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New IRS regulations won't end the crisis.

For the past 12 months, commercial mortgage-backed security servicers have told property owners not to call them until they were in default as tax regulations have dictated that real estate mortgage investment conduits (REMICs) could not modify their mortgage pools without tax penalties and the possible loss of REMIC status.

There is now much buzz around the move from the IRS and the Treasury to loosen the rules to allow for loan modifications and extensions, which should get borrowers and servicers working together earlier in the game. The changes took effect Sept. 16 and cover loans modified on or after Jan. 1, 2008. The rules allow for changes to the loans' collateral and guarantees, as well as give servicers the power to switch non-recourse mortgages to recourse.

However, the new regulations might only delay the problem, says Clint Myers, strategist with Boston-based Property & Portfolio Research. Plus, analysts are concerned about the potential of unnecessary modifications and loss of value for holders of highest rated CMBS securities if the new regulations allow forgiveness of principal debt or long-term extensions.

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