest of at least 50 percent in each of the mortgage loans in a group of mortgage loans which N offered for sale. FHLMC then sold mortgage participation certificates in denominations of approximately $100,000 at face value to other savings and loan associations and exempt employees' pension and profit sharing trusts (certificate holders), with each such certificate representing a smaller percentage of participation in the mortgage loans than that represented by the certificate purchased by N. The result of this procedure is that FHLMC consolidated the purchase of mortgage participation interests from N into a single certificate and then broke the single certificate down into smaller certificates of its own which it sold in denominations of approximately $100,000 to other savings and loan associations and other qualified purchasers.

Under the facts and circumstances contemplated by Revenue Ruling 71-399, FHLMC purchased mortgage participation certificates from N having a face amount of approximately $100,000, with each such certificate representing an undivided interest in mortgage loans. FHLMC then issued a certificate corresponding to each mortgage participation certificate purchased from N and sold them at face value to qualified purchasers.

In the instant case, the only difference in the procedure used by FHLMC from that contemplated by Revenue Ruling 71-399 is that FHLMC consolidates into a single certificate the mortgage participation interests which it purchases from N. Thus, for example, FHLMC may purchase a single mortgage participation certificate in a denomination of $500,000 and then sell mortgage participation certificates in denominations of approximately $100,000 representing approximately five such certificates based on the single certificate purchased from N.

Based on the foregoing facts, it is held that the modification in procedures used by FHLMC from that contemplated by Revenue Ruling 71-399, as described herein, will not alter the Federal income tax consequences to FHLMC, purchasers, and sellers described in Revenue Ruling 71-399, provided that the $100,000 certificates sold by FHLMC bear sufficient identification so as to permit tracing them to the $500,000 certificates purchased by FHLMC from N to which they relate and to the underlying mortgages represented by the $500,000 certificates.

Revenue Ruling 71-399 is hereby amplified.