PROSPECTUS SUPPLEMENT
(To Prospectus dated May 31, 2000)
$218,493,000 (Approximate)
Soundview Home Equity Loan Asset-Backed Certificates,
Series 2000-1
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
$148,081,000 Class A-1F 8.64% Pass-Through Rate $11,409,000 Class M-1 8.64% Pass-Through Rate
$ 43,601,000 Class A-1V Variable Pass-Through Rate $ 9,127,000 Class M-2 8.64% Pass-Through Rate
$ 6,275,000 Class B 8.64% Pass-Through Rate
</TABLE>
FINANCIAL ASSET SECURITIES CORP.
Depositor
______________
LITTON LOAN SERVICING LP
Servicer
______________
Consider carefully the risk factors beginning on page S-9 in this prospectus
supplement and on page 4 in the prospectus.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of Financial Asset Securities Corp., Greenwich
Capital Financial Products, Inc. or any of their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
Only the classes of certificates identified above are being offered by this
prospectus supplement and the accompanying prospectus.
The Certificates
o Represent ownership interests in a trust consisting primarily of a
pool of first lien and second lien home equity loans. The mortgage
loans will be segregated into two groups, one consisting of fixed-rate
home equity loans and one consisting of adjustable-rate and fixed-rate
home equity loans.
o The Class A-1F and Class A-1V Certificates will be senior
certificates.
o The Class M-1, Class M-2 and Class B Certificates are subordinate to
and provide credit enhancement for the Class A-1F and Class A-1V
Certificates.
o The Class A-1V Certificates will accrue interest at a rate equal to
one-month LIBOR plus a fixed margin, subject to a cap.
Credit Enhancement
o Overcollateralization - The aggregate principal balance of the
mortgage loans will exceed the aggregate principal balance of the
certificates. Certain excess interest received from the mortgage loans
in the trust will be applied as payments of principal on the offered
certificates to maintain a required level of overcollateralization.
o Crosscollateralization - Certain funds received on the mortgage loans
in one mortgage loan group may be available to pay the senior
certificates related to the other mortgage loan group.
o Subordination - The senior certificates will have a payment priority
over the subordinate certificates.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal
offense.
The offered certificates are being offered by Greenwich Capital Markets, Inc.
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the depositor with respect to
the offered certificates are expected to be approximately $216,772,351 plus
interest accrued on the Class A-1F, Class M-1, Class M-2 and Class B
Certificates, before deducting issuance expenses, estimated to be $500,000 See
"Method of Distribution" in this prospectus supplement.
Delivery of the offered certificates will be made in book-entry form through
the facilities of The Depository Trust Company, Clearstream, Luxembourg and
the Euroclear System on or about June 1, 2000.
GREEWICH CAPITAL
========-----------------------------------------------------------------------
May 31, 2000
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Prospectus Supplement Prospectus
Page Page
---- ----
<S> <C>
Summary of Terms.........................S-3 Risk Factors............................4
Risk Factors.............................S-9 The Trust Fund.........................10
The Mortgage Pool.......................S-16 Use of Proceeds........................15
The Originator..........................S-35 The Depositor..........................15
The Servicer............................S-37 Loan Program...........................16
The Pooling and Servicing Description of the
Agreement..............................S-39 Securities............................18
Description of the Certificates.........S-47 Credit Enhancement.....................27
Yield, Prepayment and Maturity Yield and Prepayment
Considerations.........................S-59 Considerations........................32
Use of Proceeds.........................S-71 The Agreements.........................35
Certain Material Federal Income Tax Certain Legal Aspects
Consequences...........................S-71 of the Loans..........................47
State Taxes.............................S-74 Certain Material Federal Income
Erisa Considerations....................S-74 Tax Considerations....................58
Legal Investment Considerations.........S-76 State Tax Considerations...............80
Method of Distribution..................S-76 ERISA Considerations...................80
Legal Matters...........................S-77 Legal Investment.......................84
Ratings.................................S-77 Method of Distribution.................84
Legal Matters..........................85
Financial Information..................85
Available Information..................85
Rating.................................86
Index of Defined Terms.................87
</TABLE>
<PAGE>
SUMMARY OF TERMS
o This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of an offering
of the offered certificates, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flow
priorities and other information to aid your understanding and is
qualified by the full description of these calculations, cash flow
priorities and other information in this prospectus supplement and the
accompanying prospectus. Some of the information consists of
forward-looking statements relating to future economic performance or
projections and other financial items. Forward-looking statements are
subject to a variety of risks and uncertainties that could cause actual
results to differ from the projected results. Those risks and
uncertainties include, among others, general economic and business
conditions, regulatory initiatives and compliance with governmental
regulations, and various other matters, all of which are beyond our
control. Accordingly, what actually happens may be very different from
what we predict in our forward-looking statements.
The Offered Certificates
On the closing date, the trust will issue seven classes of certificates, five
of which are being offered pursuant to this prospectus supplement and the
accompanying prospectus. The assets of the trust will consist of a pool of
2,984 fixed-rate and adjustable-rate mortgage loans with an aggregate
principal balance of approximately $228,191,383 as of May 1, 2000.
The offered certificates - the Class A-1F, Class A-1V, Class M-1, Class M-2
and Class B Certificates - will be book-entry securities clearing through The
Depository Trust Company (in the United States) or Clearstream, Luxembourg and
the Euroclear System (in Europe) in minimum denominations of $25,000.
Other Certificates
The trust will issue additional classes of certificates - the Class X and
Class R Certificates - that are not being offered to the public pursuant to
this prospectus supplement and the prospectus. The Class X and Class R
Certificates will not have original principal balances.
Cut-off Date
May 1, 2000.
Closing Date
On or about June 1, 2000.
The Depositor
Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700.
Servicer
Litton Loan Servicing LP, a subsidiary of C-BASS.
We refer you to "The Servicer" in this prospectus supplement for additional
information.
Trustee
U.S. Bank National Association.
We refer you to "The Pooling and Servicing Agreement--The Trustee" in this
prospectus supplement for additional information.
Designations
Each class of certificates will have different characteristics, some of which
are reflected in the following general designations.
o Class A Certificates
The Class A-1F and Class A-1V Certificates.
o Senior Certificates
The Class A Certificates.
o Subordinate Certificates
The Class M-1, Class M-2 and Class B Certificates.
o Offered Certificates
The senior and subordinate certificates.
o Fixed Rate Certificates
The Class A-1F Certificates and the subordinate certificates.
o Adjustable Rate Certificates
The Class A-1V Certificates.
o Residual Certificates
The Class R Certificates.
o Book-Entry Certificates
The offered certificates.
o Physical Certificates
The Class X and Class R Certificates.
o Loan Group 1
Fixed-rate mortgage loans.
o Loan Group 2
Fixed-rate mortgage loans and adjustable-rate mortgage loans (including
mortgage loans which bear interest at rates that are fixed for two or
three years before beginning to adjust).
Mortgage Loans
The mortgage loans were originated by affiliates of ContiFinancial
Corporation. In secondary market transactions, ContiFinancial Corporation or
its subsidiary, ContiMortgage Corporation, sold the mortgage loans to either
Greenwich Capital Financial Products, Inc. (referred to herein as GCFP) or
Credit-Based Asset Servicing and Securitization LLC (referred to herein as
C-BASS). C-BASS will sell its mortgage loans to GCFP on or prior to the
closing date. On the closing date, GCFP will sell the mortgage loans to the
depositor. The depositor will cause the mortgage loans to be assigned to the
trustee for the benefit of the certificateholders.
On the closing date the trust will acquire a pool of closed-end home equity
loans. Loan Group 1 consists of 2,512 closed-end home equity loans with an
aggregate outstanding principal balance as of the cut-off date of
approximately $184,590,588. Loan Group 2 consists of 472 closed-end home
equity loans with an aggregate outstanding principal balance as of the cut-off
date of approximately $43,600,796.
Loan Group 1 will consist of fixed-rate mortgage loans with the following
characteristics as of the cut-off date:
Loans With Prepayment
Penalties(1): 72.53%
Range of Remaining Term to Stated
Maturities(1): 48 to 360 months
Weighted Average Remaining Term
to Stated Maturity(1): 280 months
Range of Original Principal
Balances(1): $7,575 to $512,000
Average Original Principal
Balance(1): $74,255
Range of Outstanding Principal
Balances(1): $6,625 to $511,520
Average Outstanding Principal
Balance(1): $73,484
Range of Loan Rates(1): 5.990% to 15.100%
Weighted Average Loan Rate(1): 9.921%
Weighted Average Net Loan Rate(1): 9.156%
Geographic Concentrations in
Excess of 5%(1):
California 10.61%
Michigan 7.65%
New York 6.86%
Texas 6.49%
Florida 5.29%
Ohio 5.26%
Georgia 5.22%
Illinois 5.03%
______________
(1) Approximate
Loan Group 2 will consist of both adjustable-rate and fixed-rate mortgage
loans with the following aggregate characteristics:
Aggregate principal balance of
adjustable-rate mortgage loans(1): $37,956,122
Aggregate principal balance of
fixed-rate mortgage loans(1): $5,644,674
Loans With Prepayment
Penalties(1): 82.31%
Range of Remaining Term to Stated
Maturities(1): 46 to 359 months
Weighted Average Remaining Term
to Stated Maturity (1): 337 months
Range of Original Principal
Balances(1): $10,000 to $367,000
Average Original Principal
Balance(1): $92,968
Range of Outstanding Principal
Balances(1): $9,346 to $364,899
Average Outstanding Principal
Balance(1): $92,375
2/28 Loans (by outstanding
principal balance) 70.54%
3/27 Loans (by outstanding
principal balance) 14.94%
Current Range of Loan Rates(1): 5.990% to 15.500%
Current Weighted Average Loan
Rate(1): 9.769%
Current Weighted Average Net Loan
Rate(1): 8.964%
Weighted Average Gross Margin for
adjustable-rate mortgage loans(1): 6.434%
Weighted Average Maximum Loan
Rate for adjustable-rate mortgage
loans(1): 16.339%
Weighted Average Minimum Loan
Rate for adjustable-rate mortgage
loans(1): 9.651%
Weighted Average Initial Rate
Adjustment Cap for
adjustable-rate mortgage loans(1): 2.913%
Weighted Average Periodic Rate
Adjustment Cap for
adjustable-rate mortgage loans(1): 1.022%
Weighted Average Time Until Next
Adjustment Date for
adjustable-rate mortgage loans(1): 17 months
Geographic Concentrations in
Excess of 5%(1):
California 34.10%
Michigan 5.54%
______________
(1) Approximate
Distribution Dates
The trustee will make distributions on the certificates on the 25th day of
each calendar month beginning in June 2000. If the 25th day of a month is not
a business day, then the distribution will be made on the next business day.
Distributions on the certificates, other than the Class A-1V Certificates,
will be made to the holder of record as of the last day of the month prior to
the Distribution Date. Distributions on the Class A-1V Certificates will be
made to the holder of record as of the day preceding such date of
distribution.
Payments on the Certificates
Interest Payments
The pass-through rate for the offered certificates will be the per annum rates
specified below:
Class A-1F 8.64%
Class A-1V one-month LIBOR + 31 basis points
Class M-1 8.64%
Class M-2 8.64%
Class B 8.64%
The pass-through rate for the Class A-1V Certificates is subject to a cap
based on the weighted average of the net mortgage rates of the Group 2
mortgage loans. In no event will the pass-through rate for the Class A-1V
Certificates exceed 14% per annum.
The pass-through rates for the fixed rate certificates are subject to a cap
based on the lesser of the weighted average of the net mortgage rates of the
Group 1 mortgage loans and the Group 2 mortgage loans.
In addition, if the servicer fails to exercise its option to terminate the
trust as described below under "Optional Termination," the pass-through rates
on the offered certificates will be the per annum percentages indicated below,
subject to the caps discussed above:
Class A-1F 8.89%
Class A-1V one-month LIBOR + 62 basis points
Class M-1 8.89%
Class M-2 8.89%
Class B 8.89%
On each distribution date, each class of offered certificates is entitled to
receive interest that accrued on that class during the prior interest period
at the pass-through rate for that class.
The interest period for the fixed rate certificates is the prior calendar
month. Except for the first interest period, the interest period for the Class
A-1V Certificates is the period from the distribution date in the prior month
to the day prior to the current distribution date. The first interest period
with respect to the Class A-1V Certificates will begin on the closing date and
end on June 25, 2000.
Interest will be calculated for the fixed rate certificates on the basis of a
360-day year consisting of twelve 30-day months. Interest will be calculated
for the Class A-1V Certificates on the basis of the actual number of days in
the interest period, based on a 360-day year.
Principal Payments
Principal will be distributed to the offered certificates on each distribution
date in the amount and priority discussed under "Description of the
Certificates - Distribution Priorities" in this prospectus supplement.
Advances
The servicer will make a cash advance with respect to a delinquent payment of
principal and interest on an actuarial mortgage loan if the servicer
reasonably believes that the cash advance is recoverable from future payments
on that mortgage loan. The servicer is entitled to be reimbursed for any such
advance. In no event will the servicer be obligated to make an advance on a
simple interest mortgage loan or an advance on an actuarial mortgage loan if
title to the related mortgaged property is acquired by the trust in
foreclosure or by deed in lieu of foreclosure. Advances are intended to
maintain a regular flow of scheduled interest and principal payments on the
certificates and are not intended to guarantee or insure against losses.
We refer you to "The Pooling and Servicing Agreement--Advances" in this
prospectus supplement for additional information.
Optional Termination
The servicer may purchase all of the mortgage loans and retire the
certificates when the current principal balance of the mortgage loans in the
trust is less than 10% of the principal balance of the mortgage loans in the
trust as of the cut-off date.
We refer you to "The Pooling and Servicing Agreement--Termination; Purchase of
Mortgage Loans."
Credit Enhancement
1. Overcollateralization Provisions
On the closing date, the aggregate principal balance of the mortgage loans
will exceed the aggregate principal balance of the certificates. The mortgage
loans owned by the trust bear interest each month in an amount that in the
aggregate is expected to exceed the amount needed to pay monthly interest on
the offered certificates and certain trust expenses. This excess interest will
be applied to pay principal on the offered certificates in order to maintain
the required level of overcollateralization. The overcollateralization will be
available to absorb losses on the mortgage loans. The required level of
overcollateralization may increase or decrease over time. We cannot assure you
that sufficient interest will be generated by the mortgage loans to maintain
the required level of overcollateralization.
We refer you to "Description of the Certificates -- Overcollateralization
Provisions" in this prospectus supplement for additional information.
2. Crosscollateralization Provisions
Some funds available with respect to each loan group may be used to cover
shortfalls and to create overcollateralization with respect to the senior
certificates relating to the other loan group.
We refer you to "Description of the Certificates--Crosscollateralization
Provisions" in this prospectus supplement for additional information.
3. Subordination
There are two types of subordination features in this transaction:
o The senior certificates will have a payment priority over the subordinate
certificates. Each class of subordinate certificates will be subordinate
to each other class of subordinate certificates with a higher payment
priority.
o Losses that are realized when the unpaid principal balance on a mortgage
loan exceeds the proceeds recovered upon liquidation will first be
applied to reduce the overcollateralization amount. If there is no
overcollateralization at that time, losses on the mortgage loans will be
allocated to the subordinate certificates, in the reverse order of their
priority of payment, until the principal amount of the subordinate
certificates is reduced to zero.
Ratings
It is a condition of the issuance of the offered certificates that they be
assigned the following ratings by S&P, Moody's and Fitch:
S&P Moody's Fitch
Class Rating Rating Rating
----- ------ ------- ------
A-1F AAA Aaa AAA
A-1V AAA Aaa AAA
M-1 AA Aa2 AA
M-2 A A2 A
B BBB Baa2 BBB
A rating is not a recommendation to buy, sell or hold securities. These
ratings may be lowered or withdrawn at any time by any of the rating agencies.
We refer you to "Ratings" in this prospectus supplement for additional
information.
Tax Status
In the opinion of Brown & Wood LLP, for federal income tax purposes the trust,
exclusive of the assets held in the LIBOR carryover fund, will comprise
several "real estate mortgage investment conduits" ("REMICs") organized in a
tiered REMIC structure. Certain classes of certificates that are designated as
the regular certificates will constitute "regular interests" in the Master
REMIC. The Class R Certificates will represent the sole class of "residual
interests" in the Master REMIC and the sole class of residual interests in
each subsidiary REMIC.
The Class A-1V Certificates will also represent the right to receive payments
from the LIBOR carryover fund. This fund will be treated as an "outside
reserve fund" and the right to receive payments from such account will be
treated as contractual rights that are separate from their regular interests
for federal income tax purposes.
See "Certain Material Federal Income Tax Consequences" in this prospectus
supplement and "Certain Material Federal Income Tax Considerations" in the
prospectus.
ERISA Considerations
It is expected that the senior certificates may be purchased by a pension or
other employee benefit plan subject to the Employee Retirement Income Security
Act of 1974 or Section 4975 of the Internal Revenue Code of 1986, so long as
certain conditions are met. A fiduciary of an employee benefit plan must
determine that the purchase of a certificate is consistent with its fiduciary
duties under applicable law and does not result in a nonexempt prohibited
transaction under applicable law.
See "ERISA Considerations" in this prospectus supplement and in the
prospectus.
Legal Investment
The offered certificates will not be "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 because Loan
Group 1 and Loan Group 2 have second lien mortgage loans.
See "Legal Investment Considerations" in this prospectus supplement and "Legal
Investment" in the prospectus.
RISK FACTORS
The following information, which you should carefully consider, identifies
certain significant sources of risk associated with an investment in the
certificates. You should also carefully consider the information set forth
under "Risk Factors" in the prospectus.
Unpredictability of Prepayments and Effect on Yields
Borrowers may prepay their mortgage loans in whole or in part at any
time. We cannot predict the rate at which borrowers will repay their mortgage
loans. A prepayment of a mortgage loan generally will result in a prepayment
on the certificates.
o If you purchase your certificates at a discount and principal is
repaid slower than you anticipate, then your yield may be lower
than you anticipate.
o If you purchase your certificates at a premium and principal is
repaid faster than you anticipate, then your yield may be lower
than you anticipate.
o The rate of prepayments on the mortgage loans will be sensitive
to prevailing interest rates. Generally, if prevailing interest
rates decline significantly below the interest rates on the
fixed-rate mortgage loans, those mortgage loans are more likely
to prepay than if prevailing rates remain above the interest
rates on such mortgage loans. In addition, if interest rates
decline, adjustable-rate mortgage loan prepayments may increase
due to the availability of fixed-rate mortgage loans at lower
interest rates. Conversely, if prevailing interest rates rise
significantly, the prepayments on fixed-rate and
adjustable-rate mortgage loans are likely to decrease.
o Approximately 98.38% of the Group 2 adjustable-rate mortgage
loans (by aggregate principal balance of the Group 2
adjustable-rate mortgage loans as of the cut-off date) have
fixed interest rates for two or three years and then adjust.
These mortgage loans may have higher prepayments as they
approach their first adjustment dates because the borrowers may
want to avoid periodic changes to their monthly payments.
o Approximately 72.53% of the Group 1 mortgage loans and
approximately 82.31% of the Group 2 mortgage loans (by
aggregate principal balance of the related loan group as of the
cut-off date), require the mortgagor to pay a penalty if the
mortgagor prepays the mortgage loan during periods up to five
years after the mortgage loan was originated. A prepayment
penalty may discourage a mortgagor from prepaying the mortgage
loan during the applicable period. The holder of the Class X
Certificates will be entitled to all prepayment penalties
received on the mortgage loans, and such amounts will not be
available for distribution on the offered certificates. Under
certain circumstances, as described in the pooling and
servicing agreement, the servicer may waive the payment of any
otherwise applicable prepayment penalty. You should conduct
your own analysis of the effect, if any, that the prepayment
penalties, and decisions by the servicer with respect to the
waiver of such penalties, may have on the prepayment
performance of the mortgage loans.
o GCFP or C-BASS may be required to purchase mortgage loans from
the trust in the event certain breaches of representations and
warranties have not been cured. In addition, the servicer has
the option to purchase mortgage loans that become sixty days or
more delinquent. These purchases will have the same effect on
the holders of the offered certificates as a prepayment of the
mortgage loans.
o If the rate of default and the amount of losses on the mortgage
loans is higher than you expect, then your yield may be lower
than you expect.
See "Yield, Prepayment and Maturity Considerations" for a description of
factors that may influence the rate and timing of prepayments on the mortgage
loans.
Insolvency of the Originator Could Cause Payment Delays
The mortgage loans were originated by one or more affiliates of
ContiFinancial Corporation (each, an "Originator"). On May 17, 2000,
ContiFinancial Corporation and several of its subsidiaries ("Conti"),
including ContiMortgage Corporation, filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of New York. The transfers of the mortgage loans
from ContiFinancial Corporation or ContiMortgage Corporation to GCFP and
C-BASS, as applicable, occurred prior to the filing of the bankruptcy
petition.
Each of GCFP and C-BASS believes that the respective transfers of the
mortgage loans and the related servicing rights by ContiFinancial Corporation
or its subsidiary, ContiMortgage Corporation, to it constitutes a sale and,
accordingly, that the mortgage loans and the related servicing rights will not
be property of Conti's bankruptcy estate and will not be available to the
creditors of Conti. Nevertheless, the bankruptcy trustee, Conti or a creditor
of Conti may argue that one or more of the transfers of the mortgage loans
between ContiFinancial Corporation or ContiMortgage Corporation and either
GCFP or C-BASS was a pledge of such loans and servicing rights in connection
with a borrowing by ContiFinancial Corporation or ContiMortgage Corporation
rather than a true sale. Such an attempt, even if unsuccessful, could result
in delays in distributions on the certificates. Additionally, the trust may
incur costs and expenses in defending claims asserted by these entities that
attempt to recharacterize the sale of the mortgage loans. This may result in
shortfalls in distributions to certificateholders.
Each of GCFP and C-BASS has represented that as of the closing date it
held good title to the mortgage loans. Any breach of that representation will
require that entity to repurchase the affected mortgage loan from the trust or
substitute that mortgage loan for another mortgage loan.
There are Risks Inherent in the Nature of the Mortgage Loans
Each Originator's underwriting standards are less restrictive than those
of Fannie Mae or Freddie Mac with respect to a borrower's credit history and
other factors. A derogatory credit history or a lack of credit history will
not necessarily prevent an Originator from making a loan but may reduce the
size and the loan-to-value ratio of the loan such Originator will make. As a
result of these less restrictive standards, the trust may experience higher
rates of delinquencies, defaults and losses than if the mortgage loans were
underwritten in accordance with Fannie Mae or Freddie Mac guidelines.
Balloon Loan Risk
Balloon loans pose a risk because a borrower must make a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance such amount, you may suffer a loss.
Approximately 19.50% of the mortgage loans in Loan Group 1 and approximately
2.22% of the mortgage loans in Loan Group 2 (by aggregate principal balance of
the related loan group as of the cut-off date) are balloon loans.
There are Risks Relating to Alternatives to Foreclosure
Some of the mortgage loans are delinquent as of the closing date. Other
mortgage loans may become delinquent after the closing date. The servicer may
either foreclose on any such mortgage loan or work out an agreement with the
mortgagor, which may involve waiving or modifying any term of the mortgage
loan. If the servicer extends the payment period or accepts a lesser amount
than stated in the mortgage note in satisfaction of the mortgage note, your
yield may be reduced.
There is a Risk that There May be a Delay in Receipt of Liquidation Proceeds
and Liquidation Proceeds May Be Less than the Mortgage Loan Balance
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such
as legal fees, real estate taxes and maintenance and preservation expenses
will reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the available credit enhancement is
insufficient to cover the loss.
Approximately 6.69% of the mortgage loans in Loan Group 1 and
approximately 2.27% of the mortgage loans in Loan Group 2 (by aggregate
principal balance of the related loan group as of the cut-off date) are
secured by second liens on the related property. If a borrower on a mortgage
loan secured by a second lien defaults, the trust's rights to proceeds on
liquidation of the related property are subordinate to the rights of the
holder of the first lien on the related property. There may not be enough
proceeds to pay both the first lien and the second lien, and the trust would
suffer a loss.
Origination Disclosure Practices for the Mortgage Loans Could Create
Liabilities that May Affect Your Certificates
In 1995, the Home Ownership and Equity Protection Act ("HOEPA") was
adopted, which requires that mortgage lenders comply with special rules,
disclosure requirements and other specific provisions with respect to
so-called "high cost" mortgage loans. High cost mortgage loans subject to
HOEPA include loans which have an annual percentage rate or aggregate fees,
costs and expenses in excess of specified amounts. Which fees, costs and
expenses are required to be included or excluded for purposes of HOEPA is
subject to interpretation.
Purchasers and assignees of "high cost" mortgage loans, including the
trust, will be exposed to all claims and defenses that mortgagors are entitled
to assert against the originators of such loans. Violation of HOEPA subjects a
mortgage lender to monetary penalties, and provides mortgagors with certain
recission rights.
None of the mortgage loans in Loan Group 1 and approximately 13.24% of
the mortgage loans in Loan Group 2 (by aggregate principal balance of the
related loan group as of the cut-off date) have been identified as being "high
cost" mortgage loans which are subject to HOEPA.
In addition, if certain fees, costs and expenses excluded by the
originator are determined to have been required to be included with respect to
any mortgage loans, such mortgage loans may be determined to have been
originated in violation of HOEPA, and other federal and state law. If the
inclusion of such excluded fees, costs and expenses would cause such mortgage
loans to be subject to HOEPA, the originator, and ultimately the trust as a
purchaser of such loans, may be liable for the originator's failure to comply
with such statute. GCFP or C-BASS will be required to cure, repurchase or
substitute for any mortgage loan the origination of which violated HOEPA or
any other federal or state law.
Potential Inadequacy of Credit Enhancement for the Senior Certificates
The credit enhancement features described in the summary are intended to
enhance the likelihood that holders of the senior certificates and the
subordinate certificates with higher payment priorities will receive regular
payments of interest and principal.
If delinquencies or defaults occur on the mortgage loans, neither the
servicer nor any other entity will advance scheduled monthly payments of
interest and principal on delinquent or defaulted actuarial mortgage loans if
such advances are not likely to be recovered. The servicer will not advance
scheduled monthly payments of principal and interest on simple interest
mortgage loans. We cannot assure you that the applicable credit enhancement
will adequately cover any shortfalls in cash available to pay your
certificates as a result of such delinquencies or defaults.
If substantial losses occur as a result of defaults and delinquent
payments on the mortgage loans, you may suffer losses.
Interest Payments May be Insufficient To Pay Interest on the Certificates
When a mortgage loan is prepaid in full, the borrower is charged interest
only up to the date on which payment is made, rather than for an entire month.
This may result in a shortfall in interest collections available for payment
on the next distribution date. The servicer is required to cover a portion of
the shortfall in interest collections that are attributable to prepayments in
full, but only up to one-half of the servicer's servicing fee for the related
interest period. If the available credit enhancement is insufficient to cover
this shortfall in excess of one-half of the servicing fee, you may incur a
loss.
In addition, certain shortfalls in interest collections arising from the
application of the Soldiers' and Sailors' Civil Relief Act of 1940 will not be
covered by the servicer.
Interest Payments May Be Insufficient to Maintain Overcollateralization
Because the weighted average of the interest rates on the mortgage loans
in each loan group is expected to be higher than the pass-through rates on the
certificates, the mortgage loans are expected to generate more interest than
is needed to pay interest owed on the certificates as well as certain fees and
expenses of the trust. After certain fees and expenses of the trust are paid,
the available excess interest will be used first to compensate for losses that
occur on the mortgage loans and then to maintain the overcollateralization
level required by the rating agencies. We cannot assure you, however, that
enough excess interest will be generated to maintain the overcollateralization
level required by the rating agencies.
Limitations on Pass-Through Rates Will Affect Your Yield to Maturity
The rate at which interest accrues on each class of offered certificates
is subject to a rate cap that differs by loan group. The rate cap for those
offered certificates, other than the Class A-1V Certificates, is the lesser of
the weighted average of the net mortgage rates for either loan group, and the
rate cap for the Class A-1V Certificates is the weighted average of the net
mortgage rates for Loan Group 2. Each weighted average net mortgage rate is
based on the weighted average of the interest rates on the mortgage loans in
the related loan group, net of specified fees and expenses. If mortgage loans
with relatively higher loan rates prepay, the maximum rate on the related
classes of offered certificates will be lower than otherwise would be the
case.
Your investment in the Class A-1V Certificates also involves the risk
that the level of one-month LIBOR may change in a direction or at a rate that
is different from the level of the index used to determine the interest rates
on the Group 2 adjustable-rate mortgage loans.
Risks of Holding Subordinate Certificates
The protections afforded the senior certificates in this transaction
create risks for the subordinate certificates. Prior to any purchase of
subordinate certificates, consider the following factors that may adversely
impact your yield:
o Because the subordinate certificates receive interest and
principal distributions after the senior certificates receive
such distributions, there is a greater likelihood that the
subordinate certificates will not receive the distributions to
which they are entitled on any distribution date.
o If a simple interest mortgage loan becomes delinquent or the
servicer determines not to advance a delinquent payment on an
actuarial mortgage loan because such amount is not recoverable
from a mortgagor, there may be a shortfall in distributions on
the certificates which will impact the subordinate
certificates.
o The subordinate certificates are not expected to receive
principal distributions until, at the earliest, June 2003.
o Losses resulting from the liquidation of defaulted mortgage
loans will first be covered by excess interest and then reduce
the level of overcollateralization. If there is no
overcollateralization, losses will be allocated to the
subordinate certificates in reverse order of their priority of
payment. A loss allocation results in a reduction in a
certificate balance without a corresponding distribution of
cash to the holder. A lower certificate balance will result in
less interest accruing on the certificate.
o The earlier in the transaction that a loss on a mortgage loan
occurs, the greater the impact on yield.
The risks described above for the subordinate certificates will affect
the Class B Certificates most severely, then the Class M-2 Certificates and
then the Class M-1 Certificates.
Please review "Description of the Certificates" and "Yield, Prepayment
and Maturity Considerations" in this prospectus supplement for more detail.
High Loan-to-Value Ratios Increase Risk of Loss
Mortgage loans with higher loan-to-value ratios may present a greater
risk of loss than mortgage loans with loan-to-value ratios of 80% or below.
Approximately 11.77% of the mortgage loans in Loan Group 1 and approximately
11.65% of the mortgage loans in Loan Group 2 (by aggregate principal balance
of the related loan group as of the cut-off date), had a loan-to-value ratio
in excess of 80% at origination (or, in the case of the mortgage loans that
are secured by second liens, a combined loan-to-value ratio in excess of 80%
at origination) and, if the mortgage is secured by a first lien, do not have
primary mortgage insurance.
Geographic Concentration
The following chart lists the states with concentrations of mortgage
loans for each loan group in excess of 5% of the aggregate principal balance
of the mortgage loans in each loan group as of the cut-off date.
Loan Group 1 Loan Group 2
---------------------------- ------------------------------
California 10.61% California 34.10%
Michigan 7.65% Michigan 5.54%
New York 6.86%
Texas 6.49%
Florida 5.29%
Ohio 5.26%
Georgia 5.22%
Illinois 5.03%
If these states experience in the future weaker economic conditions or
greater rates of decline in real estate values than the United States
generally, then the mortgage loans may experience higher rates of delinquency
and foreclosure then would otherwise be the case.
Lack of Liquidity
The underwriter intends to make a secondary market in the offered
certificates, but has no obligation to do so. There is no assurance that such
a secondary market will develop or, if it develops, that it will continue.
Consequently, you may not be able to sell your certificates readily or at
prices that will enable you to realize your desired yield. The market values
of the certificates are likely to fluctuate; these fluctuations may be
significant and could result in significant losses to you.
The secondary markets for mortgage-backed securities have experienced
periods of illiquidity and can be expected to do so in the future. Illiquidity
can have a severely adverse effect on the prices of securities that are
especially sensitive to prepayment, credit, or interest rate risk, or that
have been structured to meet the investment requirements of limited categories
of investors.
Consequences of Owning Book-Entry Certificates
Limit on Liquidity of Certificates. Issuance of the offered certificates
in book-entry form may reduce the liquidity of such certificates in the
secondary trading market since investors may be unwilling to purchase
certificates for which they cannot obtain physical certificates.
Limit on Ability to Transfer or Pledge. Since transactions in the
book-entry certificates can be effected only though certain depositories,
participating organizations, indirect participants and certain banks, your
ability to transfer or pledge a book-entry certificate to persons or entities
that are not affiliated with these organizations or otherwise to take actions
in respect of such certificates, may be limited due to lack of a physical
certificate representing the book-entry certificates.
Delays in Distributions. You may experience some delay in the receipt of
distributions on the book-entry certificates since the distributions will be
forwarded by the trustee to a depository to credit the accounts of its
participants which will thereafter credit them to your account either directly
or indirectly through indirect participants, as applicable.
Please review "Description of the Certificates - Book-Entry Certificates"
in this prospectus supplement for more detail.
<PAGE>
THE MORTGAGE POOL
Certain information with respect to the mortgage loans to be included in
each loan group is set forth herein. Prior to the closing date, mortgage loans
may be removed from a loan group and other mortgage loans may be substituted
therefor. The depositor believes that the information set forth herein with
respect to each loan group as presently constituted is representative of the
characteristics of each loan group as it will be constituted at the closing
date, although certain characteristics of the mortgage loans in a loan group
may vary.
General
The assets included in the trust fund will consist of a pool of 2,984
closed-end, fixed-rate and adjustable-rate home equity loans (the "Mortgage
Pool") having original terms to maturity ranging from 60 to 360 months and an
aggregate principal balance as of May 1, 2000, referred to as the cut-off
date, of approximately $228,191,383 net of scheduled payments due on such
date, whether or not received. All mortgage loan statistics set forth herein
are based on principal balances, interest rates, terms to maturity, mortgage
loan counts and similar statistics as of the cut-off date. All weighted
averages specified herein are based on the principal balances of the mortgage
loans in the related loan group as of the cut-off date (each, a "Cut-off Date
Principal Balance"). The "principal balance" of a mortgage loan, as of any
date, is equal to the principal balance of such mortgage loan at its
origination, less the sum of scheduled and unscheduled payments in respect of
principal made on such mortgage loan as of such date. References to
percentages of the mortgage loans mean percentages based on the aggregate of
the Cut-off Date Principal Balances of the mortgage loans in the related loan
group, unless otherwise specified. The "Pool Balance" is equal to the
aggregate principal balances of the mortgage loans in both loan groups.
The mortgage loans were originated by one or more affiliates of
ContiFinancial Corporation (each, an "Originator") in accordance with the
underwriting standards as described in "The Originator - Credit and
Underwriting Standards." Prior to the transfer of the mortgage loans by the
depositor to the trust, each mortgage loan was transferred by ContiFinancial
Corporation or ContiMortgage Corporation to GCFP or C-BASS, as described
herein under "The Pooling and Servicing Agreement - Assignment of the Mortgage
Loans."
GCFP has re-underwritten approximately 100% of the mortgage loans
acquired by it from ContiFinancial Corporation in accordance with the
standards set forth in "The Originator - Credit and Underwriting Standards."
C-BASS has re-underwritten approximately 42.5% of the mortgage loans acquired
by it from ContiMortgage Corporation, in accordance with the standards set
forth in "The Originator - Credit and Underwriting Standards."
The mortgage pool will consist of two loan groups ("Loan Group 1" and
"Loan Group 2"). The mortgage loans in Loan Group 1 consist of 2,512
fixed-rate mortgage loans with an aggregate principal balance (the "Group 1
Loan Balance") of approximately $184,590,588 as of the cut-off date. The
mortgage loans in Loan Group 2 consist of 472 adjustable-rate and fixed-rate
mortgage loans with an aggregate principal balance (the "Group 2 Loan
Balance"), of approximately $43,600,796 as of the cut-off date. The
adjustable-rate mortgage loans in Loan Group 2 consist of 329 adjustable-rate
mortgage loans with an aggregate principal balance of approximately
$37,956,122 as of the cut-off date. The fixed-rate mortgage loans in Loan
Group 2 consist of 143 fixed-rate mortgage loans with an aggregate principal
balance of approximately $5,644,674 as of the cut-off date.
Approximately 11.38% of the Group 1 mortgage loans and approximately
2.96% of the Group 2 mortgage loans (by aggregate principal balance of the
related loan group as of the cut-off date) accrue interest on a simple
interest basis. These mortgage loans are referred to in this prospectus
supplement as the simple interest mortgage loans. Interest on a simple
interest mortgage loan is charged to a borrower on the outstanding principal
balance of the mortgage loan based on the number of days elapsed between the
date through which interest was last paid on the mortgage loan through receipt
of the borrower's most current monthly payment and the portion of each monthly
payment that is allocated to interest and principal is adjusted based on the
actual amount of interest charged on such basis. The remaining mortgage loans,
referred to in this prospectus supplement as the actuarial mortgage loans,
accrue interest based on a 360-day year of twelve 30-day months.
The "Loan-to-Value Ratio" for any mortgage loan as of any date of
determination, is equal to:
o the sum of the balance of the mortgage on the mortgaged property
plus, with respect to any second lien mortgage loan, the balance of
the lien, if any, on the mortgaged property that is senior to the
mortgage,
o divided by the lesser of (a) the value of the related mortgaged
property or (b) the purchase price of the mortgaged property if the
proceeds of the mortgage loan are used to purchase the mortgaged
property.
Group 1 Mortgage Loans Statistics
Loan Group 1 consists of 2,512 fixed-rate mortgage loans. The Group 1
Loan Balance as of the cut-off date is equal to approximately $184,590,588.
The Group 1 mortgage loans have original terms to maturity ranging from 60
months to 360 months. The following statistical information, unless otherwise
specified, is based upon the Group 1 Loan Balance as of the cut-off date.
Approximately 67.71% of the Group 1 mortgage loans have scheduled monthly
payments due on a day in the month, other than the first day, and the
remaining mortgage loans have scheduled monthly payments due on the first day
of the month. Approximately 93.31% of the Group 1 mortgage loans are secured
by first liens, and approximately 6.69% of the Group 1 mortgage loans are
secured by second liens.
As of the cut-off date, approximately 4.77% of the Group 1 mortgage loans
were between 30 and 59 days past due and approximately 1.92% of the Group 1
mortgage loans were between 60 and 89 days past due. As of the cut-off date,
no Group 1 mortgage loan is more than 89 days past due.
Approximately 72.53% of the Group 1 mortgage loans provide for payment by
the mortgagor of a prepayment charge in limited circumstances on certain
prepayments. Generally, each such Group 1 mortgage loan provides for payment
of a prepayment charge on certain partial prepayments and all prepayments in
full made for the period specified in the related mortgage note which
generally does not exceed five years from the date of origination of such
Group 1 mortgage loan. The amount of the prepayment charge is provided in the
related mortgage note.
There are 484 Group 1 mortgage loans (representing approximately 19.50%
of the Group 1 Loan Balance) that are balloon loans. The monthly payment for
each balloon loan is based on an amortization schedule ranging from 180 months
to 360 months, except for the final payment, referred to as the balloon
payment, which is due and payable between the 90th month and the 180th month
following origination of such mortgage loan, depending on the terms of the
related mortgage note. With respect to the majority of these balloon loans,
the monthly payments for such balloon loans amortize over 360 months, but the
balloon payment is due on the 180th month. The amount of the balloon payment
on each balloon loan which represents the entire remaining principal balance
is substantially in excess of the amount of the scheduled monthly payment for
such mortgage loan.
Each Group 1 mortgage loan accrues interest at a rate, referred to as a
loan rate, of not less than 5.990% per annum and not more than 15.l00% per
annum and as of the cut-off date the weighted average loan rate of the Group 1
mortgage loans was approximately 9.921% per annum. The net loan rates of the
Group 1 mortgage loans range from 5.481% per annum to 14.591% per annum and as
of the cut-off date the weighted average net loan rate of the Group 1 mortgage
loans was approximately 9.156% per annum. The net loan rate of a mortgage loan
is the loan rate of that mortgage loan minus the sum of the servicing fee rate
and the rate at which the trustee fee accrues.
The weighted average remaining term to maturity of the Group 1 mortgage
loans is approximately 280 months as of the cut-off date. None of the Group 1
mortgage loans had a first due date prior to May 1989 or after May 2000 or a
remaining term to maturity of less than 48 months or greater than 360 months
as of the cut-off date. The month of the latest maturity date of any Group 1
mortgage loan is April 2030.
The average principal balance of the Group 1 mortgage loans at
origination was approximately $74,255. The average Cut-off Date Principal
Balance of the Group 1 mortgage loans was approximately $73,484.
No Group 1 mortgage loan had a Cut-off Date Principal Balance of greater
than approximately $511,520 or less than approximately $6,625.
The Group 1 mortgage loans are expected to have the following
characteristics as of the cut-off date (the sum in any column may not equal
the total indicated due to rounding):
<PAGE>
<TABLE>
<CAPTION>
Cut-off Date Principal Balances of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance
Number of Principal Balance of Loan Group
Mortgage Outstanding as of Outstanding as of
Principal Balance ($) Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
6,624 - 50,000.................... 965 $32,696,354.85 17.71%
50,001 - 100,000.................... 1,029 71,923,312.76 38.96
100,001 - 150,000.................... 330 39,815,758.93 21.57
150,001 - 200,000.................... 111 19,344,912.83 10.48
200,001 - 250,000.................... 33 7,310,141.76 3.96
250,001 - 300,000.................... 26 7,174,046.90 3.89
300,001 - 400,000.................... 16 5,399,025.72 2.92
400,001 - 500,000.................... 1 415,513.80 0.23
500,001 - 511,521.................... 1 511,520.30 0.28
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) The average Cut-off Date Principal Balance of the Group 1 mortgage loans was approximately $73,484.
</TABLE>
<TABLE>
<CAPTION>
Original Terms to Maturity of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance
Number Principal Balance of Loan Group
of Mortgage Outstanding as of Outstanding as of
Original Term (months) Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
60 .......................... 6 $ 175,563.24 0.10%
61 - 120.......................... 100 3,543,435.50 1.92
121 - 180.......................... 896 55,613,156.51 30.13
181 - 240.......................... 311 17,322,761.91 9.38
241 - 300.......................... 20 1,656,574.57 0.90
301 - 360.......................... 1,179 106,279,096.12 57.58
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) The weighted average original term to maturity of the Group 1 mortgage loans was approximately 289 months.
</TABLE>
<PAGE>
Property Types of the Group 1 Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
Number Principal Balance of Loan Group
of Mortgage Outstanding as of Outstanding as of
Property Type Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Single Family........................... 2,240 $163,017,505.19 88.31%
Two- to Four-Family..................... 133 11,521,806.48 6.24
PUD(1).................................. 55 4,500,888.27 2.44
Manufactured Home....................... 41 2,679,063.73 1.45
Condominium............................. 22 1,010,185.77 0.55
Townhouse............................... 11 678,837.94 0.37
Multifamily............................. 6 636,779.22 0.34
Mixed Use............................... 3 401,529.18 0.22
Commercial.............................. 1 143,992.07 0.08
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) PUD refers to a Planned Unit Development.
</TABLE>
<TABLE>
<CAPTION>
Occupancy Status of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Occupancy Status of Mortgage Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Primary................................. 2,332 $173,913,326.89 94.22%
Non-owner............................... 99 5,265,865.35 2.85
Investor................................ 76 5,144,576.65 2.79
Second Home............................. 5 266,818.96 0.14
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) Based on representations made by the mortgagors at the time of origination.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Purpose of the Group 1 Mortgage Loans
% of Aggregate
Principal Balance
Number Principal Balance of Loan Group
of Mortgage Outstanding as of Outstanding as of
Purpose Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Cash-Out Refinance...................... 2,023 $144,451,449.98 78.26%
Rate/Term Refinance..................... 312 25,294,480.41 13.70
Purchase................................ 121 10,856,940.82 5.88
Home Improvement........................ 56 3,987,716.64 2.16
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
</TABLE>
<TABLE>
<CAPTION>
Loan Rates of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Loan Rate (%) of Mortgage Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
5.99 - 6.00........................ 1 $ 248,602.79 0.13%
6.01 - 6.50........................ 1 65,809.11 0.04
6.51 - 7.00........................ 5 422,881.13 0.23
7.01 - 7.50........................ 12 1,453,999.91 0.79
7.51 - 8.00........................ 73 7,025,277.85 3.81
8.01 - 8.50........................ 136 13,525,577.85 7.33
8.51 - 9.00........................ 272 25,876,536.68 14.02
9.01 - 9.50........................ 294 24,829,640.91 13.45
9.51 - 10.00........................ 456 35,199,798.29 19.07
10.01 - 10.50........................ 321 24,263,646.28 13.14
10.51 - 11.00........................ 348 21,737,716.49 11.78
11.01 - 11.50........................ 233 12,560,525.36 6.80
11.51 - 12.00........................ 166 8,652,571.78 4.69
12.01 - 12.50........................ 68 2,998,481.88 1.62
12.51 - 13.00........................ 59 2,574,239.57 1.39
13.01 - 13.50........................ 30 1,513,139.27 0.82
13.51 - 14.00........................ 16 628,344.85 0.34
14.01 - 14.50........................ 7 210,740.25 0.11
14.51 - 15.00........................ 13 695,276.16 0.38
15.01 - 15.50........................ 1 107,781.44 0.06
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) The weighted average loan rate of the Group 1 mortgage loans as of the cut-off date was approximately 9.921% per annum.
