Real Estate Mortgage Investment Conduit
A conduit is short for a REMIC, which is the acronym for a Real Estate Mortgage Investment Conduit. About ten years ago Congress passed a law that said if a bunch of commercial mortgages were contributed to a trust, and the trust did not make new mortgages or modify the old ones, the trust could then issue bonds backed by the mortgages in the pool and the trust would not have to pay income taxes on the mortgage income. Only the bondholders would have to pay taxes on their interest income. This new tax law was huge. In effect, it created the wonderful commercial mortgage securitization market that thousands of commercial borrowers now enjoy. The trust described above is the REMIC; i.e., the conduit through which securitized commercial mortgages now pass tax-free. However, in the venacular of the industry, the mortgage bankers or investment banks that originate the commercial mortgages that go into the REMIC's are now called conduits or conduit lenders. Thus, the conduit is the financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documentation. Then, when sufficient volume has been obtained, the conduit pools the loans for sale to investors in the CMBS market.
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