The Partnership Servicing module differs substantially from the
Collateralized Mortgage Obligations
module. Unlike the CMO model, in which certificate holders receive a predictable cash flow and
guaranteed rate of return, the partners in the partnership model are not guaranteed a predictable
cash flow or a specific rate of return. In fact, instead of interest payments, each partner
receives a distribution of cash; and the amount of cash distributed depends on the current
performance of the partnership and available cash.
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In the partnership model, each partner owns a percentage of the collateral pool of loans and
often the distributions include interest, principal, pass-through fees such as late charges
and prepayment penalties as well as income from other sources such as sale of real estate
and rental income. This is why partner's year-end tax reporting to the IRS must be in the
form of a Schedule K-1 while certificate holders in the CMO model receive a simpler 1099-INT
form reporting all interest paid during the calendar year.
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