</TABLE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance
Number Principal Balance of Loan Group
of Mortgage Outstanding as of Outstanding as of
Original Loan-to-Value Ratio (%) Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Less than 60.01......................... 222 $ 13,359,124.35 7.24%
60.01 - 65.00....................... 95 5,421,204.35 2.94
65.01 - 70.00....................... 176 13,413,246.40 7.27
70.01 - 75.00....................... 306 22,227,699.20 12.04
75.01 - 80.00....................... 608 48,721,786.70 26.39
80.01 - 85.00....................... 573 44,149,877.81 23.92
85.01 - 90.00....................... 486 35,077,724.08 19.00
90.01 - 95.00....................... 31 1,715,099.71 0.93
95.01 - 100.00....................... 14 488,858.17 0.26
100.01 - 100.71....................... 1 15,967.08 0.01
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) The weighted average original Loan-to-Value Ratio of the Group 1 mortgage loans as of the cut-off date was approximately
78.53%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Group 1 Mortgaged Properties(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Location of Mortgage Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Alaska................................. 2 $ 139,283.89 0.08%
Arizona................................ 71 5,992,835.19 3.25
Arkansas............................... 11 619,892.13 0.34
California............................. 160 19,578,831.77 10.61
Colorado............................... 62 5,731,339.25 3.10
Connecticut............................ 17 1,183,901.98 0.64
Delaware............................... 7 601,841.34 0.33
District of Columbia................... 7 607,902.28 0.33
Florida................................ 163 9,757,914.77 5.29
Georgia................................ 141 9,630,924.96 5.22
Idaho.................................. 1 52,767.70 0.03
Illinois............................... 142 9,290,864.13 5.03
Indiana................................ 104 6,048,409.88 3.28
Iowa................................... 14 1,172,118.50 0.63
Kansas................................. 21 1,269,934.86 0.69
Kentucky............................... 53 3,485,427.62 1.89
Louisiana.............................. 20 1,088,728.12 0.59
Maine.................................. 12 726,234.87 0.39
Maryland............................... 46 3,138,669.79 1.70
Massachusetts.......................... 75 5,594,789.46 3.03
Michigan............................... 218 14,121,880.77 7.65
Minnesota.............................. 29 1,926,709.63 1.04
Mississippi............................ 21 1,173,138.29 0.64
Missouri............................... 52 3,258,186.14 1.77
Nebraska............................... 12 578,983.33 0.31
Nevada................................. 13 1,425,619.97 0.77
New Hampshire.......................... 24 1,655,679.23 0.90
New Jersey............................. 72 7,703,319.40 4.17
New Mexico............................. 42 2,979,118.38 1.61
New York............................... 151 12,669,978.07 6.86
North Carolina......................... 102 6,456,217.83 3.50
North Dakota........................... 1 63,782.89 0.03
Ohio................................... 133 9,717,747.37 5.26
Oklahoma............................... 20 1,048,894.11 0.57
Oregon................................. 24 2,236,739.36 1.21
Pennsylvania........................... 134 8,997,719.66 4.87
Rhode Island........................... 9 546,980.71 0.30
South Carolina......................... 28 1,949,672.66 1.06
South Dakota........................... 1 91,950.77 0.05
Tennessee.............................. 26 1,435,550.39 0.78
Texas.................................. 171 11,985,360.88 6.49
Utah................................... 9 598,625.14 0.32
Virginia............................... 24 1,379,951.32 0.75
Washington............................. 30 2,970,189.44 1.61
West Virginia.......................... 19 951,106.10 0.52
Wisconsin.............................. 18 954,873.52 0.52
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) The greatest ZIP Code geographic concentration of Group 1 mortgage loans, by Group 1 Loan Balance as of the cut-off date,
was approximately 0.39% in the 07470 ZIP Code.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Documentation Level of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Documentation Level of Mortgage Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Full Documentation...................... 2,307 $165,038,617.08 89.41%
Limited Documentation................... 129 12,451,264.58 6.75
Stated Documentation.................... 56 5,082,194.83 2.75
Alternative Documentation............... 12 1,252,480.85 0.68
No Documentation........................ 8 766,030.51 0.41
------------------ ----------------------- ---------------------
Total.............................. 2,512 $184,590,587.85 100.00%
================== ======================= =====================
______________
(1) For a description of each documentation level, see "The Originator - Credit and Underwriting Guidelines" herein.
</TABLE>
Group 2 Mortgage Loans Statistics
Loan Group 2 consists of 472 adjustable-rate and fixed-rate mortgage
loans. The Group 2 Loan Balance as of the cut-off date is equal to
approximately $43,600,796 of which $37,956,122 represents adjustable-rate
mortgage loans and $5,644,674 represents fixed-rate mortgage loans. The Group
2 mortgage loans have original terms to maturity ranging from 60 to 360
months. The following statistical information, unless otherwise specified, is
based upon the Group 2 Loan Balance as of the cut-off date.
Approximately 49.87% of the Group 2 mortgage loans have due dates on a
day in the month, other than the first day, and the remaining mortgage loans
have scheduled monthly payments due on the first day of the month.
Approximately 97.73% of the Group 2 mortgage loans are secured by first liens,
and approximately 2.27% of the Group 2 mortgage loans are secured by second
liens. Approximately 2.22% of the Group 2 mortgage loans are balloon loans.
As of the cut-off date, approximately 8.64% of the Group 2 mortgage loans
were between 30 and 59 days past due and approximately 2.86% of the Group 2
mortgage loans were between 60 and 89 days past due. As of the cut-off date,
no Group 2 mortgage loan is more than 89 days past due.
Approximately 82.31% of the Group 2 mortgage loans provide for payment by
the mortgagor of a prepayment charge in limited circumstances on certain
prepayments. Generally, each such Group 2 mortgage loan provides for payment
of a prepayment charge on certain partial prepayments and all prepayments in
full made for the period specified in the related mortgage note which
generally does not exceed five years from the date of origination of such
Group 2 mortgage loan. The amount of the prepayment charge is provided in the
related mortgage note.
There are 24 Group 2 fixed-rate mortgage loans (representing
approximately 17.17% of the Group 2 fixed-rate mortgage loans) that are
balloon loans. The monthly payment for each balloon loan is based on an
amortization schedule equal to 360 months, except for the final payment,
referred to as the balloon payment, which is due and payable on the 180th
month following origination of such mortgage loan. The amount of the balloon
payment on each balloon loan which represents the entire remaining principal
balance is substantially in excess of the amount of the scheduled monthly
payment for such mortgage loan.
The weighted average remaining term to maturity of the Group 2 mortgage
loans will be approximately 337 months as of the cut-off date. None of the
Group 2 mortgage loans had a first due date prior to December 1995 or after
May 2000 or will have a remaining term to maturity of less than 46 months or
greater than 359 months as of the cut-off date. The month of the latest
maturity date of any Group 2 mortgage loan is April 2030.
The average principal balance of the Group 2 mortgage loans at
origination was approximately $92,968. No Group 2 mortgage loan had a Cut-off
Date Principal Balance of greater than approximately $364,899 or less than
approximately $9,346. The average Cut-off Date Principal Balance of the Group
2 mortgage loans was approximately $92,375.
Generally, the Group 2 adjustable-rate mortgage loans provide for
adjustment to the loan rate thereon and for corresponding adjustments to the
monthly payment amount due thereon, in each case on each adjustment date
applicable thereto (each such date, an "Adjustment Date"); provided, that the
first adjustment for such mortgage loans will occur after an initial period of
two years and annually thereafter, in the case of 0.19% of the Group 2
adjustable-rate mortgage loans, two years and semi-annually thereafter, in the
case of 81.03% of the Group 2 adjustable-rate mortgage loans (referred to as
2/28 loans) and three years and semi-annually thereafter, in the case of
17.16% of the Group 2 adjustable-rate mortgage loans (referred to as 3/27
loans). On each Adjustment Date, the loan rate thereon will be adjusted to
equal the sum, rounded to the nearest multiple of 0.125%, of the index
applicable to determining the loan rate on that mortgage loan (the "Index")
and a fixed percentage amount (the "Gross Margin"). The loan rate on each such
Group 2 adjustable-rate mortgage loan will not increase or decrease by more
than a specified percentage on each Adjustment Date which is referred to as a
periodic rate cap and is set forth in the related mortgage note. Each loan
rate on each such Group 2 adjustable-rate mortgage loan will not exceed a
specified maximum loan rate over the life of such mortgage loan (the "Maximum
Loan Rate") or be less than a specified minimum loan rate over the life of
such mortgage loan (the "Minimum Loan Rate"). Effective with the first monthly
payment due on each Group 2 adjustable-rate mortgage loan after each related
Adjustment Date, the monthly payment amount will be adjusted to an amount that
will fully amortize the outstanding principal balance of the related mortgage
loan over its remaining term, and pay interest at the loan rate as so
adjusted. Except for 0.19% of the Group 2 adjustable-rate mortgage loans, none
of the Group 2 adjustable-rate mortgage loans permits the related mortgagor to
convert the adjustable loan rate thereon to a fixed loan rate.
The Group 2 adjustable-rate mortgage loans had loan rates as of the
cut-off date of not less than 7.850% per annum and not more than 14.125% per
annum and the weighted average loan rate was approximately 9.735% per annum.
As of the cut-off date, the Group 2 adjustable-rate mortgage loans had Gross
Margins ranging from 4.000% to 8.690%, Minimum Loan Rates ranging from 4.500%
to 13.990% per annum and Maximum Loan Rates ranging from 14.200% per annum to
20.990% per annum. As of the cut-off date, the weighted average Gross Margin
was approximately 6.434%, the weighted average Minimum Loan Rate was
approximately 9.651% per annum and the weighted average Maximum Loan Rate was
approximately 16.339% per annum. The latest next Adjustment Date following the
cut-off date on any Group 2 adjustable-rate mortgage loan occurs in January
2003 and the weighted average next Adjustment Date for all of the Group 2
adjustable-rate mortgage loans following the cut-off date is October 2001.
The net loan rates of the Group 2 mortgage loans range from 4.691% per
annum to 14.991% per annum and as of the cut-off date the weighted average net
loan rate of the Group 2 mortgage loans was approximately 8.964% per annum.
The net loan rate of a mortgage loan is the loan rate of that mortgage loan
minus the sum of the servicing fee rate and the rate at which the trustee fee
accrues.
Each Group 2 fixed-rate mortgage loan accrues interest at a rate, of not
less than 5.990% per annum and not more than 15.500% per annum and as of the
cut-off date the weighted average loan rate of the Group 2 fixed-rate mortgage
loans was approximately 9.999% per annum.
The Group 2 mortgage loans are expected to have the following
characteristics as of the cut-off date (the sum in any column may not equal
the total indicated due to rounding):
<TABLE>
<CAPTION>
Cut-off Date Principal Balances of the Group 2 Mortgage Loans(1)
% of Aggregate Principal
Number of Principal Balance Balance of Loan Group
Mortgage Outstanding as of Outstanding as of
Principal Balance ($) Loans the Cut-off Date the Cut-off Date
------------------------------------------ -------------- --------------------- ---------------------------
<S> <C> <C> <C>
9,346 - 50,000................. 136 $ 4,279,078.00 9.81%
50,001 - 100,000................. 170 12,282,042.09 28.17
100,001 - 150,000................. 79 9,438,670.67 21.65
150,001 - 200,000................. 56 9,723,225.93 22.30
200,001 - 250,000................. 16 3,613,610.75 8.29
250,001 - 300,000................. 11 2,901,084.98 6.65
300,001 - 364,900................. 4 1,363,083.10 3.13
-------------- --------------------- ---------------------------
Total ........................... 472 $43,600,795.52 100.00%
============== ===================== ===========================
______________
(1) The average Cut-off Date Principal Balance of the Group 2 mortgage loans was approximately $92,375.
</TABLE>
<TABLE>
<CAPTION>
Original Terms to Maturity of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Original Term (months) of Mortgage Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
60 .......................... 2 $ 21,381.95 0.05%
61 - 120.......................... 11 269,770.70 0.62
121 - 180.......................... 65 2,112,611.67 4.85
181 - 240.......................... 16 748,887.02 1.72
241 - 300.......................... 4 213,322.60 0.49
301 - 360.......................... 374 40,234,821.58 92.28
------------------ ----------------------- ---------------------
Total.............................. 472 $43,600,795.52 100.00%
================== ======================= =====================
______________
(1) The weighted average original term to maturity of the Group 2 mortgage loans was approximately 347 months.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Property Types of the Group 2 Mortgage Loans
% of Aggregate
Principal Balance of
Number Principal Balance Loan Group
of Mortgage Outstanding as of Outstanding as of
Property Type Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Single Family................. 436 $39,675,650.36 91.00%
Two- to Four-Family .......... 22 2,540,364.17 5.83
PUD(1)........................ 7 895,812.38 2.05
Manufactured Housing.......... 5 367,309.97 0.84
Condominium................... 1 96,788.84 0.22
Townhouse..................... 1 24,869.80 0.06
------------------- ------------------------ -----------------------
Total..................... 472 $43,600,795.52 100.00%
=================== ======================== =======================
______________
(1) PUD refers to a Planned Unit Development.
</TABLE>
<TABLE>
<CAPTION>
Occupancy Status of the Group 2 Mortgage Loans (1)
% of Aggregate
Principal Balance of
Principal Balance Loan Group
Number Outstanding as of Outstanding as of
Occupancy Status of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Primary........................ 459 $42,189,421.35 96.76%
Non-owner Occupied............. 6 720,546.23 1.65
Investor....................... 6 594,039.10 1.36
Second Home.................... 1 96,788.84 0.22
------------------- ------------------------ -----------------------
Total..................... 472 $43,600,795.52 100.00%
=================== ======================== =======================
______________
(1) Based on representations made by the mortgagors at the time of origination.
</TABLE>
<TABLE>
<CAPTION>
Purpose of the Group 2 Mortgage Loans
% of Aggregate
Principal Balance of
Number Principal Balance Loan Group
of Mortgage Outstanding as of Outstanding as of
Purpose Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Cash Out Refinance............. 331 $28,120,918.93 64.50%
Purchase....................... 97 11,090,560.37 25.44
Rate/Term Refinance............ 37 3,807,519.31 8.73
Home Improvement............... 7 581,796.91 1.33
------------------- ------------------------ -----------------------
Total..................... 472 $43,600,795.52 100.00%
=================== ======================== =======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Current Loan Rates of the Group 2 Adjustable-Rate Mortgage Loans (1)
% of Aggregate
Principal Balance of
Principal Balance Loan Group
Number Outstanding as of Outstanding as of
Current Loan Rate (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
7.85 - 8.00............. 6 $ 714,427.29 1.88%
8.01 - 8.50............. 19 3,008,986.59 7.93
8.51 - 9.00............. 52 7,540,841.71 19.87
9.01 - 9.50............. 39 4,794,918.46 12.63
9.51 - 10.00............. 89 10,595,594.03 27.92
10.01 - 10.50............. 38 4,129,125.27 10.88
10.51 - 11.00............. 40 3,710,351.58 9.78
11.01 - 11.50............. 23 1,535,802.29 4.05
11.51 - 12.00............. 16 1,375,155.66 3.62
12.01 - 12.50............. 2 165,350.32 0.44
12.51 - 13.00............. 1 118,989.87 0.31
13.01 - 13.50............. 1 70,946.66 0.19
13.51 - 14.00............. 2 139,904.25 0.37
14.01 - 14.12............. 1 55,727.85 0.15
------------------- ------------------------ -----------------------
Total .................... 329 $37,956,121.83 100.00%
=================== ======================== =======================
______________
(1) The weighted average current loan rate of the Group 2 adjustable-rate mortgage loans as of the cut-off date was approximately
9.735% per annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Rates of the Group 2 Fixed-Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Loan Rate (%) of Mortgage Loans the Cut-off Date the Cut-off Date
-------------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
5.99 - 6.00........................ 1 $ 56,970.03 1.01%
6.01 - 6.50........................ 2 113,830.32 2.02
6.51 - 7.00........................ 3 204,036.42 3.61
7.01 - 7.50........................ 1 73,370.40 1.30
7.51 - 8.00........................ 10 730,165.64 12.94
8.01 - 8.50........................ 11 454,709.53 8.06
8.51 - 9.00........................ 10 464,544.58 8.23
9.01 - 9.50........................ 11 392,483.61 6.95
9.51 - 10.00........................ 10 299,308.02 5.30
10.01 - 10.50........................ 15 585,948.52 10.38
10.51 - 11.00........................ 18 583,744.52 10.34
11.01 - 11.50........................ 16 450,880.74 7.99
11.51 - 12.00........................ 13 499,642.58 8.85
12.01 - 12.50........................ 7 204,149.09 3.62
12.51 - 13.00........................ 8 214,124.63 3.79
13.01 - 13.50........................ 1 24,711.29 0.44
13.51 - 14.00........................ 4 155,429.52 2.75
15.01 - 15.50........................ 2 136,624.25 2.42
------------------ ----------------------- ---------------------
Total.............................. 143 $5,644,673.69 100.00%
================== ======================= =====================
______________
(1) The weighted average loan rate of the Group 2 fixed-rate mortgage loans as of the cut-off date was approximately 9.999% per
annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Original Loan-to-Value Ratio (%) Of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
Less than 60.01........................... 36 $ 1,279,079.91 2.93%
60.01 - 65.00............................ 16 1,319,415.07 3.03
65.01 - 70.00............................ 22 1,668,226.71 3.83
70.01 - 75.00............................ 64 4,940,715.76 11.33
75.01 - 80.00............................ 122 12,961,379.34 29.73
80.01 - 85.00............................ 134 12,922,176.33 29.64
85.01 - 90.00............................ 74 8,259,725.95 18.94
90.01 - 95.00............................ 2 111,928.25 0.26
95.01 - 100.00........................... 2 138,148.20 0.32
------------------ ---------------------- --------------------
Total................................. 472 $43,600,795.52 100.00%
================== ====================== ====================
______________
(1) The weighted average original Loan-to-Value Ratio of the Group 2 mortgage loans as of the cut-off date was approximately
80.53%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Group 2 Mortgaged Properties(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Location of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C>
Alaska.................................... 1 $ 175,900.81 0.40%
Arizona .................................. 11 1,066,851.49 2.45
Arkansas.................................. 1 57,408.94 0.13
California................................ 105 14,868,084.36 34.10
Colorado.................................. 9 819,374.07 1.88
Connecticut............................... 1 140,043.49 0.32
District of Columbia...................... 1 14,945.46 0.03
Florida................................... 19 1,394,463.63 3.20
Georgia................................... 23 1,549,132.21 3.55
Idaho..................................... 7 629,104.95 1.44
Illinois.................................. 28 2,092,149.30 4.80
Indiana................................... 22 1,102,733.98 2.53
Iowa...................................... 2 165,105.08 0.38
Kansas.................................... 1 40,592.58 0.09
Kentucky.................................. 13 843,998.20 1.94
Louisiana................................. 3 125,683.18 0.29
Maryland.................................. 7 351,895.00 0.81
Massachusetts............................. 10 1,173,169.49 2.69
Michigan.................................. 36 2,414,074.40 5.54
Minnesota................................. 10 902,505.24 2.07
Mississippi............................... 8 465,506.01 1.07
Missouri.................................. 4 226,937.17 0.52
Nebraska.................................. 1 63,690.31 0.15
Nevada.................................... 1 53,500.50 0.12
New Hampshire............................. 1 118,987.50 0.27
New Jersey................................ 4 687,796.30 1.58
New Mexico................................ 3 467,049.41 1.07
New York.................................. 9 285,404.06 0.65
North Carolina............................ 5 326,831.42 0.75
Ohio...................................... 27 1,812,240.29 4.16
Oklahoma.................................. 5 407,070.12 0.93
Oregon.................................... 15 1,668,564.78 3.83
Pennsylvania.............................. 11 616,934.54 1.41
Rhode Island.............................. 3 238,882.79 0.55
South Carolina............................ 8 421,756.36 0.97
Tennessee................................. 7 633,905.22 1.45
Texas..................................... 10 733,464.93 1.68
Utah...................................... 10 1,369,392.31 3.14
Virginia.................................. 1 39,230.85 0.09
Washington................................ 15 1,937,616.64 4.44
West Virginia............................. 3 202,204.76 0.46
Wisconsin................................. 10 835,270.94 1.92
Wyoming................................... 1 61,342.45 0.14
------------------ ---------------------- --------------------
Total................................ 472 $43,600,795.52 100.00%
================== ====================== ====================
______________
(1) The greatest ZIP Code geographic concentration of Group 2 mortgage loans, by Group 2 Loan Balance as of the cut-off date, was
approximately 1.09% in the 95111 ZIP Code.
</TABLE>
<TABLE>
<CAPTION>
Documentation Levels of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance
Principal Balance of Loan Group
Number Outstanding as of Outstanding as of
Documentation Level of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C>
Full Documentation........................ 433 $38,993,707.18 89.43%
Alternative Documentation................. 12 1,598,380.48 3.67
Limited Documentation .................... 14 1,448,462.29 3.32
Stated Documentation...................... 7 1,017,315.69 2.33
No Documentation.......................... 6 542,929.88 1.25
------------------ ---------------------- --------------------
Total................................ 472 $43,600,795.52 100.00%
================== ====================== ====================
______________
(1) For a description of each documentation level, see "The Originator - Credit and Underwriting Guidelines" herein.
</TABLE>
<TABLE>
<CAPTION>
Maximum Loan Rates of the Group 2 Adjustable-Rate Mortgage Loans(1)
% of Aggregate
Principal Balance of
Principal Balance Loan Group
Number of Outstanding as of Outstanding as of
Maximum Loan Rate (%) Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------ ----------------- ------------------------- ----------------------
<S> <C> <C> <C>
14.01 - 14.50................... 4 $ 750,667.24 1.98%
14.51 - 15.50................... 45 6,630,748.29 17.47
15.51 - 16.50................... 123 14,545,849.48 38.32
16.51 - 17.50................... 110 11,832,828.05 31.18
17.51 - 18.50................... 39 3,609,325.21 9.51
18.51 - 19.50................... 7 500,766.78 1.32
20.51 - 20.99................... 1 85,936.78 0.23
----------------- ------------------------- ----------------------
Total.......................... 329 $37,956,121.83 100.00%
================= ========================= ======================
______________
(1) The weighted average Maximum Loan Rate of the Group 2 adjustable-rate mortgage loans as of the cut-off date was approximately
16.339% per annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Minimum Loan Rates of the Group 2 Adjustable-Rate Mortgage Loans(1)
% of Aggregate
Principal Balance of
Number Principal Balance Loan Group
of Mortgage Outstanding as of Outstanding as of
Minimum Loan Rate (%) Loans the Cut-off Date the Cut-off Date
---------------------------------------- -------------- ----------------------- -----------------------
<S> <C> <C> <C>
4.50 - 4.50........................ 1 $ 267,893.57 0.71%
7.51 - 8.50........................ 25 3,723,413.88 9.81
8.51 - 9.50........................ 95 12,500,936.59 32.94
9.51 - 10.50........................ 127 14,723,981.99 38.79
10.51 - 11.50........................ 64 5,314,477.88 14.00
11.51 - 12.50........................ 16 1,339,481.14 3.53
13.51 - 13.99........................ 1 85,936.78 0.23
-------------- ----------------------- -----------------------
Total.............................. 329 $37,956,121.83 100.00%
============== ======================= =======================
______________
(1) The weighted average Minimum Loan Rate of the Group 2 adjustable-rate mortgage loans as of the cut-off date was approximately
9.651% per annum.
</TABLE>
<TABLE>
<CAPTION>
Gross Margins of the Group 2 Adjustable-Rate Mortgage Loans(1)
% of Aggregate
Principal Balance of
Number Principal Balance Loan Group
Of Mortgage Outstanding as of Outstanding as of
Gross Margins (%) Loans the Cut-off Date the Cut-off Date
------------------------------------ ------------- ------------------------ -----------------------
<S> <C> <C> <C>
3.51 - 4.00.................. 1 $ 94,458.59 0.25%
4.01 - 4.50.................. 1 267,893.57 0.71
4.51 - 5.00.................. 11 1,493,062.25 3.93
5.01 - 5.50.................. 29 3,817,046.26 10.06
5.51 - 6.00.................. 51 6,179,378.38 16.28
6.01 - 6.50.................. 74 8,746,024.23 23.04
6.51 - 7.00.................. 71 8,212,339.19 21.64
7.01 - 7.50.................. 60 6,537,700.60 17.22
7.51 - 8.00.................. 23 1,906,944.07 5.02
8.01 - 8.50.................. 7 646,465.78 1.70
8.51 - 8.69.................. 1 54,808.91 0.14
------------- ------------------------ -----------------------
Total......................... 329 $37,956,121.83 100.00%
============= ======================== =======================
______________
(1) The weighted average Gross Margin of the Group 2 adjustable-rate mortgage loans as of the cut-off date was approximately
6.434%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Next Adjustment Date for the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate Principal
Principal Balance Balance of Loan Group
Number of Outstanding as of Outstanding as of
Next Adjustment Date Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------ ----------------------- --------------------------------
<S> <C> <C> <C>
04/01/00 - 04/30/00.......... 1 $ 62,751.46 0.17%
05/01/00 - 05/31/00.......... 2 109,695.32 0.29
07/01/00 - 07/31/00.......... 3 297,985.74 0.79
08/01/00 - 08/31/00.......... 2 154,587.40 0.41
09/01/00 - 09/30/00 ......... 9 654,482.23 1.72
10/01/00 - 10/31/00......... 3 566,897.07 1.49
11/01/00 - 11/30/00.......... 1 148,912.04 0.39
12/01/00 - 12/31/00.......... 6 782,574.95 2.06
01/01/01 - 01/31/01.......... 2 278,801.47 0.73
02/01/01 - 02/28/01.......... 9 1,094,939.43 2.88
03/01/01 - 03/31/01.......... 8 928,421.17 2.45
04/01/01 - 04/30/01.......... 17 1,984,247.79 5.23
05/01/01 - 05/31/01.......... 19 2,214,876.38 5.84
06/01/01 - 06/30/01.......... 26 2,598,343.75 6.85
07/01/01 - 07/31/01.......... 22 2,337,076.67 6.16
08/01/01 - 08/31/01.......... 58 6,905,363.29 18.19
09/01/01 - 09/30/01.......... 35 3,808,723.16 10.03
10/01/01 - 10/31/01.......... 15 2,235,420.47 5.89
11/01/01 - 11/30/01.......... 18 2,005,244.18 5.28
12/01/01 - 12/31/01.......... 13 1,509,468.72 3.98
01/01/02 - 01/31/02.......... 7 625,113.65 1.65
02/01/02 - 02/28/02.......... 9 1,347,880.86 3.55
03/01/02 - 03/31/02.......... 5 537,568.78 1.42
04/01/02 - 04/30/02.......... 6 740,031.82 1.95
05/01/02 - 05/31/02.......... 2 385,847.34 1.02
06/01/02 - 06/30/02.......... 5 451,663.79 1.19
07/01/02 - 07/31/02.......... 8 893,660.71 2.35
08/01/02 - 08/31/02.......... 8 1,208,378.06 3.18
09/01/02 - 09/30/02.......... 4 525,749.40 1.39
10/01/02 - 10/31/02.......... 2 170,281.68 0.45
11/01/02 - 11/30/02.......... 1 60,683.47 0.16
12/01/02 - 12/31/02.......... 1 69,907.07 0.18
01/01/03 - 01/31/03.......... 2 260,542.51 0.69
------------------ ----------------------- --------------------------------
Total..................... 329 $37,956,121.83 100.00%
================== ======================= ================================
</TABLE>
<TABLE>
<CAPTION>
Indices of the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Principal Balance Loan Group
Number of Outstanding as of Outstanding as of
Index(1) Mortgage Loans the Cut-off Date the Cut-off Date
--------------------------------------- --------------- ---------------------------- ----------------------
<S> <C> <C> <C>
Six Month LIBOR......................... 328 $37,885,417.32 99.81%
One Year CMT............................ 1 70,704.50 0.19
--------------- ---------------------------- ----------------------
Total......................... 329 $37,956,121.83 100.00%
=============== ============================ ======================
______________
(1) Each of these Indices are described under "--The Index."
</TABLE>
<TABLE>
<CAPTION>
Initial Periodic Rate Caps of the Group 2 Adjustable-Rate Mortgage Loans(1)
% of Aggregate
Principal Balance of
Principal Balance Loan Group
Number of Outstanding as of Outstanding as of
Initial Periodic Rate Cap (%) Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------- ---------------- ----------------------- ------------------------
<S> <C> <C> <C>
1.00.................................... 14 $ 1,233,995.89 3.25%
1.50.................................... 6 621,154.71 1.64
2.00.................................... 5 702,718.04 1.85
3.00.................................... 303 35,130,359.62 92.56
6.00.................................... 1 267,893.57 0.71
----------------- ----------------------- ------------------------
Total............................... 329 $37,956,121.83 100.00%
================= ======================= ========================
______________
(1) Relates solely to initial rate adjustments.
</TABLE>
<TABLE>
<CAPTION>
Subsequent Periodic Rate Caps of the Group 2 Adjustable-Rate Mortgage Loans(1)
% of Aggregate
Principal Balance of
Principal Balance Loan Group Outstanding
Number of Outstanding as of as of
Periodic Rate Cap (%) Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------ --------------- ------------------------- ------------------------
<S> <C> <C> <C>
1.00................................... 319 $36,908,649.08 97.24%
1.50................................... 9 835,100.62 2.20
3.00................................... 1 212,372.13 0.56
--------------- ------------------------- ------------------------
Total............................. 329 $37,956,121.83 100.00%
=============== ========================= ========================
______________
(1) Relates to all rate adjustments subsequent to initial rate adjustments.
</TABLE>
The Index
With respect to one Group 2 adjustable-rate mortgage loan, the Index is
the weekly average yield on United States Treasury securities adjusted to a
constant maturity of one year as published by the Federal Reserve Board in
Statistical Release H.15(519) and most recently available as of a day
specified in the related note ("One Year CMT"); and with respect to the
remaining Group 2 adjustable-rate mortgage loans, the Index is the average of
interbank offered rates for six-month U.S. dollar deposits in the London
market based on quotations of major banks, and most recently available as of a
day and pursuant to a calculation as specified in the related mortgage note
("Six Month LIBOR"). Listed below are the historical values for Six Month
LIBOR for the months indicated:
<TABLE>
<CAPTION>
Six Month LIBOR
Year
-------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January.................................. 6.29% 4.97% 5.63% 5.69% 5.27% 6.69%
February................................. 6.33% 5.13% 5.70% 5.69% 5.30% 6.44%
March.................................... 6.53% 5.06% 5.75% 5.94% 5.50% 6.50%
April.................................... 6.73% 5.04% 5.81% 6.00% 5.56% 6.38%
May...................................... N/A 5.25% 5.75% 6.00% 5.63% 6.00%
June..................................... N/A 5.65% 5.78% 5.91% 5.79% 6.00%
July..................................... N/A 5.71% 5.75% 5.80% 5.88% 5.88%
August................................... N/A 5.92% 5.59% 5.84% 5.77% 5.91%
September................................ N/A 5.96% 5.25% 5.84% 5.73% 5.95%
October.................................. N/A 6.12% 4.98% 5.79% 5.57% 5.88%
November................................. N/A 6.06% 5.15% 5.91% 5.54% 5.69%
December................................. N/A 6.13% 5.07% 5.84% 5.60% 5.51%
</TABLE>
If any Index becomes unpublished or is otherwise unavailable, the
servicer will select an alternative index which is based upon comparable
information.
THE ORIGINATOR
One or more affiliates of ContiFinancial Corporation, a Delaware
corporation, originated the mortgage loans in accordance with the origination
and underwriting standards set forth below. On May 17, 2000, ContiFinancial
Corporation and several of its subsidiaries, including ContiMortgage
Corporation, filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York. See "The Pooling and Servicing Agreement -- Assignment
of the Mortgage Loans" herein.
Credit and Underwriting Guidelines
All of the mortgage loans will have been originated by an affiliate of
Conti generally in accordance with the underwriting criteria described below.
The information set forth below with regard to each Originator's
underwriting standards has been provided to the depositor by Conti. None of
the depositor, the trustee, C-BASS, the underwriter or any of their respective
affiliates has made any independent investigation of such information or has
made or will make any representation as to the accuracy or completeness of
such information.
The following is a description of the underwriting guidelines customarily
employed by an Originator with respect to home equity loans which it purchases
or originates. Each mortgage loan was underwritten according to these
guidelines. Conti believes these standards are consistent with those utilized
by home equity lenders generally. The underwriting process is intended to
assess both the prospective borrower's ability to repay and the adequacy of
the real property security as collateral for the mortgage loan granted. In
certain cases, loans may be made outside of those guidelines with the prior
approval of an underwriting manager of the Originator.
Each Originator generally originates or purchases loans which either
fully amortize over a period not to exceed 360 months or provide for
amortization over a 360 month schedule with a "balloon" payment required at
the maturity date, which will not be less than five years after origination.
The loan amounts generally range from a minimum of $10,000 to a maximum of
$350,000 unless a higher amount is specifically approved by a senior official
of the Originator. Each Originator primarily originates or purchases
non-purchase money first or second mortgage loans although each Originator has
programs for origination of certain purchase money first mortgages.
The homes used for collateral to secure the mortgage loans may be either
primary residential (which includes second and vacation homes) or investor
owned one- to four-family homes, condominiums or townhouses and may include
manufactured housing. Generally, each home must have a minimum Appraised Value
(as defined below) of $35,000. Mobile housing and agricultural land are not
accepted as collateral. In addition, mixed-use loans secured by owner-occupied
properties, including one-to-four family and small multifamily residences, are
made where the proceeds may be used for business purposes. In some cases, the
mortgage loan may be secured by the owner-occupied residence plus additional
collateral such as rental units and small multifamily properties which may
have a storefront.
Each property proposed as security for a loan must be appraised not more
than 6 months prior to the date of such loan; provided that in the case of a
loan originated as part of an Originator's retention program, the property
must be appraised not more than 18 months prior to the date of such loan. The
combined loan-to-value ratio for the first and second mortgages generally may
not exceed 90%, and is less than 90% for lower credit grades. If a prior
mortgage exists, the Originator first reviews the first mortgage history. If
it contains open end, advance or negative amortization provisions, the maximum
potential first mortgage balance is used in calculating the combined
loan-to-value ratio which determines the maximum loan amount. An Originator
does not originate or purchase loans where the first mortgage contains a
shared appreciation clause.
For an Originator's "full documentation" program, each mortgage applicant
must provide, and the Originator must verify, personal financial information.
The applicant's total monthly obligations (which includes principal and
interest on each mortgage, tax assessments, other loans, charge accounts and
all other scheduled indebtedness) generally cannot exceed 50% of the
applicant's gross monthly income. Applicants who are salaried employees must
provide current employment information in addition to two recent years of
employment history and the Originator verifies this information. Verifications
are based on written confirmation from employers or a combination of the two
most recent pay stubs, the two most recent years' W-2 tax forms and telephone
confirmation from the employer. Self-employed applicants must be self-employed
in the same field for a minimum of two years. The self-employed applicant must
provide signed copies of complete federal income tax returns (including
schedules) filed for the most recent two years.
An Originator's alternative documentation programs, including the "no
documentation," "stated documentation," "limited documentation" and
"alternative documentation" programs, require less documentation and
verification than do traditional "full documentation" programs and are
available for certain qualifying mortgage loans. These underwriting programs
are designed to streamline the underwriting process by eliminating the
requirement for income verification. The objective use of limited
documentation is to shift the emphasis of the underwriting process from the
credit standing of the mortgagor to the value and adequacy of the mortgaged
property as collateral. Under a "no documentation" program, no verification of
a mortgagor's income or assets is undertaken by an Originator. Under a "stated
documentation" program, certain borrowers with acceptable payment histories
will not be required to provide any information regarding income and no other
investigation regarding the borrower's income will be undertaken. Under a
"limited documentation" program, certain underwriting documentation concerning
income and employment verification is waived. "Alternative documentation"
programs allow a mortgagor to provide W-2 forms instead of tax returns,
permits bank statements in lieu of verification of deposits and permits
alternative methods of employment verification.
A credit report by an independent credit reporting agency is required
reflecting the applicant's complete credit history. The credit report should
reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies, divorce actions and similar adverse
credit practices that can be discovered by a search of public records. If the
report is obtained more than 60 days prior to the mortgage loan closing, the
lender must determine that the reported information has not changed. Written
verification is obtained of any first mortgage balance, its status and whether
local taxes, interest, insurance and assessments are included in the
applicant's monthly payment. All taxes and assessments not included in the
payment must be verified as current.
Generally, the applicant should have an acceptable credit history given
the amount of equity available, the strength of the applicant's employment
history and the level of the applicant's income to debt obligations. The
rescission period must have expired prior to funding a loan. The rescission
period may not be waived by the applicant except as permitted by law. Either
an ALTA title insurance policy or an attorney's opinion of title is required
for all loans.
The applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of the
outstanding first mortgage, if any, and the home equity loan exceeds
replacement value, insurance equal to replacement value may be accepted. The
Originator must ensure that its name and address is properly added to the
"Mortgagee Clause" of the insurance policy. In the event the Originator's name
is added to a "Loss Payee Clause" and the policy does not provide for written
notice of policy changes or cancellation, an endorsement adding such provision
is required.
The Originator's credit underwriting guidelines require that any major
deferred maintenance on any property must be cured from the proceeds of the
mortgage loan.
THE SERVICER
General
The information set forth in the following paragraphs has been provided
by Litton Loan Servicing LP. None of the depositor, the trustee, the
underwriter or any of their respective affiliates have made or will make any
representation as to the accuracy or completeness of such information.
Litton Loan Servicing LP, the servicer, a Delaware limited partnership,
is a wholly-owned subsidiary of C-BASS. C-BASS is owned by Enhance Financial
Services Group, Inc. ("Enhance"), Mortgage Guaranty Insurance Corporation
("MGIC") and C-BASS Holding LLC. Litton Loan Servicing LP was formed in
December 1996, with all of the general and limited partnership interests owned
by Enhance, MGIC and C-BASS Holding LLC. As of October 1, 1998 Litton Loan
Servicing, Inc., was a wholly-owned subsidiary of Enhance and transferred its
business to Litton Loan Servicing LP. From and after October 1, 1998 all
activities formerly conducted by Litton Loan Servicing, Inc. are being
conducted by Litton Loan Servicing LP. The servicer currently employs
approximately 202 individuals. The main office of the servicer is located at
5373 W. Alabama, Houston, Texas 77056. The servicer is currently a FNMA and
FHLMC approved servicer and an approved FHA and VA lender with a servicing
portfolio in excess of $4.238 billion. The servicer specializes in servicing
sub-performing mortgage loans and entering into workouts with the related
mortgagors. Recent transactions for which the servicer acts as servicer
include Merrill Lynch Mortgage Investors, Inc., Series 1998-GN3, Series
1999-H1, Series 1999-H2, Series 1999-NC1, Series 1999-CB1, Series 1999-CB2,
Series 1999-CB4, Series 2000-CB1, Series 2000-FF1, New Century Mortgage
Securities, Inc., Series 1999-NCC, Financial Asset Securities Corp., Series
1998-3, Series 1999-CB5 and Asset Backed Funding Corporation, Series 1999-1.
Fitch assigned the servicer its RSS1 residential special servicer rating
on November 16, 1999. The rating is based on the servicer's ability to manage
and liquidate nonperforming residential mortgage loans and real estate owned
assets. This RSS1 rating is the highest special servicer rating attainable
from Fitch which reflects the servicer's sophisticated proprietary default
management technology, the financial strength of its well-capitalized parent
and its highly experienced management and staff.
Fitch assigned the servicer its RPS2 primary servicer rating for
sub-prime and high loan-to-value ratio product. The RPS2 rating is currently
the highest subprime primary servicer rating attainable from Fitch for any
subprime servicer, which is based on the strength of the servicer's loan
administration processes including new loan set-up procedures and related
technology, loan accounting/cash management and loan reporting. The RPS2
rating for high loan-to-value ratio product is based on the servicer's
intensive focus on early collection and loss mitigation.
Delinquency and Foreclosure Experience.
The following table sets forth the delinquency and foreclosure experience
of the mortgage loans serviced by the servicer, as of the dates indicated. The
servicer's portfolio of mortgage loans may differ significantly from the
mortgage loans in the trust fund in terms of interest rates, principal
balances, geographic distribution, types of properties and other possibly
relevant characteristics. There can be no assurance, and no representation is
made, that the delinquency and foreclosure experience with respect to the
mortgage loans in the trust fund will be similar to that reflected in the
table below, nor is any representation made as to the rate at which losses may
be experienced on liquidation of defaulted mortgage loans. The actual
delinquency experience on the mortgage loans in the trust fund will depend,
among other things, upon the value of the real estate securing the mortgage
loans in the trust fund and the ability of the related mortgagor to make
required payments. It should be noted that the servicer's business emphasizes
to a certain degree the acquisition of servicing rights with respect to
non-performing and subperforming mortgage loans and the servicer has been an
active participant in the market for these servicing rights since 1997. The
acquisition of these servicing rights may have affected the delinquency and
foreclosure experience of the servicer.
<TABLE>
<CAPTION>
Delinquency and Foreclosure Experience(1)
As of March 31, 2000 As of December 31, 1999 As of December 31, 1998
--------------------------------- --------------------------------- --------------------------------
No. % by No. % by No. % by
of Principal Principal of Principal Principal of Principal Principal
Loans Balance(2) Balance Loans Balance(2) Balance Loans Balance(2) Balance
------ -------------- --------- ------ -------------- --------- ------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Loans 42,053 $3,064,917,107 2.31% 37,105 $2,580,776,677 69.98% 39,063 $2,489,678,138 78.01%
Period of
Delinquency(3)
30 Days 4,206 $ 312,191,038 7.37% 4,638 $ 323,122,291 8.76% 3,689 $ 233,734,152 7.32%
60-89 1,492 $ 111,781,274 2.64% 1,886 $ 133,339,006 3.62% 1,497 $ 87,944,51 2.76%
90 Days or more 2,046 $ 119,938,811 2.83% 2,056 $ 127,745,979 3.46% 2,578 $ 121,504,523 3.81%
------ -------------- ------- ------ -------------- ------- ------ ------------- -------
Total Delinquency 7,744 $ 543,911,123 12.83% 8,580 $ 584,207,276 15.84% 7,764 $ 443,183,187 13.89%
Foreclosures/Bankruptcy(4) 6,744 $ 532,645,102 12.57% 5,503 $ 433,109,387 11.74% 2,780 $ 197,668,255 6.19%
Real Estate Owned 1,435 $ 96,920,678 2.29% 1,264 $ 89,691,70 2.43% 1,009 $ 60,867,15 1.91%
------ -------------- ------- ------ -------------- ------- ------- -------------- -------
Total Portfolio 57,976 $4,238,394,009 100.00% 52,452 $3,687,785,047 100.00% 50,616 $3,191,396,734 100.00%
------ -------------- ------- ------ -------------- ------- ------ -------------- -------
______________
(1) The table shows mortgage loans which were delinquent or for which foreclosure proceedings had been instituted as of the date
indicated.
(2) For the REO Properties, the principal balance is at the time of foreclosure.
(3) No mortgage loan is included in this section of the table as delinquent until it is 30 days past due.
(4) Exclusive of the number of loans and principal balance shown in Period of Delinquency.
</TABLE>
It is unlikely that the delinquency experience of the mortgage loans
comprising the mortgage pool will correspond to the delinquency experience of
the servicer's mortgage portfolio set forth in the foregoing table. The
statistics shown above represent the delinquency experience for the servicer's
mortgage servicing portfolio only for the periods presented, whereas the
aggregate delinquency experience on the mortgage loans comprising the mortgage
pool will depend on the results obtained over the life of the mortgage pool.
The servicer does not have significant historical delinquency, bankruptcy,
foreclosure or default experience that may be referred to for purposes of
estimating the future delinquency and loss experience of mortgage loans. There
can be no assurance that the mortgage loans comprising the mortgage pool will
perform consistent with the delinquency or foreclosure experience described
herein. It should be noted that if the residential real estate market should
experience an overall decline in property values, the actual rates of
delinquencies and foreclosures could be higher than those previously
experienced by the servicer. In addition, adverse economic conditions may
affect the timely payment by Mortgagors of scheduled payments of principal and
interest on the mortgage loans and, accordingly, the actual rates of
delinquencies and foreclosures with respect to the mortgage pool.
THE POOLING AND SERVICING AGREEMENT
General
The certificates will be issued pursuant to the pooling and servicing
agreement dated as of May 1, 2000 among the depositor, the trustee, the
servicer and GCFP. A form of pooling and servicing agreement has been filed as
an exhibit to the registration statement of which this prospectus supplement
and the prospectus are a part. The following summaries together with the
information in this prospectus supplement under "Description of the
Certificates" and in the prospectus under the headings "Description of the
Securities" and "The Agreements" describe the material provisions of the
pooling and servicing agreement. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
of the provisions of the pooling and servicing agreement. Wherever particular
sections or defined terms of the pooling and servicing agreement are referred
to, these sections or defined terms are incorporated by reference in this
prospectus supplement.
Assignment of Mortgage Loans
In one or more secondary market transactions concluding no later than May
4, 2000, GCFP, a Delaware corporation and an affiliate of the depositor and
the underwriter, purchased 1,694 of the mortgage loans with an aggregate
principal balance as of the cut-off date of approximately $132,840,790 from
ContiFinancial Corporation. GCFP purchased the remaining 1,290 of the mortgage
loans with an aggregate principal balance as of the cut-off date of
approximately $95,350,593 in a secondary market transaction from C-Bass, a
Delaware limited liability company with its principal place of business in New
York, pursuant to a mortgage loan purchase agreement dated as of the cut-off
date between GCFP and C-Bass (the "C-Bass Purchase Agreement"). C-Bass
purchased these mortgage loans from ContiMortgage Corporation in a secondary
market transaction on February 28, 2000.
The pooling and servicing agreement and the C-Bass Purchase Agreement are
referred to collectively herein as the "Agreements." GCFP and C-Bass are
referred to collectively herein as the obligors.
On the closing date, GCFP will transfer to the depositor, and the
depositor will transfer to the trust pursuant to the pooling and servicing
agreement all of its right, title and interest in and to each mortgage loan,
the related mortgage note, mortgages and other related documents,
collectively, referred to as the related documents, including all payments
received after the cut-off date. In addition, GCFP will transfer to the
depositor, and the depositor will transfer to the trust pursuant to the
pooling and servicing agreement, all of its rights under the C-BASS Purchase
Agreement. The trustee will deliver the certificates to the depositor in
exchange for the mortgage loans. Each mortgage loan transferred to the trust
will be identified on a mortgage loan schedule delivered to the trustee
pursuant to the pooling and servicing agreement. This schedule will include
information as to the principal balance of each mortgage loan as of the
cut-off date, as well as information with respect to the loan rate.
The Agreements will require that, within the time period specified, the
applicable obligor will deliver to the trustee, or the custodian, as the
trustee's agent for this purpose, the related mortgage loans endorsed to the
trustee and the related documents. In lieu of delivery of original mortgages,
if the original is not available, an obligor may deliver true and correct
copies of the original mortgages.
Under the terms of the Agreements, the applicable obligor will promptly
and in no event later than 30 days after the closing date, prepare and record
assignments of the mortgages related to each mortgage loan in favor of the
trustee, unless opinions of counsel satisfactory to the rating agencies are
delivered to the trustee to the effect that recordation of the assignments is
not required in the relevant jurisdictions to protect the interests of the
trustee in the mortgage loans. If the recording information with respect to
any assignment of mortgage is unavailable within 30 days of the closing date,
the assignment will be prepared and recorded within 30 days after receipt of
this information, but in no event later than one year after the closing date.
Within 45 days of the closing date, the trustee, or the custodian on
behalf of the trustee, will review the mortgage loans and the related
documents pursuant to the applicable Agreement and if any mortgage loan or
related document is found to be defective in any material respect and the
defect is not cured within 90 days following notification of the defect to the
applicable obligor by the trustee, that obligor will be obligated to either
(a) substitute for the mortgage loan an eligible substitute mortgage loan;
however, this substitution is permitted only within two years of the closing
date and may not be made unless an opinion of counsel is provided to the
effect that the substitution will not disqualify any REMIC as a REMIC or
result in a prohibited transaction tax under the Internal Revenue Code or (b)
purchase the mortgage loan at a price equal to the outstanding principal
balance of the mortgage loan as of the date of purchase, plus unpaid interest
on the mortgage loan from the date interest was last paid or with respect to
which interest was advanced and not reimbursed through the end of the calendar
month in which the purchase occurred, computed at the loan rate, plus the
amount of any unreimbursed advances made by the servicer. The purchase price
will be deposited in the collection account on or prior to the next succeeding
Determination Date after the obligation arises. The obligation of each obligor
to repurchase or substitute for a defective mortgage loan is the sole remedy
regarding any defects in the mortgage loans and related documents available to
the trustee or the certificateholders.
In connection with the substitution of an eligible substitute mortgage
loan, the applicable obligor will be required to deposit in the collection
account on or prior to the next succeeding Determination Date after the
obligation arises a substitution amount equal to the excess of the principal
balance of the related defective mortgage loan over the principal balance of
the eligible substitute mortgage loan.
An eligible substitute mortgage loan is a mortgage loan to be substituted
by an obligor for a defective mortgage loan which must, on the date of the
substitution,
o have an outstanding principal balance after deducting all scheduled
principal payments due in the month of the substitution, or in the
case of a substitution of more than one mortgage loan for a
defective mortgage loan, an aggregate principal balance, not in
excess of, and not less than 95% of, the principal balance of the
defective mortgage loan;
o have a loan rate not less than the loan rate of the defective
mortgage loan and not more than 1% in excess of the loan rate of the
defective mortgage loan and with respect to the adjustable-rate
mortgage loans in Loan Group 2, have a Maximum Loan Rate and Minimum
Loan Rate not less than the respective rates for the defective
mortgage loan, have the same index as the defective mortgage loan
and a Gross Margin equal to or greater than the defective mortgage
loan;
o have a mortgage of the same or higher level of priority as the
mortgage relating to the defective mortgage loan;
o have a remaining term to maturity not more than six months earlier
and not later than the remaining term to maturity of the defective
mortgage loan; and
o comply with each representation and warranty as to the mortgage
loans set forth in the pooling and servicing agreement, deemed to be
made as of the date of substitution and satisfy certain other
conditions set forth in the pooling and servicing agreement.
Each obligor will make representations and warranties as to the accuracy
in all material respects of information furnished to the trustee with respect
to each mortgage loan being transferred by that obligor. In addition, each
obligor will represent and warrant, on the closing date, that, among other
things: (a) the obligor has good title to the mortgage loans being transferred
by it and is the sole legal, beneficial and equitable owner, free of any
liens; and (b) each mortgage loan complied, at the time of origination, in all
material respects with applicable state and federal laws. Upon discovery of a
breach of any representation and warranty which materially and adversely
affects the value of, or the interests of the certificateholders in the
related mortgage loan and related documents, the applicable obligor will have
a period of 90 days after discovery or notice of the breach to effect a cure.
If the breach cannot be cured within the 90-day period, that obligor will be
obligated to (x) substitute for the mortgage loan an eligible substitute
mortgage loan or (y) purchase the mortgage loan from the trust. The same
procedures and limitations that are set forth above for the substitution or
purchase of defective mortgage loans as a result of deficient documentation
relating to the defective mortgage loans will apply to the substitution or
purchase of a mortgage loan as a result of a breach of a representation or
warranty. The depositor will make no representations or warranties with
respect to the mortgage loans and will have no obligation to repurchase or
substitute mortgage loans with deficient documentation or that are otherwise
defective. Each obligor is selling the related mortgage loans without recourse
and will have no obligation with respect to the certificates in its capacity
as obligor other than the repurchase or substitution obligations described
above.
Payments on Mortgage Loans; Deposits to Collection Account and Distribution
Account
The servicer will establish and maintain in the name of the trustee a
separate collection account for the benefit of the holders of the
certificates. The collection account will be an eligible account, as defined
in this prospectus supplement. Upon receipt by the servicer of amounts in
respect of the mortgage loans, excluding amounts representing the servicing
fee and insurance proceeds to be applied to the restoration or repair of a
mortgaged property or similar items, the servicer will deposit these amounts
in the collection account. Amounts so deposited may be invested for the
benefit and at the risk of the servicer in eligible investments, as described
in the pooling and servicing agreement, maturing no later than one business
day prior to the date on which the amount on deposit is required to be
deposited in the distribution account or on the date of withdrawal if the
trustee is the obligor thereon.
The trustee will establish a distribution account. On the business day
prior to each distribution date, the Available Funds for each loan group and
the related Due Period are required to be deposited into the distribution
account. The distribution account will be an eligible account. Amounts on
deposit in the distribution account may be invested in eligible investments
maturing on the related distribution date. Investment earnings from amounts on
deposit in the distribution account will not be part of Available Funds.
An eligible account is a segregated account that is
o an account or accounts maintained with a federal or state chartered
depository institution or trust company, the short-term unsecured
debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a
holding company, the short-term unsecured debt obligations of such
holding company) are rated P-1 by Moody's and A-1 by S&P (or
comparable ratings if Moody's and S&P are not the rating agencies)
at the time any amounts are held on deposit therein,
o an account or accounts the deposits in which are fully insured by
the Federal Deposit Insurance Corporation (to the limits established
by such corporation), the uninsured deposits in which account are
otherwise secured such that, as evidenced by an opinion of counsel
delivered to the trustee and to each rating agency, the
certificateholders will have a claim with respect to the funds in
such account or a perfected first priority security interest against
such collateral (which shall be limited to eligible investments)
securing such funds that is superior to claims of any other
depositors or creditors of the depository institution with which
such account is maintained,
o a trust account or accounts maintained with the trust department of
a federal or state chartered depository institution, national
banking association or trust company acting in its fiduciary
capacity or
o otherwise acceptable to each rating agency without reduction or
withdrawal of their then current ratings of the certificates, as
evidenced by a letter from each rating agency to the trustee.
Advances
No later than one business day prior to each distribution date, the
servicer will deposit in the distribution account an amount equal to each
scheduled payment due on an actuarial mortgage loan during the related Due
Period but not received by the servicer as of the related Determination Date,
net of the servicing fee, called a monthly advance. Except as otherwise stated
below, the obligation of the servicer continues with respect to each actuarial
mortgage loan until the mortgage loan is paid in full or until the recovery of
all liquidation proceeds related to the mortgage loan; provided, however that
such obligation will cease if title to the mortgaged property is acquired by
the trust in foreclosure or by deed in lieu of foreclosure.
In no event will the servicer be obligated to make any monthly advance in
respect of a simple interest mortgage loan.
In the course of performing its servicing obligations, the servicer will
pay all reasonable and customary "out-of-pocket" costs and expenses incurred
in the performance of its servicing obligations, including, but not limited
to, the cost of
o the preservation, restoration and protection of the mortgaged
properties,
o any enforcement or judicial proceedings, including foreclosures, and
o the management and liquidation of mortgaged properties acquired in
satisfaction of the related mortgage.
Each expenditure will constitute a servicing advance. In no event will
the servicer be obligated to make any servicing advance in respect of
delinquent tax payments or insurance premiums related to a second lien
mortgage loan.
The servicer's right to reimbursement for servicing advances is limited
to late collections on the related mortgage loan, including liquidation
proceeds, released mortgaged property proceeds, insurance proceeds and any
other amounts as may be collected by the servicer from the related mortgagor
or otherwise relating to the mortgage loan in respect of which the
unreimbursed amounts are owed. The servicer's right to reimbursement for
monthly advances is limited to late collections on any mortgage loan and to
liquidation proceeds and insurance proceeds on the related mortgage loan. The
servicer's right to reimbursements is prior to the rights of
certificateholders.
Notwithstanding the foregoing, the servicer is not required to make any
monthly advance or servicing advance if in the good faith judgment and sole
discretion of the servicer, the servicer determines that the advance will not
be ultimately recoverable from collections received from the mortgagor in
respect of the related mortgage loan or other recoveries in respect of the
mortgage loan. In addition, if any servicing advance or monthly advance is
determined in good faith by the servicer to be non-recoverable from these
sources, the amount of the nonrecoverable advances may be reimbursed to the
servicer from other amounts on deposit in the collection account.
LIBOR Carryover Fund
The pooling and servicing agreement provides for a reserve fund, the
LIBOR carryover fund, which is held by the trustee on behalf of the holders of
the Class A-1V Certificates. To the extent amounts on deposit are sufficient,
holders of the Class A-1V Certificates will be entitled to receive payments
from the LIBOR carryover fund equal to any LIBOR Carryover. The amount
required to be deposited in the LIBOR carryover fund on any distribution date
will equal any LIBOR Carryover for the applicable distribution date, or, if no
LIBOR Carryover is payable on the applicable distribution date, an amount that
when added to other amounts already on deposit in the LIBOR carryover fund,
the aggregate amount on deposit is equal to $5,000. Any investment earnings on
amounts on deposit in the LIBOR carryover fund will be paid to, and for the
benefit of, the holders of the Class X Certificates and will not be available
to pay any LIBOR Carryover. The LIBOR carryover fund will not be included as
an asset of any REMIC.
Servicing Procedures
The servicer will make reasonable efforts to collect all payments
required to be made under the mortgage loans and will, consistent with the
terms of the pooling and servicing agreement, follow the same collection
procedures as it follows with respect to comparable loans held in its own
portfolio. Consistent with the above and subject to the limitations set forth
in the pooling and servicing agreement, the servicer may, in its discretion,
waive any assumption fee, late payment charge, or other charge in connection
with a mortgage loan. In addition, the servicer has the right to modify the
terms of the mortgage loans; provided that the modification does not adversely
impact the trust's status as a REMIC. The servicer will not permit any
modification that changes the mortgage rate, defers or forgives the payment of
interest or principal or reduces the outstanding principal amount of a
mortgage loan unless the mortgagor is in default or a default by the mortgagor
is imminent.
Servicing Compensation, Payment of Expenses and Prepayment Interest Shortfalls
An expense rate will be calculated for each mortgage loan and will equal
the sum of rates used to calculate the servicing fee and the trustee fee. The
expense rates for the mortgage loans will range from approximately 0.509% per
annum to approximately 1.299% per annum and the weighted average expense rate
as of the cut-off date will equal approximately 0.772% per annum. The rate at
which interest accrues on a mortgage loan minus the expense rate for that
mortgage loan is referred to in this prospectus supplement as the net loan
rate for that mortgage loan.
With respect to each Due Period, the servicer will receive a fee for its
services as servicer under the pooling and servicing agreement. The servicing
fee is paid from the interest payments on each mortgage loan and is calculated
as a per annum rate on the principal balance of that mortgage loan. The
servicing fee rates for the mortgage loans will range from approximately
0.500% per annum to approximately 1.290% per annum and the weighted servicing
fee rate as of the cut-off date will equal approximately 0.763% per annum. All
assumption fees, late payment charges and other fees and charges, excluding
prepayment charges, to the extent collected from borrowers, will be retained
by the servicer as additional servicing compensation.
No later than one business day prior to each distribution date, the
servicer is required to remit to the trustee, without any right of
reimbursement, an amount equal to, with respect to each mortgage loan as to
which a principal prepayment in full was received during the related Due
Period, the lesser of (a) the excess, if any, of the sum of 30 days' interest
on the principal balance of each mortgage loan at the related loan rate, or at
any lower rate as may be in effect for the mortgage loan because of
application of the Civil Relief Act, minus the servicing fee for the mortgage
loan, over the amount of interest actually paid by the related mortgagor in
connection with each principal prepayment in full, with respect to all these
mortgage loans, referred to as the prepayment interest shortfall, and (b) the
sum of one-half the servicing fees received by the servicer in the most
recently ended Due Period.
The servicer is not obligated to offset any of the servicing fee against,
or to provide any other funds to cover, any Civil Relief Act Shortfalls.
The servicer, in its capacity as a special servicer is also entitled to
an additional servicing fee referred to as the "special servicing fee," in
connection with mortgage loans that are 90 or more days delinquent. As more
fully described in the pooling and servicing agreement, the special servicing
fee is equal to $150 per mortgage loan 90 or more days delinquent, payable
monthly for eighteen consecutive months commencing in the first month after
the cut-off date in which payments on such mortgage loan are 90 or more days
delinquent, unless that mortgage loan becomes less than 90 days delinquent.
The servicer shall remain entitled to receive any special servicing fee owed,
but not paid, from previous distribution dates.
Resignation of the Servicer
The pooling and servicing agreement provides that the servicer may not
resign from its obligations and duties under that agreement, except in
connection with a permitted transfer of servicing, unless (1) these duties and
obligations are no longer permissible under applicable law as evidenced by an
opinion of counsel delivered to the trustee or (2) upon the satisfaction of
the following conditions:
(a) the servicer has proposed a successor servicer to the trustee in
writing and the proposed successor servicer is reasonably acceptable to the
trustee; and
(b) each rating agency has confirmed to the trustee that the appointment
of the proposed successor servicer as the servicer will not result in the
reduction or withdrawal of the then current ratings of the offered
certificates.
No resignation will become effective until a successor servicer has
assumed the servicer's obligations and duties under the pooling and servicing
agreement.
Pledge and Assignment of Servicer's Rights
On the closing date, the servicer will pledge and assign all of its
right, title and interest in, to and under the rights granted to it in the
pooling and servicing agreement to First Union National Bank, as the
representative of certain lenders. In the event that an event of default
occurs under the pooling and servicing agreement, the trustee and the
depositor have agreed to the appointment of First Union National Bank or its
designee as the successor servicer, provided that at the time of such
appointment, First Union National Bank or such designee meets the requirements
of a successor servicer described in the pooling and servicing agreement
(including being acceptable to the rating agencies) and that First Union
National Bank or such designee agrees to be subject to the terms of the
pooling and servicing agreement.
Events of Default
Events of default under the pooling and servicing agreement will include:
o any failure by the servicer to make any required monthly advance or
any other failure of the servicer to deposit in the collection
account or the distribution account any deposit required to be made
under the pooling and servicing agreement, which failure continues
unremedied for one business day following written notice to the
servicer;
o any failure by the servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
pooling and servicing agreement which, in each case, materially and
adversely affects the interests of the certificateholders and
continues unremedied for 30 days after knowledge or the giving of
written notice of the failure to the servicer;
o particular events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings relating to the
servicer and particular actions by the servicer indicating
insolvency, reorganization or inability to pay its obligations; and
o cumulative losses or delinquency levels exceed the levels set forth
in the pooling and servicing agreement.
If any monthly advance is not made by 2:00 P.M., New York City time, on
the applicable distribution date, the trustee will terminate the servicer and
the trustee or successor servicer appointed pursuant to the pooling and
servicing agreement will immediately assume the advancing obligation of the
servicer and the other obligations of the servicer under the pooling and
servicing agreement.
So long as any other event of default under the pooling and servicing
agreement remains unremedied, the trustee or the holders of certificates
evidencing not less than 51% of the voting rights may terminate all of the
rights and obligations of the servicer, as provided in the pooling and
servicing agreement, whereupon the trustee will succeed to all of the
responsibilities and duties of the servicer under the pooling and servicing
agreement, including the obligation to make advances, subject to the pledge
and assignment to First Union National Bank described above. No assurance can
be given that termination of the rights and obligations of the servicer under
the pooling and servicing agreement would not adversely affect the servicing
of the mortgage loans, including the delinquency experience of the mortgage
loans.
No holder of a certificate, solely by virtue of such holder's status as a
holder of a certificate, will have any right under the pooling and servicing
agreement to institute any proceeding with respect thereto, unless such holder
previously has given to the trustee written notice of default and holders of
certificates having not less than 51% of the voting rights and have offered
reasonable indemnity to the trustee.
Amendment
The pooling and servicing agreement may be amended by the parties
thereto, without the consent of the certificateholders, to
1. cure any ambiguity,
2. correct or supplement any provisions in the pooling and
servicing agreement which may be defective or inconsistent with any other
provisions of the pooling and servicing agreement,
3. comply with any requirements imposed by the Internal Revenue
Code or any regulation under the Internal Revenue Code, or to add or amend
any provisions of the pooling and servicing agreement as required by the
rating agencies in order to maintain or improve any rating of the offered
certificates, it being understood that, after obtaining the ratings in
effect on the closing date, none of the depositor, the obligors, the
trustee or the servicer is obligated to obtain, maintain, or improve any
rating, or
4. add any other provisions with respect to matters or questions
arising under the pooling and servicing agreement which shall not be
inconsistent with the provisions of the pooling and servicing agreement,
provided that the action will not, as evidenced by an opinion of counsel,
materially and adversely affect the interests of any certificateholder or
with respect to amendments promulgated to comply with the Internal Revenue
Code, such amendment is necessary to maintain the qualifications of any
REMIC as a REMIC; provided, that any amendment will be deemed to not
materially and adversely affect the certificateholders and no opinion will
be required to be delivered if the person requesting the amendment obtains
a letter from the rating agencies stating that the amendment would not
result in a downgrading of the then current rating of the offered
certificates.
The pooling and servicing agreement also may be amended from time to time
by the parties thereto, with the consent of certificateholders holding
certificates evidencing at least 51% of the voting rights of each class
affected by the amendment, or 51% of all of the voting rights if all classes
are affected, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the agreement or of modifying
in any manner the rights of the certificateholders, provided that no amendment
will (x) reduce in any manner the amount of, or delay the timing of,
collections of payments on the certificates or distributions or payments which
are required to be made on any certificate without the consent of the
certificateholder (y) adversely affect the interests of the holders of any
class of offered certificates, other than as set forth in (x) above, without
the consent of 66% of all the voting rights of the affected class or (z)
reduce the aforesaid percentage required to consent to any amendment, without
the consent of the holders of all certificates of the affected class then
outstanding.
Foreclosure Restrictions on the Mortgage Loans
Mortgage loans in the mortgage pool that are 60 to 89 days delinquent as
of the cut-of date, will have certain restrictions placed on their foreclosure
in the pooling and servicing agreement. These mortgage loans constitute 1.92%
and 2.86% of the Group 1 mortgage loans and Group 2 mortgage loans,
respectively. In the event that one of these mortgage loans goes into
foreclosure, if acquiring title to the mortgaged property would cause the
adjusted basis, for federal income tax purposes, of these mortgaged properties
in either loan group that are currently owned by the trust after foreclosure,
along with any other assets owned by the related REMIC other than "qualified
mortgages," qualified "foreclosure property" and "permitted investments"
within the meaning of Section 860G of the Internal Revenue Code, to exceed
0.75% of the adjusted basis of the assets in the loan group, the servicer
would not be permitted to acquire title to the mortgage loan on behalf of the
related REMIC. Instead, the servicer would have to dispose of the mortgage
loan for cash in the foreclosure sale. In addition, if the servicer determines
that the adjusted basis of such mortgaged properties in foreclosure on any
distribution date, along with any other assets owned by the related REMIC,
other than "qualified mortgages," qualified "foreclosure property" and
"permitted investments" with the meaning of Section 860G of the Internal
Revenue Code, exceed 1.0% of the adjusted basis of the assets of the trust
immediately after the distribution, then prior to such distribution date, the
servicer would be required to dispose of enough of such mortgaged properties
in foreclosure, for cash, so that the adjusted basis of such mortgaged
properties in foreclosure, along with any other assets owned by the related
REMIC, other than "qualified mortgages," qualified "foreclosure property" and
"permitted investments" within the meaning of Section 860G of the Internal
Revenue Code, will be less than 1.0% of the adjusted basis of the assets of
the trust. As a result, losses on the mortgage loans may be greater than if
the servicer was permitted to obtain title to these mortgaged properties on
behalf of the trust.
Termination; Purchase of Mortgage Loans
The trust will terminate on the distribution date following the earliest
of
(a) the distribution date on which the aggregate class principal balance
of all the certificates has been reduced to zero,
(b) the final payment or other liquidation of the last mortgage loan in
the trust and
(c) the optional purchase by the servicer of the mortgage loans, as
described below.
Subject to provisions in the pooling and servicing agreement concerning
adopting a plan of complete liquidation, the servicer may, at its option,
terminate the pooling and servicing agreement on any distribution date
following the Due Period during which the aggregate principal balance of the
mortgage loans is less than 10% of the principal balances of the mortgage
loans on the closing date, called the optional termination date, by purchasing
all of the outstanding mortgage loans and REO properties at a price equal to
the sum of the outstanding Pool Balance, subject to reduction of the purchase
price based in part on the appraised value of any REO property included in the
trust if the appraised value is less than the principal balance of the related
mortgage loan, as provided in the pooling and servicing agreement, and accrued
and unpaid interest on the related mortgage loan at the weighted average of
the loan rates through the end of the Due Period preceding the final
distribution date plus the amount of any unreimbursed monthly advances,
servicing advances and fees owed to the servicer.
Optional Purchase of Defaulted Mortgage Loans
The servicer has the option to purchase from the trust any mortgage loan
60 days or more delinquent at a purchase price equal to the outstanding
principal balance of the mortgage loan as of the date of purchase, plus all
accrued and unpaid interest on that principal balance computed at the loan
rate.
Voting Rights
Under the pooling and servicing agreement, the portion of the voting
rights allocated to the offered certificates will equal 98% and will be
allocated among the classes in proportion to their respective class principal
balances. Voting rights allocated to a class of certificates will be further
allocated among the certificates of the class on the basis of their respective
percentage interests in that class. The portion of the voting rights allocated
to the Class X Certificates will equal 2%.
The Trustee
U.S. Bank National Association will be the trustee under the pooling and
servicing agreement. The trustee will be entitled to retain, as its
compensation, any interest or other income earned on funds deposited in the
distribution account pending distribution to certificateholders. The trustee
will be entitled to reimbursement for certain expenses prior to distribution
of any amounts to certificateholders. The trustee's "Corporate Trust Office"
for purposes of presentment and surrender of the offered certificates for the
final distribution thereon and for all other purposes is located at 180 East
Fifth Street, St. Paul, Minnesota 55101, or such address as the trustee may
designate from time to time by notice to the certificateholders, the depositor
and the servicer.
The trustee may resign at any time, in which event the depositor will be
obligated to appoint a successor trustee. The depositor may also remove the
trustee if the trustee ceases to be eligible to continue as such under the
pooling and servicing agreement or if the trustee becomes insolvent. Upon
becoming aware of these circumstances, the depositor will be obligated to
appoint a successor trustee. Any resignation or removal of the trustee and
appointment of a successor trustee will not become effective until acceptance
of the appointment by the successor trustee.
DESCRIPTION OF THE CERTIFICATES
General
The property of the trust will consist of, to the extent provided in the
pooling and servicing agreement:
(a) the mortgage loans;
(b) payments received after the cut-off date;
(c) mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure together with all
collections on and proceeds of the mortgaged properties;
(d) the collection account and the distribution account and any
assets deposited in these accounts from time to time; and
(e) the depositor's rights under the C-BASS Purchase Agreement.
The trust will issue the Class A-1V and Class A-1F Certificates
(together, the "Class A Certificates"), the Class M-1 and Class M-2
Certificates (together, the "Class M Certificates"), the Class B Certificates,
the Class X Certificates and the Class R Certificates. The Class M and Class B
Certificates are collectively referred to as the subordinate certificates. The
Class A Certificates and the subordinate certificates are referred to as the
offered certificates.
The offered certificates will be issued in book-entry form as described
below. The offered certificates will be issued in minimum dollar denominations
of $25,000 and integral multiples of $1,000 in excess thereof (except that one
certificate of each Class may be issued in a denomination which is not an
integral multiple thereof). No service charge will be made for any
registration of exchange or transfer of certificates, but the trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge. The assumed final maturity date for the offered certificates is May
25, 2030.
The principal balance of a class of certificates on any distribution date
is equal to the applicable class principal balance on the closing date reduced
by the
o aggregate of amounts actually distributed as principal to the holders
of the class of certificates prior to the applicable date and
o in the case of a subordinate certificate, any reductions in the class
principal balance of the subordinate certificate due to realized
losses as described in this prospectus supplement.
The percentage interest of a certificate of any class as of any date of
determination will equal the percentage obtained by dividing the denomination
of the certificate by the original class principal balance for the related
class of certificates.
Separate REMIC Structure
For federal income tax purposes, the trust, other than the LIBOR
carryover fund, created by the pooling and servicing agreement will include
multiple segregated asset pools, each of which will be treated as a separate
REMIC, creating a tiered REMIC structure. The offered certificates, excluding
any rights to receive LIBOR Carryover, will be designated as regular interests
in a REMIC.
Book-Entry Certificates
The book-entry certificates will be issued in one or more certificates
which equal the aggregate principal balance of the offered certificates and
will initially be registered in the name of Cede & Co., referred to as Cede,
the nominee of The Depository Trust Company, referred to as DTC. Persons
acquiring beneficial ownership interests in the offered certificates will hold
their certificates through DTC in the United States, or Clearstream,
Luxembourg or the Euroclear System, referred to as Euroclear, in Europe, if
they are participants of these systems, or indirectly through organizations
which are participants in these systems. Clearstream, Luxembourg and Euroclear
will hold omnibus positions on behalf of their participants through customers'
securities accounts in Clearstream, Luxembourg's and Euroclear's names on the
books of their respective depositaries which in turn will hold positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank, N.A., referred to as Citibank, will act as depositary for
Clearstream, Luxembourg and The Chase Manhattan Bank, referred to as Chase,
will act as depositary for Euroclear. Collectively these entities are referred
to as the European depositaries.
Investors may hold beneficial interests in the book-entry certificates in
minimum denominations representing class principal balances of $25,000 and in
integral multiples of $1,000 in excess thereof. One certificate of each class
of offered certificates may be issued in a different principal amount to
accommodate the remainder of the initial principal amount of the certificates
of the class. Unless and until definitive certificates are issued, it is
anticipated that the only certificateholder of the offered certificates will
be Cede & Co., as nominee of DTC. Certificate owners will not be
certificateholders as that term is used in the agreement. Certificate owners
are only permitted to exercise their rights indirectly through participants
and DTC. For a description of the features of the book-entry registration
system, see "Description of the Securities -- Book-Entry Registration of
Securities" in the prospectus. For information with respect to tax
documentation procedures relating to the certificates, see "Certain Material
Federal Income Tax Consequences -- Non-U.S. Persons" and "-- Backup
Withholding" in this prospectus supplement and "Global Clearance, Settlement
and Tax Documentation Procedures -- Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I to this prospectus supplement.
None of the obligors, the servicer or the trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the book-entry certificates held
by Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests.
Distribution Dates
Distributions on the certificates will be made by the trustee on the 25th
day of each month or, if that day is not a business day, on the first business
day thereafter, commencing in June 2000, each called a distribution date, to
the persons in whose names the certificates are registered, each called a
certificateholder, as of the related record date. The record date for any
distribution date and (a) the offered certificates, other than the Class A-1V
Certificates, is the last business day of the calendar month preceding the
month of the applicable distribution date and (b) the Class A-1V Certificates,
the business day immediately preceding the applicable distribution date so
long as the Class A-1V Certificates remain in book-entry form and, otherwise,
the last business day of the calendar month immediately preceding the
applicable distribution date. Distributions will be made (1) in immediately
available funds to holders of certificates the aggregate principal balance of
which is at least $1,000,000, by wire transfer or otherwise, to the account of
the certificateholder at a domestic bank or other entity having appropriate
facilities for distribution, if the certificateholder has so notified the
trustee, or (2) by check mailed to the address of the person entitled to the
distribution as it appears on the certificate register maintained by the
trustee as certificate registrar. Notwithstanding the foregoing, the final
distribution on any certificate will be made in like manner but only upon
presentment and surrender of the certificate at the office or agency appointed
for that purpose.
Glossary
For purposes of describing the cash flow structure of the trust, the
following terms have the respective meanings set forth below:
Aggregate Principal Amount: As to any distribution date, the sum of the
Basic Principal Amount for each loan group.
Available Funds: As to either loan group and any distribution date, the
sum, without duplication of the following amounts with respect to the mortgage
loans in the applicable loan group:
(1) (a) scheduled payments of principal and interest on the
mortgage loans due on the related due date and received by the
servicer no later than the related Determination Date and (b)
unscheduled payments of principal and interest received by the
servicer during the related Due Period, net of amounts representing
the servicing fee with respect to each mortgage loan and
reimbursement for related monthly advances and servicing advances;
(2) Net Liquidation Proceeds and insurance proceeds with
respect to the mortgage loans, net of amounts applied to the
restoration or repair of a mortgaged property, received during the
related Due Period;
(3) the purchase price for repurchased defective mortgage loans
with respect to the loan group and any related substitution
adjustment amounts received during the related Due Period; and
(4) payments from the servicer for that distribution date in
connection with:
(a) monthly advances,
(b) prepayment interest shortfalls and
(c) the termination of the trust with respect to the
mortgage loans as provided in the pooling and servicing
agreement.
Available Funds Cap: As to any distribution date, (A) in the case of Loan
Group 1, the Class A-1F Certificates, and any class of subordinate
certificates, the lower of the Loan Group 1 Cap and the Loan Group 2 Cap and
(B) in the case of Loan Group 2 and the Class A-1V Certificates, the Loan
Group 2 Cap.
Basic Principal Amount: As to either loan group and any distribution
date, an amount equal to the sum of the following amounts, without
duplication, with respect to the mortgage loans in the loans group:
(1) each scheduled payment of principal collected on the related
mortgage loans by the servicer in respect of the related due date;
(2) the principal portion of all partial and full principal
prepayments of related mortgage loans received by the servicer during
the related Due Period;
(3) the Net Liquidation Proceeds allocable to principal received
by the servicer with respect to any Liquidated Mortgage Loan during
the related Due Period;
(4) the portion of the purchase price allocable to principal of
all repurchased defective mortgage loans with respect to the related
Due Period;
(5) any substitution adjustment amounts received during the
related Due Period; and
(6) any monthly advances with respect to scheduled payments of
principal due during the related Due Period.
Civil Relief Act Shortfalls: Reductions in the amount of interest due
from borrowers as a result of the application of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended.
Class A-1V Principal Distribution Amount: As to any distribution date,
the lesser of (A) the greater of (1) the product of (x) the Senior Principal
Distribution Amount for the applicable distribution date and (y) a fraction,
the numerator of which is the class principal balance of the Class A-1V
Certificates immediately prior to the applicable distribution date, and the
denominator of which is the aggregate class principal balance of the Class A
Certificates immediately prior to the applicable distribution date, and (2)
the excess, if any, of (x) the class principal balance of the Class A-1V
Certificates immediately prior to that distribution date over (y) the sum of
the Loan Group Balance of Loan Group 2 as of the last day of the related Due
Period or (B) the Senior Principal Distribution Amount.
Class A-1F Principal Distribution Amount: As to any distribution date,
the excess of (a) the Senior Principal Distribution Amount for the applicable
distribution date over (b) the Class A-1V Principal Distribution Amount for
the applicable distribution date.
Class B Principal Distribution Amount: As to any distribution date on or
after the Stepdown Date and as long as a Delinquency Event is not in effect,
the excess of:
(1) the sum of
(A) the aggregate class principal balance of the Class A
Certificates, after taking into account distributions
of the Senior Principal Distribution Amount for the
applicable distribution date,
(B) the class principal balance of the Class M-1
Certificates, after taking into account distribution
of the Class M-1 Principal Distribution Amount for the
applicable distribution date,
(C) the class principal balance of the Class M-2
Certificates, after taking into account distribution
of the Class M-2 Principal Distribution Amount for the
applicable distribution date, and
(D) the class principal balance of the Class B
Certificates immediately prior to the applicable
distribution date
over (2) the lesser of
(A) 100.00% of the Pool Balance as of the last day of the
related Due Period less the Required
Overcollateralization Amount for that distribution
date, and
(B) the Pool Balance as of the last day of the related Due
Period minus the OC Floor,
provided, however, that after the class principal balances of the Class A and
Class M Certificates are reduced to zero, the Class B Principal Distribution
Amount for the applicable distribution date will equal 100% of the Principal
Distribution Amount.
Class Interest Carryover Shortfall: As to any class of certificates and
any distribution date, an amount equal to the sum of (1) the excess of the
related Class Monthly Interest Amount for the preceding distribution date and
any outstanding Class Interest Carryover Shortfall with respect to that class
on the preceding distribution date, over the amount in respect of interest
that is actually distributed to the holders of the class on the preceding
distribution date plus (2) one month's interest on the excess, to the extent
permitted by law, at the related pass-through rate.
Class Interest Distribution: As to any class of certificates and
distribution date, an amount equal to the sum of (a) the related Class Monthly
Interest Amount and (b) any Class Interest Carryover Shortfall for that class
of certificates for the applicable distribution date.
Class M-1 Principal Distribution Amount: As to any distribution date on
or after the Stepdown Date, (x) 100% of the Principal Distribution Amount if
the class principal balance of each class of Class A Certificates has been
reduced to zero and a Delinquency Event exists, or (y) if a Delinquency Event
is not in effect, the excess of
(1) the sum of
(A) the aggregate class principal balance of the Class A
Certificates, after taking into account distributions
of the Senior Principal Distribution Amount for the
applicable distribution date, and
(B) the class principal balance of the Class M-1
Certificates immediately prior to the applicable
distribution date
over (2) the lesser of
(A) 85.71% of the Pool Balance as of the last day of the
related Due Period less the Required
Overcollateralization Amount for that distribution
date, and
(B) the Pool Balance as of the last day of the related Due
Period minus the OC Floor.
Class M-2 Principal Distribution Amount: As to any distribution date on
or after the Stepdown Date, (x) 100% of the Principal Distribution Amount if
the aggregate class principal balance of each of the Class A and Class M-1
Certificates has been reduced to zero and a Delinquency Event exists, or (y)
if a Delinquency Event is not in effect, the excess of
(1) the sum of
(A) the aggregate class principal balance of the Class A
Certificates, after taking into account distributions
of the Senior Principal Distribution Amount for the
applicable distribution date,
(B) the class principal balance of the Class M-1
Certificates, after taking into account distribution
of the Class M-1 Principal Distribution Amount for the
applicable distribution date, and
(C) the class principal balance of the Class M-2
Certificates immediately prior to the applicable
distribution date
over (2) the lesser of
(A) 94.18% of the Pool Balance as of the last day of the
related Due Period less the Required
Overcollateralization Amount for that distribution
date, and
(B) the Pool Balance as of the last day of the related Due
Period minus the OC Floor.
Class Monthly Interest Amount: As to any distribution date and class of
certificates, interest for the related Interest Period at the related
pass-through rate on the related class principal balance minus the pro rata
portion of any Civil Relief Act Shortfalls for the related loan group during
the related Due Period, based on the amount of interest to which the class
would otherwise be entitled in the absence of the shortfall.
Class Principal Carryover Shortfall: As to any class of subordinate
certificates and any distribution date, the excess, if any, of (1) the sum of
(x) the amount of the reduction in the class principal balance of that class
of subordinate certificates on the applicable distribution date as provided
under "-- Allocation of Realized Losses" below and (y) the amount of any
reductions on prior distribution dates over (2) the amount distributed in
respect of Class Principal Carryover Shortfall to such class of subordinate
certificates on prior distribution dates.
Cumulative Loss Event: A Cumulative Loss Event shall have occurred and be
continuing with respect to any distribution date, if at any time, cumulative
Realized Losses as of such distribution date equal or exceed the percentages
of the Pool Balance as of the cut-off date set forth below with respect to
such distribution date:
Percentage of Pool Balance
Distribution Date as of the Cut-off Date
------------------------------- ------------------------------------
June 2000 - May 2003 N.A.
June 2003 - May 2004 4.00%
June 2004 and thereafter 5.00%
Delinquency Amount: As to any date of determination, the aggregate
principal balance of the mortgage loans that are (a) 60 or more days
delinquent or (b) in bankruptcy or foreclosure and REO properties.
Delinquency Event: A Delinquency Event shall have occurred and be
continuing, if at any time, (a) the six-month rolling average of the
percentage equivalent of a fraction, the numerator of which is the Delinquency
Amount and the denominator of which is the Pool Balance as of the last day of
the related Due Period exceeds (b) 50% of the Senior Enhancement Percentage;
provided, that if the aggregate class principal balance of the Class A
Certificates has been reduced to zero, a Delinquency Event shall have occurred
and be continuing, if at any time, the six-month rolling average of the
percentage calculated in (a) equals or exceeds 16.94%.
Determination Date: With respect to any distribution date, the 15th day
of the calendar month in which such distribution date occurs or, if such 15th
day is not a business day, the business day immediately preceding such 15th
day.
Due Period: With respect to each distribution date thereafter for
collections of both interest and principal, the period from and including the
second day of the month preceding the month of the applicable distribution
date to and including the first day of the month of that distribution date.
Excess Interest: As to any distribution date, the Available Funds
remaining after the application of payments pursuant to clauses 1. through 6.
of clause C. under "-- Distribution Priorities," below.
Excess Overcollateralization Amount: As to any distribution date, the
lesser of (1) the Aggregate Principal Amount for the applicable distribution
date and (2) the excess, if any, of (x) the Overcollateralization Amount,
assuming 100% of the Aggregate Principal Amount is distributed on the offered
certificates, over (y) the Required Overcollateralization Amount.
Interest Period: For any distribution date and (a) the offered
certificates, other than the Class A-1V Certificates, the calendar month
preceding the month of the applicable distribution date, calculated on the
basis of a 360-day year comprised of twelve 30-day months and (b) the Class
A-1V Certificates, the period from the prior distribution date, or in the case
of the first distribution date, from the closing date, through the day
preceding the current distribution date, calculated on the basis of a 360-day
year and the actual number of days elapsed; provided, however, that interest
accrued on any class of offered certificates at the applicable Available Funds
Cap, will be calculated on the basis of a 360-day year comprised of twelve
30-day months.
Loan Group 1 Cap: The weighted average net loan rate of the mortgage
loans in Loan Group 1.
Loan Group 2 Cap: The weighted average net loan rate of the mortgage
loans in Loan Group 2.
LIBOR Carryover: As to the Class A-1V Certificates and any distribution
date, the sum of
(1) the excess, if any, of the related Class Monthly Interest
Amount calculated on the basis of the lesser of (x) one-month LIBOR
plus the applicable certificate margin and (y) 14% per annum over the
related Class Monthly Interest Amount for the applicable distribution
date,
(2) any LIBOR Carryover remaining unpaid from prior
distribution dates and
(3) 30 days interest on the amount in clause (2) calculated on
the basis of the lesser of (x) one-month LIBOR plus the applicable
certificate margin and (y) 14% per annum.
Liquidated Mortgage Loan: As to any distribution date, a mortgage loan
with respect to which the servicer has determined, in accordance with the
servicing procedures specified in the pooling and servicing agreement, as of
the end of the preceding Due Period, that all liquidation proceeds which it
expects to recover with respect to that mortgage loan, including the
disposition of the related REO, have been received.
Loan Group Balance: As to either loan group and any date of
determination, the aggregate of the principal balances of the mortgage loans
in the loan group at the applicable date.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
liquidation proceeds, net of unreimbursed servicing fees, servicing advances
and monthly advances with respect to the related Liquidated Mortgage Loan.
OC Floor: An amount equal to 0.50% of the Pool Balance as of the cut-off
date.
Overcollateralization Amount: As to any distribution date, the excess, if
any, of (1) the Pool Balance as of the end of the related Due Period over (2)
the aggregate class principal balance of the offered certificates after giving
effect to the distribution of the Principal Distribution Amount on the
applicable distribution date.
Pool Balance: As of any date of determination, the sum of the Loan Group
Balances as of the applicable date.
Principal Distribution Amount: As to any distribution date, the lesser of
(a) the aggregate class principal balance of the offered certificates
immediately preceding the applicable distribution date and (b) the sum of (1)
the Aggregate Principal Amount minus the Excess Overcollateralization Amount
and (2) the Subordination Increase Amount.
Realized Loss: As to any Liquidated Mortgage Loan, the principal balance
remaining unpaid after application of all liquidation proceeds.
Required Overcollateralization Amount: As to any distribution date (a)
prior to the Stepdown Date, the product of (x) 4.25% and (y) the Pool Balance
as of the cut-off date; and (b) on and after the Stepdown Date, the greater of
(1) the lesser of (x) the product of 4.25% and the Pool Balance as of the
cut-off date and (y) the product of 9.00% and the Pool Balance as of the end
of the related Due Period and (2) the OC Floor; provided, however, that on
each distribution date during the continuance of a Delinquency Event or
Cumulative Loss Event, the Required Overcollateralization Amount will equal
the Required Overcollateralization Amount in effect as of the distribution
date immediately preceding the date on which the Delinquency Event or
Cumulative Loss Event, as applicable, first occurred.
Senior Enhancement Percentage: As to any distribution date, the
percentage equivalent of a fraction, the numerator of which is the sum of (1)
the aggregate class principal balance of the subordinate certificates and (2)
the Overcollateralization Amount, in each case, after taking into account the
distribution of the Principal Distribution Amount on the applicable
distribution date, and the denominator of which is the Pool Balance as of the
last day of the related Due Period.
Senior Principal Distribution Amount: As to (a) any distribution date
prior to the Stepdown Date or during the continuation of a Delinquency Event,
the lesser of (1) 100% of the Principal Distribution Amount and (2) the
aggregate class principal balance of the Class A Certificates, and (b) any
other distribution date, an amount equal to the excess, if any, of (x) the
aggregate class principal balance of the Class A Certificates immediately
prior to the applicable distribution date over (y) the lesser of (A) 75.12% of
the Pool Balance as of the last day of the related Due Period less the
Required Overcollateralization Amount for that distribution date and (B) the
Pool Balance as of the last day of the related Due Period minus the OC Floor.
Stepdown Date: The later to occur of (x) the earlier to occur of (A) the
distribution date in June 2003 and (B) the distribution date on which the
aggregate class principal balance of the Class A Certificates is reduced to
zero, and (y) the first distribution date on which the Senior Enhancement
Percentage, assuming 100% of the Principal Distribution Amount is distributed
on the offered certificates, is at least equal to 33.88%.
Subordination Deficiency: As to any distribution date, the excess, if
any, of (x) the Required Overcollateralization Amount for the applicable
distribution date over (y) the Overcollateralization Amount for that
distribution date after giving effect to the distribution of the Aggregate
Principal Amount on that distribution date.
Subordination Increase Amount: As to any distribution date, the lesser of
(x) the Subordination Deficiency and (y) the Excess Interest.
Distribution Priorities
On each distribution date the trustee will withdraw from the distribution
account the Available Funds for each loan group and apply this amount in the
following order of priority to the extent of the funds remaining:
A. Loan Group 1
1. To the trustee, the trustee fee for Loan Group 1 for the
applicable distribution date.
2. To the Class A-1F Certificates, the related Class Interest
Distribution for the applicable distribution date.
3. The remaining amount pursuant to clause C. below.
B. Loan Group 2
1. To the trustee, the trustee fee for Loan Group 2 for the
applicable distribution date.
2. To the Class A-1V Certificates, the related Class Interest
Distribution for the applicable distribution date.
3. The remaining amount pursuant to clause C. below.
C. Remaining Amounts
1. Concurrently, to each class of Class A Certificates, the
related Class Interest Distribution to the extent not paid pursuant
to clauses A. and B. above on the applicable distribution date.
2. Sequentially, to the Class M-1, Class M-2 and Class B
Certificates, in that order, the related Class Monthly Interest
Amount for the applicable distribution date.
3. To the Class A Certificates, the Senior Principal
Distribution Amount for the applicable distribution date, excluding
any Subordination Increase Amount included in that amount, allocated
as described under "-- Principal Priorities" below.
4. To the Class M-1 Certificates, the Class M-1 Principal
Distribution Amount for the applicable distribution date, excluding
any Subordination Increase Amount included in that amount.
5. To the Class M-2 Certificates, the Class M-2 Principal
Distribution Amount for the applicable distribution date, excluding
any Subordination Increase Amount included in that amount.
6. To the Class B Certificates, the Class B Principal
Distribution Amount for the applicable distribution date, excluding
any Subordination Increase Amount included in that amount.
7. To the offered certificates, the Subordination Increase
Amount for the applicable distribution date, allocated as described
under "-- Principal Priorities" below.
8. To the Class M-1 Certificates, any related (a) Class
Interest Carryover Shortfall and then (b) Class Principal Carryover
Shortfall.
9. To the Class M-2 Certificates, any related (a) Class
Interest Carryover Shortfall and then (b) Class Principal Carryover
Shortfall.
10. To the Class B Certificates, any related (a) Class Interest
Carryover Shortfall and then (b) Class Principal Carryover Shortfall.
11. To the servicer, the special servicing fee, if any, for the
applicable distribution date.
12. To the Class X Certificates, for deposit to the LIBOR
carryover fund first to cover any LIBOR Carryover (to the extent not
covered by amounts already on deposit in the LIBOR carryover fund)
and then to cover any amount required to be on deposit in the LIBOR
carryover fund, and then to be released to the Class X Certificates,
such amounts, if any, as described in the pooling and servicing
agreement.
13. To the residual certificates, any remaining amounts.
Principal Priorities
On each distribution date, the trustee will withdraw the Aggregate
Principal Amount from the distribution account and apply this amount together
with the amount, if any, included in the Principal Distribution Amount from
clause C.7 above under "-- Distribution Priorities," in the following order of
priority, in each case, to the extent of the funds remaining for this
distribution:
A. up to the Senior Principal Distribution Amount, concurrently, as
follows:
1. to the Class A-1F Certificates, the Class A-1F Principal
Distribution Amount, until the class principal balance of these
certificates has been reduced to zero; and
2. to the Class A-1V Certificates, the Class A-1V Principal
Distribution Amount until the class principal balance of these
certificates has been reduced to zero.
B. to the subordinate certificates, as follows:
1. to the Class M-1 Certificates, the Class M-1 Principal
Distribution Amount until its class principal balance has been
reduced to zero;
2. to the Class M-2 Certificates, the Class M-2 Principal
Distribution Amount until its class principal balance has been
reduced to zero; and
3. to the Class B Certificates, the Class B Principal
Distribution Amount until its class principal balance has been
reduced to zero.
C. to the Class X Certificates, any remaining principal in
accordance with the pooling and servicing agreement.
On each distribution date, the holders of the Class X Certificates will
be entitled to all prepayment charges received with respect to the mortgage
loans in each loan group during the related Due Period, and these amounts will
not be available for distribution on the other classes of certificates.
Pass-Through Rates
The pass-through rate for each class of offered certificates, other than
the Class A-1V Certificates, is set forth on the cover page or described in
this prospectus supplement. Each pass-through rate for each class of offered
certificates, other than the Class A-1V Certificates, is subject to the lower
of the Loan Group 1 Cap and the Loan Group 2 Cap. The pass-through rate on
each class of offered certificates, other than the Class A-1V Certificates,
will increase by 0.25% after the optional termination date.
The pass-through rate for the Class A-1V Certificates for any Interest
Period will equal the least of
(x) the sum of one-month LIBOR and the applicable certificate
margin,
(y) 14% and
(z) the Loan Group 2 Cap.
The certificate margin for the Class A-1V Certificates will be as follows:
Certificate Margin
----------------------------------
Class (1) (2)
---------------------------------------- --------------- ----------------
A-1V................................... 0.31% 0.62%
______________
(1) Prior to or on the optional termination date.
(2) After the optional termination date.
With respect to each distribution date, one-month LIBOR will equal the
interbank offered rate for one-month United States dollar deposits in the
London market as quoted on Telerate Page 3750 as of 11:00 A.M., London time,
on the second LIBOR business day prior to the first day of the related
Interest Period. Telerate Page 3750 means the display designated as page 3750
on the Bridge Telerate, or any other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks. If the rate does not appear on the page, or any other page as may
replace that page on that service, or if the service is no longer offered, any
other service for displaying LIBOR or comparable rates as may be selected by
the trustee after consultation with the servicer, the rate will be the
reference bank rate. The reference bank rate will be determined on the basis
of the rates at which deposits in U.S. Dollars are offered by the reference
banks, which shall be three major banks that are engaged in transactions in
the London interbank market, selected by the trustee after consultation with
the servicer, as of 11:00 A.M., London time, on the day that is two LIBOR
business days prior to the immediately preceding distribution date to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the aggregate class principal balance of the Class A-1V
Certificates. The trustee will request the principal London office of each of
the reference banks to provide a quotation of its rate. If at least two
quotations are provided, the rate will be the arithmetic mean of the
quotations. If on the related date fewer than two quotations are provided as
requested, the rate will be the arithmetic mean of the rates quoted by one or
more major banks in New York City, selected by the trustee after consultation
with the servicer, as of 11:00 A.M., New York City time, on the date for loans
in U.S. Dollars to leading European banks for a period of one month in amounts
approximately equal to the aggregate class principal balance of the Class A-1V
Certificates. If no quotations can be obtained, the rate will be LIBOR for the
prior distribution date. LIBOR business day means any day other than a
Saturday or a Sunday or a day on which banking institutions in the State of
New York or in the city of London, England are required or authorized by law
to be closed.
Overcollateralization Provisions
The Excess Interest will be applied to, among other things, the
accelerated amortization of the offered certificates then entitled to
distributions of principal to maintain the Overcollateralization Amount at the
Required Overcollateralization Amount. Subject to particular floors, caps and
triggers, the Required Overcollateralization Amount may increase or decrease
over time. An increase in the required level of overcollateralization will
result upon the occurrence of a Delinquency Event or a Cumulative Loss Event.
Crosscollateralization Provisions
Some Available Funds with respect to each loan group will be available to
cover some shortfalls and to create overcollateralization with respect to the
offered certificates relating to the other loan group as described above under
the caption "-- Distribution Priorities."
Allocation of Realized Losses
The Basic Principal Amount includes the Net Liquidation Proceeds in
respect of principal received upon liquidation of a Liquidated Mortgage Loan.
If the Net Liquidation Proceeds are less than the unpaid principal balance of
the related Liquidated Mortgage Loan, the Pool Balance will decline more than
the aggregate class principal balance of the offered certificates. If the
difference is not covered by the Overcollateralization Amount or the
application of Excess Interest, the class of subordinate certificates then
outstanding with the lowest relative payment priority will bear the loss.
If, following the distributions on a distribution date, the aggregate
class principal balance of the offered certificates exceeds the Pool Balance,
that is, the certificates are undercollateralized, the class principal balance
of the class of subordinate certificates then outstanding with the lowest
relative payment priority will be reduced by the amount of the excess. Any
reduction will constitute a Class Principal Carryover Shortfall for the
applicable class. Although a Class Principal Carryover Shortfall will not
accrue interest, this amount may be paid on a future distribution date to the
extent funds are available for distribution as provided above under "--
Distribution Priorities."
For all purposes of this prospectus supplement the Class B Certificates
will have the lowest payment priority of any class of subordinate
certificates.
Reports to Certificateholders
Concurrently with each distribution to certificateholders, the trustee
will prepare and forward to each certificateholder and post on its website a
statement setting forth, among other items the following, to the extent
applicable to each class of certificates:
(a) the aggregate amount of the distribution to each
class of certificates on the applicable distribution date;
(b) the amount of the distribution set forth in paragraph
(a) above in respect of interest and the amount of that distribution
in respect of any Class Interest Carryover Shortfall, and the amount
of any Class Interest Carryover Shortfall remaining;
(c) the amount of the distribution set forth in paragraph
(a) above in respect of principal, separately identifying the
aggregate amount of any principal prepayments or other unscheduled
recoveries of principal included in that amount;
(d) the Available Funds for each loan group for the
related Due Period;
(e) the amount of Excess Interest for each loan group
paid as principal;
(f) the amount of the servicing fee and any special
servicing fees accrued and unpaid or paid to or retained by the
servicer;
(g) the amount of the trustee fee paid to the trustee;
(h) the amount, if any, of prepayment penalties paid on
the mortgage loans;
(i) the amount of monthly advances for the related Due
Period;
(j) the Group 1 Loan Balance, the Group 2 Loan Balance
and the Pool Balance, in each case as of the close of business on
the last day of the preceding Due Period;
(k) the class principal balance of each class of
certificates after giving effect to payments allocated to principal
above;
(l) the Overcollateralization Amount and the Required
Overcollateralization Amount as of the close of business on the
distribution date, after giving effect to distributions of principal
on the applicable distribution date;
(m) the number and aggregate principal balances of the
mortgage loans as to which the minimum monthly payment is delinquent
for 30-59 days, 60-89 days, or 90 or more days, including mortgage
loans in foreclosure, in bankruptcy and real estate owned, each
separately stated, respectively, as of the end of the preceding
month;
(n) whether a Delinquency Event and a Cumulative Loss
Event has occurred and is continuing and the calculations of those
events;
(o) the book value of any real estate which is acquired
by the trust through foreclosure or grant of deed in lieu of
foreclosure;
(p) the number of mortgage loans in each loan group
outstanding as of the end of the preceding month;
(q) the amounts of realized losses for the applicable Due
Period and the cumulative amount of realized losses to date;
(r) the aggregate principal balance of mortgage loans
purchased by the servicer or repurchased by the obligors as required
or permitted by the pooling and servicing agreement;
(s) the weighted average loan rate on the mortgage loans
in each loan group and specifying the weighted average loan rate for
each loan group as of the first day of the month prior to the
distribution date;
(t) the weighted average remaining term to maturity of
the mortgage loans in each loan group as of the first day of the
month prior to the distribution date;
(u) the pass-through rate on the Class A-1V Certificates
for the applicable distribution date;
(v) the amount of LIBOR Carryover distributed to the
Class A-1V Certificates and the amount of LIBOR Carryover remaining
for that class; and
(w) the amount of any Class Principal Carryover Shortfall
paid with respect to each class of subordinate certificates and any
amounts remaining.
In the case of information furnished pursuant to clauses (b) and (c)
above, the amounts shall be expressed as a dollar amount per certificate with
a $1,000 denomination.
Within 60 days after the end of each calendar year, the trustee will
forward to each person, if requested in writing by that person, who was a
certificateholder during the prior calendar year a statement containing the
information set forth in clauses (b) and (c) above aggregated for the
applicable calendar year.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
General
The yield to maturity of the offered certificates will be sensitive
primarily to defaults on the mortgage loans in the related loan group, in the
case of the senior certificates, and both loan groups in the case of the
subordinate certificates. If a purchaser of an offered certificate calculates
its anticipated yield based on an assumed rate of default and amount of losses
that is lower than the default rate and amount of losses actually incurred,
its actual yield to maturity will be lower than that so calculated. In
general, the earlier a loss occurs, the greater is the effect on an investor's
yield to maturity. There can be no assurance as to the delinquency,
foreclosure or loss experience with respect to the mortgage loans. Because the
mortgage loans were underwritten in accordance with standards less stringent
than those generally acceptable to FNMA and FHLMC with regard to a borrower's
credit standing and repayment ability, the risk of delinquencies with respect
to, and losses on, the mortgage loans will be greater than that of mortgage
loans underwritten in accordance with FNMA and FHLMC standards.
The rate of principal payments, the aggregate amount of distributions and
the yields to maturity of the offered certificates will be related to the rate
and timing of payments of principal on the mortgage loans in the related loan
group, in the case of the senior certificates, and both loan groups, in the
case of the subordinate certificates. The rate of principal payments on the
mortgage loans will in turn be affected by the amortization schedules of the
mortgage loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the mortgage
loans due to defaults, casualties or condemnations and repurchases by an
obligor). The mortgage loans may be prepaid by the mortgagors at any time.
Because certain of the mortgage loans contain prepayment penalties, the rate
of principal payments may be less than the rate of principal payments for
mortgage loans which did not have prepayment penalties. The mortgage loans are
subject to the "due-on-sale" provisions included therein. See "The Mortgage
Pool" herein.
Since the rate of payment of principal on the mortgage loans will depend
on future events and a variety of other factors, no assurance can be given as
to such rate or the rate of principal prepayments. The extent to which the
yield to maturity of a class of offered certificates may vary from the
anticipated yield will depend upon the degree to which such class of
certificates is purchased at a discount or premium, and the degree to which
the timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the mortgage loans in the related loan group. Further, an
investor should consider the risk that, in the case of any offered certificate
purchased at a discount, a slower than anticipated rate of principal payments
(including prepayments) on the mortgage loans in the related loan group could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of any offered certificate purchased at a premium, a
faster than anticipated rate of principal payments on the mortgage loans in
the related loan group could result in an actual yield to such investor that
is lower than the anticipated yield.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes
in mortgagors' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. In general, if
prevailing interest rates were to fall significantly below the loan rates on
the mortgage loans, such mortgage loans could be subject to higher prepayment
rates than if prevailing interest rates were to remain at or above the loan
rates on such mortgage loans. Conversely, if prevailing interest rates were to
rise significantly, the rate of prepayments on such mortgage loans would
generally be expected to decrease.
Most of the mortgage loans in Loan Group 2 are adjustable-rate mortgage
loans. As is the case with fixed-rate mortgage loans, adjustable-rate mortgage
loans may be subject to a greater rate of principal prepayments in a declining
interest rate environment. For example, if prevailing interest rates fall
significantly, adjustable-rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed-rate mortgage loans at competitive interest rates may
encourage mortgagors to refinance their adjustable-rate mortgage loans to
"lock in" a lower fixed interest rate. The 2/28 loans and 3/27 loans may
become subject to higher prepayment rates as these loans near their respective
initial adjustment dates, even if prevailing interest rates for mortgage loans
of a comparable term and risk level are at or even slightly above the loan
rates, as the borrowers attempt to avoid increases in their monthly payments.
However, no assurance can be given as to the level of prepayments that the
mortgage loans will experience.
The Pass-Through Rates
The pass-through rate for each class of offered certificates is subject
to the applicable available funds cap. Each available funds cap on any
distribution date is determined, in part, by reference to the weighted average
net loan rate of the mortgage loans, in the related loan group in effect at
the beginning of the related Due Period. All of the loan rates on the mortgage
loans in Loan Group 1 are fixed for the lives of the mortgage loans. If
mortgage loans bearing higher loan rates were to prepay at rates faster than
mortgage loans with lower loan rates, the available funds cap for Loan Group 1
would be lower than otherwise would be the case. The pass-through rate on the
offered certificates, other than the Class A-1V Certificates, on any
distribution date is limited by the lower of the Loan Group 1 Cap or the Loan
Group 2 Cap. Thus, the effective pass-through rates on the offered
certificates, other than the Class A-1V Certificates, will be dependent on the
prepayment experience in each loan group.
The yield to investors in the Class A-1V Certificates will be sensitive
to, among other things, the level of one-month LIBOR and the levels of the
loan index. Substantially all of the adjustable-rate mortgage loans in Loan
Group 2 are 2/28 or 3/27 loans which will bear interest at fixed loan rates
for 24 months and 36 months, respectively, after origination of the mortgage
loans. Although each of the adjustable-rate mortgage loans in Loan Group 2
bears interest at an adjustable-rate, this rate is subject to a periodic rate
cap, a Minimum Loan Rate and a Maximum Loan Rate. If the loan index increases
substantially between change dates, the adjusted loan rate on the related
mortgage loan may not equal the loan index plus the related gross margin due
to the constraint of the caps. In this event, the related loan rate will be
less than would have been the case in the absence of the caps. In addition,
the loan rate applicable to any adjustment date will be based on the loan
index related to the adjustment date. Thus, if the value of the loan index
with respect to a mortgage loan rises, the lag in time before the
corresponding loan rate increases will, all other things being equal, slow the
upward adjustment of the available funds cap for Loan Group 2. Furthermore,
mortgage loans that have not reached their first adjustment date are more
likely to be subject to the applicable periodic rate cap on their first
adjustment date. See "The Mortgage Pool" in this prospectus supplement.
Although the holders of the Class A-1V Certificates will be entitled to
receive the related LIBOR Carryover to the extent funds are available for that
purpose as described and in the priority set forth in this prospectus
supplement, there is no assurance that sufficient funds will be available. The
ratings on the Class A-1V Certificates do not address the likelihood of
payment of any LIBOR Carryover.
Although the loan rates on the adjustable-rate mortgage loans in Loan
Group 2 are subject to adjustment, the loan rates adjust less frequently than
one-month LIBOR and adjust by reference to the loan index. Changes in
one-month LIBOR may not correlate with changes in the loan index and either
may not correlate with prevailing interest rates. It is possible that an
increased level of one-month LIBOR could occur simultaneously with a lower
level of prevailing interest rates, which would be expected to result in
faster prepayments, thus reducing the weighted average life of the Class A-1V
Certificates.
Subordinate Certificates
The subordinate certificates provide credit enhancement for the senior
certificates and may absorb losses on the mortgage loans in either loan group.
The weighted average lives of, and the yields to maturity on, the subordinate
certificates, in reverse order of their relative payment priorities, will be
progressively more sensitive to the rate and timing of mortgagor defaults and
the severity of ensuing losses on the mortgage loans. If the actual rate and
severity of losses on the mortgage loans is higher than those assumed by a
holder of a subordinate certificate, the actual yield to maturity on the
holder's certificate may be lower than the yield expected by the holder based
on that assumption. Realized Losses on the mortgage loans will reduce the
class principal balance of the class of subordinate certificates then
outstanding with the lowest relative payment priority if and to the extent
that the aggregate of the class principal balances of all classes of
certificates, following all distributions on a distribution date, exceeds the
Pool Balance. As a result of these reductions, less interest will accrue on
the class of subordinate certificates than otherwise would be the case.
The Basic Principal Amount includes the net proceeds in respect of
principal received upon liquidation of a Liquidated Mortgage Loan. If the net
proceeds are less than the unpaid principal balance of the Liquidated Mortgage
Loan, the Pool Balance will decline more than the aggregate class principal
balance of the offered certificates, thus reducing the Overcollateralization
Amount. If this difference is not covered by the Overcollateralization Amount
or the application of Excess Interest, the class of subordinate certificates
then outstanding with the lowest relative payment priority will bear the loss.
In addition, the subordinate certificates will not be entitled to any
principal distributions prior to the Stepdown Date or during the continuation
of a Delinquency Event, unless all of the certificates with a higher relative
payment priority have been paid in full. Because of the disproportionate
distribution of principal of the senior certificates, depending on the timing
of Realized Losses, the subordinate certificates may bear a disproportionate
percentage of the Realized Losses on the mortgage loans.
For all purposes, the Class B Certificates will have the lowest payment
priority of any class of subordinate certificates.
Additional Information
The depositor has filed certain yield tables and other computational
materials with respect to the offered certificates with the Commission in a
report on Form 8-K and may file certain additional yield tables and other
computational materials with respect to one or more Classes of offered
certificates with the Commission in a report on Form 8-K. Such tables and
materials were prepared by the underwriter at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and
assumptions may be based on assumptions that differ from the Structuring
Assumptions. Accordingly, such tables and other materials may not be relevant
to or appropriate for investors other than those specifically requesting them.
Weighted Average Lives
The timing of changes in the rate of principal prepayments on the
mortgage loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal prepayments is consistent with
such investor's expectation. In general, the earlier a principal prepayment on
the mortgage loans occurs, the greater the effect of such principal prepayment
on an investor's yield to maturity. The effect on an investor's yield of
principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the offered certificates may not be offset by a subsequent like
decrease (or increase) in the rate of principal prepayments.
The projected weighted average life of each Class of offered certificates
is the average amount of time that will elapse from the closing date, until
each dollar of principal is scheduled to be repaid to the investors in such
Class of offered certificates. Because it is expected that there will be
prepayments and defaults on the mortgage loans, the actual weighted average
lives of the offered certificates are expected to vary substantially from the
weighted average remaining terms to stated maturity of the mortgage loans as
set forth herein under "The Mortgage Pool."
The assumed final maturity date for each Class of offered certificates is
as set forth herein under "Description of the Certificates--General." The
assumed final maturity date for each class of offered certificates is the
distribution date in the first month following the latest maturity date of the
mortgage loans. The weighted average life of each class of offered
certificates is likely to be shorter than would be the case if payments
actually made on the mortgage loans conformed to the foregoing assumptions,
and the final distribution date with respect to the offered certificates could
occur significantly earlier than the related assumed final maturity date
because (i) prepayments are likely to occur, (ii) excess cashflow, if any, may
be applied as principal of the offered certificates as described herein, and
(iii) the servicer may cause a termination of the trust as provided herein.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement,
the "prepayment assumption," represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of mortgage
loans for the life of the mortgage loans. With respect to the mortgage loans
in Loan Group 1 and the fixed-rate mortgage loans in Loan Group 2, a 100%
prepayment assumption assumes a constant prepayment rate, referred to as a
CPR, of 4% per annum of the outstanding principal balance of the mortgage
loans in Loan Group 1 and the fixed-rate mortgage loans in Loan Group 2 in the
first month of the life of such mortgage loans and an additional amount of
approximately 1.454545%, precisely 16/11 percent per annum, in each month
thereafter until the twelfth month; beginning in the twelfth month and in each
month thereafter during the life of the mortgage loans, a constant prepayment
rate of 20% per annum each month is assumed. With respect to the
adjustable-rate mortgage loans in Loan Group 2, a 100% prepayment assumption
assumes a constant prepayment rate of 4% per annum of the outstanding
principal balance of the adjustable-rate mortgage loans in Loan Group 2 in the
first month of the life of such mortgage loans and an additional amount of
approximately 1.631579%, precisely 31/19 percent per annum, in each month
thereafter until the 20th month; beginning in the 20th month and in each month
thereafter during the life of the mortgage loans, a constant prepayment rate
of 35% per annum each month is assumed. As used in the table below, 75%
prepayment assumption assumes prepayment rates equal to 75% of the applicable
prepayment assumption. Correspondingly, 130% prepayment assumption assumes
prepayment rates equal to 130% of the applicable prepayment assumption, and so
forth. Neither prepayment assumption purports to be an historical description
of prepayment experience or a prediction of the anticipated rate of prepayment
of any pool of mortgage loans, including the mortgage loans.
The tables on pages S-66 through S-70 were prepared on the basis of the
assumptions in the following paragraph and the tables set forth below. There
are certain differences between the loan characteristics included in such
assumptions and the characteristics of the actual mortgage loans. Any such
discrepancy may have an effect upon the percentages of original Certificate
Principal Balances outstanding and weighted average lives of the offered
certificates set forth in those tables. In addition, since the actual mortgage
loans in the trust fund will have characteristics that differ from those
assumed in preparing the tables set forth below, the distributions of
principal of the offered certificates may be made earlier or later than
indicated in the tables.
The percentages and weighted average lives in the tables that follow were
determined assuming that (the "Structuring Assumptions"):
o the mortgage loans consist of two pools of mortgage loans with the
characteristics set forth in the table below,
o the closing date for the offered certificates occurs on June 1, 2000 and
the offered certificates were sold to investors on such date,
o distributions on the certificates are made on the 25th day of each month
regardless of the day on which the distribution date actually occurs,
commencing in June 2000, in accordance with the allocation of Available
Funds set forth above under "Description of the Certificates--Principal
Priorities",
o the prepayment rates are the percentages of the applicable prepayment
assumption set forth in the "Prepayment Scenarios" table below,
o prepayments include thirty days' interest thereon,
o no obligor is required to substitute or repurchase any or all of the
mortgage loans pursuant to the applicable Agreement and no optional
termination is exercised, except with respect to the entries identified
by the row heading "Weighted Average Life (years) to Optional
Termination" in the tables below,
o the Required Overcollateralization Amount is set initially as specified
in the pooling and servicing agreement and thereafter varies as described
in the definition thereof,
o scheduled payments for all mortgage loans are received on the first day
of each month commencing in June 2000, the principal portion of such
payments is computed prior to giving effect to prepayments received in
such month and there are no losses or delinquencies with respect to such
mortgage loans,
o all mortgage loans prepay at the same rate and all such payments are
treated as prepayments in full of individual mortgage loans, with no
shortfalls in collection of interest,
o such prepayments are received on the last day of each month commencing in
the month prior to the closing date,
o one -month LIBOR is at all times equal to 6.610%,
o the pass-through rates for the offered certificates are as set forth
herein,
o the loan rate for each Group 2 adjustable-rate mortgage loan is adjusted
on its next Adjustment Date (and on subsequent Adjustment Dates, if
necessary) to equal the sum of
o the assumed level of the Index and
o the respective Gross Margin (such sum being subject to the applicable
Periodic Rate Caps, Minimum Loan Rates and Maximum Loan Rates), and
o with respect to the Group 2 adjustable-rate mortgage loans,
o Six Month LIBOR is equal to 7.0425% and
o the One Year CMT Index is equal to 6.3200%.
Nothing contained in the foregoing assumptions should be construed as a
representation that the mortgage loans will not experience delinquencies or
losses.
<TABLE>
<CAPTION>
Prepayment Scenarios
Loan Group Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
<S> <C> <C> <C> <C> <C> <C> <C>
Group 1(1) 75% 90% 100% 110% 120% 130% 140%
Group 2-Fixed-Rate
Mortgage Loans(1) 75% 90% 100% 110% 120% 130% 140%
Group 2-Adjustable-Rate
Mortgage Loans(1) 65% 80% 90% 100% 110% 120% 130%
______________
(1) percentage of prepayment assumption.
</TABLE>
<PAGE>
Assumed Mortgage Loan Characteristics
Group 1
<TABLE>
<CAPTION>
Original
Remaining Amortization
Original Term Term to Term to
Principal to Maturity Maturity Maturity Total Expense
Pool Number Balance ($) Loan Rate (%) (Months) (Months) (Months) Fee Rate (%)
----------- ----------- ------------- ------------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1 20,321,564 10.09025 305 299 305 0.50875
2 903,181 11.60583 175 168 350 0.50875
3 40,571,343 9.37665 316 309 316 0.50875
4 11,011,799 9.91360 179 172 356 0.50875
5 6,761,827 9.92191 322 316 322 1.29875
6 543,311 9.89150 180 173 360 1.29875
7 24,284,765 9.39961 327 321 327 1.29875
8 6,902,209 10.20736 179 172 357 1.29875
9 15,638,750 10.57942 284 270 284 0.50875
10 1,623,582 11.05862 179 160 360 0.50875
11 24,782,910 10.03243 320 309 320 0.50875
12 10,021,535 10.53724 178 166 356 0.50875
13 6,011,359 10.18016 339 328 339 1.29875
14 221,358 9.64905 180 161 360 1.29875
15 10,218,169 10.07093 326 315 326 1.29875
16 4,772,928 10.70560 179 168 359 1.29875
</TABLE>
<PAGE>
Group 2
<TABLE>
<CAPTION>
Original
Original Remaining Amortization
Term to Term to Term to Total Maximum
Pool Principal Loan Maturity Maturity Maturity Expense Fee Gross Loan Rate
Number Balance ($) Rate (%) (Months) (Months) (Months) Rate (%) Margin(%) (%)
------ ----------- -------- -------- --------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
17 1,643,822 9.65945 360 354 360 0.508750 6.47230 16.40898
18 60,683 10.75000 360 355 360 0.508750 7.30000 17.75000
19 5,915,605 9.42322 360 353 360 0.508750 6.33824 16.16382
20 922,094 9.20628 360 352 360 0.508750 5.98234 16.01110
21 1,370,718 9.75821 360 353 360 1.298750 6.13989 16.60240
22 6,526,565 9.66940 360 353 360 1.298750 6.59169 16.43247
23 1,130,266 9.24827 360 353 360 1.298750 6.93285 16.24827
24 70,705 9.37500 360 340 360 0.508750 6.00000 16.37500
25 1,812,659 9.63735 360 348 360 0.508750 6.04895 16.02611
26 565,349 10.45626 360 345 360 0.508750 6.88078 17.02902
27 187,871 12.42154 360 328 360 0.508750 6.59368 16.92070
28 9,189,597 9.92626 360 348 360 0.508750 6.57207 16.43705
29 2,641,630 9.57118 360 347 360 0.508750 5.88720 16.05430
30 237,469 12.57721 360 337 360 0.508750 6.55278 16.63613
31 363,020 10.26171 360 351 360 1.298750 6.94411 17.04044
32 191,323 10.57327 360 345 360 1.298750 6.24399 15.82484
33 3,934,529 9.68641 360 347 360 1.298750 6.42299 16.24099
34 1,192,218 10.12194 360 348 360 1.298750 6.56886 16.61273
35 745,623 9.80670 246 239 246 0.508750 N/A N/A
36 1,605,559 9.60581 251 244 251 0.508750 N/A N/A
37 429,750 11.90682 180 172 360 0.508750 N/A N/A
38 160,604 7.99000 240 235 240 1.298750 N/A N/A
39 985,491 8.18982 326 320 326 1.298750 N/A N/A
40 44,012 7.85000 180 174 360 1.298750 N/A N/A
41 509,052 11.29471 310 292 310 0.508750 N/A N/A
42 111,476 12.41585 180 154 360 0.508750 N/A N/A
43 316,836 10.87483 219 204 219 0.508750 N/A N/A
44 282,313 11.60551 180 167 360 0.508750 N/A N/A
45 70,429 10.02660 277 263 277 1.298750 N/A N/A
46 281,713 11.05820 360 348 360 1.298750 N/A N/A
47 101,815 11.88068 180 168 360 1.298750 N/A N/A
(table ocntinued)
Months to Adjustment
Minimum Rate Date Initial Subsequent
Pool Loan Rate Adjustment Frequency Periodic Periodic
Number (%) Date (Months) Cap (%) Cap (%) Index
------ --------- ---------- ---------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
17 9.65945 19 6 3.00000 1.00000 (1)
18 10.75000 31 6 3.00000 1.00000 (1)
19 9.42322 18 6 3.00000 1.00000 (1)
20 9.20628 29 6 2.87362 1.00000 (1)
21 9.75821 17 6 3.00000 1.00000 (1)
22 9.66940 17 6 3.00000 1.00000 (1)
23 9.24827 29 6 3.00000 1.00000 (1)
24 9.37500 5 12 1.00000 1.00000 (2)
25 9.63735 13 6 3.00000 1.00000 (1)
26 10.45626 21 6 2.64924 1.00000 (1)
27 10.20796 3 6 1.00000 1.00000 (1)
28 9.90580 13 6 2.83115 1.01612 (1)
29 9.06412 24 6 3.06653 1.23218 (1)
30 10.37188 2 6 1.52850 1.13213 (1)
31 10.26171 15 6 3.00000 1.00000 (1)
32 8.82484 5 6 1.00000 1.00000 (1)
33 9.59164 12 6 2.90881 1.01257 (1)
34 10.12194 24 6 3.00000 1.00000 (1)
35 N/A N/A N/A N/A N/A N/A
36 N/A N/A N/A N/A N/A N/A
37 N/A N/A N/A N/A N/A N/A
38 N/A N/A N/A N/A N/A N/A
39 N/A N/A N/A N/A N/A N/A
40 N/A N/A N/A N/A N/A N/A
41 N/A N/A N/A N/A N/A N/A
42 N/A N/A N/A N/A N/A N/A
43 N/A N/A N/A N/A N/A N/A
44 N/A N/A N/A N/A N/A N/A
45 N/A N/A N/A N/A N/A N/A
46 N/A N/A N/A N/A N/A N/A
47 N/A N/A N/A N/A N/A N/A
(1) Six Month LIBOR
(2) One Year CMT.
</TABLE>
<PAGE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each Class of offered certificates, and
set forth the percentages of the Original Certificate Principal Balance of
each such Class that would be outstanding after each of the dates shown, at
various Prepayment Scenarios.
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding*
Class A-1F
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
-------------------------------- ---------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............. 100% 100% 100% 100% 100% 100% 100%
May, 2001...................... 81% 78% 75% 73% 71% 68% 66%
May, 2002...................... 64% 58% 55% 51% 47% 43% 40%
May, 2003...................... 50% 43% 38% 34% 29% 25% 22%
May, 2004...................... 39% 33% 30% 28% 25% 23% 20%
May, 2005...................... 32% 27% 24% 21% 19% 17% 15%
May, 2006...................... 27% 22% 19% 17% 14% 12% 10%
May, 2007...................... 23% 18% 15% 13% 11% 9% 7%
May, 2008...................... 19% 14% 12% 10% 8% 7% 5%
May, 2009...................... 16% 12% 9% 8% 6% 5% 4%
May, 2010...................... 13% 9% 7% 6% 4% 3% 3%
May, 2011...................... 11% 8% 6% 4% 3% 2% 2%
May, 2012...................... 9% 6% 4% 3% 2% 2% 1%
May, 2013...................... 7% 5% 3% 3% 2% 1% 1%
May, 2014...................... 6% 3% 2% 2% 1% 1% 0%
May, 2015...................... 4% 2% 2% 1% 0% 0% 0%
May, 2016...................... 3% 2% 1% 1% 0% 0% 0%
May, 2017...................... 2% 1% 1% 0% 0% 0% 0%
May, 2018...................... 2% 1% 0% 0% 0% 0% 0%
May, 2019...................... 1% 0% 0% 0% 0% 0% 0%
May, 2020...................... 1% 0% 0% 0% 0% 0% 0%
May, 2021...................... 1% 0% 0% 0% 0% 0% 0%
May, 2022...................... 0% 0% 0% 0% 0% 0% 0%
May, 2023...................... 0% 0% 0% 0% 0% 0% 0%
May, 2024...................... 0% 0% 0% 0% 0% 0% 0%
May, 2025...................... 0% 0% 0% 0% 0% 0% 0%
May, 2026...................... 0% 0% 0% 0% 0% 0% 0%
May, 2027...................... 0% 0% 0% 0% 0% 0% 0%
May, 2028...................... 0% 0% 0% 0% 0% 0% 0%
May, 2029...................... 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life (years)
to maturity(1)................ 4.63 3.94 3.56 3.24 2.95 2.70 2.47
Weighted Average Life (years)
to Optional Termination(1).... 4.33 3.62 3.26 2.95 2.69 2.44 2.23
______________
* Rounded to the nearest whole percentage.
(1) The weighted average life of any Class of certificates is determined by (i) multiplying the assumed net reduction, if any,
in the principal amount on each distribution date on such Class of certificates by the number of years from the date of
issuance of the certificates to the related distribution date, (ii) summing the results, and (iii) dividing the sum by the
aggregate amount of the assumed net reductions in principal amount on such Class of certificates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding*
Class A-1V
Prepayment Scenario
-------------------------------------------------------------------------------------------
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
----------------------------------- ---------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100% 100% 100% 100% 100% 100% 100%
May, 2001......................... 81% 77% 75% 72% 69% 67% 64%
May, 2002......................... 63% 56% 52% 48% 44% 40% 36%
May, 2003......................... 49% 41% 36% 32% 27% 23% 20%
May, 2004......................... 38% 30% 25% 21% 18% 15% 12%
May, 2005......................... 30% 22% 18% 14% 11% 9% 7%
May, 2006......................... 23% 16% 13% 10% 7% 6% 4%
May, 2007......................... 18% 12% 9% 7% 5% 4% 3%
May, 2008......................... 14% 9% 6% 4% 3% 2% 2%
May, 2009......................... 11% 6% 4% 3% 2% 1% 1%
May, 2010......................... 9% 5% 3% 2% 1% 1% 1%
May, 2011......................... 7% 3% 2% 1% 1% 1% 0%
May, 2012......................... 5% 3% 2% 1% 1% 0% 0%
May, 2013......................... 4% 2% 1% 1% 0% 0% 0%
May, 2014......................... 3% 1% 1% 0% 0% 0% 0%
May, 2015......................... 2% 1% 0% 0% 0% 0% 0%
May, 2016......................... 2% 1% 0% 0% 0% 0% 0%
May, 2017......................... 1% 0% 0% 0% 0% 0% 0%
May, 2018......................... 1% 0% 0% 0% 0% 0% 0%
May, 2019......................... 1% 0% 0% 0% 0% 0% 0%
May, 2020......................... 0% 0% 0% 0% 0% 0% 0%
May, 2021......................... 0% 0% 0% 0% 0% 0% 0%
May, 2022......................... 0% 0% 0% 0% 0% 0% 0%
May, 2023......................... 0% 0% 0% 0% 0% 0% 0%
May, 2024......................... 0% 0% 0% 0% 0% 0% 0%
May, 2025......................... 0% 0% 0% 0% 0% 0% 0%
May, 2026......................... 0% 0% 0% 0% 0% 0% 0%
May, 2027......................... 0% 0% 0% 0% 0% 0% 0%
May, 2028......................... 0% 0% 0% 0% 0% 0% 0%
May, 2029......................... 0% 0% 0% 0% 0% 0% 0%
May, 2030......................... 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life (years)
to maturity(1)................... 4.14 3.37 2.99 2.68 2.42 2.20 2.02
Weighted Average Life (years)
to Optional Termination(1)....... 3.99 3.25 2.88 2.58 2.33 2.13 1.95
______________
* Rounded to the nearest whole percentage.
(1) The weighted average life of any Class of certificates is determined by (i) multiplying the assumed net reduction, if any,
in the principal amount on each distribution date on such class of certificates by the number of years from the date of
issuance of the certificates to the related distribution date, (ii) summing the results, and (iii) dividing the sum by the
aggregate amount of the assumed net reductions in principal amount on such Class of certificates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding*
Class M-1
Prepayment Scenario
-------------------------------------------------------------------------------------------
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
----------------------------------- ---------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100% 100% 100% 100% 100% 100% 100%
May, 2001......................... 100% 100% 100% 100% 100% 100% 100%
May, 2002......................... 100% 100% 100% 100% 100% 100% 100%
May, 2003......................... 100% 100% 100% 100% 100% 100% 100%
May, 2004......................... 100% 87% 78% 70% 63% 56% 50%
May, 2005......................... 85% 70% 61% 53% 46% 40% 35%
May, 2006......................... 70% 56% 47% 40% 34% 29% 24%
May, 2007......................... 58% 44% 37% 31% 25% 21% 17%
May, 2008......................... 48% 35% 29% 23% 19% 15% 12%
May, 2009......................... 40% 28% 22% 18% 14% 11% 8%
May, 2010......................... 33% 22% 17% 13% 10% 8% 6%
May, 2011......................... 27% 18% 13% 10% 7% 6% 3%
May, 2012......................... 22% 14% 10% 8% 5% 3% 0%
May, 2013......................... 18% 11% 8% 6% 3% 0% 0%
May, 2014......................... 13% 8% 5% 2% 0% 0% 0%
May, 2015......................... 9% 5% 2% 0% 0% 0% 0%
May, 2016......................... 7% 3% 0% 0% 0% 0% 0%
May, 2017......................... 6% 0% 0% 0% 0% 0% 0%
May, 2018......................... 5% 0% 0% 0% 0% 0% 0%
May, 2019......................... 1% 0% 0% 0% 0% 0% 0%
May, 2020......................... 0% 0% 0% 0% 0% 0% 0%
May, 2021......................... 0% 0% 0% 0% 0% 0% 0%
May, 2022......................... 0% 0% 0% 0% 0% 0% 0%
May, 2023......................... 0% 0% 0% 0% 0% 0% 0%
May, 2024......................... 0% 0% 0% 0% 0% 0% 0%
May, 2025......................... 0% 0% 0% 0% 0% 0% 0%
May, 2026......................... 0% 0% 0% 0% 0% 0% 0%
May, 2027......................... 0% 0% 0% 0% 0% 0% 0%
May, 2028......................... 0% 0% 0% 0% 0% 0% 0%
May, 2029......................... 0% 0% 0% 0% 0% 0% 0%
May, 2030......................... 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life (years)
to maturity(1)................... 8.94 7.56 6.81 6.22 5.74 5.37 5.09
Weighted Average Life (years)
to Optional Termination(1)....... 8.28 6.90 6.19 5.61 5.18 4.84 4.59
______________
* Rounded to the nearest whole percentage.
(1) The weighted average life of any Class of certificates is determined by (i) multiplying the assumed net reduction, if any, in
the principal amount on each distribution date on such Class of certificates by the number of years from the date of issuance
of the certificates to the related distribution date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of certificates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding*
Class M-2
Prepayment Scenario
-------------------------------------------------------------------------------------------
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
----------------------------------- ---------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100% 100% 100% 100% 100% 100% 100%
May, 2001......................... 100% 100% 100% 100% 100% 100% 100%
May, 2002......................... 100% 100% 100% 100% 100% 100% 100%
May, 2003......................... 100% 100% 100% 100% 100% 100% 100%
May, 2004......................... 100% 87% 78% 70% 63% 56% 50%
May, 2005......................... 85% 70% 61% 53% 46% 40% 35%
May, 2006......................... 70% 56% 47% 40% 34% 29% 24%
May, 2007......................... 58% 44% 37% 31% 25% 21% 17%
May, 2008......................... 48% 35% 29% 23% 19% 15% 12%
May, 2009......................... 40% 28% 22% 18% 14% 11% 8%
May, 2010......................... 33% 22% 17% 13% 10% 8% 4%
May, 2011......................... 27% 18% 13% 10% 7% 3% 0%
May, 2012......................... 22% 14% 10% 8% 3% 0% 0%
May, 2013......................... 18% 11% 8% 3% 0% 0% 0%
May, 2014......................... 13% 8% 2% 0% 0% 0% 0%
May, 2015......................... 9% 2% 0% 0% 0% 0% 0%
May, 2016......................... 7% 0% 0% 0% 0% 0% 0%
May, 2017......................... 4% 0% 0% 0% 0% 0% 0%
May, 2018......................... 0% 0% 0% 0% 0% 0% 0%
May, 2019......................... 0% 0% 0% 0% 0% 0% 0%
May, 2020......................... 0% 0% 0% 0% 0% 0% 0%
May, 2021......................... 0% 0% 0% 0% 0% 0% 0%
May, 2022......................... 0% 0% 0% 0% 0% 0% 0%
May, 2023......................... 0% 0% 0% 0% 0% 0% 0%
May, 2024......................... 0% 0% 0% 0% 0% 0% 0%
May, 2025......................... 0% 0% 0% 0% 0% 0% 0%
May, 2026......................... 0% 0% 0% 0% 0% 0% 0%
May, 2027......................... 0% 0% 0% 0% 0% 0% 0%
May, 2028......................... 0% 0% 0% 0% 0% 0% 0%
May, 2029......................... 0% 0% 0% 0% 0% 0% 0%
May, 2030......................... 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life (years)
to maturity(1)................... 8.86 7.49 6.77 6.16 5.66 5.26 4.95
Weighted Average Life (years)
to Optional Termination(1)....... 8.28 6.90 6.19 5.60 5.16 4.80 4.51
______________
* Rounded to the nearest whole percentage.
(1) The weighted average life of any Class of certificates is determined by (i) multiplying the assumed net reduction, if any, in
the principal amount on each distribution date on such Class of certificates by the number of years from the date of issuance
of the certificates to the related distribution date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of certificates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding*
Class B
Prepayment Scenario
-------------------------------------------------------------------------------------------
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
----------------------------------- ---------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100% 100% 100% 100% 100% 100% 100%
May, 2001......................... 100% 100% 100% 100% 100% 100% 100%
May, 2002......................... 100% 100% 100% 100% 100% 100% 100%
May, 2003......................... 100% 100% 100% 100% 100% 100% 100%
May, 2004......................... 100% 87% 78% 70% 63% 56% 50%
May, 2005......................... 85% 70% 61% 53% 46% 40% 35%
May, 2006......................... 70% 56% 47% 40% 34% 29% 24%
May, 2007......................... 58% 44% 37% 31% 25% 21% 17%
May, 2008......................... 48% 35% 29% 23% 19% 15% 12%
May, 2009......................... 40% 28% 22% 18% 14% 9% 3%
May, 2010......................... 33% 22% 17% 13% 8% 2% 0%
May, 2011......................... 27% 18% 13% 7% 1% 0% 0%
May, 2012......................... 22% 14% 8% 1% 0% 0% 0%
May, 2013......................... 18% 10% 2% 0% 0% 0% 0%
May, 2014......................... 13% 2% 0% 0% 0% 0% 0%
May, 2015......................... 6% 0% 0% 0% 0% 0% 0%
May, 2016......................... 1% 0% 0% 0% 0% 0% 0%
May, 2017......................... 0% 0% 0% 0% 0% 0% 0%
May, 2018......................... 0% 0% 0% 0% 0% 0% 0%
May, 2019......................... 0% 0% 0% 0% 0% 0% 0%
May, 2020......................... 0% 0% 0% 0% 0% 0% 0%
May, 2021......................... 0% 0% 0% 0% 0% 0% 0%
May, 2022......................... 0% 0% 0% 0% 0% 0% 0%
May, 2023......................... 0% 0% 0% 0% 0% 0% 0%
May, 2024......................... 0% 0% 0% 0% 0% 0% 0%
May, 2025......................... 0% 0% 0% 0% 0% 0% 0%
May, 2026......................... 0% 0% 0% 0% 0% 0% 0%
May, 2027......................... 0% 0% 0% 0% 0% 0% 0%
May, 2028......................... 0% 0% 0% 0% 0% 0% 0%
May, 2029......................... 0% 0% 0% 0% 0% 0% 0%
May, 2030......................... 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life (years)
to maturity(1)................... 8.72 7.40 6.66 6.04 5.54 5.14 4.81
Weighted Average Life (years)
to Optional Termination(1)....... 8.28 6.90 6.19 5.60 5.15 4.77 4.47
______________
* Rounded to the nearest whole percentage.
(1) The weighted average life of any Class of certificates is determined by (i) multiplying the assumed net reduction, if any, in
the principal amount on each distribution date on such Class of certificates by the number of years from the date of issuance
of the certificates to the related distribution date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of certificates.
</TABLE>
<PAGE>
USE OF PROCEEDS
The depositor will apply the net proceeds of the sale of the offered
certificates against the purchase price of the mortgage loans transferred to
the trust fund.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The pooling and servicing agreement provides that the trust fund,
exclusive of the assets held in the LIBOR carryover fund, will comprise
several Subsidiary REMICs and a Master REMIC organized in a tiered "real
estate mortgage investment conduit" ("REMIC") structure. Each Subsidiary REMIC
will issue uncertificated regular interests and those interests will be held
entirely by the REMIC immediately above it in the tiered structure. Each of
the Subsidiary REMICs and the Master REMIC will designate a single class of
interests as the residual interest in that REMIC. The Class R Certificates
will represent ownership of the residual interests in each of the REMICs.
Elections will be made to treat each Subsidiary REMIC and the Master REMIC as
a REMIC for federal income tax purposes.
Each Class of offered certificates and the Class X Certificates will
represent beneficial ownership of regular interests issued by the Master
REMIC. In addition, the Class A-1V Certificates will represent a beneficial
interest in the right to receive payments from the LIBOR carryover fund to the
extent that it is entitled to accruals of interest in excess of the weighted
average of the net loan rates of Loan Group 1 and Loan Group 2.
Upon the issuance of the offered certificates, Brown & Wood LLP ("Tax
Counsel"), will deliver its opinion concluding, assuming compliance with the
pooling and servicing agreement, for federal income tax purposes, each
Subsidiary REMIC and the Master REMIC will qualify as a REMIC within the
meaning of Section 860D of the Internal Revenue Code of 1986, as amended (the
"Code"). In addition, Tax Counsel will deliver an opinion concluding that the
LIBOR carryover fund is an "outside reserve fund" that is beneficially owned
by the certificateholders of the Class X Certificates. Moreover, Tax Counsel
will deliver an opinion concluding that the rights of the certificateholders
of the Class A-1V Certificates to receive payments from the LIBOR carryover
fund represent, for federal income tax purposes, contractual rights that are
separate from their regular interests within the meaning of Treasury
regulations ss.1.860G-2(i).
Taxation of Regular Interests
The following discussion assumes that the right of the Class A-1V
Certificates to receive payments from the LIBOR carryover fund will be treated
as an interest rate cap agreement rather than as a partnership for federal
income tax purposes. Prospective investors in the Class A-1V Certificates
should consult their tax advisors regarding their appropriate tax treatment. A
holder of an offered certificate will be treated for federal income tax
purposes as owning a regular interest in the Master REMIC. The Class A-1V
Certificates will also represent beneficial ownership of an interest in a
limited recourse interest rate cap contract (the "Cap Contract"). A
certificateholder of a Class A-1V Certificate must allocate its purchase price
for such Certificate between its two components - the REMIC regular interest
component and the Cap Contract component (the value of which should be
nominal). For information reporting purposes, the trustee will assume that,
with respect to any Class A-1V Certificate, the Cap Contract component will
have only nominal value relative to the value of the regular interest
component. The IRS could, however, argue that the Cap Contract component has a
greater than de minimis value, and if that argument were to be sustained, the
regular interest component could be viewed as having been issued with original
issue discount ("OID") (which could cause the total amount of discount to
exceed a statutorily defined de minimis amount). See "Certain Material Federal
Income Tax Considerations" in the Prospectus.
Upon the sale, exchange, or other disposition of an offered certificate,
the certificateholder must allocate the amount realized between the two
components of the Class A-1V Certificate based on the relative fair market
values of those components at the time of sale. Assuming that an offered
certificate is held as a "capital asset" within the meaning of section 1221 of
the Code, with respect to the Class A-1V Certificate gain or loss on the
disposition of an interest in the Cap Contract component should be capital
gain or loss, and, gain or loss on the disposition of the regular interest
component should, subject to the limitation described below, be capital gain
or loss. Gain attributable to the regular interest component of a Class A-1V
Certificate will be treated as ordinary income, however, to the extent such
gain does not exceed the excess, if any, of (i) the amount that would have
been includible in the certificateholder's gross income with respect to the
regular interest component had income thereon accrued at a rate equal to 110%
of the applicable federal rate as defined in section 1274(d) of the Code
determined as of the date of purchase of such certificate over (ii) the amount
actually included in such certificateholder's income.
Interest on a regular interest must be included in income by a
certificateholder under the accrual method of accounting, regardless of the
certificateholder's regular method of accounting. In addition, a regular
interest could be considered to have been issued with OID. See "Certain
Material Federal Income Tax Considerations" in the Prospectus. The prepayment
assumption that will be used to in determining the accrual of any OID, market
discount, or bond premium, if any, will equal the rate described above under
"Yield, Prepayment and Maturity Considerations--Weighted Average Lives" for
Scenario IV. No representation is made that the mortgage loans will prepay at
such a rate or at any other rate. OID must be included in income as it accrues
on a constant yield method, regardless of whether the certificateholder
receives currently the cash attributable to such OID.
Status of the Offered Certificates
The offered certificates, other than the Class A-1V Certificates, and
regular interest component of the Class A-1V Certificates will be treated as
assets described in Section 7701(a)(19)(C) of the Code, and as "real estate
assets" under Section 856(c)(5)(B) of the Code, generally, in the same
proportion that the assets of the trust fund, exclusive of the LIBOR carryover
fund, would be so treated. In addition, to the extent a regular interest
represents real estate assets under section 856(c)(5)(B) of the Code, the
interest derived from that component would be interest on obligations secured
by interests in real property for purposes of section 856(c)(3) of the Code.
The Cap Contract component of Class A-1V Certificate will not, however,
qualify as an asset described in Section 7701(a)(19)(C) of the Code or as a
real estate asset under Section 856(c)(5)(B) of the Code.
The LIBOR Carryover Fund
As indicated above, a portion of the purchase price paid by a
certificateholder to acquire a Class A-1V Certificate will be attributable to
the Cap Contract component of such certificate. The portion of the overall
purchase price attributable to the Cap Contract must be amortized over the
life of any such certificate, taking into account the declining balance of the
related regular interest component. Treasury regulations concerning notional
principal contracts provide alternative methods for amortizing the purchase
price of an interest rate cap contract. Under one method - the level yield
constant interest method - the price paid for an interest rate cap is
amortized over the life of the cap as though it were the principal amount of a
loan bearing interest at a reasonable rate. Certificateholders are urged to
consult their tax advisors concerning the methods that can be employed to
amortize the portion of the purchase price paid for the Cap Contract component
of a Class A-1V Certificate.
Any payments made to a Class A-1V Certificateholder from the LIBOR
carryover fund will be treated as periodic payments on an interest rate cap
contract. To the extent the sum of such periodic payments for any year exceed
that year's amortized cost of the Cap Contract component, such excess is
ordinary income. If for any year the amount of that year's amortized cost
exceeds the sum of the periodic payments, such excess is allowable as an
ordinary deduction.
Non-U.S. Persons
Interest paid to or accrued by a certificateholder who is a non-U.S.
Person will be considered "portfolio interest," and will not be subject to
U.S. federal income tax and withholding tax, if the interest is not
effectively connected with the conduct of a trade or business within the
United States by the non-U.S. Person and the non-U.S. Person (i) is not
actually or constructively a "10 percent shareholder" of the trust fund or a
"controlled foreign corporation" with respect to which the trust fund is a
"related person" within the meaning of the Code and (ii) provides the trust
fund or other person who is otherwise required to withhold U.S. tax with
respect to the offered certificates with an appropriate statement (on Form W-8
or a similar form), signed under penalties of perjury, certifying that the
beneficial owner of the offered certificate is a non-U.S. Person and providing
the non-U.S. Person's name and address. If an offered certificate is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by the
non-U.S. Person that owns the certificate.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of an offered certificate by a non-U.S. Person will be
exempt from United States federal income and withholding tax, provided that
(i) such gain is not effectively connected with the conduct of a trade or
business in the United States by the non-U.S. Person and (ii) in the case of
an individual, the individual is not present in the United States for 183 days
or more in the taxable year.
For purposes of the foregoing discussion, the term "non-U.S. Person"
means any person other than (i) a citizen or resident of the United States;
(ii) a corporation (or entity treated as a corporation for tax purposes)
created or organized in the United States or under the laws of the United
States or of any state thereof, including, for this purpose, the District of
Columbia; (iii) a partnership (or entity treated as a partnership for tax
purposes) organized in the United States or under the laws of the United
States or of any state thereof, including, for this purpose, the District of
Columbia (unless provided otherwise by future Treasury regulations); (iv) an
estate whose income is includible in gross income for United States income tax
purposes regardless of its source; or (v) a trust, if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more U.S. Persons have authority to control all
substantial decisions of the trust. Notwithstanding the last clause of the
preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. Persons prior to
such date, may elect to continue to be U.S. Persons.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a mortgage loan, the receipt of income from a source
other than a mortgage loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset
purchased with the payments on the mortgage loans for temporary investment
pending distribution on the certificates. It is not anticipated that the trust
fund will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of
its interests could result in the imposition of a tax on the trust fund equal
to 100% of the value of the contributed property (the "Contributions Tax").
The trust fund will not accept contributions that would subject it to such
tax.
In addition, a trust fund that elects to be treated as a REMIC may also
be subject to federal income tax at the highest corporate rate on "net income
from foreclosure property," determined by reference to the rules applicable to
real estate investment trusts. "Net income from foreclosure property"
generally means gain from the sale of a foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. It is not anticipated that the trust fund will recognize net income
from foreclosure property subject to federal income tax.
Backup Withholding
Certain certificate owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the offered certificates if the
certificate owners, upon issuance, fail to supply the trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The trustee will be required to report annually to the Internal Revenue
Service (the "IRS"), and to each certificateholder of record, the amount of
interest paid (and OID accrued, if any) on the offered certificates (and the
amount of interest withheld for federal income taxes, if any) for each
calendar year, except as to exempt holders (generally, holders that are
corporations, certain tax-exempt organizations or nonresident aliens who
provide certification as to their status as nonresidents). As long as the only
holder of record of a Class of offered certificates is Cede & Co., as nominee
of DTC, the IRS and certificate owners of such Class will receive tax and
other information, including the amount of interest paid on such certificates
owned, from Participants and Financial Intermediaries rather than from the
trustee. (The trustee, however, will respond to requests for necessary
information to enable Participants, Financial Intermediaries and certain other
persons to complete their reports.) Each non-exempt certificate owner will be
required to provide, under penalty of perjury, a certificate on IRS form W-9
containing his or her name, address, correct federal taxpayer identification
number and a statement that he or she is not subject to backup withholding.
Should a nonexempt certificate owner fail to provide the required
certification, the Participants or Financial Intermediaries (or the Paying
Agent) will be required to withhold 31% of the interest (and principal)
otherwise payable to the holder, and remit the withheld amount to the IRS as a
credit against the holder's federal income tax liability.
Such amounts will be deemed distributed to the affected certificate owner
for all purposes of the related certificates and the pooling and servicing
agreement.
STATE TAXES
The depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the offered certificates under the tax
laws of any state. Investors considering an investment in the offered
certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the offered certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code, prohibit "parties in interest"
with respect to an employee benefit plan subject to ERISA and/or a plan or
other arrangement subject to the excise tax provisions set forth under Section
4975 of the Code (each of the foregoing, a "Plan") from engaging in certain
transactions involving such Plan and its assets unless a statutory, regulatory
or administrative exemption applies to the transaction. Section 4975 of the
Code imposes certain excise taxes on prohibited transactions involving plans
described under that Section; ERISA authorizes the imposition of civil
penalties for prohibited transactions involving plans not covered under
Section 4975 of the Code. Any Plan fiduciary which proposes to cause a Plan to
acquire any of the offered certificates should consult with its counsel with
respect to the potential consequences under ERISA and the Code of the Plan's
acquisition and ownership of such certificates. See "ERISA Considerations" in
the prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the offered certificates without regard to the
ERISA considerations described herein and in the prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan. A fiduciary which
decides to invest the assets of a Plan in the offered certificates should
consider, among other factors, the extreme sensitivity of the investments to
the rate of principal payments (including prepayments) on the mortgage loans.
The U.S. Department of Labor (the "DOL") has granted to Greenwich Capital
Markets, Inc. an administrative exemption (Prohibited Transaction Exemption
90-59; Exemption Application No. D-8374) (the "Exemption") from certain of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code with respect to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The Exemption applies to
mortgage loans such as the mortgage loans in the trust fund.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or Fitch IBCA, Inc. ("Fitch" and, together with S&P and Moody's,
the "Exemption Rating Agencies");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriter in
connection with the distribution of the certificates represents not more than
reasonable compensation for underwriting the certificates; the sum of all
payments made to and retained by the obligors pursuant to the assignment of
the loans to the trust fund represents not more than the fair market value of
such loans; the sum of all payments made to and retained by the servicer and
any other servicer represents not more than reasonable compensation for such
person's services under the agreement pursuant to which the loans are pooled
and reimbursement of such person's reasonable expenses in connection
therewith; and
(6) the Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest generic rating categories by an Exemption Rating
Agency for at least one year prior to the Plan's acquisition of certificates;
and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust holding
receivables as to which the fiduciary (or its affiliate) is an obligor
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired
by persons independent of the Restricted Group; (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the trust; (iii) a Plan's
investment in certificates of any class does not exceed twenty-five percent
(25%) of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of any Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the underwriter, the trustee,
the servicer, any obligor with respect to mortgage loans included in the trust
fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the trust fund, or any affiliate of such
parties (the "Restricted Group").
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Class A Certificates and that all conditions of the
Exemption other than those within the control of the investors will be met.
Because the characteristics of the subordinate certificates may not meet
the requirements of Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1"),
the Exemption or any other issued exemption under ERISA, the purchase and
holding of such certificates by a Plan or by individual retirement accounts or
other plans subject to Section 4975 of the Code or by persons acquiring such
certificates on behalf of or with assets of a Plan may result in prohibited
transactions or the imposition of excise taxes or civil penalties.
Consequently, transfers of the subordinate certificates will not be registered
by the trustee unless the trustee receives: (i) a representation from the
transferee of such certificate, acceptable to and in form and substance
satisfactory to the trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or a plan or arrangement
subject to Section 4975 of the Code, nor a person acting on behalf of any such
plan or arrangement nor using the assets of any such plan or arrangement to
effect such transfer; (ii) if the purchaser is an insurance company, a
representation that the purchaser is an insurance company which is purchasing
such certificates with funds contained in an "insurance company general
account" (as such term is defined in Section V(e) of Prohibited Transaction
Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of
such certificates are covered under Sections I and III of PTCE 95-60; or (iii)
an opinion of counsel satisfactory to the trustee that the purchase or holding
of such certificate by a Plan, any person acting on behalf of a Plan or using
such Plan's assets, will not constitute a prohibited transaction, will not
result in the assets of the trust being deemed to be "plan assets" and subject
to the prohibited transaction requirements of ERISA and the Code and will not
subject the trustee to any obligation in addition to those undertaken in the
pooling and servicing agreement. Such representation as described above shall
be deemed to have been made to the trustee by the transferee's acceptance of a
subordinate certificate. In the event that such representation is violated, or
any attempt to transfer to a plan or person acting on behalf of a Plan or
using such Plan's assets is attempted without such opinion of counsel, such
attempted transfer or acquisition shall be void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in the offered
certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the offered certificates is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition of
the Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
The offered certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because Loan Group 1 and Loan Group 2 have second lien mortgage loans.
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase the offered certificates or to
purchase offered certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the offered certificates constitute
legal investments for such investors. See "Legal Investment" in the
prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, between the depositor and the underwriter (an affiliate of the
depositor), the depositor has agreed to sell to the underwriter, and the
underwriter has agreed to purchase from the depositor, the offered
certificates.
Distribution of the offered certificates will be made by the underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The underwriter may effect such
transactions by selling offered certificates to or through dealers and such
dealers may receive from the underwriter, for which they act as agent,
compensation in the form of underwriting discounts, concessions or
commissions. The underwriter and any dealers that participate with the
underwriter in the distribution of such offered certificates may be deemed to
be underwriters, and any discounts, commissions or concessions received by
them, and any profits on resale of the certificates purchased by them, may be
deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "Act").
The depositor has been advised by the underwriter that it intends to make
a market in the offered certificates but has no obligation to do so. There can
be no assurance that a secondary market for the offered certificates will
develop or, if it does develop, that it will continue.
The depositor has agreed to indemnify the underwriter against, or make
contributions to the underwriter with respect to, certain liabilities,
including liabilities under the Act.
LEGAL MATTERS
Certain federal income tax consequences with respect to the certificates
will be passed upon for the trust fund by Brown & Wood LLP, New York, New
York. Brown & Wood LLP, New York, New York, will act as counsel for the
depositor and the underwriter.
RATINGS
It is a condition to the issuance of the offered certificates that (i)
the Class A Certificates be rated "AAA" by Standard & Poor's Rating Services,
a division of The McGraw-Hill Companies, Inc. ("S&P") and by Fitch IBCA, Inc.
("Fitch") and "Aaa" by Moody's Investors Service, Inc. ("Moody's" and,
together with S&P and Fitch, the "Rating Agencies"); (ii) the Class M-1
Certificates be rated "AA" by S&P and by Fitch and "Aa2" by Moody's; (iii) the
Class M-2 Certificates be rated "A" by S&P and by Fitch and "A2" by Moody's;
and (iv) the Class B Certificates be rated "BBB" by S&P and by Fitch and
"Baa2" by Moody's.
A securities rating addresses the likelihood of the receipt by a
certificateholder of distributions on the mortgage loans. The rating takes
into consideration the characteristics of the mortgage loans and the
structural, legal and tax aspects associated with the certificates. The
ratings on the offered certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the mortgage loans,
the payment of any LIBOR Carryover or the possibility that a holder of an
offered certificate might realize a lower than anticipated yield.
The depositor has not engaged any rating agency other than the Rating
Agencies to provide ratings on the offered certificates. However, there can be
no assurance as to whether any other rating agency will rate the offered
certificates, or, if it does, what rating would be assigned by any such other
rating agency. Any rating on the offered certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to the
offered certificates by the Rating Agencies.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating. In the event that the ratings initially assigned to
any of the offered certificates by the Rating Agencies are subsequently
lowered for any reason, no person or entity is obligated to provide any
additional support or credit enhancement with respect to such offered
certificates.
<PAGE>
INDEX OF DEFINED TERMS
Act........................................................................S-77
Adjustment Date............................................................S-24
Cap Contract...............................................................S-71
C-Bass Purchase Agreement..................................................S-39
Code.......................................................................S-71
Conti......................................................................S-10
Contributions Tax..........................................................S-73
Cut-off Date Principal Balance.............................................S-16
DOL........................................................................S-74
DTC.........................................................................I-1
Enhance....................................................................S-37
ERISA......................................................................S-74
Exemption..................................................................S-74
Exemption Rating Agencies..................................................S-75
Fitch....................................................................75, 77
Global Securities...........................................................I-1
Gross Margin...............................................................S-24
Group 1 Loan Balance.......................................................S-16
Group 2 Loan Balance.......................................................S-16
HOEPA......................................................................S-11
Index......................................................................S-24
IRS........................................................................S-73
Loan Group 1...............................................................S-16
Loan-to-Value Ratio........................................................S-16
Maximum Loan Rate..........................................................S-24
MGIC.......................................................................S-37
Minimum Loan Rate..........................................................S-24
Moody's..............................................................S-75, S-77
Mortgage Pool..............................................................S-16
Net income from foreclosure property.......................................S-73
Non-U.S. Person............................................................S-73
OID........................................................................S-71
One Year CMT...............................................................S-35
Originator...........................................................S-10, S-16
outside reserve fund.......................................................S-71
Plan.......................................................................S-74
Pool Balance...............................................................S-16
principal balance..........................................................S-16
Prohibited Transactions Tax................................................S-73
Rating Agencies............................................................S-77
regular interests...........................................................S-7
REMIC......................................................................S-71
REMICs......................................................................S-7
residual interests..........................................................S-7
Restricted Group...........................................................S-75
S&P..................................................................S-75, S-77
Six Month LIBOR............................................................S-35
Structuring Assumptions....................................................S-62
Tax Counsel................................................................S-71
U.S. Person.................................................................I-4
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the offered certificates will be
offered globally (the "Global Securities") and will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Clearstream,
Luxembourg or Euroclear. The Global Securities will be tradable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Clearstream, Luxembourg and Euroclear will be conducted in the
ordinary way in accordance with their normal rules and operating procedures
and in accordance with conventional eurobond practice (i.e., seven calendar
day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream, Luxembourg or
Euroclear and DTC Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream, Luxembourg and Euroclear (in such capacity) and as DTC
Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Clearstream, Luxembourg
and Euroclear will hold positions on behalf of their participants through
their respective Depositaries, which in turn will hold such positions in
accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream,
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no `lock-up' or restricted period. Global Securities will
be credited to the securities custody accounts on the settlement date against
payment in same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset backed certificates issues in same-day funds.
Trading between Clearstream, Luxembourg and/or Euroclear Participants.
Secondary market trading between Clearstream, Luxembourg Participants or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Clearstream, Luxembourg or Euroclear
purchaser. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement.
Clearstream, Luxembourg or Euroclear will instruct the respective Depositary,
as the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis of
the actual number of days in such interest period and a year assumed to
consist of 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the respective Depositary of the
DTC Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be system and by the
clearing system, in accordance with its usual procedures, to the Clearstream,
Luxembourg Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from,
the value date (which would be the preceding day when settlement occurred in
New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Clearstream, Luxembourg or Euroclear cash debt will be
valued instead as of the actual settlement date.
Clearstream, Luxembourg Participants and Euroclear Participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing lines
of credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global Securities are
credited to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg Participants or Euroclear
Participants can elect not to preposition funds and allow that credit line to
be drawn upon the finance settlement. Under this procedure, Clearstream,
Luxembourg Participants or Euroclear Participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Global Securities were credited to their accounts. However, interest
on the Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Clearstream, Luxembourg
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Clearstream,
Luxembourg Participants or Euroclear Participants. The sale proceeds will be
available to the DTC seller on the settlement date. Thus, to the DTC
Participants a cross-market transaction will settle no differently than a
trade between two DTC Participants.
Trading between Clearstream, Luxembourg or Euroclear Seller and DTC
Purchaser. Due to time zone differences in their favor, Clearstream,
Luxembourg Participants and Euroclear Participants may employ their customary
procedures for transactions in which Global Securities are to be transferred
by the respective clearing system, through the respective Depositary, to a DTC
Participant. The seller will send instructions to Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Clearstream, Luxembourg or Euroclear will instruct the respective Depositary,
as appropriate, to deliver the Global Securities to the DTC Participant's
account against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment to and excluding the
settlement date on the basis of the actual number of days in such interest
period and a year assumed to consist of 360 days. For transactions settling on
the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected in
the account of the Clearstream, Luxembourg Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the
Clearstream, Luxembourg Participant's or Euroclear Participant's account would
be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Clearstream, Luxembourg
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Clearstream, Luxembourg Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and
that purchase Global Securities from DTC Participants for delivery to
Clearstream, Luxembourg Participants or Euroclear Participants should note
that these trades would automatically fail on the sale side unless affirmative
action were taken. At least three techniques should be readily available to
eliminate this potential problem:
(a) borrowing through Clearstream, Luxembourg or Euroclear for one
day (until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg or Euroclear accounts) in accordance with the
clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their
Clearstream, Luxembourg or Euroclear account in order to settle the sale
side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the Clearstream,
Luxembourg Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue discount)
on registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-U.S. Persons (Form W-8 or Form W-8BEN). Beneficial
owners of Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status) or Form W-8Ben (Certificate of Foreign Status of Beneficial
Owner for United States tax withholding). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change. After
December 31, 2000, only Form W-8BEN will be acceptable.
Exemption for non-U.S. Persons with effectively connected income (Form
4224) or Form W-8ECI. A non-U.S. Person, including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States) or Form W-8ECI (Certificate of Foreign
Persons Claim of Exemption from Withholding on Income Effectively Connected
with the Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001 or Form W-8BEN). Non-U.S. Persons that are Certificate
Owners residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate) or Form
W-8BEN (Certificate of Foreign Status of Beneficial Owners for United States
Tax Withholding). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the Certificate Owners or his agent. After
December 31, 2000, only Form W-8BEN will be acceptable.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8, Form 4224 and Form 1001 are effective
until December 31, 2000. Form W-8BEN and Form W-8ECI are effective until the
third succeeding calendar year from the date the form is signed.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a
corporation or partnership for United States federal income tax purposes
organized in or under the laws of the United States or any state thereof or
the District of Columbia or (iii) an estate the income of which is includible
in gross income for United States tax purposes, regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors
are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
<PAGE>
PROSPECTUS
Asset Backed Securities
(Issuable in Series)
FINANCIAL ASSET SECURITIES CORP.
Depositor
Consider carefully the risk factors beginning on page 4 of this prospectus.
The securities represent obligations of the trust only and do not represent an
interest in or obligation of the depositor, the seller, the master servicer or
any of their affiliates.
This prospectus may be used to offer and sell the securities only if
accompanied by a prospectus supplement.
The Securities
Financial Asset Securities Corp., as depositor, will sell the securities, which
may be in the form of asset backed certificates or asset backed notes. Each
issue of securities will have its own series designation and will evidence
either:
o the ownership of certain trust assets or
o debt obligations secured by certain trust assets.
Each series of securities will consist of one or more classes. Each
class of securities will represent the entitlement to a specified portion of
future interest payments and a specified portion of future principal payments
on the assets in the related trust. In each case, the specified portion may
equal from 100% to 0%. A series may include one or more classes of securities
that are senior in right of payment to one or more other classes. One or more
classes of securities may be entitled to receive distributions of principal,
interest or both prior to one or more other classes or before or after certain
specified events have occurred. The related prospectus supplement will specify
each of these features.
The Trust and Its Assets
As specified in the related prospectus supplement, the assets of a trust will
include primarily the following:
o closed-end and/or revolving home equity loans secured by senior or
junior liens on one- to four-family residential properties;
o home improvement installment sales contracts and installment loan
agreements that are either unsecured or secured generally by
junior liens on one- to four-family residential properties or by
purchase money security interests in the related home
improvements; and/or
o private asset backed securities.
Each trust may be subject to early termination in certain circumstances.
Market for the Securities
No market will exist for the securities of any series before they are issued.
In addition, even after the securities of a series have been issued and sold,
there can be no assurance that a resale market will develop.
Offers of the Securities
Offers of the securities may be made through one or more different methods,
including through underwriters. All certificates will be distributed by, or
sold through underwriters managed by, Greenwich Capital Markets, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal
offense.
May 31, 2000
<PAGE>
TABLE OF CONTENTS
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH
ACCOMPANYING PROSPECTUS SUPPLEMENT............................................3
RISK FACTORS..................................................................4
THE TRUST FUND...............................................................10
USE OF PROCEEDS..............................................................15
THE DEPOSITOR................................................................15
LOAN PROGRAM.................................................................16
DESCRIPTION OF THE SECURITIES................................................18
CREDIT ENHANCEMENT...........................................................27
YIELD AND PREPAYMENT CONSIDERATIONS..........................................32
THE AGREEMENTS...............................................................35
CERTAIN LEGAL ASPECTS OF THE LOANS...........................................47
CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS...........................58
STATE TAX CONSIDERATIONS.....................................................80
ERISA CONSIDERATIONS.........................................................80
LEGAL INVESTMENT.............................................................84
METHOD OF DISTRIBUTION.......................................................84
LEGAL MATTERS................................................................85
FINANCIAL INFORMATION........................................................85
AVAILABLE INFORMATION........................................................85
RATING.......................................................................86
INDEX OF DEFINED TERMS.......................................................87
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of securities is contained in two separate
documents:
o this prospectus, which provides general information, some of which
may not apply to a particular series; and
o the accompanying prospectus supplement for a particular series,
which describes the specific terms of the securities of that
series. If the prospectus supplement contains information about a
particular series that differs from the information contained in
this prospectus, you should rely on the information in the
prospectus supplement.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide
you with information that is different from that contained in this prospectus
and the accompanying prospectus supplement. The information in this prospectus
is accurate only as of the date of this prospectus.
Beginning with the section titled "The Trust Fund", certain capitalized terms
are used in this prospectus to assist you in understanding the terms of the
securities. The capitalized terms used in this prospectus are defined on the
pages indicated under the caption "Index of Defined Terms" beginning on page
117 in this prospectus.
_____________________
If you require additional information, the mailing address of our principal
executive offices is Financial Asset Securities Corp., 600 Steamboat Road,
Greenwich, Connecticut 06830 and the telephone number is (203) 625-2756. For
other means of acquiring additional information about us or a series of
securities, see "The Trust Fund -- Incorporation of Certain Information by
Reference" beginning on page 20 of this prospectus.
_____________________
<PAGE>
RISK FACTORS
You should carefully consider the following information, since it
identifies certain significant sources of risk associated with an investment
in these securities.
Limited Liquidity.................... No market will exist for the securities
of any series before they are issued. In
addition, there can be no assurance that
a resale market will develop following
the issuance and sale of any series of
the securities. Even if a resale market
does develop, it might not provide
investors with liquidity of investment
or continue for the life of the
securities.
Limited Assets....................... Unless the applicable prospectus
supplement provides otherwise, the
securities of each series will be
payable solely from the assets of the
related trust, including any applicable
credit enhancement, and will not have
any claims against the assets of any
other trust. Moreover, at the times
specified in the related prospectus
supplement, certain assets of the trust
and/or the related security account may
be released to the depositor, master
servicer, any servicer, credit
enhancement provider or other person,
if:
o all payments then due on the related
securities have been made;
o adequate provision for future
payments on certain classes of the
securities has been made; and
o any other payments specified in the
related prospectus supplement have
been made.
Once released, such assets will no
longer be available to make payments to
securityholders.
There will be no recourse against the
depositor or the master servicer if any
required distribution on the securities
is not made.
The securities will not represent an
interest in the depositor, the master
servicer, any servicer or any of their
respective affiliates, nor will the
securities represent an obligation of
any of them. The only obligations of
the depositor with respect to the
related trust or the securities would
arise from the representations and
warranties that the depositor may make
concerning the related assets. The
depositor does not have significant
assets and is unlikely to have
significant assets in the future. If
the depositor should be required to
repurchase a loan from a trust because
of the breach of a representation or
warranty, the depositor's sole source
of funds for the repurchase would be:
o funds obtained from enforcing any
similar obligation of the seller or
originator of the loan, or
o funds from a reserve account or
similar credit enhancement
established to pay for loan
repurchases.
In addition, the master servicer may be
obligated to make certain advances if
loans are delinquent, but only to the
extent it deems the advances to be
recoverable from amounts it expects to
receive on those loans.
Credit Enhancement................... Credit enhancement is intended to reduce
the effect of delinquent payments or
loan losses on those classes of
securities that have the benefit of the
credit enhancement. Nevertheless, the
amount of any credit enhancement is
subject to the limits described in the
related prospectus supplement.
Moreover, the amount of credit
enhancement may decline or be depleted
under certain circumstances before the
securities are paid in full. As a
result, securityholders may suffer
losses. In addition, credit enhancement
may not cover all potential sources of
risk of loss, such as fraud or
negligence by a loan originator or
other parties.
Prepayment and Yield Considerations.. The timing of principal payments on the
the securities of a series will be
affected by a number of factors,
including the following:
o the extent of prepayments on the
underlying loans in the trust or, if
the trust is comprised of underlying
securities, on the loans backing the
underlying securities;
o how payments of principal are
allocated among the classes of
securities of that series as
specified in the related prospectus
supplement;
o if any party has an option to
terminate the related trust early,
the effect of the exercise of the
option;
o the rate and timing of defaults and
losses on the assets in the related
trust; and
o repurchases of assets in the related
trust as a result of material
breaches of representations and
warranties made by the depositor or
master servicer.
The rate of prepayment of the loans
included in or underlying the assets in
each trust may affect the yield to
maturity of the securities.
Interest payable on the securities on
any given distribution date will
include all interest accrued during the
related interest accrual period. The
interest accrual period for the
securities of each series will be
specified in the applicable prospectus
supplement. If the interest accrual
period ends two or more days before the
related distribution date, your
effective yield will be less than it
would be if the interest accrual period
ended the day before the distribution
date. As a result, your effective yield
at par would be less than the indicated
coupon rate.
Balloon Payments..................... Certain of the underlying loans may not
be fully amortizing and may require a
substantial principal payment (i.e., a
"balloon" payment) at their stated
maturity. Loans of this type involve a
greater degree of risk than fully
amortizing loans since the related
borrower must generally be able to
refinance the loan or sell the related
property prior to the loan's maturity
date. The borrower's ability to do so
will depend on such factors as the
level of available mortgage rates at
the time of sale or refinancing, the
relative strength of the local housing
market, the borrower's equity in the
property, the borrower's general
financial condition and tax laws.
Nature of Mortgages................... The following factors, among others,
could adversely affect property values
in such a way that the outstanding
balance of the related loans, together
with any senior financing on the same
properties, would equal or exceed those
values:
o an overall decline in the residential
real estate markets where the
properties are located,
o failure of borrowers to maintain
their properties adequately, and
o natural disasters that are not
necessarily covered by hazard
insurance, such as earthquakes and
floods.
If a home equity loan is in a junior
lien position, a decline in property
values could extinguish the value of
the junior mortgageholder in the
property before having any effect on
the interest of the senior
mortgageholder. If property values
decline, actual rates of delinquencies,
foreclosures and losses on the
underlying loans could be higher than
those currently experienced by the
mortgage lending industry in general.
Even if you assume that the properties
provide adequate security for the
loans, substantial delays could occur
before defaulted loans are liquidated
and the proceeds forwarded to
investors. Property foreclosure actions
are regulated by state statutes and
rules and are subject to many of the
delays and expenses that characterize
other types of lawsuits if defenses or
counterclaims are made. As a result,
foreclosure actions can sometimes take
several years to complete. Moreover,
some states prohibit a mortgage lender
from obtaining a judgment against the
borrower for amounts not covered by
property proceeds if the property is
sold outside of a judicial proceeding.
As a result, if a borrower defaults,
these restrictions may impede the
servicer's ability to dispose of the
borrower's property and obtain
sufficient proceeds to repay the loan
in full. In addition, the servicer is
entitled to deduct from liquidation
proceeds all the expenses it reasonably
incurs in trying to recover on the
defaulted loan, including payment to
the holders of any senior mortgages,
legal fees and costs, real estate
taxes, and property preservation and
maintenance expenses.
In general, the expenses of liquidating
defaulted loans do not vary directly
with the unpaid amount. So, assuming
that a servicer would take the same
steps to recover a defaulted loan with
a small unpaid balance as it would a
loan with a large unpaid balance, the
net amount realized after paying
liquidation expenses would be a smaller
percentage of the balance of the small
loan than of the large loan. Since the
mortgages or deeds of trust securing
home equity loans typically will be in
a junior lien position, the proceeds
from any liquidation will be applied
first to the claims of the related
senior mortgageholders, including
foreclosure costs. In addition, a
junior mortgage lender may only
foreclose subject to any related senior
mortgage. As a result, the junior
mortgage lender generally must either
pay the related senior mortgage lender
in full at or before the foreclosure
sale or agree to make the regular
payments on the senior mortgage. Since
the trust will not have any source of
funds to satisfy any senior mortgages
or to continue making payments on them,
the trust's ability as a practical
matter to foreclose on any junior
mortgage will be quite limited.
State laws generally regulate interest
rates and other loan charges, require
certain disclosures, and often require
licensing of loan originators and
servicers. In addition, most states
have other laws and public policies for
the protection of consumers that
prohibit unfair and deceptive practices
in the origination, servicing and
collection of loans. Depending on the
provisions of the particular law or
policy and the specific facts and
circumstances involved, violations may
limit the ability of the servicer to
collect interest or principal on the
loans. Also, the borrower may be
entitled to a refund of amounts
previously paid and the servicer may be
subject to damage claims and
administrative sanctions.
Environmental Risks.................. Federal, state and local laws and
regulations impose a wide range of
requirements on activities that may
affect the environment, health and
safety. In certain circumstances, these
laws and regulations impose obligations
on owners or operators of residential
properties such as those that secure
the loans. Failure to comply with these
laws and regulations can result in
fines and penalties that could be
assessed against the trust as owner of
the related property.
In some states, a lien on the property
due to contamination has priority over
the lien of an existing mortgage.
Further, a mortgage lender may be held
liable as an "owner" or "operator" for
costs associated with the release of
petroleum from an underground storage
tank under certain circumstances. If
the trust is considered the owner or
operator of a property, it will suffer
losses as a result of any liability
imposed for environmental hazards on
the property.
Certain Other Legal Considerations
Regarding the Loans.................. The loans may also be subject to federal
laws relating to the origination and
underwriting. These laws
o require certain disclosures to the
borrowers regarding the terms of the
loans;
o prohibit discrimination on the basis
of age, race, color, sex, religion,
marital status, national origin,
receipt of public assistance or the
exercise of any right under the
consumer credit protection act, in
the extension of credit;
o regulate the use and reporting of
information related to the borrower's
credit experience; and
o require additional application
disclosures, limit changes that may
be made to the loan documents without
the borrower's consent and restrict a
lender's ability to declare a default
or to suspend or reduce a borrower's
credit limit to certain enumerated
events.
Certain loans are also subject to
federal laws which impose additional
disclosure requirements on creditors
with respect to non-purchase money
mortgage loans with high interest rates
or high up-front fees and charges.
These laws can impose specific
statutory liabilities upon creditors
that fail to comply and may affect the
enforceability of the related loans. In
addition, any assignee of the creditor
(including the trust) would generally
be subject to all claims and defenses
that the borrower could assert against
the creditor, including the right to
rescind the loan.
Certain loans relating to home
improvement contracts are subject to
federal laws that protect the borrower
from defective or incomplete work by a
contractor. These laws permit the
borrower to withhold payment if the
work does not meet the quality and
durability standards agreed to between
the borrower and the contractor. These
laws have the effect of subjecting any
assignee of the creditor (including the
trust) to all claims and defenses which
the borrower in a sale transaction
could assert against the seller of
defective goods.
If certain provisions of these federal
laws are violated, the master servicer
may be unable to collect all or part of
the principal or interest on the loans.
The trust also could be subject to
damages and administrative enforcement.
Ratings of the Securities............ Any class of securities is issued under
this prospectus and the accompanying
prospectus supplement will be rated in
one of the four highest rating
categories of a nationally recognized
rating agency. A rating is based on the
adequacy of the value of the trust
assets and any credit enhancement for
that class and reflects the rating
agency's assessment of how likely it is
that holders of the class of securities
will receive the payments to which they
are entitled. A rating does not
constitute an assessment of how likely
it is that principal prepayments on the
underlying loans will be made, the
degree to which the rate of prepayments
might differ from that originally
anticipated or the likelihood of early,
optional termination of the securities.
You must not view a rating as a
recommendation to purchase, hold or
sell securities because it does not
address the market price or suitability
of the securities for any particular
investor.
There is no assurance that any rating
will remain in effect for any given
period of time or that the rating
agency will not lower or withdraw it
entirely in the future. The rating
agency could lower or withdraw its
rating due to:
o any decrease in the adequacy of the
value of the trust assets or any
related credit enhancement;
o an adverse change in the financial or
other condition of a credit
enhancement provider; or
o a change in the rating of the credit
enhancement provider's long-term debt.
Book-Entry Registration.............. Limit on Liquidity of Securities.
Securities issued in book-entry form
may have only limited liquidity in the
resale market, since investors may be
unwilling to purchase securities for
which they cannot obtain physical
instruments.
Limit on Ability to Transfer or Pledge.
Transactions in book-entry securities
can be effected only through The
Depository Trust Company ("DTC"), its
participating organizations, its
indirect participants and certain
banks. As a result, your ability to
transfer or pledge securities issued in
book-entry form may be limited.
Delays in Distributions. You may
experience some delay in the receipt of
distributions on book-entry securities
since the distributions will be
forwarded by the trustee to DTC for DTC
to credit the accounts of its
participants. In turn, these
participants will thereafter credit the
distributions to your account either
directly or indirectly through indirect
participants.
Pre-Funding Accounts................. The related prospectus supplement may
provide that the depositor deposit a
specified amount in a pre-funding
account on the date the securities are
issued. In this case, the deposited
funds may only be used to acquire the
additional assets for the trust during
a set period after the initial issuance
of the securities. Any amounts
remaining in the account at the end of
the period will be distributed as a
prepayment of principal to the holders
of the related securities.
Lower Credit Quality Trust Fund
Assets............................... Certain of the trust assets may have
been made to lower credit quality
borrowers who fall into one of two
categories:
o customers with moderate income,
limited assets and other income
characteristics that cause difficulty
in borrowing from banks and other
traditional lenders; and
o customers with a history of irregular
employment, previous bankruptcy
filings, repossession of property,
charged-off loans or garnishment of
wages.
The average interest rate charged on
loans made to these types of borrowers
is generally higher than that charged
by lenders that typically impose more
stringent credit requirements. There is
a greater likelihood of late payments
on loans made to these types of
borrowers than on loans to borrowers
with a higher credit quality. Payments
from borrowers with a lower credit
quality are more likely to be sensitive
to changes in the economic climate in
the areas in which they reside.
Delinquent Trust Fund Assets......... No more than 20% (by principal balance)
of the trust assets for any particular
series of securities will be
contractually delinquent as of the
related cut-off date.
Other Considerations................. There is no assurance that the value of
the trust assets for any series of
securities at any time will equal or
exceed the principal amount of the
outstanding securities of the series.
If trust assets have to be sold because
of an event of default or otherwise,
providers of services to the trust
(including the trustee, the master
servicer and the credit enhancer, if
any) generally will be entitled to
receive the proceeds of the sale to the
extent of their unpaid fees and other
amounts due them before any proceeds
are paid to investors. As a result, the
proceeds of such a sale may be
insufficient to pay the full amount of
interest and principal of the related
securities.
<PAGE>
THE TRUST FUND
The Certificates of each Series will represent interests in the
assets of the related Trust Fund, and the Notes of each Series will be secured
by the pledge of the assets of the related Trust Fund. The Trust Fund for each
Series will be held by the Trustee for the benefit of the related
Securityholders. Each Trust Fund will consist of certain assets (the "Trust
Fund Assets") consisting of a pool (each, a "Pool") comprised of Loans or
Private Asset Backed Securities, in each case as specified in the related
Prospectus Supplement, together with payments in respect of such Trust Fund
Assets and certain other accounts, obligations or agreements, in each case as
specified in the related Prospectus Supplement./1/ The Pool will be created on
the first day of the month of the issuance of the related Series of Securities
or such other date specified in the Prospectus Supplement (the "Cut-off
Date"). The Securities will be entitled to payment from the assets of the
related Trust Fund or Funds or other assets pledged for the benefit of the
Securityholders as specified in the related Prospectus Supplement and will not
be entitled to payments in respect of the assets of any other trust fund
established by the Depositor.
The Trust Fund Assets will be acquired by the Depositor, either
directly or through affiliates, from originators or sellers which may be
affiliates of the Depositor (the "Sellers"), and conveyed by the Depositor to
the related Trust Fund. Loans acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
"Loan Program--Underwriting Standards" or as otherwise described in a related
Prospectus Supplement. See "Loan Program--Underwriting Standards".
The Depositor will cause the Trust Fund Assets to be assigned to the
Trustee named in the related Prospectus Supplement for the benefit of the
holders of the Securities of the related Series. The Master Servicer named in
the related Prospectus Supplement will service the Trust Fund Assets, either
directly or through other servicing institutions ("Sub-Servicers"), pursuant
to a Pooling and Servicing Agreement among the Depositor, the Master Servicer
and the Trustee with respect to a Series of Certificates, or a servicing
agreement (each, a "Servicing Agreement") between the Trustee and the Servicer
with respect to a Series of Notes, and will receive a fee for such services.
See "Loan Program" and "The Pooling and Servicing Agreement". With respect to
Loans serviced by the Master Servicer through a Sub-Servicer, the Master
Servicer will remain liable for its servicing obligations under the related
Agreement as if the Master Servicer alone were servicing such Loans.
As used herein, "Agreement" means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series of Notes, the Indenture and the Servicing Agreement, as
the context requires.
If so specified in the related Prospectus Supplement, a Trust Fund
relating to a Series of Securities may be a business trust formed under the
laws of the state specified in the related Prospectus Supplement pursuant to a
trust agreement (each, a "Trust Agreement") between the Depositor and the
trustee of such Trust Fund.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or
liabilities. No Trust Fund is expected to engage in any activities other than
acquiring, managing and holding of the related Trust Fund Assets and other
assets contemplated herein and in the related Prospectus Supplement and the
proceeds thereof, issuing Securities and making payments and distributions
thereon and certain related activities. No Trust Fund is expected to have any
source of capital other than its assets and any related credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the
only obligations of the Depositor with respect to a Series of Securities will
_______________
1 Whenever the terms "Pool", "Certificates" and "Notes" are used in this
Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Pool and the Certificates
representing certain undivided interests in, or Asset Backed Notes
secured by the assets of, a single trust fund (the "Trust Fund")
consisting primarily of the Loans in such Pool. Similarly, the term
"Pass-Through Rate" will refer to the Pass-Through Rate borne by the
Certificates or Notes of one specific Series and the term "Trust Fund"
will refer to one specific Trust Fund.
<PAGE>
be to obtain certain representations and warranties from the Sellers and to
assign to the Trustee for such Series of Securities the Depositor's rights
with respect to such representations and warranties. See "The
Agreements--Assignment of Trust Fund Assets". The obligations of the Master
Servicer with respect to the Loans will consist principally of its contractual
servicing obligations under the related Agreement (including its obligation to
enforce the obligations of the Sub-Servicers or Sellers, or both, as more
fully described herein under "Loan Program--Representations by Sellers;
Repurchases or Substitutions" and "The Agreements--Assignment of the Trust
Fund Assets" and "--Sub-Servicing of Loans") and its obligation, if any, to
make certain cash advances in the event of delinquencies in payments on or
with respect to the Loans in the amounts described herein under "Description
of the Securities--Advances". The obligations of the Master Servicer to make
advances may be subject to limitations, to the extent provided herein and in
the related Prospectus Supplement.
As specified in the related Prospectus Supplement, the Trust fund
Assets for a Series of Securities may consist of (i) closed-end and/or
revolving home equity loans (the "Home Equity Loans") secured by senior or
junior liens on one- to four-family residential properties, (ii) have
improvement installment sales contracts and installment loan agreements (the
"Home Improvement Contracts") that are either unsecured or secured primarily
by junior liens on one- to four-family residential properties, or by purchase
money security interests in the home improvements financed thereby (the "Home
Improvements") and/or (iii) Private Asset Backed Securities (as defined
herein).
The following is a brief description of the assets expected to be
included in the Trust Funds. If specific information respecting the Trust Fund
Assets is not known at the time the related Series of Securities initially is
offered, more general information of the nature described below will be
provided in the related Prospectus Supplement, and specific information will
be set forth in a report on Form 8-K to be filed with the Securities and
Exchange Commission within fifteen days after the initial issuance of such
Securities (the "Detailed Description"). A copy of the Agreement with respect
to each Series of Securities will be attached to the Form 8-K and will be
available for inspection at the corporate trust office of the Trustee
specified in the related Prospectus Supplement. A schedule of the Trust Fund
Assets relating to such Series will be attached to the Agreement delivered to
the Trustee upon delivery of the Securities.
The Loans
General. The real property which secures repayment of the Loans is
referred to as "Properties". Unless otherwise specified in the related
Prospectus Supplement, the Loans will be secured by mortgages or deeds of
trust or other similar security instruments creating a lien on a Property,
which may be subordinated to one or more senior liens on the related
Properties, each as described in the related Prospectus Supplement. As more
fully described in the related Prospectus Supplement, the Loans may be
"conventional" loans or loans that are insured or guaranteed by a governmental
agency such as the FHA or VA. The proceeds of the Closed-End Loans may have
been applied to the purchase of the related Property.
The Properties relating to Loans will consist primarily of detached
or semi-detached one- to four-family dwelling units, townhouses, rowhouses,
individual condominium units, individual units in planned unit developments,
and certain other dwelling units ("Single Family Properties") or Small
Mixed-Used Properties (as defined herein) which consist of structures of not
more than three stories which include one- to four-family residential dwelling
units and space used for retail, professional or other commercial uses. Such
Properties may include vacation and second homes, investment properties and
leasehold interests. The Properties may be located in any one of the fifty
states, the District of Columbia, Guam, Puerto Rico or any other territory of
the United States.
The payment terms of the Loans to be included in a Trust Fund will be
described in the related Prospectus Supplement and may include any of the
following features (or combination thereof) or other features, all as
described above or in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index (which will be
specified in the related Prospectus Supplement), a rate that is
fixed for a period of time or under certain circumstances and
is followed by an adjustable rate, a rate that otherwise varies
from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an adjustable rate
may be subject to periodic limitations, maximum rates, minimum
rates or a combination of such limitations. Accrued interest
may be deferred and added to the principal of a loan for such
periods and under such circumstances as may be specified in the
related Prospectus Supplement. Loans may provide for the
payment of interest at a rate lower than the specified interest
rate borne by such Mortgage (the "Loan Rate") for a period of
time or for the life of the Loan, and the amount of any
difference may be contributed from funds supplied by the Seller
of the Property or another source.
(b) Principal may be payable on a level debt service basis to
fully amortize the loan over its term, may be calculated on the
basis of an assumed amortization schedule that is significantly
longer than the original term to maturity or on an interest
rate that is different from the interest rate on the Loan or
may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal
may be due on maturity ("balloon payment"). Principal may
include interest that has been deferred and added to the
principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for
the life of the loan, may increase over a specified period of
time or may change from period to period. Loans may include
limits on periodic increases or decreases in the amount of
monthly payments and may include maximum or minimum amounts of
monthly payments.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the loan or may decline
over time, and may be prohibited for the life of the loan or
for certain periods ("lockout periods"). Certain loans may
permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in
connection with any such subsequent prepayment. Other loans may
permit prepayments without payment of a fee unless the
prepayment occurs during specified time periods. The loans may
include "due on sale" clauses which permit the mortgagee to
demand payment of the entire loan in connection with the sale
or certain transfers of the related Property. Other loans may
be assumable by persons meeting the then applicable
underwriting standards of the Seller.
As more fully described in the related Prospectus Supplement,
interest on each Revolving Credit Line Loan, excluding introduction rates
offered from time to time during promotional periods, is computed and payable
monthly on the average daily outstanding principal balance of such Loan.
Principal amounts on a Revolving Credit Line Loan may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time, but may be subject to
a minimum periodic payment. Except to the extent provided in the related
Prospectus Supplement, the Trust Fund will not include any amounts borrowed
under a Revolving Credit Line Loan after the Cut-off Date. The full amount of
a Closed-End Loan is advanced at the inception of the loan and generally is
repayable in equal (or substantially equal) installments of an amount to fully
amortize such loan at its stated maturity. Except to the extent provided in
the related Prospectus Supplement, the original terms to stated maturity of
Closed-End Loan will not exceed 360 months. Under certain circumstances, under
either a Revolving Credit Line Loan or a Closed-End Loan, a borrower may
choose an interest only payment option and is obligated to pay only the amount
of interest which accrues on the loan during the billing cycle. An interest
only payment option may be available for a specified period before the
borrower must begin paying at least the minimum monthly payment of a specified
percentage of the average outstanding balance of the loan.
The aggregate principal balance of Loans secured by Properties that
are owner-occupied will be disclosed in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the sole
basis for a representation that a given percentage of the Loans is secured by
Single Family Property that is owner-occupied will be either (i) the making of
a representation by the borrower at origination of the Loan either that the
underlying Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Property as a
primary residence or (ii) a finding that the address of the underlying
Property is the borrower's mailing address.
The Loans may include fixed-rate, closed-end mortgage loans having
terms to maturity of up to 30 years and secured by first-lien mortgages
originated on Properties containing one to four residential units and no more
than three income producing non-residential units ("Small Mixed-Use
Properties"). At least 50% of the units contained in a Small Mixed-Use
Property will consist of residential units. Income from such non-residential
units will not exceed 40% of the adjusted gross income of the related
borrower. The maximum Loan-to-Value Ratio on Small Mixed-Use Properties will
not exceed 65%. Small Mixed-Use Properties may be owner occupied or investor
properties and the loan purpose may be a refinancing or a purchase.
Home Improvement Contracts. The Trust Fund Assets for a Series may
consist, in whole or part, of Home Improvement Contracts originated by a home
improvement contractor, a thrift or a commercial mortgage banker in the
ordinary course of business. As specified in the related Prospectus
Supplement, the Home Improvement Contracts will either be unsecured or secured
by the Mortgages primarily on Single Family Properties which are generally
subordinate to other mortgages on the same Property, or secured by purchase
money security interest in the Home Improvements financed thereby. Except as
otherwise specified in the related Prospectus Supplement, the Home Improvement
Contracts will be fully amortizing and may have fixed interest rates or
adjustable interest rates and may provide for other payment characteristics as
described below and in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
the Home Improvements securing the Home Improvement Contracts will include,
but are not limited to, replacement windows, house siding, new roofs, swimming
pools, satellite dishes, kitchen and bathroom remodeling goods and solar
heating panels.
The initial Loan-to-Value Ratio of a Home Improvement Contract is
computed in the manner described in the related Prospectus Supplement.
Additional Information. Each Prospectus Supplement will contain
information, as of the date of such Prospectus Supplement and to the extent
then specifically known to the Depositor, with respect to the Loans contained
in the related Pool, including (i) the aggregate outstanding principal balance
and the average outstanding principal balance of the Loans as of the
applicable Cut-off Date, (ii) the type of property securing the Loan (e.g.,
one- to four-family houses, individual units in condominium apartment
buildings, vacation and second homes or other real property), (iii) the
original terms to maturity of the Loans, (iv) the largest principal balance
and the smallest principal balance of any of the Loans, (v) the earliest
origination date and latest maturity date of any of the Loans, (vi) the
Loan-to-Value Ratios or Combined Loan-to-Value Ratios, as applicable, of the
Loans, (vii) the Loan Rates or annual percentage rates ("APR") or range of
Loan Rates or APR's borne by the Loans, and (viii) the geographical location
of the Loans on a state-by-state basis. If specific information respecting the
Loans is not known to the Depositor at the time the related Securities are
initially offered, more general information of the nature described above will
be provided in the related Prospectus Supplement, and specific information
will be set forth in the Detailed Description.
Except as otherwise specified in the related Prospectus Supplement,
the "Combined Loan-to-Value Ratio" of a Loan at any given time is the ratio,
expressed as a percentage, of (i) the sum of (a) the original principal
balance of the Loan (or, in the case of a Revolving Credit Line Loan, the
maximum amount thereof available) and (b) the outstanding principal balance at
the date of origination of the Loan of any senior mortgage loan(s) or, in the
case of any open-ended senior mortgage loan, the maximum available line of
credit with respect to such mortgage loan, regardless of any lesser amount
actually outstanding at the date of origination of the Loan, to (ii) the
Collateral Value of the related Property. Except as otherwise specified in the
related Prospectus Supplement, the "Collateral Value" of the Property, other
than with respect to certain Loans the proceeds of which were used to
refinance an existing mortgage loan (each, a "Refinance Loan"), is the lesser
of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such Loan and (b) the sales price for such
Property. In the case of Refinance Loans, the "Collateral Value" of the
related Property is the appraised value thereof determined in an appraisal
obtained at the time of refinancing.
Private Asset Backed Securities
General. Private Asset Backed Securities may consist of (a)
pass-through certificates or participation certificates evidencing an
undivided interest in a pool of home equity or home improvement loans, or (b)
collateralized mortgage obligations secured by home equity or home improvement
loans. Private Asset Backed Securities may include stripped asset backed
securities representing an undivided interest in all or a part of either the
principal distributions (but not the interest distributions) or the interest
distributions (but not the principal distributions) or in some specified
portion of the principal and interest distributions (but not all of such
distributions) on certain home equity or home improvement loans. Private Asset
Backed Securities will have been issued pursuant to a pooling and servicing
agreement, an indenture or similar agreement (a "PABS Agreement"). The
seller/servicer of the underlying Loans will have entered into the PABS
Agreement with the trustee under such PABS Agreement (the "PABS Trustee"). The
PABS Trustee or its agent, or a custodian, will possess the loans underlying
such Private Asset Backed Security. Loans underlying a Private Asset Backed
Security will be serviced by a servicer (the "PABS Servicer") directly or by
one or more subservicers who may be subject to the supervision of the PABS
Servicer. Except as otherwise specified in the related Prospectus Supplement,
the PABS Servicer will be a FNMA or FHLMC approved servicer and, if FHA Loans
underlie the Private Asset Backed Securities, approved by HUD as an FHA
mortgagee.
The issuer of the Private Asset Backed Securities (the "PABS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for
the purpose of, among other things, establishing trusts and acquiring and
selling housing loans to such trusts and selling beneficial interests in such
trusts. The PABS Issuer shall not be an affiliate of the Depositor. The
obligations of the PABS Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to
the related trust. Except as otherwise specified in the related Prospectus
Supplement, the PABS Issuer will not have guaranteed any of the assets
conveyed to the related trust or any of the Private Asset Backed Securities
issued under the PABS Agreement. Additionally, although the loans underlying
the Private Asset Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Asset Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Asset Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Asset Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Asset Backed
Securities by the PABS Trustee or the PABS Servicer. The PABS Issuer or the
PABS Servicer may have the right to repurchase assets underlying the Private
Asset Backed Securities after a certain date or under other circumstances as
specified in the related Prospectus Supplement.
Underlying Loans. The home equity or home improvement loans
underlying the Private Asset Backed Securities may consist of fixed rate,
level payment, fully amortizing loans or graduated payment loans, buydown
loans, adjustable rate loans, or loans having balloon or other special payment
features. Such loans may be secured by single family property, multifamily
property, manufactured homes or by an assignment of the proprietary lease or
occupancy agreement relating to a specific dwelling within a cooperative and
the related shares issued by such cooperative. Except as otherwise specified
in the related Prospectus Supplement, the underlying loans will have the
following characterizations: (i) no loan will have had a Loan-to-Value Ratio
at origination in excess of 95%, (ii) each single family loan secured by a
mortgaged property that had a Loan-to-Value ratio in excess of 80% at
origination will be covered by a primary mortgage insurance policy, (iii) each
loan will have had an original term to stated maturity of not less than 5
years and not more than 40 years, (iv) no loan that was more than 89 days
delinquent as to the payment of principal or interest will have been eligible
for inclusion in the assets under the related PABS Agreement, (v) each loan
(other than a cooperative loan) will be required to be covered by a standard
hazard insurance policy (which may be a blanket policy), and (vi) each loan
(other than a cooperative loan or a contract secured by a manufactured home)
will be covered by a title insurance policy.
Credit Support Relating to Private Asset Backed Securities. Credit
support in the form of reserve funds, subordination of other private
certificates issued under the PABS Agreement, letters of credit, surety bonds,
insurance policies or other types of credit support may be provided with
respect to the loans underlying the Private Asset Backed Securities
themselves.
Rating of Private Asset Backed Securities. The PABS upon their
issuance will have been assigned a rating in one of the four highest rating
categories by at least one nationally recognized statistical rating agency.
Additional Information. The Prospectus Supplement for a Series for
which the Trust Fund includes Private Asset Backed Securities will specify (i)
the aggregate approximate principal amount and type of the Private Asset
Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the loans which comprise the underlying assets for the
Private Asset Backed Securities including (A) the payment features of such
loans, (B) the approximate aggregate principal balance, if known, of
underlying loans insured or guaranteed by a governmental entity, (C) the
servicing fee or range of servicing fees with respect to the loans, and (D)
the minimum and maximum stated maturities of the underlying loans at
origination, (iii) the maximum original term-to-stated maturity of the Private
Asset Backed Securities, (iv) the weighted average term-to-stated maturity of
the Private Asset Backed Securities, (v) the pass-through or certificate rate
of the Private Asset Backed Securities, (vi) the weighted average pass-through
or certificate rate of the Private Asset Backed Securities, (vii) the PABS
Issuer, the PABS Servicer (if other than the PABS Issuer) and the PABS Trustee
for such Private Asset Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance policies, surety
bonds, letters of credit or guaranties relating to the loans underlying the
Private Asset Backed Securities or to such Private Asset Backed Securities
themselves, (ix) the term on which the underlying loans for such Private Asset
Backed Securities may, or are required to, be purchased prior to their stated
maturity or the stated maturity of the Private Asset Backed Securities, (x)
the terms on which loans may be substituted for those originally underlying
the Private Asset Backed Securities and (xi) to the extent provided in a
periodic report to the Trustee in its capacity as holder of the PABS, certain
information regarding the status of the credit support, if any, relating to
the PABS.
Incorporation of Certain Information by Reference
There are incorporated herein by reference all documents and reports
filed or caused to be filed by Financial Asset Securities Corp. ("FASCO") with
respect to a Trust Fund pursuant to Section 13(a), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, prior to the termination of the
offering of Certificates evidencing interests therein. Upon request by any
person to whom this Prospectus is delivered in connection with the offering of
one or more classes of Certificates, FASCO will provide or cause to be
provided without charge a copy of any such documents and/or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to such classes of Certificates, other than the exhibits to
such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests to FASCO should be directed in writing
to: Paul D. Stevelman, Financial Asset Securities Corp., 600 Steamboat Road,
Greenwich, Connecticut 06830, telephone number (203) 625-2700. FASCO has
determined that its financial statements are not material to the offering of
any Certificates.
Investors may read and copy the documents and/or reports incorporated
herein by reference at the Public Reference Room of the Securities and
Exchange (the "SEC") at 450 Fifth Street, N.W., Washington, D.C. 20549.
Investors may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding issuers, including each Trust Fund, that file
electronically with the SEC.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will
be applied by the Depositor to the purchase of Trust Fund Assets or will be
used by the Depositor for general corporate purposes. The Depositor expects to
sell Securities in Series from time to time, but the timing and amount of
offerings of Securities will depend on a number of factors, including the
volume of Trust Fund Assets acquired by the Depositor, prevailing interest
rates, availability of funds and general market conditions.
THE DEPOSITOR
Financial Asset Securities Corp., the Depositor, is a Delaware
corporation organized on August 2, 1995 for the limited purpose of acquiring,
owning and transferring Trust Fund Assets and selling interests therein or
bonds secured thereby. It is an indirect limited purpose finance subsidiary of
National Westminster Bank Plc and an affiliate of Greenwich Capital Markets,
Inc., a registered securities broker-dealer. The Depositor maintains its
principal office at 600 Steamboat Road, Greenwich, Connecticut 06830. Its
telephone number is (203) 625-2700.
Neither the Depositor nor any of the Depositor's affiliates will
insure or guarantee distributions on the Securities of any Series.
LOAN PROGRAM
The Loans will have been purchased by the Depositor, either directly
or through affiliates, from Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Loans so acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
"Underwriting Standards".
Underwriting Standards
Each Seller will represent and warrant that all Loans originated
and/or sold by it to the Depositor or one of its affiliates will have been
underwritten in accordance with standards consistent with those utilized by
mortgage lenders generally during the period of origination for similar types
of loans. As to any Loan insured by the FHA or partially guaranteed by the VA,
the Seller will represent that it has complied with underwriting policies of
the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the value
and adequacy of the Property as collateral. In general, a prospective borrower
applying for a Loan is required to fill out a detailed application designed to
provide to the underwriting officer pertinent credit information, including
the principal balance and payment history with respect to any senior mortgage,
if any, which, unless otherwise specified in the related Prospectus
Supplement, the borrower's income will be verified by the Seller. As part of
the description of the borrower's financial condition, the borrower generally
is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an
employment verification is obtained from an independent source (typically the
borrower's employer) which verification reports the length of employment with
that organization, the current salary, and whether it is expected that the
borrower will continue such employment in the future. If a prospective
borrower is self-employed, the borrower may be required to submit copies of
signed tax returns. The borrower may also be required to authorize
verification of deposits at financial institutions where the borrower has
demand or savings accounts.
In determining the adequacy of the property to be used as collateral,
an appraisal will generally be made of each property considered for financing.
The appraiser is generally required to inspect the property, issue a report on
its condition and, if applicable, verify that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the
cost of replacing the home. The value of the property being financed, as
indicated by the appraisal, must be such that it currently supports, and is
anticipated to support in the future, the outstanding loan balance.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (generally determined on the
basis of the monthly payments due in the year of origination) and other
expenses related to the property (such as property taxes and hazard insurance)
and (ii) to meet monthly housing expenses and other financial obligations and
monthly living expenses. The underwriting standards applied by Sellers,
particularly with respect to the level of loan documentation and the
mortgagor's income and credit history, may be varied in appropriate cases
where factors such as low Combined Loan-to-Value Ratios or other favorable
credit exist.
Qualifications of Sellers
Unless otherwise specified in the related Prospectus Supplement, each
Seller will be required to satisfy the qualifications set forth herein. Each
Seller must be an institution experienced in originating and servicing loans
of the type contained in the related Pool in accordance with accepted
practices and prudent guidelines, and must maintain satisfactory facilities to
originate and service those loans. Unless otherwise specified in the related
Prospectus Supplement, each Seller will be a seller/servicer approved by
either FNMA or FHLMC.
Representations by Sellers; Repurchases or Substitutions
Each Seller will have made representations and warranties in respect
of the Loans sold by such Seller and evidenced by all, or a part, of a Series
of Securities. Except as otherwise specified in the related Prospectus
Supplement, such representations and warranties include, among other things:
(i) that title insurance (or in the case of Properties located in areas where
such policies are generally not available, an attorney's certificate of title)
and any required hazard insurance policy (or certificate of title as
applicable) remained in effect on the date of purchase of the Loan from the
Seller by or on behalf of the Depositor; (ii) that the Seller had good title
to each such Loan and such Loan was subject to no offsets, defenses,
counterclaims or rights of rescission except to the extent that any buydown
agreement described herein may forgive certain indebtedness of a borrower;
(iii) that each Loan constituted a valid lien on the Property (subject only to
permissible liens disclosed, if applicable, title insurance exceptions, if
applicable, and certain other exceptions described in the Agreement) and that
the Property was free from damage and was in acceptable condition; (iv) that
there were no delinquent tax or assessment liens against the Property; (v)
that no required payment on a Loan was more than thirty days' delinquent; and
(vi) that each Loan was made in compliance with, and is enforceable under, all
applicable local, state and federal laws and regulations in all material
respects.
If so specified in the related Prospectus Supplement, the
representations and warranties of a Seller in respect of a Loan will be made
not as of the Cut-off Date but as of the date on which such Seller sold the
Loan to the Depositor or one of its affiliates. Under such circumstances, a
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Securities evidencing an interest in such
Loan. Since the representations and warranties of a Seller do not address
events that may occur following the sale of a Loan by such Seller, its
repurchase obligation described below will not arise if the relevant event
that would otherwise have given rise to such an obligation with respect to a
Loan occurs after the date of sale of such Loan by such Seller to the
Depositor or its affiliates. However, the Depositor will not include any Loan
in the Trust Fund for any Series of Securities if anything has come to the
Depositor's attention that would cause it to believe that the representationes
and warranties of a Seller will not be accurate and complete in all material
respects in respect of such Loan as of the date of initial issuance of the
related Series of Securities. If the Master Servicer is also a Seller of Loans
with respect to a particular Series, such representations will be in addition
to the representations and warranties made by the Master Servicer in its
capacity as a Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the
Seller, will promptly notify the relevant Seller of any breach of any
representation or warranty made by it in respect of a Loan which materially
and adversely affects the interests of the Securityholders in such Loan.
Unless otherwise specified in the related Prospectus Supplement, if such
Seller cannot cure such breach within 90 days following notice from the Master
Servicer or the Trustee, as the case may be, then such Seller will be
obligated either (i) to repurchase such Loan from the Trust Fund at a price
(the "Purchase Price") equal to 100% of the unpaid principal balance thereof
as of the date of the repurchase plus accrued interest thereon to the first
day of the month following the month of repurchase at the Loan Rate (less any
Advances or amount payable as related servicing compensation if the Seller is
the Master Servicer) or (ii) to substitute for such Loan a replacement loan
that satisfies certain requirements set forth in the Agreement. If a REMIC
election is to be made with respect to a Trust Fund, unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or a
holder of the related residual certificate generally will be obligated to pay
any prohibited transaction tax which may arise in connection with any such
repurchase or substitution and the Trustee must have received a satisfactory
opinion of counsel that such repurchase or substitution will not cause the
Trust Fund to lose its status as a REMIC or otherwise subject the Trust Fund
to a prohibited transaction tax. The Master Servicer may be entitled to
reimbursement for any such payment from the assets of the related Trust Fund
or from any holder of the related residual certificate. See "Description of
the Securities--General". Except in those cases in which the Master Servicer
is the Seller, the Master Servicer will be required under the applicable
Agreement to enforce this obligation for the benefit of the Trustee and the
holders of the Securities, following the practices it would employ in its good
faith business judgment were it the owner of such Loan. This repurchase or
substitution obligation will constitute the sole remedy available to holders
of Securities or the Trustee for a breach of representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master
Servicer is the Seller) will be obligated to purchase or substitute a Loan if
a Seller defaults on its obligation to do so, and no assurance can be given
that Sellers will carry out their respective repurchase or substitution
obligations with respect to Loans. However, to the extent that a breach of a
representation and warranty of a Seller may also constitute a breach of a
representation made by the Master Servicer, the Master Servicer may have a
repurchase or substitution obligation as described below under "The
Agreements--Assignment of Trust Fund Assets".
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued pursuant to a pooling and
servicing agreement (a "Pooling and Servicing Agreement") or a Trust Agreement
among the Depositor, the Servicer, if the Series relates to Loans, and the
Trustee. A form of Pooling and Servicing Agreement and Trust Agreement has
been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each Series of Notes will be issued pursuant to an
indenture (the "Indenture") between the related Trust Fund and the entity
named in the related Prospectus Supplement as trustee (the "Trustee") with
respect to such Series. A form of Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. A Series may
consist of both Notes and Certificates. Each Agreement, dated as of the
related Cut-off Date, will be among the Depositor, the Master Servicer and the
Trustee for the benefit of the holders of the Securities of such Series. The
provisions of each Agreement will vary depending upon the nature of the
Securities to be issued thereunder and the nature of the related Trust Fund.
The following summaries describe certain provisions which may appear in each
Agreement. The Prospectus Supplement for a Series of Securities will describe
any provision of the Agreement relating to such Series that mainly differs
from the description thereof contained in this Prospectus. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each
Series of Securities and the applicable Prospectus Supplement. The Depositor
will provide a copy of the Agreement (without exhibits) relating to any Series
without charge upon written request of a holder of record of a Security of
such Series addressed to Financial Asset Securities Corp., 600 Steamboat Road,
Greenwich, Connecticut 06830, Attention: Asset Backed Finance Group.
General
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in book-entry or fully registered
form, in the authorized denominations specified in the related Prospectus
Supplement, will evidence specified beneficial ownership interests in the
related Trust Fund created pursuant to each Agreement and will not be entitled
to payments in respect of the assets included in any other Trust Fund
established by the Depositor. Unless otherwise specified in the related
Prospectus Supplement, the Notes of each Series will be issued in book-entry
or fully registered form, in the authorized denominations specified in the
related Prospectus Supplement, will be secured by the pledge of the assets of
the related Trust Fund and will not be entitled to payments in respect of the
assets included in any other Trust Fund established by the Depositor. The
Securities will not represent obligations of the Depositor or any affiliate of
the Depositor. Certain of the Loans may be guaranteed or insured as set forth
in the related Prospectus Supplement. Each Trust Fund will consist of, to the
extent provided in the Agreement, (i) the Trust Fund Assets, as from time to
time are subject to the related Agreement (exclusive of any amounts specified
in the related Prospectus Supplement ("Retained Interest")), including all
payments of interest and principal received with respect to the Loans after
the Cut-off Date (to the extent not applied in computing the Cut-off Date
Principal Balance); (ii) such assets as from time to time are required to be
deposited in the related Security Account, as described below under "The
Agreements--Payments on Loans; Deposits to Security Account"; (iii) property
which secured a Loan and which is acquired on behalf of the Securityholders by
foreclosure or deed in lieu of foreclosure and (iv) any insurance policies or
other forms of credit enhancement required to be maintained pursuant to the
related Agreement. If so specified in the related Prospectus Supplement, a
Trust Fund may also include one or more of the following: reinvestment income
on payments received on the Trust Fund Assets, a Reserve Account, a mortgage
pool insurance policy, a Special Hazard Insurance Policy, a Bankruptcy Bond,
one or more letters of credit, a surety bond, guaranties or similar
instruments or other agreements.
Each Series of Securities will be issued in one or more classes. Each
class of Securities of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Trust Fund Assets in the related Trust Fund. A Series of
Securities may include one or more classes that are senior in right to payment
to one or more other classes of Securities of such Series. One or more classes
of Securities of a Series may be entitled to receive distributions of
principal, interest or any combination thereof. Distributions on one or more
classes of a Series of Securities may be made prior to one or more other
classes, after the occurrence of specified events, in accordance with a
schedule or formula, on the basis of collections from designated portions of
the Trust Fund Assets in the related Trust Fund or on a different basis, in
each case as specified in the related Prospectus Supplement. The timing and
amounts of such distributions may vary among classes or over time as specified
in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the Trustee
on each Distribution Date (i.e., monthly or at such other intervals and on the
dates as are specified in the Prospectus Supplement) in proportion to the
percentages specified in the related Prospectus Supplement. Distributions will
be made to the persons in whose names the Securities are registered at the
close of business on the dates specified in the related Prospectus Supplement
(each, a "Record Date"). Distributions will be made in the manner specified in
the Prospectus Supplement to the persons entitled thereto at the address
appearing in the register maintained for holders of Securities (the "Security
Register"); provided, however, that the final distribution in retirement of
the Securities will be made only upon presentation and surrender of the
Securities at the office or agency of the Trustee or other person specified in
the notice to Securityholders of such final distribution.
The Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding of a class of Securities
entitled only to a specified percentage of payments of either interest or
principal or a notional amount of other interest or principal on the related
Loans or a class of Securities entitled to receive payments of interest and
principal on the Loans only after payments to other classes or after the
occurrence of certain specified events by or on behalf of any employee benefit
plan or other retirement arrangement (including individual retirement accounts
and annuities, Keogh plans and collective investment funds in which such
plans, accounts or arrangements are invested) subject to provisions of ERISA
or the Code may result in prohibited transactions within the meaning of ERISA
and the Code. See "ERISA Considerations". Unless otherwise specified in the
related Prospectus Supplement, the transfer of Securities of such a class will
not be registered unless the transferee (i) represents that it is not, and is
not purchasing on behalf of, any such plan, account or arrangement or (ii)
provides an opinion of counsel satisfactory to the Trustee and the Depositor
that the purchase of Securities of such a class by or on behalf of such plan,
account or arrangement is permissible under applicable law and will not
subject the Trustee, the Master Servicer or the Depositor to any obligation or
liability in addition to those undertaken in the Agreements.
As to each Series, an election may be made to treat the related Trust
Fund or designated portions thereof as a "real estate mortgage investment
conduit" or "REMIC" as defined in the Code. The related Prospectus Supplement
will specify whether a REMIC election is to be made. Alternatively, the
Agreement for a Series may provide that a REMIC election may be made at the
discretion of the Depositor or the Master Servicer and may only be made if
certain conditions are satisfied. As to any such Series, the terms and
provisions applicable to the making of a REMIC election, as well as any
material federal income tax consequences to Securityholders not otherwise
described herein, will be set forth in the related Prospectus Supplement. If
such an election is made with respect to a Series, one of the classes will be
designated as evidencing the sole class of "residual interests" in the related
REMIC, as defined in the Code. All other classes of Securities in such a
Series will constitute "regular interests" in the related REMIC, as defined in
the Code. As to each Series with respect to which a REMIC election is to be
made, the Master Servicer or a holder of the related residual certificate will
be obligated to take all actions required in order to comply with applicable
laws and regulations and will be obligated to pay any prohibited transaction
taxes. The Master Servicer, to the extent set forth in the related Prospectus
Supplement, will be entitled to reimbursement for any such payment from the
assets of the Trust Fund or from any holder of the related residual
certificate.
Distributions on Securities
General. In general, the method of determining the amount of
distributions on a particular Series of Securities will depend on the type of
credit support, if any, that is used with respect to such Series. See "Credit
Enhancement" herein. Set forth below are descriptions of various methods that
may be used to determine the amount of distributions on the Securities of a
particular Series. The Prospectus Supplement for each Series of Securities
will describe the method to be used in determining the amount of distributions
on the Securities of such Series.
Distributions allocable to principal and interest on the Securities
will be made by the Trustee out of, and only to the extent of, funds in the
related Security Account, including any funds transferred from any Reserve
Account (a "Reserve Account"). As between Securities of different classes and
as between distributions of principal (and, if applicable, between
distributions of Principal Prepayments, as defined below, and scheduled
payments of principal) and interest, distributions made on any Distribution
Date will be applied as specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the distributions to
any class of Securities will be made pro rata to all Securityholders of that
class.
Available Funds. All distributions on the Securities of each Series
on each Distribution Date will be made from the Available Funds described
below, in accordance with the terms described in the related Prospectus
Supplement and specified in the Agreement. Unless otherwise provided in the
related Prospectus Supplement, "Available Funds" for each Distribution Date
will equal the sum of the following amounts:
(i) the aggregate of all previously undistributed payments on
account of principal (including Principal Prepayments, if any,
and prepayment penalties, if so provided in the related
Prospectus Supplement) and interest on the Loans in the related
Trust Fund (including Liquidation Proceeds and Insurance
Proceeds and amounts drawn under letters of credit or other
credit enhancement instruments as permitted thereunder and as
specified in the related Agreement) received by the Master
Servicer after the Cut-off Date and on or prior to the day of
the month of the related Distribution Date specified in the
related Prospectus Supplement (the "Determination Date") except
(a) all payments which were due on or before the
Cut-off Date;
(b) all Liquidation Proceeds and all Insurance
Proceeds, all Principal Prepayments and all other proceeds
of any Loan purchased by the Depositor, Master Servicer,
any Sub-Servicer or any Seller pursuant to the Agreement
that were received after the prepayment period specified in
the related Prospectus Supplement and all related payments
of interest representing interest for any period after the
interest accrual period;
(c) all scheduled payments of principal and interest
due on a date or dates subsequent to the Due Period
relating to such Distribution Date;
(d) amounts received on particular Loans as late
payments of principal or interest or other amounts required
to be paid by borrowers, but only to the extent of any
unreimbursed advance in respect thereof made by the Master
Servicer (including the related Sub-Servicers, Support
Servicers or the Trustee);
(e) amounts representing reimbursement, to the extent
permitted by the Agreement and as described under
"Advances" below, for advances made by the Master
Servicer, Sub-Servicers (as defined below), Support
Servicers or the Trustee that were deposited into the
Security Account, and amounts representing reimbursement
for certain other losses and expenses incurred by the
Master Servicer or the Depositor and described below;
(f) that portion of each collection of interest on a
particular Loan in such Trust Fund which represents
servicing compensation payable to the Master Servicer or
Retained Interest which is to be retained from such
collection or is permitted to be retained from related
Insurance Proceeds, Liquidation Proceeds or proceeds of
Loans purchased pursuant to the Agreement;
(ii) the amount of any advance made by the Master Servicer, Sub
Servicer, Support Servicer or Trustee as described under
"--Advances" below and deposited by it in the Security Account;
(iii) if applicable, amounts withdrawn from a Reserve Account;
(iv) if applicable, amounts provided under a letter of credit,
insurance policy, surety bond or other third-party guaranties;
and
(v) if applicable, the amount of prepayment interest shortfall.
Distributions of Interest. Unless otherwise specified in the related
Prospectus Supplement, interest will accrue on the aggregate Security
Principal Balance (or, in the case of Securities (i) entitled only to
distributions allocable to interest, the aggregate notional principal balance
or (ii) which, under certain circumstances, allow for the accrual of interest
otherwise scheduled for payment to remain unpaid until the occurrence of
certain events specified in the related Prospectus Supplement) of each class
of Securities entitled to interest from the date, at the Pass-Through Rate
(which may be a fixed rate or rate adjustable as specified in such Prospectus
Supplement) and for the periods specified in such Prospectus Supplement. To
the extent funds are available therefor, interest accrued during each such
specified period on each class of Securities entitled to interest (other than
a class of Securities that provides for interest that accrues, but is not
currently payable, referred to hereafter as "Accrual Securities") will be
distributable on the Distribution Dates specified in the related Prospectus
Supplement until the aggregate Security Principal Balance of the Securities of
such class has been distributed in full or, in the case of Securities entitled
only to distributions allocable to interest, until the aggregate notional
principal balance of such Securities is reduced to zero or for the period of
time designated in the related Prospectus Supplement. The original Security
Principal Balance of each Security will equal the aggregate distributions
allocable to principal to which such Security is entitled. Unless otherwise
specified in the related Prospectus Supplement, distributions allocable to
interest on each Security that is not entitled to distributions allocable to
principal will be calculated based on the notional principal balance of such
Security. The notional principal balance of a Security will not evidence an
interest in or entitlement to distributions allocable to principal but will be
used solely for convenience in expressing the calculation of interest and for
certain other purposes.
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two
or more days prior to a Distribution Date, the effective yield to
Securityholders will be reduced from the yield that would otherwise be
obtainable if interest payable on the Security were to accrue through the day
immediately preceding each Distribution Date, and the effective yield (at par)
to Securityholders will be less than the indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid
on a given Distribution Date will be added to the aggregate Security Principal
Balance of such class of Securities on that Distribution Date. Distributions
of interest on any class of Accrual Securities will commence only after the
occurrence of the events specified in the related Prospectus Supplement. Prior
to such time, the beneficial ownership interest of such class of Accrual
Securities in the Trust Fund, as reflected in the aggregate Security Principal
Balance of such class of Accrual Securities, will increase on each
Distribution Date by the amount of interest that accrued on such class of
Accrual Securities during the preceding interest accrual period but that was
not required to be distributed to such class on such Distribution Date. Any
such class of Accrual Securities will thereafter accrue interest on its
outstanding Security Principal Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will
specify the method by which the amount of principal to be distributed on the
Securities on each Distribution Date will be calculated and the manner in
which such amount will be allocated among the classes of Securities entitled
to distributions of principal. The aggregate Security Principal Balance of any
class of Securities entitled to distributions of principal generally will be
the aggregate original Security Principal Balance of such class of Securities
specified in such Prospectus Supplement, reduced by all distributions reported
to the holders of such Securities as allocable to principal and, (i) in the
case of Accrual Securities, increased by all interest accrued but not then
distributable on such Accrual Securities and (ii) in the case of adjustable
rate Securities, subject to the effect of negative amortization, if
applicable.
If so provided in the related Prospectus Supplement, one or more
classes of Securities will be entitled to receive all or a disproportionate
percentage of the payments of principal which are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or
for the periods specified in such Prospectus Supplement. Any such allocation
of Principal Prepayments to such class or classes of Securityholders will have
the effect of accelerating the amortization of such Securities while
increasing the interests evidenced by other Securities in the Trust Fund.
Increasing the interests of the other Securities relative to that of certain
Securities allocated by the principal prepayments is intended to preserve the
availability of the subordination provided by such other Securities. See
"Credit Enhancement--Subordination".
Unscheduled Distributions. The Securities will be subject to receipt
of distributions before the next scheduled Distribution Date under the
circumstances and in the manner described below and in such Prospectus
Supplement. If applicable, the Trustee will be required to make such
unscheduled distributions on the day and in the amount specified in the
related Prospectus Supplement if, due to substantial payments of principal
(including Principal Prepayments) on the Trust Fund Assets, the Trustee or the
Master Servicer determines that the funds available or anticipated to be
available from the Security Account and, if applicable, any Reserve Account,
may be insufficient to make required distributions on the Securities on such
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the amount of any such unscheduled distribution that is allocable
to principal will not exceed the amount that would otherwise have been
required to be distributed as principal on the Securities on the next
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the unscheduled distributions will include interest at the
applicable Pass-Through Rate (if any) on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified
in such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
Securities would have been made on the next Distribution Date, and with
respect to Securities of the same class, unscheduled distributions of
principal will be made on the same basis as such distributions would have been
made on the next Distribution Date on a pro rata basis. Notice of any
unscheduled distribution will be given by the Trustee prior to the date of
such distribution.
Advances
To the extent provided in the related Prospectus Supplement, the
Master Servicer will be required to advance on or before each Distribution
Date (from its own funds, funds advanced by Sub-Servicers or Support Servicers
or funds held in the Security Account for future distributions to the holders
of such Securities), an amount equal to the aggregate of payments of interest
and/or principal that were delinquent on the related Determination Date and
were not advanced by any Sub-Servicer, subject to the Master Servicer's
determination that such advances will be recoverable out of late payments by
borrowers, Liquidation Proceeds, Insurance Proceeds or otherwise. In addition,
to the extent provided in the related Prospectus Supplement, a cash account
may be established to provide for Advances to be made in the event of certain
Trust Fund Assets payment defaults or collection shortfalls.
In making Advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to holders of the
Securities, rather than to guarantee or insure against losses. If Advances are
made by the Master Servicer from cash being held for future distribution to
Securityholders, the Master Servicer will replace such funds on or before any
future Distribution Date to the extent that funds in the applicable Security
Account on such Distribution Date would be less than the amount required to be
available for distributions to Securityholders on such date. Any Master
Servicer funds advanced will be reimbursable to the Master Servicer out of
recoveries on the specific Loans with respect to which such Advances were made
(e.g., late payments made by the related borrower, any related Insurance
Proceeds, Liquidation Proceeds or proceeds of any Loan purchased by a
Sub-Servicer or a Seller under the circumstances described hereinabove).
Advances by the Master Servicer (and any advances by a Sub-Servicer or a
Support Servicer) also will be reimbursable to the Master Servicer (or
Sub-Servicer or a Support Servicer) from cash otherwise distributable to
Securityholders (including the holders of Senior Securities) to the extent
that the Master Servicer determines that any such Advances previously made are
not ultimately recoverable as described above. To the extent provided in the
related Prospectus Supplement, the Master Servicer also will be obligated to
make Advances, to the extent recoverable out of Insurance Proceeds,
Liquidation Proceeds or otherwise, in respect of certain taxes and insurance
premiums not paid by borrowers on a timely basis. Funds so advanced are
reimbursable to the Master Servicer to the extent permitted by the Agreement.
The obligations of the Master Servicer to make advances may be supported by a
cash advance reserve fund, a surety bond or other arrangement, in each case as
described in such Prospectus Supplement.
The Master Servicer or Sub-Servicer may enter into an agreement (a
"Support Agreement") with a support servicer (each, a "Support Servicer")
pursuant to which the Support Servicer agrees to provide funds on behalf of
the Master Servicer or Sub-Servicer in connection with the obligation of the
Master Servicer or Sub-Servicer, as the case may be, to make Advances. The
Support Agreement will be delivered to the Trustee and the Trustee will be
authorized to accept a substitute Support Agreement in exchange for an
original Support Agreement, provided that such substitution of the Support
Agreement will not adversely affect the rating or ratings then in effect on
the Securities.
Unless otherwise specified in the related Prospectus Supplement, in
the event the Master Servicer, a Sub-Servicer or a Support Servicer fails to
make a required Advance, the Trustee will be obligated to make such Advance in
its capacity as successor servicer. If the Trustee makes such an Advance, it
will be entitled to be reimbursed for such Advance to the same extent and
degree as the Master Servicer, a Sub-Servicer or a Support Servicer is
entitled to be reimbursed for Advances. See "Description of the
Securities--Distributions on Securities" herein.
Compensating Interest
If so specified in the related Prospectus Supplement, the Master
Servicer will be required to remit to the Trustee, with respect to each Loan
in the related Trust Fund as to which a principal prepayment in full or a
principal payment which is in excess of the scheduled monthly payment and is
not intended to cure a delinquency was received during any Due Period, an
amount, from and to the extent of amounts otherwise payable to the Master
Servicer as servicing compensation, equal to the excess, if any, of (a) 30
days' interest on the principal balance of the related Loan at the Loan Rate
net of the per annum rate at which the Master Servicer's servicing fee
accrues, over (b) the amount of interest actually received on such Loan during
such Due Period, net of the Master Servicer's servicing fee.
Reports to Securityholders
Prior to or concurrently with each distribution on a Distribution
Date, the Master Servicer or the Trustee will furnish to each Securityholder
of record of the related Series a statement setting forth, to the extent
applicable to such Series of Securities, among other things:
(i) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal
Prepayments and any applicable prepayment penalties included
therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the
Subordinated Securityholders on such Distribution Date, and (b)
withdrawn from the Reserve Fund, if any, that is included in the
amounts distributed to the Senior Securityholders;
(v) the outstanding principal balance or notional principal
balance of such class after giving effect to the distribution
of principal on such Distribution Date;
(vi) the percentage of principal payments on the Loans
(excluding prepayments), if any, which such class will be
entitled to receive on the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Loans, if
any, which such class will be entitled to receive on the
following Distribution Date;
(viii) the related amount of the servicing compensation
retained or withdrawn from the Security Account by the Master
Servicer, and the amount of additional servicing compensation
received by the Master Servicer attributable to penalties,
fees, excess Liquidation Proceeds and other similar charges and
items;
(ix) the number and aggregate principal balances of Loans (A)
delinquent (exclusive of Loans in foreclosure) (1) 31 to 60
days, (2) 61 to 90 days and (3) 91 or more days and (B) in
foreclosure and delinquent (1) 31 to 60 days, (2) 61 to 90 days
and (3) 91 or more days, as of the close of business on the
last day of the calendar month preceding such Distribution
Date;
(x) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xi) if a class is entitled only to a specified portion of
payments of interest on the Loans in the related Pool, the
Pass-Through Rate, if adjusted from the date of the last
statement, of the Loans expected to be applicable to the next
distribution to such class;
(xii) if applicable, the amount remaining in any Reserve
Account at the close of business on the Distribution Date;
(xiii) the Pass-Through Rate as of the day prior to the
immediately preceding Distribution Date;and
(xiv) any amounts remaining under letters of credit, pool
policies or other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single Security of the relevant class having the Percentage
Interest specified in the related Prospectus Supplement. The report to
Securityholders for any Series of Securities may include additional or other
information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record
during a portion of such calendar year, for the applicable portion of such
year and (b) such other customary information as may be deemed necessary or
desirable for Securityholders to prepare their tax returns.
Book-Entry Registration of Securities
As described in the Prospectus Supplement, if not issued in fully
registered form, each class of Securities will be registered as book-entry
certificates (the "Book-Entry Securities"). Persons acquiring beneficial
ownership interests in the Securities ("Security Owners") will hold their
Securities through the Depository Trust Company ("DTC") in the United States,
or Cedel Bank ("CEDEL") or the Euroclear System ("Euroclear") (in Europe) if
they are participants ("Participants") of such systems, or indirectly through
organizations which are Participants in such systems. The Book-Entry
Securities will be issued in one or more certificates which equal the
aggregate principal balance of the Securities and will initially be registered
in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear will hold
omnibus positions on behalf of their Participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank,
N.A. will act as depositary for CEDEL and The Chase Manhattan Bank will act as
depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries"). Except as described
below, no Security Owner will be entitled to receive a physical certificate
representing such Security (a "Definitive Security"). Unless and until
Definitive Securities are issued, it is anticipated that the only
"Securityholders" of the Securities will be Cede & Co. ("Cede"), as nominee of
DTC. Security Owners are only permitted to exercise their rights indirectly
through Participants and DTC.
The Security Owner's ownership of a Book-Entry Security will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the Security Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the Security Owner's Financial Intermediary is not a Participant
and on the records of CEDEL or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Securities from the Trustee through DTC and Participants.
While the Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and
is required to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and indirect participants with whom
Security Owners have accounts with respect to Securities are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Security Owners. Accordingly,
although Security Owners will not possess certificates, the Rules provide a
mechanism by which Security Owners will receive distributions and will be able
to transfer their interest.
Security Owners will not receive or be entitled to receive
certificates representing their respective interests in the Securities, except
under the limited circumstances described below. Unless and until Definitive
Securities are issued, Security Owners who are not Participants may transfer
ownership of Securities only through Participants and indirect participants by
instructing such Participants and indirect participants to transfer
Securities, by book-entry transfer, through DTC for the account of the
purchasers of such Securities, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of Securities will be executed through DTC
and the accounts of the respective Participants at DTC will be debited and
credited. Similarly, the Participants and indirect participants will make
debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Security Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Euroclear or CEDEL Participants on such business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant (as defined herein) or Euroclear Participant (as defined herein)
to a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant CEDEL or Euroclear cash account only as
of the business day following settlement in DTC.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may be settled in any of 32 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan, under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations
are conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which
is a member bank of the Federal Reserve System. As such, it is regulated and
examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are
governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within Euroclear, withdrawals of
securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants, and has no record of or relationship
with persons holding through Euroclear Participants.
Under a book-entry format, beneficial owners of the Book-Entry
Securities may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect
to Securities held through CEDEL or Euroclear will be credited to the cash
accounts of CEDEL Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "Certain
Material Federal Income Tax Considerations--Tax Treatment of Foreign
Investors" and "--Tax Consequences to Holders of the Notes--Backup
Withholding" herein. Because DTC can only act on behalf of Financial
Intermediaries, the ability of a beneficial owner to pledge Book-Entry
Securities to persons or entities that do not participate in the Depository
system, or otherwise take actions in respect of such Book-Entry Securities,
may be limited due to the lack of physical certificates for such Book-Entry
Securities. In addition, issuance of the Book-Entry Securities in book-entry
form may reduce the liquidity of such Securities in the secondary market since
certain potential investors may be unwilling to purchase Securities for which
they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede, as
nominee of DTC, and may be made available by Cede to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Securities of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Securities are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Securities under the applicable Agreement only at
the direction of one or more Financial Intermediaries to whose DTC accounts
the Book-Entry Securities are credited, to the extent that such actions are
taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Securities. CEDEL or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Securityholder under the
Agreement on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability
of the Relevant Depositary to effect such actions on its behalf through DTC.
DTC may take actions, at the direction of the related Participants, with
respect to some Securities which conflict with actions taken with respect to
other Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
None of the Servicer, the Depositor or the Trustee will have any
responsibility for any aspect of the records relating, to or payments made on
account of beneficial ownership interests of the Book-Entry Securities held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or more
classes of a Series of Securities or with respect to the Trust Fund Assets in
the related Trust Fund. Credit enhancement may be in the form of a limited
financial guaranty policy issued by an entity named in the related Prospectus
Supplement, the subordination of one or more classes of the Securities of such
Series, the establishment of one or more Reserve Accounts, the use of a
cross-support feature, use of a mortgage pool insurance policy, FHA Insurance,
VA Guarantee, bankruptcy bond, special hazard insurance policy, surety bond,
letter of credit, guaranteed investment contract or another method of credit
enhancement described in the related Prospectus Supplement, or any combination
of the foregoing. Unless otherwise specified in the related Prospectus
Supplement, credit enhancement will not provide protection against all risks
of loss and will not guarantee repayment of the entire principal balance of
the Securities and interest thereon. If losses occur which exceed the amount
covered be credit enhancement or which are not covered by the credit
enhancement, Securityholders will bear their allocable share of deficiencies.
Subordination
Protection afforded to holders of one or more classes of Securities
of a Series by means of the subordination feature may be accomplished by the
preferential right of holders of one or more other classes of such Series (the
"Senior Securities") to distributions in respect of scheduled principal,
Principal Prepayments, interest or any combination thereof that otherwise
would have been payable to holders of Subordinated Securities under the
circumstances and to the extent specified in the related Prospectus
Supplement. Protection may also be afforded to the holders of Senior
Securities of a Series by: (i) reducing the ownership interest of the related
Subordinated Securities; (ii) a combination of the immediately preceding
sentence and clause (i) above; or (iii) as otherwise described in the related
Prospectus Supplement. Delays in receipt of scheduled payments on the Loans
and losses on defaulted Loans may be borne first by the various classes of
Subordinated Securities and thereafter by the various classes of Senior
Securities, in each case under the circumstances and subject to the
limitations specified in such related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Loans over the lives of
the Securities or at any time, the aggregate losses in respect of defaulted
Loans which must be borne by the Subordinated Securities by virtue of
subordination and the amount of the distributions otherwise distributable to
the Subordinated Securityholders that will be distributable to Senior
Securityholders on any Distribution Date may be limited as specified in the
related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Loans or aggregate losses in respect of such Loans
were to exceed an amount specified in the related Prospectus Supplement,
holders of Senior Securities would experience losses on the Securities.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of Subordinated Securities on any Distribution Date may
instead be deposited into one or more Reserve Accounts established with the
Trustee or distributed to holders of Senior Securities. Such deposits may be
made on each Distribution Date, for specified periods or until the balance in
the Reserve Account has reached a specified amount and, following payments
from the Reserve Account to holders of Senior Securities or otherwise,
thereafter to the extent necessary to restore the balance in the Reserve
Account to required levels, in each case as specified in the related
Prospectus Supplement. Amounts on deposit in the Reserve Account may be
released to the holders of certain classes of Securities at the times and
under the circumstances specified in such Prospectus Supplement.
Various classes of Senior Securities and Subordinated Securities may
themselves be subordinate in their right to receive certain distributions to
other classes of Senior and Subordinated Securities, respectively, through a
cross support mechanism or otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related Prospectus
Supplement. As between classes of Subordinated Securities, payments to holders
of Senior Securities on account of delinquencies or losses and payments to any
Reserve Account will be allocated as specified in the related Prospectus
Supplement.
Special Hazard Insurance Policies
A separate special hazard insurance policy (each, a "Special Hazard
Insurance Policy") may be obtained for the Pool and issued by the insurer (the
"Special Hazard Insurer") named in the related Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to limitations described below,
protect holders of the related Securities from (i) loss by reason of damage to
Properties caused by certain hazards (including earthquakes and, to a limited
extent, tidal waves and related water damage or as otherwise specified in the
related Prospectus Supplement) not insured against under the standard form of
hazard insurance policy for the respective states in which the Properties are
located or under a flood insurance policy if the Property is located in a
federally designated flood area, and (ii) loss caused by reason of the
application of the coinsurance clause contained in hazard insurance policies.
See "The Agreements--Hazard Insurance". Each Special Hazard Insurance Policy
will not cover losses occasioned by fraud or conversion by the Trustee or
Master Servicer, war, insurrection, civil war, certain governmental action,
errors in design, faulty workmanship or materials (except under certain
circumstances), nuclear or chemical reactions, flood (if the Property is
located in a federally designated flood area), nuclear or chemical
contamination and certain other risks. The amount of coverage under any
Special Hazard Insurance Policy will be specified in the related Prospectus
Supplement. Each Special Hazard Insurance Policy will provide that no claim
may be paid unless hazard and, if applicable, flood insurance on the Property
securing the Loan have been kept in force and other protection and
preservation expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified
in the related Prospectus Supplement, each Special Hazard Insurance Policy
will provide that where there has been damage to Property securing a
foreclosed Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the borrower or the Master Servicer,
the Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the Property to the
Special Hazard Insurer, the unpaid principal balance of such Loan at the time
of acquisition of such Property by foreclosure or deed in lieu of foreclosure,
plus accrued interest to the date of claim settlement and certain expenses
incurred by the Master Servicer with respect to such Property. If the unpaid
principal balance of a Loan plus accrued interest and certain expenses is paid
by the Special Hazard Insurer, the amount of further coverage under the
related Special Hazard Insurance Policy will be reduced by such amount less
any net proceeds from the sale of the Property. Any amount paid as the cost of
repair of the Property will further reduce coverage by such amount.
The Master Servicer may deposit cash, an irrevocable letter of credit
or any other instrument acceptable to each Rating Agency rating the Securities
of the related Series in a special trust account to provide protection in lieu
of or in addition to that provided by a Special Hazard Insurance Policy. The
amount of any Special Hazard Insurance Policy or of the deposit to the special
trust account relating to such Securities in lieu thereof may be reduced so
long as any such reduction will not result in a downgrading of the rating of
such Securities by any such Rating Agency.
Bankruptcy Bonds
A bankruptcy bond ("Bankruptcy Bond") for proceedings under the
federal Bankruptcy Code may be issued by an insurer named in such Prospectus
Supplement. Each Bankruptcy Bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal and
interest on a Loan or a reduction by such court of the principal amount of a
Loan and will cover certain unpaid interest on the amount of such a principal
reduction from the date of the filing of a bankruptcy petition. The required
amount of coverage under each Bankruptcy Bond will be set forth in the related
Prospectus Supplement. The Master Servicer may deposit cash, an irrevocable
letter of credit or any other instrument acceptable to each Rating Agency
rating the Securities of the related Series in a special trust account to
provide protection in lieu of or in addition to that provided by a Bankruptcy
Bond. Coverage under a Bankruptcy Bond may be cancelled or reduced by the
Master Servicer if such cancellation or reduction would not adversely affect
the then current rating or ratings of the related Securities. See "Certain
Legal Aspects of the Loans--Anti-Deficiency Legislation and Other Limitations
on Lenders".
Reserve Accounts
Credit support with respect to a Series of Securities may be provided
by the establishment and maintenance with the Trustee for such Series of
Securities, in trust, of one or more Reserve Accounts for such Series. The
related Prospectus Supplement will specify whether or not any such Reserve
Accounts will be included in the Trust Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit
therein of cash, United States Treasury securities, instruments evidencing
ownership of principal or interest payments thereon, letters of credit, demand
notes, certificates of deposit or a combination thereof in the aggregate
amount specified in the related Prospectus Supplement, (ii) by the deposit
therein from time to time of certain amounts, as specified in the related
Prospectus Supplement to which the Subordinate Securityholders, if any, would
otherwise be entitled or (iii) in such other manner as may be specified in the
related Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
Permitted Investments which may include obligations of the United States and
certain agencies thereof, certificates of deposit, certain commercial paper,
time deposits and bankers acceptances sold by eligible commercial banks and
certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the
Trustee, such letter of credit will be irrevocable. Any instrument deposited
therein will name the Trustee, in its capacity as trustee for the holders of
the Securities, as beneficiary and will be issued by an entity acceptable to
each Rating Agency that rates the Securities. Additional information with
respect to such instruments deposited in the Reserve Accounts will be set
forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited
will be available for withdrawal from the Reserve Account for distribution to
the holders of Securities for the purposes, in the manner and at the times
specified in the related Prospectus Supplement.
Pool Insurance Policies
A separate pool insurance policy ("Pool Insurance Policy") may be
obtained for the Pool and issued by the insurer (the "Pool Insurer") named in
the related Prospectus Supplement. Each Pool Insurance Policy will, subject to
the limitations described below, cover loss by reason of default in payment on
Loans in the Pool in an amount equal to a percentage specified in such
Prospectus Supplement of the aggregate principal balance of such Loans on the
Cut-off Date which are not covered as to their entire outstanding principal
balances by Primary Mortgage Insurance Policies. As more fully described
below, the Master Servicer will present claims thereunder to the Pool Insurer
on behalf of itself, the Trustee and the holders of the Securities. The Pool
Insurance Policies, however, are not blanket policies against loss, since
claims thereunder may only be made respecting particular defaulted Loans and
only upon satisfaction of certain conditions precedent described below. Unless
otherwise specified in the related Prospectus Supplement, the Pool Insurance
Policies will not cover losses due to a failure to pay or denial of a claim
under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy will provide that no claims may be validly presented
unless (i) any required Primary Mortgage Insurance Policy is in effect for the
defaulted Loan and a claim thereunder has been submitted and settled; (ii)
hazard insurance on the related Property has been kept in force and real
estate taxes and other protection and preservation expenses have been paid;
(iii) if there has been physical loss or damage to the Property, it has been
restored to its physical condition (reasonable wear and tear excepted) at the
time of issuance of the policy; and (iv) the insured has acquired good and
merchantable title to the Property free and clear of liens except certain
permitted encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property securing the
defaulted Loan at a price equal to the principal balance thereof plus accrued
and unpaid interest at the Loan Rate to the date of purchase and certain
expenses incurred by the Master Servicer on behalf of the Trustee and
Securityholders, or (b) to pay the amount by which the sum of the principal
balance of the defaulted Loan plus accrued and unpaid interest at the Loan
Rate to the date of payment of the claim and the aforementioned expenses
exceeds the proceeds received from an approved sale of the Property, in either
case net of certain amounts paid or assumed to have been paid under the
related Primary Mortgage Insurance Policy. If any Property securing a
defaulted Loan is damaged and proceeds, if any, from the related hazard
insurance policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the damaged Property to a condition sufficient to
permit recovery under the Pool Insurance Policy, the Master Servicer will not
be required to expend its own funds to restore the damaged Property unless it
determines that (i) such restoration will increase the proceeds to
securityholders on liquidation of the Loan after reimbursement of the Master
Servicer for its expenses and (ii) such expenses will be recoverable by it
through proceeds of the sale of the Property or proceeds of the related Pool
Insurance Policy or any related Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy will not insure (and many Primary Mortgage Insurance
Policies do not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Loan, including misrepresentation by the borrower, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Property in accordance with plans and specifications. A failure of
coverage attributable to one of the foregoing events might result in a breach
of the related Seller's representations described above, and, in such events
might give rise to an obligation on the part of such Seller to purchase the
defaulted Loan if the breach cannot be cured by such Seller. No Pool Insurance
Policy will cover (and many Primary Mortgage Insurance Policies do not cover)
a claim in respect of a defaulted Loan occurring when the servicer of such
Loan, at the time of default or thereafter, was not approved by the applicable
insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Securities by the aggregate dollar amount of
claims paid less the aggregate of the net amounts realized by the Pool Insurer
upon disposition of all foreclosed properties. The amount of claims paid may
include certain expenses incurred by the Master Servicer as well as accrued
interest on delinquent Loans to the date of payment of the claim. Accordingly,
if aggregate net claims paid under any Pool Insurance Policy reach the
original policy limit, coverage under that Pool Insurance Policy will be
exhausted and any further losses will be borne by the Securityholders.
FHA Insurance; VA Guarantees
Loans designated in the related Prospectus Supplement as insured by
the FHA will be insured by the FHA as authorized under the United States
Housing Act of 1934, as amended. In addition to the Title I Program of the FHA
(see "Certain Legal Aspects of the Loans -- The Title I Program" herein),
certain Loans will be insured under various FHA programs which generally limit
the principal amount and interest rates of the mortgage loans insured.
The insurance premiums for Loans insured by the FHA are collected by
lenders approved by the Department of Housing and Urban Development ("HUD") or
by the Master Servicer or any Sub-Servicer and are paid to the FHA. The
regulations governing FHA single-family mortgage insurance programs provide
that insurance benefits are payable either upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged premises to the
United States of America or upon assignment of the defaulted Loan to the
United States of America. With respect to a defaulted FHA-insured Loan, the
Master Servicer or any Sub-Servicer is limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Master Servicer
or any Sub-Servicer or HUD, that default was caused by circumstances beyond
the mortgagor's control, the Master Servicer or any Sub-Servicer is expected
to make an effort to avoid foreclosure by entering, if feasible, into one of a
number of available forms of forbearance plans with the mortgagor. Such plans
may involve the reduction or suspension of regular mortgage payments for a
specified period, with such payments to be made upon or before the maturity
date of the mortgage, or the recasting of payments due under the mortgage up
to or, other than Loans originated under the Title I Program of the FHA,
beyond the maturity date. In addition, when a default caused by such
circumstances is accompanied by certain other criteria, HUD may provide relief
by making payments to the Master Servicer or any Sub-Servicer in partial or
full satisfaction of amounts due under the Loan (which payments are to be
repaid by the mortgagor to HUD) or by accepting assignment of the loan from
the Master Servicer or any Sub-Servicer. With certain exceptions, at least
three full monthly installments must be due and unpaid under the Loan, and HUD
must have rejected any request for relief from the mortgagor before the Master
Servicer or any Sub-Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Currently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures interest rate. The Master Servicer or any Sub-Servicer of each
FHA-insured Single Family Loan will be obligated to purchase any such
debenture issued in satisfaction of such Loan upon default for an amount equal
to the principal amount of any such debenture.
Other than in relation to the Title I Program of the FHA, the amount
of insurance benefits generally paid by the FHA is equal to the entire unpaid
principal amount of the defaulted Loan adjusted to reimburse the Master
Servicer or Sub-Servicer for certain costs and expenses and to deduct certain
amounts received or retained by the Master Servicer or Sub-Servicer after
default. When entitlement to insurance benefits results from foreclosure (or
other acquisition of possession) and conveyance to HUD, the Master Servicer or
Sub-Servicer is compensated for no more than two-thirds of its foreclosure
costs, and is compensated for interest accrued and unpaid prior to such date
but in general only to the extent it was allowed pursuant to a forbearance
plan approved by HUD. When entitlement to insurance benefits results from
assignment of the Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Loan, bears
interest from a date 30 days after the borrower's first uncorrected failure to
perform any obligation to make any payment due under the mortgage and, upon
assignment, from the date of assignment to the date of payment of the claim,
in each case at the same interest rate as the applicable HUD debenture
interest rate as described above.
Loans designated in the related Prospectus Supplement as guaranteed
by the VA will be partially guaranteed by the VA under the Serviceman's
Readjustment Act of 1944, as amended (a "VA Guaranty Policy"). The
Serviceman's Readjustment Act of 1944, as amended, permits a veteran (or in
certain instances the spouse of a veteran) to obtain a mortgage loan guarantee
by the VA covering mortgage financing of the purchase of a one- to four-family
dwelling unit at interest rates permitted by the VA. The program has no
mortgage loan limits, requires no down payment from the purchaser and permits
the guarantee of mortgage loans of up to 30 years' duration. However, no Loan
guaranteed by the VA will have an original principal amount greater than five
times the partial VA guarantee for such Loan.
The maximum guarantee that may be issued by the VA under a VA
guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 United States Code Section 1803(a),
as amended. As of November 1, 1998, the maximum guarantee that may be issued
by the VA under a VA guaranteed mortgage loan of more than $144,000 is the
lesser of 25% of the original principal amount of the mortgage loan and
$50,750. The liability on the guarantee is reduced or increased pro rata with
any reduction or increase in the amount of indebtedness, but in no event will
the amount payable on the guarantee exceed the amount of the original
guarantee. The VA may, at its option and without regard to the guarantee, make
full payment to a mortgage holder of unsatisfied indebtedness on a mortgage
upon its assignment to the VA.
With respect to a defaulted VA guaranteed Loan, the Master Servicer
or Sub-Servicer is, absent exceptional circumstances, authorized to announce
its intention to foreclose only when the default has continued for three
months. Generally, a claim for the guarantee is submitted after liquidation of
the Property.
The amount payable under the guarantee will be the percentage of the
VA-insured Loan originally guaranteed applied to indebtedness outstanding as
of the applicable date of computation specified in the VA regulations.
Payments under the guarantee will be equal to the unpaid principal amount of
the Loan, interest accrued on the unpaid balance of the Loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been recovered through
liquidation of the Property. The amount payable under the guarantee may in no
event exceed the amount of the original guarantee.
Cross-Support
The beneficial ownership of separate groups of assets included in a
Trust Fund may be evidenced by separate classes of the related Series of
Securities. In such case, credit support may be provided by a cross-support
feature which requires that distributions be made with respect to Securities
evidencing a beneficial ownership interest in, or secured by, other asset
groups within the same Trust Fund. The related Prospectus Supplement for a
Series which includes a cross-support feature will describe the manner and
conditions for applying such cross-support feature.
The coverage provided by one or more forms of credit support may
apply concurrently to two or more related Trust Funds. If applicable, the
related Prospectus Supplement will identify the Trust Funds to which such
credit support relates and the manner of determining the amount of the
coverage provided thereby and of the application of such coverage to the
identified Trust Funds.
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar
Instruments or Agreements
A Trust Fund may also include insurance, guaranties, surety bonds,
letters of credit or similar arrangements for the purpose of (i) maintaining
timely payments or providing additional protection against losses on the
assets included in such Trust Fund, (ii) paying administrative expenses or
(iii) establishing a minimum reinvestment rate on the payments made in respect
of such assets or principal payment rate on such assets. Such arrangements may
include agreements under which Securityholders are entitled to receive amounts
deposited in various accounts held by the Trustee upon the terms specified in
such Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Securities
will be affected primarily by the amount and timing of principal payments
received on or in respect of the Trust Fund Assets included in the related
Trust Fund. With respect to a Trust Fund which includes Private Asset Backed
Securities, the possible effects of the amount and timing of principal
payments received with respect to the underlying mortgage loans will be
described in the related Prospectus Supplement. The original terms to maturity
of the Loans in a given Pool will vary depending upon the type of Loans
included therein. Each Prospectus Supplement will contain information with
respect to the type and maturities of the Loans in the related Pool. Unless
otherwise specified in the related Prospectus Supplement, Loans may be prepaid
without penalty in full or in part at any time. The prepayment experience on
the Loans in a Pool will affect the life of the related Series of Securities.
The rate of prepayment on the Loans cannot be predicted. Home equity
loans and home improvement contracts have been originated in significant
volume only during the past few years and the Depositor is not aware of any
publicly available studies or statistics on the rate of prepayment of such
loans. Generally, home equity loans and home improvement contracts are not
viewed by borrowers as permanent financing. Accordingly, the Loans may
experience a higher rate of prepayment than traditional first mortgage loans.
On the other hand, because home equity loans such as the Revolving Credit Line
Loans generally are not fully amortizing, the absence of voluntary borrower
prepayments could cause rates of principal payments lower than, or similar to,
those of traditional fully-amortizing first mortgages. The prepayment
experience of the related Trust Fund may be affected by a wide variety of
factors, including general economic conditions, prevailing interest rate
levels, the availability of alternative financing and homeowner mobility and
the frequency and amount of any future draws on any Revolving Credit Line
Loans. Other factors that might be expected to affect the prepayment rate of a
pool of home equity mortgage loans or home improvement contracts include the
amounts of, and interest rates on, the underlying senior mortgage loans, and
the use of first mortgage loans as long-term financing for home purchase and
subordinate mortgage loans as shorter-term financing for a variety of
purposes, including home improvement, education expenses and purchases of
consumer durables such as automobiles. Accordingly, the Loans may experience a
higher rate of prepayment than traditional fixed-rate mortgage loans. In
addition, any future limitations on the right of borrowers to deduct interest
payments on home equity loans for federal income tax purposes may further
increase the rate of prepayments of the Loans. The enforcement of a
"due-on-sale" provision (as described below) will have the same effect as a
prepayment of the related Loan. See "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses" herein. The yield to an investor who purchases
Securities in the secondary market at a price other than par will vary from
the anticipated yield if the rate of prepayment on the Loans is actually
different than the rate anticipated by such investor at the time such
Securities were purchased.
Collections on Revolving Credit Line Loans may vary because, among
other things, borrowers may (i) make payments during any month as low as the
minimum monthly payment for such month or, during the interest-only period for
certain Revolving Credit Line Loans and, in more limited circumstances,
Closed-End Loans, with respect to which an interest-only payment option has
been selected, the interest and the fees and charges for such month or (ii)
make payments as high as the entire outstanding principal balance plus accrued
interest and the fees and charges thereon. It is possible that borrowers may
fail to make the required periodic payments. In addition, collections on the
Loans may vary due to seasonal purchasing and the payment habits of borrowers.
Unless otherwise specified in the related Prospectus Supplement, the
Loans will contain due-on-sale provisions permitting the mortgagee to
accelerate the maturity of the loan upon sale or certain transfers by the
borrower. Loans insured by the FHA, and Single Family Loans partially
guaranteed by the VA, are assumable with the consent of the FHA and the VA,
respectively. Thus, the rate of prepayments on such Loans may be lower than
that of conventional Loans bearing comparable interest rates. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer generally
will enforce any due-on-sale or due-on-encumbrance clause, to the extent it
has knowledge of the conveyance or further encumbrance or the proposed
conveyance or proposed further encumbrance of the Property and reasonably
believes that it is entitled to do so under applicable law; provided, however,
that the Master Servicer will not take any enforcement action that would
impair or threaten to impair any recovery under any related insurance policy.
See "The Agreements--Collection Procedures" and "Certain Legal Aspects of the
Loans" for a description of certain provisions of each Agreement and certain
legal developments that may affect the prepayment experience on the Loans.
The rate of prepayments with respect to conventional mortgage loans
has fluctuated significantly in recent years. If prevailing rates fall
significantly below the Loan Rates borne by the Loans, such Loans may be
subject to higher prepayment rates than if prevailing interest rates remain at
or above such Loan Rates. Conversely, if prevailing interest rates rise
appreciably above the Loan Rates borne by the Loans, such Loans may experience
a lower prepayment rate than if prevailing rates remain at or below such Loan
Rates. However, there can be no assurance that such will be the case.
When a full prepayment is made on a Loan, the borrower is charged
interest on the principal amount of the Loan so prepaid only for the number of
days in the month actually elapsed up to the date of the prepayment, rather
than for a full month. Unless the Master Servicer remits amounts otherwise
payable to it as servicing compensation, see "Description of the
Securities--Compensating Interest", the effect of prepayments in full will be
to reduce the amount of interest passed through in the following month to
holders of Securities because interest on the principal amount of any Loan so
prepaid will be paid only to the date of prepayment. Partial prepayments in a
given month may be applied to the outstanding principal balances of the Loans
so prepaid on the first day of the month of receipt or the month following
receipt. In the latter case, partial prepayments will not reduce the amount of
interest passed through in such month. Unless otherwise specified in the
related Prospectus Supplement, neither full nor partial prepayments will be
passed through until the month following receipt.
Even assuming that the Properties provide adequate security for the
Loans, substantial delays could be encountered in connection with the
liquidation of defaulted Loans and corresponding delays in the receipt of
related proceeds by Securityholders could occur. An action to foreclose on a
Property securing a Loan is regulated by state statutes and rules and is
subject to many of the delays and expenses of other lawsuits if defenses or
counterclaims are interposed, sometimes requiring several years to complete.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a property. In the event of a
default by a borrower, these restrictions among other things, may impede the
ability of the Master Servicer to foreclose on or sell the Property or to
obtain liquidation proceeds sufficient to repay all amounts due on the related
Loan. In addition, the Master Servicer will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted Loans and not yet repaid, including payments to
senior lienholders, legal fees and costs of legal action, real estate taxes
and maintenance and preservation expenses.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time
of default. Therefore, assuming that a servicer took the same steps in
realizing upon a defaulted mortgage loan having a small remaining principal
balance as it would in the case of a defaulted mortgage loan having a large
remaining principal balance, the amount realized after expenses of liquidation
would be smaller as a percentage of the remaining principal balance of the
small mortgage loan than would be the case with the other defaulted mortgage
loan having a large remaining principal balance.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of certain
originators and servicers of Loans. In addition, most have other laws, public
policy and general principles of equity relating to the protection of
consumers, unfair and deceptive practices and practices which may apply to the
origination, servicing and collection of the Loans. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Master Servicer to damages
and administrative sanctions.
If the rate at which interest is passed through to the holders of
Securities of a Series is calculated on a Loan-by-Loan basis, disproportionate
principal prepayments among Loans with different Loan Rates will affect the
yield on such Securities. In most cases, the effective yield to
Securityholders will be lower than the yield otherwise produced by the
applicable Pass-Through Rate and purchase price, because while interest will
accrue on each Loan from the first day of the month (unless otherwise
specified in the related Prospectus Supplement), the distribution of such
interest will not be made earlier than the month following the month of
accrual.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related
Prospectus Supplement may have the option to purchase the assets of a Trust
Fund thereby effecting earlier retirement of the related Series of Securities.
See "The Agreements--Termination; Optional Termination".
Factors other than those identified herein and in the related
Prospectus Supplement could significantly affect principal prepayments at any
time and over the lives of the Securities. The relative contribution of the
various factors affecting prepayment may also vary from time to time. There
can be no assurance as to the rate of payment of principal of the Trust Fund
Assets at any time or over the lives of the Securities.
The Prospectus Supplement relating to a Series of Securities will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Securities.
THE AGREEMENTS
Set forth below is a summary of certain provisions of each Agreement
which are not described elsewhere in this Prospectus. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of each Agreement. Where particular provisions or
terms used in the Agreements are referred to, such provisions or terms are as
specified in the Agreements. Except as otherwise specified, the Agreement
described herein contemplates a Trust Fund comprised of Loans. The provisions
of an Agreement with respect to a Trust Fund which consists of or includes
Private Asset Backed Securities may contain provisions similar to those
described herein but will be more fully described in the related Prospectus
Supplement.
Assignment of the Trust Fund Assets
Assignment of the Loans. At the time of issuance of the Securities of
a Series, the Depositor will cause the Loans comprising the related Trust Fund
to be assigned to the Trustee, together with all principal and interest
received by or on behalf of the Depositor on or with respect to such Loans
after the Cut-off Date, other than principal and interest due on or before the
Cut-off Date and other than any Retained Interest specified in the related
Prospectus Supplement. The Trustee will, concurrently with such assignment,
deliver the Securities to the Depositor in exchange for the Loans. Each Loan
will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the outstanding
principal balance of each Loan after application of payments due on or before
the Cut-off Date, as well as information regarding the Loan Rate or APR, the
current scheduled monthly payment of principal and interest, the maturity of
the Loan, the Combined Loan-to-Value Ratios at origination and certain other
information.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will as to each Home Improvement Contract, deliver or cause to be
delivered to the Trustee the original Home Improvement Contract and copies of
documents and instruments related to each Home Improvement Contract and, other
than in the case of unsecured Home Improvement Contracts, the security
interest in the Property securing such Home Improvement Contract. In order to
give notice of the right, title and interest of Securityholders to the Home
Improvement Contracts, the Depositor will cause a UCC-1 financing statement to
be executed by the Depositor or the Seller identifying the Trustee as the
secured party and identifying all Home Improvement Contracts as collateral.
Unless otherwise specified in the related Prospectus Supplement, the Home
Improvement Contracts will not be stamped or otherwise marked to reflect their
assignment to the Trustee. Therefore, if, through negligence, fraud or
otherwise, a subsequent purchaser were able to take physical possession of the
Home Improvement Contracts without notice of such assignment, the interest of
Securityholders in the Home Improvement Contracts could be defeated. See
"Certain Legal Aspects of the Loans--The Home Improvement Contracts" herein.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require that, within the time period specified therein, the
Depositor will also deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) as to each Home Equity Loan, among other
things, (i) the mortgage note or contract endorsed without recourse in blank
or to the order of the Trustee, (ii) the mortgage, deed of trust or similar
instrument (a "Mortgage") with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was delivered
to such recording office), (iii) an assignment of the Mortgage to the Trustee,
which assignment will be in recordable form in the case of a Mortgage
assignment, and (iv) such other security documents, including those relating
to any senior interests in the Property, as may be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Depositor will promptly cause the assignments of the related
Loans to be recorded in the appropriate public office for real property
records, except in states in which, in the opinion of counsel acceptable to
the Trustee, such recording is not required to protect the Trustee's interest
in such Loans against the claim of any subsequent transferee or any successor
to or creditor of the Depositor or the originator of such Loans.
The Trustee (or the custodian hereinafter referred to) will review
such Loan documents within the time period specified in the related Prospectus
Supplement after receipt thereof, and the Trustee will hold such documents in
trust for the benefit of the Securityholders. Unless otherwise specified in
the related Prospectus Supplement, if any such document is found to be missing
or defective in any material respect, the Trustee (or such custodian) will
notify the Master Servicer and the Depositor, and the Master Servicer will
notify the related Seller. If the Seller cannot cure the omission or defect
within a specified number of days after receipt of such notice (or such other
period as may be specified in the related Prospectus Supplement), the Seller
will be obligated either (i) to purchase the related Loan from the Trust at
the Purchase Price or (ii) to remove such Loan from the Trust Fund and
substitute in its place one or more other Loans. There can be no assurance
that a Seller will fulfill this purchase or substitution obligation. Although
the Master Servicer may be obligated to enforce such obligation to the extent
described above under "Loan Program--Representations by Sellers; Repurchases",
neither the Master Servicer nor the Depositor will be obligated to purchase or
replace such Loan if the Seller defaults on its obligation, unless such breach
also constitutes a breach of the representations or warranties of the Master
Servicer or the Depositor, as the case may be. Unless otherwise specified in
the related Prospectus Supplement, this purchase obligation constitutes the
sole remedy available to the Securityholders or the Trustee for omission of,
or a material defect in, a constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review
the documents relating to the Loans as agent of the Trustee.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Agreement. Upon a breach of any such representation of
the Master Servicer which materially and adversely affects the interests of
the Securityholders in a Loan, the Master Servicer will be obligated either to
cure the breach in all material respects or to purchase or replace the Loan at
the Purchase Price. Unless otherwise specified in the related Prospectus
Supplement, this obligation to cure, purchase or substitute constitutes the
sole remedy available to the Securityholders or the Trustee for such a breach
of representation by the Master Servicer.
Assignment of Private Asset Backed Securities. The Depositor will
cause Private Asset Backed Securities to be registered in the name of the
Trustee. The Trustee (or the custodian) will have possession of any
certificated Private Asset Backed Securities. Unless otherwise specified in
the related Prospectus Supplement, the Trustee will not be in possession of or
be assignee of record of any underlying assets for a Private Asset Backed
Security. See "The Trust Fund--Private Asset Backed Securities" herein. Each
Private Asset Backed Security will be identified in a schedule appearing as an
exhibit to the related Agreement which will specify the original principal
amount, outstanding principal balance as of the Cut-off Date, annual
pass-through rate or interest rate and maturity date and certain other
pertinent information for each Private Asset Backed Security conveyed to the
Trustee.
Notwithstanding the foregoing provisions, with respect to a Trust
Fund for which a REMIC election is to be made, no purchase or substitution of
a Loan will be made if such purchase or substitution would result in a
prohibited transaction tax under the Code.
Payments on Loans; Deposits to Security Account
Each Sub-Servicer servicing a Loan pursuant to a Sub-Servicing
Agreement (as defined below under "--Sub-Servicing of Loans") will establish
and maintain an account (the "Sub-Servicing Account") which meets the
following requirements and is otherwise acceptable to the Master Servicer. A
Sub-Servicing Account must be established with a Federal Home Loan Bank or
with a depository institution (including the Sub-Servicer itself) whose
accounts are insured by either the Bank Insurance Fund (the "BIF") of the FDIC
or the Savings Association Insurance Fund (as successor to the Federal Savings
and Loan Insurance Corporation ("SAIF")) of the Federal Deposit Insurance
Corporation (the "FDIC"). If a Sub-Servicing Account is maintained at an
institution that is a Federal Home Loan Bank or an FDIC-insured institution
and, in either case, the amount on deposit in the Sub-Servicing Account
exceeds the FDIC insurance coverage amount, then such excess amount must be
remitted to the Master Servicer within one business day of receipt. In
addition, the Sub-Servicer must maintain a separate account for escrow and
impound funds relating to the Loans. Each Sub-Servicer is required to deposit
into its Sub-Servicing Account on a daily basis all amounts described below
under "--Sub-Servicing of Loans" that are received by it in respect of the
Loans, less its servicing or other compensation. On or before the date
specified in the Sub-Servicing Agreement, the Sub-Servicer will remit or cause
to be remitted to the Master Servicer or the Trustee all funds held in the
Sub-Servicing Account with respect to Loans that are required to be so
remitted. The Sub-Servicer may also be required to advance on the scheduled
date of remittance an amount corresponding to any monthly installment of
interest and/or principal, less its servicing or other compensation, on any
Loan for which payment was not received from the mortgagor. Unless otherwise
specified in the related Prospectus Supplement, any such obligation of the
Sub-Servicer to advance will continue up to and including the first of the
month following the date on which the related Property is sold at a
foreclosure sale or is acquired on behalf of the Securityholders by deed in
lieu of foreclosure, or until the related Loan is liquidated.
The Master Servicer will establish and maintain or cause to be
established and maintained with respect to the related Trust Fund a separate
account or accounts for the collection of payments on the related Trust Fund
Assets in the Trust Fund (the "Security Account") must be either (i)
maintained with a depository institution the debt obligations of which (or in
the case of a depository institution that is the principal subsidiary of a
holding company, the obligations of which) are rated in one of the two highest
rating categories by the Rating Agency or Rating Agencies that rated one or
more classes of the related Series of Securities, (ii) an account or accounts
the deposits in which are fully insured by either the BIF or SAIF, (iii) an
account or accounts the deposits in which are insured by the BIF or SAIF (to
the limits established by the FDIC), and the uninsured deposits in which are
otherwise secured such that, as evidenced by an opinion of counsel, the
Securityholders have a claim with respect to the funds in the Security Account
or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the depository institution with which the Security
Account is maintained, or (iv) an account or accounts otherwise acceptable to
each Rating Agency. The collateral eligible to secure amounts in the Security
Account is limited to United States government securities and other
high-quality investments ("Permitted Investments"). A Security Account may be
maintained as an interest bearing account or the funds held therein may be
invested pending each succeeding Distribution Date in Permitted Investments.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or its designee will be entitled to receive any such interest or
other income earned on funds in the Security Account as additional
compensation and will be obligated to deposit in the Security Account the
amount of any loss immediately as realized. The Security Account may be
maintained with the Master Servicer or with a depository institution that is
an affiliate of the Master Servicer, provided it meets the standards set forth
above.
The Master Servicer will deposit or cause to be deposited in the
Security Account for each Trust Fund on a daily basis, to the extent
applicable and provided in the Agreement, the following payments and
collections received or advances made by or on behalf of it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date and
exclusive of any amounts representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and any applicable prepayment penalties, on the
Loans;
(ii) all payments on account of interest on the Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property
taxes, insurance premiums and similar items ("Insured
Expenses") incurred, and unreimbursed advances made, by the
related Sub-Servicer, if any) of the hazard insurance policies
and any Primary Mortgage Insurance Policies, to the extent such
proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures (collectively,
"Insurance Proceeds") and all other cash amounts (net of
unreimbursed expenses incurred in connection with liquidation
or foreclosure ("Liquidation Expenses") and unreimbursed
advances made, by the related Sub-Servicer, if any) received
and retained in connection with the liquidation of defaulted
Loans, by foreclosure or otherwise ("Liquidation Proceeds"),
together with any net proceeds received on a monthly basis with
respect to any properties acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Loan or property in respect thereof
purchased by the Master Servicer, the Depositor, any
Sub-Servicer or any Seller as described under "Loan
Program--Representations by Sellers; Repurchases or
Substitutions" herein or "--Assignment of Trust Fund Assets"
above and all proceeds of any Loan repurchased as described
under "--Termination; Optional Termination" below;
(v) all payments required to be deposited in the Security
Account with respect to any deductible clause in any blanket
insurance policy described under "--Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer
in connection with losses realized on investments for the
benefit of the Master Servicer of funds held in the Security
Account; and
(vii) all other amounts required to be deposited in the
Security Account pursuant to the Agreement.
Pre-Funding Account
If so provided in the related Prospectus Supplement, the Master
Servicer will establish and maintain a pre-funding account (a "Pre-Funding
Account"), in the name of the related Trustee on behalf of the related
Securityholders, into which the Depositor will deposit the pre-funded amount
(the "Pre-Funded Amount") on the related Closing Date. The Pre-Funded Amount
will not exceed 25% of the initial aggregate principal amount of the
Certificates and Notes of the related Series. The Pre-Funded Amount will be
used by the related Trustee to purchase Subsequent Loans from the Depositor
from time to time during the Funding Period. The Funding Period, if any, for a
Trust Fund will begin on the related Closing Date and will end on the date
specified in the related Prospectus Supplement, which in no event will be
later than the date that is three months after the Closing Date. Any amounts
remaining in the Pre-Funding Account at the end of the Funding Period will be
distributed to the related Securityholders in the manner and priority
specified in the related Prospectus Supplement, as a prepayment of principal
of the related Securities.
Sub-Servicing of Loans
Each Seller of a Loan or any other servicing entity may act as the
Sub-Servicer for such Loan pursuant to an agreement (each, a "Sub-Servicing
Agreement"), which will not contain any terms inconsistent with the related
Agreement. While each Sub-Servicing Agreement will be a contract solely
between the Master Servicer and the Sub-Servicer, the Agreement pursuant to
which a Series of Securities is issued will provide that, if for any reason
the Master Servicer for such Series of Securities is no longer the Master
Servicer of the related Loans, the Trustee or any successor Master Servicer
must recognize the Sub-Servicer's rights and obligations under such
Sub-Servicing Agreement.
With the approval of the Master Servicer, a Sub-Servicer may delegate
its servicing obligations to third-party servicers, but such Sub-Servicer will
remain obligated under the related Sub-Servicing Agreement. Each Sub-Servicer
will be required to perform the customary functions of a servicer of mortgage
loans. Such functions generally include collecting payments from mortgagors or
obligors and remitting such collections to the Master Servicer; maintaining
hazard insurance policies as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder, subject in certain
cases to the right of the Master Servicer to approve in advance any such
settlement; maintaining escrow or impoundment accounts of mortgagors or
obligors for payment of taxes, insurance and other items required to be paid
by the mortgagor or obligor pursuant to the related Loan; processing
assumptions or substitutions, although, the Master Servicer is generally
required to exercise due-on-sale clauses to the extent such exercise is
permitted by law and would not adversely affect insurance coverage; attempting
to cure delinquencies; supervising foreclosures; inspecting and managing
Properties under certain circumstances; maintaining accounting records
relating to the Loans; and, to the extent specified in the related Prospectus
Supplement, maintaining additional insurance policies or credit support
instruments and filing and settling claims thereunder. A Sub-Servicer will
also be obligated to make advances in respect of delinquent installments of
interest and/or principal on Loans, as described more fully above under
"--Payments on Loans; Deposits to Security Account", and in respect of certain
taxes and insurance premiums not paid on a timely basis by mortgagors or
obligors.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the scheduled payment on
the related Loan has been collected) in the amount set forth in the related
Prospectus Supplement. Each Sub-Servicer is also entitled to collect and
retain, as part of its servicing compensation, any prepayment or late charges
provided in the Mortgage Note or related instruments. Each Sub-Servicer will
be reimbursed by the Master Servicer for certain expenditures which it makes,
generally to the same extent the Master Servicer would be reimbursed under the
Agreement. The Master Servicer may purchase the servicing of Loans if the
Sub-Servicer elects to release the servicing of such Loans to the Master
Servicer. See "--Servicing and Other Compensation and Payment of Expenses".
Each Sub-Servicer may be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its servicing
capacity. Each Sub-Servicer will be required to maintain a fidelity bond and
an errors and omissions policy with respect to its officers, employees and
other persons acting on its behalf or on behalf of the Master Servicer.
Each Sub-Servicer will be required to service each Loan pursuant to
the terms of the Sub-Servicing Agreement for the entire term of such Loan,
unless the Sub-Servicing Agreement is earlier terminated by the Master
Servicer or unless servicing is released to the Master Servicer. The Master
Servicer may terminate a Sub-Servicing Agreement without cause, upon written
notice to the Sub-Servicer in the manner specified in such Sub-Servicing
Agreement.
The Master Servicer may agree with a Sub-Servicer to amend a
Sub-Servicing Agreement or, upon termination of the Sub-Servicing Agreement,
the Master Servicer may act as servicer of the related Loans or enter into new
Sub-Servicing Agreements with other Sub-Servicers. If the Master Servicer acts
as servicer, it will not assume liability for the representations and
warranties of the Sub-Servicer which it replaces. Each Sub-Servicer must be a
Seller or meet the standards for becoming a Seller or have such servicing
experience as to be otherwise satisfactory to the Master Servicer and the
Depositor. The Master Servicer will make reasonable efforts to have the new
Sub-Servicer assume liability for the representations and warranties of the
terminated Sub-Servicer, but no assurance can be given that such an assumption
will occur. In the event of such an assumption, the Master Servicer may in the
exercise of its business judgment release the terminated Sub-Servicer from
liability in respect of such representations and warranties. Any amendments to
a Sub-Servicing Agreement or new Sub-Servicing Agreements may contain
provisions different from those which are in effect in the original
Sub-Servicing Agreement. However, each Agreement will provide that any such
amendment or new agreement may not be inconsistent with or violate such
Agreement.
Collection Procedures
The Master Servicer, directly or through one or more Sub-Servicers,
will make reasonable efforts to collect all payments called for under the
Loans and will, consistent with each Agreement and any Pool Insurance Policy,
Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty Policy and
Bankruptcy Bond or alternative arrangements, follow such collection procedures
as are customary with respect to loans that are comparable to the Loans.
Consistent with the above, the Master Servicer may, in its discretion, (i)
waive any assumption fee, late payment or other charge in connection with a
Loan and (ii) to the extent not inconsistent with the coverage of such Loan by
a Pool Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA
Guaranty or Bankruptcy Bond or alternative arrangements, if applicable,
arrange with a borrower a schedule for the liquidation of delinquencies
running for no more than 125 days after the applicable due date for each
payment. Both the Sub-Servicer and the Master Servicer may be obligated to
make Advances during any period of such an arrangement.
Except as otherwise specified in the related Prospectus Supplement,
in any case in which property securing a Loan has been, or is about to be,
conveyed by the mortgagor or obligor, the Master Servicer will, to the extent
it has knowledge of such conveyance or proposed conveyance, exercise or cause
to be exercised its rights to accelerate the maturity of such Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law. If these conditions are not met or if the
Master Servicer reasonably believes it is unable under applicable law to
enforce such due-on-sale clause, or the Master Servicer will enter into or
cause to be entered into an assumption and modification agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable for repayment of the Loan and, to the extent
permitted by applicable law, the mortgagor remains liable thereon. Any fee
collected by or on behalf of the Master Servicer for entering into an
assumption agreement will be retained by or on behalf of the Master Servicer
as additional servicing compensation. See "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses". In connection with any such assumption, the terms
of the related Loan may not be changed.
Hazard Insurance
Except as otherwise specified in the related Prospectus Supplement,
the Master Servicer will require the mortgagor or obligor on each Loan to
maintain a hazard insurance policy providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage customary
for the type of Property in the state in which such Property is located. All
amounts collected by the Master Servicer under any hazard policy (except for
amounts to be applied to the restoration or repair of the Property or released
to the mortgagor or obligor in accordance with the Master Servicer's normal
servicing procedures) will be deposited in the related Security Account. In
the event that the Master Servicer maintains a blanket policy insuring against
hazard losses on all the Loans comprising part of a Trust Fund, it will
conclusively be deemed to have satisfied its obligation relating to the
maintenance of hazard insurance. Such blanket policy may contain a deductible
clause, in which case the Master Servicer will be required to deposit from its
own funds into the related Security Account the amounts which would have been
deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements securing a Loan
by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and
civil commotion, subject to the conditions and exclusions particularized in
each policy. Although the policies relating to the Loans may have been
underwritten by different insurers under different state laws in accordance
with different applicable forms and therefore may not contain identical terms
and conditions, the basic terms thereof are dictated by respective state laws,
and most such policies typically do not cover any physical damage resulting
from the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mud flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all inclusive. If the Property securing a Loan is located in a federally
designated special flood area at the time of origination, the Master Servicer
will require the mortgagor or obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all time to
carry insurance of a specified percentage of the full replacement value of the
insured property in order to recover the full amount of any partial loss. If
the insured's coverage falls below this specified percentage, then the
insurer's liability in the event of partial loss will not exceed the larger of
(i) the actual cash value (generally defined as replacement cost at the time
and place of loss, less physical depreciation) of the improvements damaged or
destroyed or (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements. Since the amount of hazard insurance the Master Servicer may
cause to be maintained on the improvements securing the Loans declines as the
principal balances owing thereon decrease, and since improved real estate
generally has appreciated in value over time in the past, the effect of this
requirement in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property. If specified in
the related Prospectus Supplement, a special hazard insurance policy will be
obtained to insure against certain of the uninsured risks described above. See
"Credit Enhancement--Special Hazard Insurance Policies".
If the Property securing a defaulted Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged Property, the Master Servicer is not required to expend its own funds
to restore the damaged Property unless it determines (i) that such restoration
will increase the proceeds to Securityholders on liquidation of the Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Loan under any related Insurance Policy is
not available for the reasons set forth in the preceding paragraph, or if the
defaulted Loan is not covered by an Insurance Policy, the Master Servicer will
be obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Loan. If the proceeds of any liquidation of the Property securing the
defaulted Loan are less than the principal balance of such Loan plus interest
accrued thereon that is payable to Securityholders, the Trust Fund will
realize a loss in the amount of such difference plus the aggregate of expenses
incurred by the Master Servicer in connection with such proceedings and which
are reimbursable under the Agreement. In the unlikely event that any such
proceedings result in a total recovery which is, after reimbursement to the
Master Servicer of its expenses, in excess of the principal balance of such
Loan plus interest accrued thereon that is payable to Securityholders, the
Master Servicer will be entitled to withdraw or retain from the Security
Account amounts representing its normal servicing compensation with respect to
such Loan and, unless otherwise specified in the related Prospectus
Supplement, amounts representing the balance of such excess, exclusive of any
amount required by law to be forwarded to the related borrower, as additional
servicing compensation.
Unless otherwise specified in the related Prospectus Supplement, if
the Master Servicer or its designee recovers Insurance Proceeds which, when
added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of
such Loan plus interest accrued thereon that is payable to Securityholders,
the Master Servicer will be entitled to withdraw or retain from the Security
Account amounts representing its normal servicing compensation with respect to
such Loan. In the event that the Master Servicer has expended its own funds to
restore the damaged Property and such funds have not been reimbursed under the
related hazard insurance policy, it will be entitled to withdraw from the
Security Account out of related Liquidation Proceeds or Insurance Proceeds in
an amount equal to such expenses incurred by it, in which event the Trust Fund
may realize a loss up to the amount so charged. Since Insurance Proceeds
cannot exceed deficiency claims and certain expenses incurred by the Master
Servicer, no such payment or recovery will result in a recovery to the Trust
Fund which exceeds the principal balance of the defaulted Loan together with
accrued interest thereon. See "Credit Enhancement".
Realization upon Defaulted Loans
Primary Mortgage Insurance Policies. The Master Servicer will
maintain or cause each Sub-Servicer to maintain, as the case may be, in full
force and effect, to the extent specified in the related Prospectus
Supplement, a Primary Mortgage Insurance Policy with regard to each Loan for
which such coverage is required. The Master Servicer will not cancel or refuse
to renew any such Primary Mortgage Insurance Policy in effect at the time of
the initial issuance of a Series of Securities that is required to be kept in
force under the applicable Agreement unless the replacement Primary Mortgage
Insurance Policy for such cancelled or nonrenewed policy is maintained with an
insurer whose claims-paying ability is sufficient to maintain the current
rating of the classes of Securities of such Series that have been rated.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Loan will consist of the insured percentage of the unpaid principal
amount of the covered Loan and accrued and unpaid interest thereon and
reimbursement of certain expenses, less (i) all rents or other payments
collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Property, (ii)
hazard insurance proceeds in excess of the amount required to restore the
Property and which have not been applied to the payment of the Loan, (iii)
amounts expended but not approved by the issuer of the related Primary
Mortgage Insurance Policy (the "Primary Insurer"), (iv) claim payments
previously made by the Primary Insurer and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses
sustained by reason of defaults in payments by borrowers. Primary Mortgage
Insurance Policies will not insure against, and exclude from coverage, a loss
sustained by reason of a default arising from or involving certain matters,
including (i) fraud or negligence in origination or servicing of the Loans,
including misrepresentation by the originator, borrower or other persons
involved in the origination of the Loans; (ii) failure to construct the
Property subject to the Loan in accordance with specified plans; (iii)
physical damage to the Property; and (iv) the related Master Servicer or
Sub-servicer not being approved as a servicer by the Primary Insurer.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Loan, the insured will be required to (i) advance
or discharge (a) all hazard insurance policy premiums and (b) as necessary and
approved in advance by the Primary Insurer, (1) real estate property taxes,
(2) all expenses required to maintain the related Property in at least as good
a condition as existed at the effective date of such Primary Mortgage
Insurance Policy, ordinary wear and tear excepted, (3) Property sales
expenses, (4) any outstanding liens (as defined in such Primary Mortgage
Insurance Policy) on the Property and (5) foreclosure costs, including court
costs and reasonable attorneys' fees; (ii) in the event of any physical loss
or damage to the Property, to have the Property restored and repaired to at
least as good a condition as existed at the effective date of such Primary
Mortgage Insurance Policy, ordinary wear and tear excepted; and (iii) tender
to the Primary Insurer good and merchantable title to and possession of the
Property.
In those cases in which a Loan is serviced by a Sub-Servicer, the
Sub-Servicer, on behalf of itself, the Trustee and Securityholders, will
present claims to the Primary Insurer, and all collection thereunder will be
deposited in the Sub-Servicing Account. In all other cases, the Master
Servicer, on behalf of itself, the Trustee and the Securityholders, will
present claims to the insurer under each Primary Mortgage Insurance Policy,
and will take such reasonable steps as are necessary to receive payment or to
permit recovery thereunder with respect to defaulted Loans. As set forth
above, all collections by or on behalf of the Master Servicer under any
Primary Mortgage Insurance Policy and, when the Property has not been
restored, the hazard insurance policy, are to be deposited in the Security
Account, subject to withdrawal as heretofore described.
If the Property securing a defaulted Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged Property to a condition sufficient to permit recovery under the
related Primary Mortgage Insurance Policy, if any, the Master Servicer is not
required to expend its own funds to restore the damaged Property unless it
determines (i) that such restoration will increase the proceeds to
Securityholders on liquidation of the Loan after reimbursement of the Master
Servicer for its expenses and (ii) that such expenses will be recoverable by
it from related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted Loan under any related Primary Mortgage
Insurance Policy is not available for the reasons set forth in the preceding
paragraph, or if the defaulted Loan is not covered by a Primary Mortgage
Insurance Policy, the Master Servicer will be obligated to follow or cause to
be followed such normal practices and procedures as it deems necessary or
advisable to realize upon the defaulted Loan. If the proceeds of any
liquidation of the Property securing the defaulted Loan are less than the
principal balance of such Loan plus interest accrued thereon that is payable
to Securityholders, the Trust Fund will realize a loss in the amount of such
difference plus the aggregate of expenses incurred by the Master Servicer in
connection with such proceedings and which are reimbursable under the
Agreement. In the unlikely event that any such proceedings result in a total
recovery which is, after reimbursement to the Master Servicer of its expenses,
in excess of the principal balance of such Loan plus interest accrued thereon
that is payable to Securityholders, the Master Servicer will be entitled to
withdraw or retain from the Security Account amounts representing its normal
servicing compensation with respect to such Loan and, except as otherwise
specified in the Prospectus Supplement, amounts representing the balance of
such excess, exclusive of any amount required by law to be forwarded to the
related borrower, as additional servicing compensation.
Servicing and Other Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer's primary servicing compensation with respect to a Series of
Securities will come from the monthly payment to it, out of each interest
payment on a Loan, of an amount equal to the percentage per annum specified in
the related Prospectus Supplement of the outstanding principal balance
thereof. Since the Master Servicer's primary compensation is a percentage of
the outstanding principal balance of each Loan, such amounts will decrease as
the Loans amortize. In addition to primary compensation, the Master Servicer
or the Sub-Servicers may be entitled to retain all assumption fees and late
payment charges, to the extent collected from borrowers, and, if so provided
in the related Prospectus Supplement, any prepayment penalties and any
interest or other income which may be earned on funds held in the Security
Account or any Sub-Servicing Account. Unless otherwise specified in the
related Prospectus Supplement, any Sub-Servicer will receive a portion of the
Master Servicer's primary compensation as its sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, the Master
Servicer will, unless otherwise specified in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing of the Loans, including, without limitation,
payment of any premium for any insurance policy, guaranty, surety or other
form of credit enhancement as specified in the related Prospectus Supplement,
payment of the fees and disbursements of the Trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to Securityholders, and payment of any other expenses described in the
related Prospectus Supplement.
Evidence as to Compliance
Each Agreement will provide that on or before a specified date in
each year, a firm of independent public accountants will furnish a statement
to the Trustee to the effect that, on the basis of the examination by such
firm conducted substantially in compliance with the Uniform Single Audit
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, the servicing by or on behalf of the Master Servicer of mortgage loans
or private asset backed securities, or under pooling and servicing agreements
substantially similar to each other (including the related Agreement) was
conducted in compliance with such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, the Audit
Program for Mortgages serviced for FHLMC, or the Uniform Single Audit Program
for Mortgage Bankers, it is required to report. In rendering its statement
such firm may rely, as to matters relating to the direct servicing of Loans or
Private Asset Backed Securities by Sub-Servicers, upon comparable statements
for examinations conducted substantially in compliance with the Uniform Single
Audit Program for Mortgage Bankers or the Audit Program for Mortgages serviced
for FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of
officers of the Master Servicer may be obtained by Securityholders of the
related Series without charge upon written request to the Master Servicer at
the address set forth in the related Prospectus Supplement.
Certain Matters Regarding the Master Servicer and the Depositor
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer may have normal
business relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign
from its obligations and duties under the Agreement except upon a
determination that its duties thereunder are no longer permissible under
applicable law. The Master Servicer may, however, be removed from its
obligations and duties as set forth in the Agreement. No such resignation will
become effective until the Trustee or a successor servicer has assumed the
Master Servicer's obligations and duties under the Agreement.
Each Agreement will further provide that neither the Master Servicer,
the Depositor nor any director, officer, employee, or agent of the Master
Servicer or the Depositor will be under any liability to the related Trust
Fund or Securityholders for any action taken or for refraining from the taking
of any action in good faith pursuant to the Agreement, or for errors in
judgment; provided, however, that neither the Master Servicer, the Depositor
nor any such person will be protected against any liability which would
otherwise be imposed by reason of wilful misfeasance or gross negligence in
the performance of duties thereunder or by reasons of reckless disregard of
obligations and duties thereunder. To the extent provided in the related
Agreement, the Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor may be entitled to
indemnification by the related Trust Fund and may be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the Agreement or the Securities, other than any loss, liability or
expense related to any specific Loan or Loans (except any such loss, liability
or expense otherwise reimbursable pursuant to the Agreement) and any loss,
liability or expense incurred by reason of willful misfeasance or gross
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, each Agreement
will provide that neither the Master Servicer nor the Depositor will be under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its respective responsibilities under the Agreement and which in
its opinion may involve it in any expense or liability. The Master Servicer or
the Depositor may, however, in its discretion undertake any such action which
it may deem necessary or desirable with respect to the Agreement and the
rights and duties of the parties thereto and the interests of the
Securityholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund and the Master Servicer or the Depositor, as the
case may be, will be entitled to be reimbursed therefor out of funds otherwise
distributable to Securityholders.
Except as otherwise specified in the related Prospectus Supplement,
any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Agreement.
Events of Default; Rights upon Event of Default
Pooling and Servicing Agreement; Servicing Agreement. Except as
otherwise specified in the related Prospectus Supplement, Events of Default
under each Agreement will consist of (i) any failure by the Master Servicer to
distribute or cause to be distributed to Securityholders of any class any
required payment (other than an Advance) which continues unremedied for five
business days after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Securities of such class
evidencing not less than 25% of the aggregate Percentage Interests evidenced
by such class; (ii) any failure by the Master Servicer to make an Advance as
required under the Agreement, unless cured as specified therein; (iii) any
failure by the Master Servicer duly to observe or perform in any material
respect any of its other covenants or agreements in the Agreement which
continues unremedied for thirty days after the giving of written notice of
such failure to the Master Servicer by the Trustee or the Depositor, or to the
Master Servicer, the Depositor and the Trustee by the holders of Securities of
any class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class; and (iv) certain events of insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceeding and
certain actions by or on behalf of the Master Servicer indicating its
insolvency, reorganization or inability to pay its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Trust Fund Assets and the other assets of the
Trust Fund in the event that payments in respect thereto are insufficient to
make payments required in the Agreement. The assets of the Trust Fund will be
sold only under the circumstances and in the manner specified in the related
Prospectus Supplement.
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Securities of any class evidencing not less than 51% of the aggregate
Percentage Interests constituting such class and under such other
circumstances as may be specified in such Agreement, the Trustee shall,
terminate all of its rights and obligations of the Master Servicer under the
Agreement relating to such Trust Fund and in and to the Trust Fund Assets,
whereupon the Trustee will succeed to all of the responsibilities, duties and
liabilities of the Master Servicer under the Agreement, including, if
specified in the related Prospectus Supplement, the obligation to make
advances, and will be entitled to similar compensation arrangements. In the
event that the Trustee is unwilling or unable so to act, it may appoint, or
petition a court of competent jurisdiction for the appointment of, a mortgage
loan servicing institution with a net worth of a least $10,000,000 to act as
successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the Master
Servicer under the Agreement.
No Securityholder, solely by virtue of such holder's status as a
Securityholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Securities of any class of such Series evidencing not less than 25% of the
aggregate Percentage Interests constituting such class have made written
request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for 60 days has neglected or refused to institute any such
proceeding.
Indenture. Except as otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default for five (5) days or more in the payment of any
principal of or interest on any Note of such Series; (ii) failure to perform
any other covenant of the Depositor or the Trust Fund in the Indenture which
continues for a period of thirty (30) days after notice thereof is given in
accordance with the procedures described in the related Prospectus Supplement;
(iii) any representation or warranty made by the Depositor or the Trust Fund
in the Indenture or in any certificate or other writing delivered pursuant
thereto or in connection therewith with respect to or affecting such Series
having been incorrect in a material respect as of the time made, and such
breach is not cured within thirty (30) days after notice thereof is given in
accordance with the procedures described in the related Prospectus Supplement;
(iv) certain events of bankruptcy, insolvency, receivership or liquidation of
the Depositor or the Trust Fund; or (v) any other Event of Default provided
with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the holders
of a majority of the then aggregate outstanding amount of the Notes of such
Series may declare the principal amount (or, if the Notes of that Series have
a Pass-Through Rate of 0%, such portion of the principal amount as may be
specified in the terms of that Series, as provided in the related Prospectus
Supplement) of all the Notes of such Series to be due and payable immediately.
Such declaration may, under certain circumstances, be rescinded and annulled
by the holders of more than 50% of the Percentage Interests of the Notes of
such Series.
If, following an Event of Default with respect to any Series of
Notes, the Notes of such Series have been declared to be due and payable, the
Trustee may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such Series and to
continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes of such Series
as they would have become due if there had not been such a declaration. In
addition, the Trustee may not sell or otherwise liquidate the collateral
securing the Notes of a Series following an Event of Default, unless (a) the
holders of 100% of the Percentage Interests of the Notes of such Series
consent to such sale, (b) the proceeds of such sale or liquidation are
sufficient to pay in full the principal of and accrued interest, due and
unpaid, on the outstanding Notes of such Series at the date of such sale or
(c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the
Trustee obtains the consent of the holders of 66K% of the Percentage Interests
of each Class of Notes of such Series.
Except as otherwise specified in the related Prospectus Supplement,
in the event the principal of the Notes of a Series is declared due and
payable, as described above, the holders of any such Notes issued at a
discount from par may be entitled to receive no more than an amount equal to
the unpaid principal amount thereof less the amount of such discount which is
unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee shall be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of Notes of such Series, unless such holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying
with such request or direction. Subject to such provisions for indemnification
and certain limitations contained in the Indenture, the holders of a majority
of the then aggregate outstanding amount of the Notes of such Series shall
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Notes of such Series, and
the holders of a majority of the then aggregate outstanding amount of the
Notes of such Series may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of a covenant or provision of the Indenture that cannot be modified
without the waiver or consent of all the holders of the outstanding Notes of
such Series affected thereby.
Amendment
Except as otherwise specified in the related Prospectus Supplement,
each Agreement may be amended by the Depositor, the Master Servicer and the
Trustee, without the consent of any of the Securityholders, (i) to cure any
ambiguity; (ii) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein; or (iii) to make
any other revisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions thereof, provided
that such action will not adversely affect in any material respect the
interests of any Securityholder. In addition, to the extent provided in the
related Agreement, an Agreement may be amended without the consent of any of
the Securityholders, to change the manner in which the Security Account is
maintained, provided that any such change does not adversely affect the then
current rating on the class or classes of Securities of such Series that have
been rated. In addition, if a REMIC election is made with respect to a Trust
Fund, the related Agreement may be amended to modify, eliminate or add to any
of its provisions to such extent as may be necessary to maintain the
qualification of the related Trust Fund as a REMIC, provided that the Trustee
has received an opinion of counsel to the effect that such action is necessary
or helpful to maintain such qualification. Except as otherwise specified in
the related Prospectus Supplement, each Agreement may also be amended by the
Depositor, the Master Servicer and the Trustee with consent of holders of
Securities of such Series evidencing not less than 66% of the aggregate
Percentage Interests of each class affected thereby for the purpose of adding
any provisions to or changing in an manner or eliminating any of the
provisions of the Agreement or of modifying in any manner the rights of the
holders of the related Securities; provided, however, that no such amendment
may (i) reduce in any manner the amount of or delay the timing of, payments
received on Loans which are required to be distributed on any Security without
the consent of the holder of such Security, or (ii) reduce the aforesaid
percentage of Securities of any class of holders which are required to consent
to any such amendment without the consent of the holders of all Securities of
such class covered by such Agreement then outstanding. If a REMIC election is
made with respect to a Trust Fund, the Trustee will not be entitled to consent
to an amendment to the related Agreement without having first received an
opinion of counsel to the effect that such amendment will not cause such Trust
Fund to fail to qualify as a REMIC.
Termination; Optional Termination
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise
specified in the related Agreement, the obligations created by each Pooling
and Servicing Agreement and Trust Agreement for each Series of Securities will
terminate upon the payment to the related Securityholders of all amounts held
in the Security Account or by the Master Servicer and required to be paid to
them pursuant to such Agreement following the later of (i) the final payment
of or other liquidation of the last of the Trust Fund Assets subject thereto
or the disposition of all property acquired upon foreclosure of any such Trust
Fund Assets remaining in the Trust Fund and (ii) the purchase by the Master
Servicer or, if REMIC treatment has been elected and if specified in the
related Prospectus Supplement, by the holder of the residual interest in the
REMIC (see "Certain Material Federal Income Tax Considerations" below), from
the related Trust Fund of all of the remaining Trust Fund Assets and all
property acquired in respect of such Trust Fund Assets.
Unless otherwise specified by the related Prospectus Supplement, any
such purchase of Trust Fund Assets and property acquired in respect of Trust
Fund Assets evidenced by a Series of Securities will be made at the option of
the Master Servicer or, if applicable, such holder of the REMIC residual
interest, at a price, and in accordance with the procedures, specified in the
related Prospectus Supplement. The exercise of such right will effect early
retirement of the Securities of that Series, but the right of the Master
Servicer or, if applicable, such holder of the REMIC residual interest, to so
purchase is subject to the principal balance of the related Trust Fund Assets
being less than the percentage specified in the related Prospectus Supplement
of the aggregate principal balance of the Trust Fund Assets at the Cut-off
Date for the Series. The foregoing is subject to the provision that if a REMIC
election is made with respect to a Trust Fund, any repurchase pursuant to
clause (ii) above will be made only in connection with a "qualified
liquidation" of the REMIC within the meaning of Section 860F(g)(4) of the
Code.
Indenture. The Indenture will be discharged with respect to a Series
of Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes
of such Series or, with certain limitations, upon deposit with the Trustee of
funds sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any Series,
the related Trust Fund will be discharged from any and all obligations in
respect of the Notes of such Series (except for certain obligations relating
to temporary Notes and exchange of Notes, to register the transfer of or
exchange Notes of such Series, to replace stolen, lost or mutilated Notes of
such Series, to maintain paying agencies and to hold monies for payment in
trust) upon the deposit with the Trustee, in trust, of money and/or direct
obligations of or obligations guaranteed by the United States of America which
through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the
principal of and each installment of interest on the Notes of such Series on
the last scheduled Distribution Date for such Notes and any installment of
interest on such Notes in accordance with the terms of the Indenture and the
Notes of such Series. In the event of any such defeasance and discharge of
Notes of such Series, holders of Notes of such Series would be able to look
only to such money and/or direct obligations for payment of principal and
interest, if any, on their Notes until maturity.
The Trustee
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as Trustee
may have normal banking relationships with the Depositor, the Master Servicer
and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Loans. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Loans is situated. The summaries are qualified in their
entirety by reference to the applicable federal laws and the appropriate laws
of the states in which Loans may be originated.
General
The Loans for a Series may be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the property subject to the loan is located. A mortgage
creates a lien upon the real property encumbered by the mortgage, which lien
is generally not prior to the lien for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order
of recording with a state or county office. There are two parties to a
mortgage, the mortgagor, who is the borrower and owner of the mortgaged
property, and the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond and the mortgage.
Although a deed of trust is similar to a mortgage, a deed of trust formally
has three parties, the borrower-property owner called the trustor (similar to
a mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee until such time as the underlying debt is repaid. The trustee's
authority under a deed of trust, the mortgagee's authority under a mortgage
and the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of
the beneficiary.
Foreclosure/Repossession
Foreclosure of a deed of trust is generally accomplished by a
non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In addition to
any notice requirements contained in a deed of trust, in some states, the
trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to
certain other persons. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses
and costs, including attorney's fees, which may be recovered by a lender.
After the reinstatement period has expired without the default having been
cured, the borrower or junior lienholder no longer has the right to reinstate
the loan and must pay the loan in full to prevent the scheduled foreclosure
sale. If the deed of trust is not reinstated, a notice of sale must be posted
in a public place and, in most states, published for a specific period of time
in one or more newspapers. In addition, some state laws require that a copy of
the notice of sale be posted on the property and sent to all parties having an
interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of
the parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and
a requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding
under the loan, accrued and unpaid interest and the expenses of foreclosure in
which event the mortgagor's debt will be extinguished or the lender may
purchase for a lesser amount in order to preserve its right against a borrower
to seek a deficiency judgment in states where such judgment is available.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, the lender will assume the burden of
ownership, including obtaining hazard insurance and making such repairs at its
own expense as are necessary to render the property suitable for sale. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property. Depending
upon market conditions, the ultimate proceeds of the sale of the property may
not equal the lender's investment in the property. Any loss may be reduced by
the receipt of any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure,
which are generally designed to mitigate the legal consequences to the
borrower of the borrower's defaults under the loan documents. Some courts have
been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for fair notice require that
borrowers under deeds of trust receive notice longer than that prescribed by
statute. For the most part, these cases have upheld the notice provisions as
being reasonable or have found that the sale by a trustee under a deed of
trust does not involve sufficient state action to afford constitutional
protection to the borrower.
When the beneficiary under a junior mortgage or deed of trust cures
the default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary so to cure or
redeem becomes a part of the indebtedness secured by the junior mortgage or
deed of trust. See "--Junior Mortgages; Rights of Senior Mortgagees" below.
Environmental Risks
Federal, state and local laws and regulations impose a wide range of
requirements on activities that may affect the environment, health and safety.
These include laws and regulations governing air pollutant emissions,
hazardous and toxic substances, impacts to wetlands, leaks from underground
storage tanks, and the management, removal and disposal of lead- and
asbestos-containing materials. In certain circumstances, these laws and
regulations impose obligations on the owners or operators of residential
properties such as those subject to the Loans. The failure to comply with such
laws and regulations may result in fines and penalties.
Moreover, under various federal, state and local laws and
regulations, an owner or operator of real estate may be liable for the costs
of addressing hazardous substances on, in or beneath such property and related
costs. Such liability may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the presence of such substances, and
could exceed the value of the property and the aggregate assets of the owner
or operator. In addition, persons who transport or dispose of hazardous
substances, or arrange for the transportation, disposal or treatment of
hazardous substances, at off-site locations may also be held liable if there
are releases or threatened releases of hazardous substances at such off-site
locations.
In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), contamination of property may give rise to a lien on the property
to assure the payment of the costs of clean-up. In several states, such a lien
has priority over the lien of an existing mortgage against such property.
Under CERCLA, such a lien is subordinate to pre-existing, perfected security
interests.
Under the laws of some states, and under CERCLA, there is a
possibility that a lender may be held liable as an "owner" or "operator" for
costs of addressing releases or threatened releases of hazardous substances at
a property, regardless of whether or not the environmental damage or threat
was caused by a current or prior owner or operator. CERCLA imposes liability
for such costs on any and all "responsible parties," including owners or
operators. However, CERCLA excludes from the definition of "owner or operator"
a secured creditor who holds indicia of ownership primarily to protect its
security interest but does not "participate in the management" of the property
(the "secured creditor exclusion"). Thus, if a lender's activities begin to
encroach on the actual management of a contaminated facility or property, the
lender may incur liability as an "owner or operator" under CERCLA. Similarly,
if a lender forecloses and takes title to a contaminated facility or property,
the lender may incur CERCLA liability in various circumstances, including, but
not limited to, when it holds the facility or property as an investment
(including leasing the facility or property to a third party), or fails to
market the property in a timely fashion.
Whether actions taken by a lender would constitute such participation
in the management of a property, so that the lender would lose the protection
of the secured creditor exclusion, has been a matter of judicial
interpretation of the statutory language, and court decisions have
historically been inconsistent. In 1990, the United States Court of Appeals
for the Eleventh Circuit suggested, in United States v. Fleet Factors Corp.,
that the mere capacity of the lender to influence a borrower's decisions
regarding disposal of hazardous substances was sufficient participation in the
management of the borrower's business to deny the protection of the secured
creditor exclusion to the lender, regardless of whether the lender actually
exercised such influence. Other judicial decisions did not interpret the
secured creditor exclusion as narrowly as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liabiltiy and Deposit Insurance Protection Act of
1996 (the "Asset Conservation Act"), which took effect on September 30, 1996.
The Asset Conservation Act provides that in order to be deemed to have
participated in the management of a secured property, a lender must actually
participate in the operational affairs of the property or of the borrower. The
Asset Conservation Act also provides that participation in the management of
the property does not include "merely having the capacity to influence, or
unexercised right to control" operations. Rather, a lender will lose the
protection of the secured creditor exclusion only if it exercises
decision-making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of all operational functions of the secured property.
If a lender is or becomes liable, it can bring an action for
contribution against any other "responsible parties," including a previous
owner or operator, who crated the environmental hazard, but those persons or
entities may be bankrupt or otherwise judgment proof. The costs associated
with environmental cleanup may be substantial. It is conceivable that such
costs arising from the circumstances set forth above would result in a loss to
Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder
of a security interest in an underground storage tank or real property
containing an underground storage tank is not considered an operator of the
underground storage tank as long as petroleum is not added to, stored in or
dispensed from the tank. Moreover, under the Asset Conservation Act, the
protections accorded to lenders under CERCLA are also accorded to holders of
security interests in underground petroleum storage tanks. It should be noted,
however, that liability for cleanup of petroleum contamination may be governed
by state law, which may not provide for any specific protection for secured
creditors.
The Asset Conservation Act specifically addresses the potential
liability of lenders who hold mortgages or similar conventional security
interests in real property, such as the Trust Fund does in connection with the
Home Equity Loans and the Home Improvement Contracts. The Asset Conservation
Act, however, does not clearly address the potential liability of lenders who
retain legal title to a property and enter into an agreement with the
purchaser for the payment of the purchase price and interest over the term of
the contract, such as the Trust Fund does in connection with the Installment
Contracts.
If a lender (including a lender under an Installment Contract) is or
becomes liable under CERCLA, it may be authorized to bring a statutory action
for contribution against any other "responsible parties", including a previous
owner or operator. However, such persons or entities may be bankrupt or
otherwise judgment proof, and the costs associated with environmental cleanup
and related actions may be substantial. Moreover, some state laws imposing
liability for addressing hazardous substances do not contain exemptions from
liability for lenders. Whether the costs of addressing a release or threatened
release at a property pledged as collateral for one of the Loans (or at a
property subject to an Installment Contract), would be imposed on the Trust
Fund, and thus occasion a loss to the Securityholders, therefore depends on
the specific factual and legal circumstances at issue.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of redemption would
defeat the title of any purchaser from the lender subsequent to foreclosure or
sale under a deed of trust. Consequently, the practical effect of the
redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states,
there is no right to redeem property after a trustee's sale under a deed of
trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have adopted statutory prohibitions restricting the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment
is a personal judgment against the borrower equal in most cases to the
difference between the amount due to the lender and the fair market value of
the real property sold at the foreclosure sale. Other statutes require the
beneficiary or mortgagee to exhaust the security afforded under a deed of
trust or mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. In certain other states, the
lender has the option of bringing a personal action against the borrower on
the debt without first exhausting such security; however, in some of these
states, the lender, following judgment on such personal action, may be deemed
to have elected a remedy and may be precluded from exercising remedies with
respect to the security. Consequently, the practical effect of the election
requirement, when applicable, is that lenders will usually proceed first
against the security rather than bringing a personal action against the
borrower. Finally, other statutory provisions limit any deficiency judgment
against the former borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a
beneficiary or a mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the foreclosure sale.
In addition to anti-deficiency and related legislation, numerous
other federal and state statutory provisions, including the Relief Act (as
defined below) and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon its
security. For example, in a proceeding under the federal Bankruptcy Code, a
lender may not foreclose on the Property without the permission of the
bankruptcy court. The rehabilitation plan proposed by the debtor may provide,
if the Property is not the debtor's principal residence and the court
determines that the value of the Property is less than the principal balance
of the mortgage loan, for the reduction of the secured indebtedness to the
value of the Property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate
of interest and alter the mortgage loan repayment schedule. The effect of any
such proceedings under the federal Bankruptcy Code, including but not limited
to any automatic stay, could result in delays in receiving payments on the
Loans underlying a Series of Securities and possible reductions in the
aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the
lien of a mortgage or secured party. Numerous federal and state consumer
protection laws impose substantive requirements upon mortgage lenders in
connection with the origination, servicing and enforcement of loans secured by
Single Family Properties. These laws include the federal Truth-in-Lending Act,
Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act and related statutes and
regulations. These federal and state laws impose specific statutory
liabilities upon lenders who fail to comply with the provisions of the law. In
some cases, this liability may affect assignees of the loans or contracts.
Certain Loans may be subject to the Riegle Community Development and
Regulatory Improvement Act of 1994, known as the Riegle Act, which
incorporates the Home Ownership and Equity Protection Act of 1994. These
provisions impose additional disclosure and other requirements on creditors
with respect to non-purchase money mortgage loans with high interest rates or
high up-front fees and charges. The provisions of the Riegle Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors who
fail to comply with these provisions and may affect the enforceability of the
related loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including the right to rescind the mortgage loan.
Due-on-Sale Clauses
Unless otherwise specified in the related Prospectus Supplement, each
conventional Loan will contain a due-on-sale clause which will provide that if
the mortgagor or obligor sells, transfers or conveys the Property, the loan or
contract may be accelerated by the mortgagee or secured party. The Garn-St.
Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act"),
subject to certain exceptions, preempts state constitutional, statutory and
case law prohibiting the enforcement of due-on-sale clauses. As a result,
due-on-sale clauses have become generally enforceable except in those states
whose legislatures exercised their authority to regulate the enforceability of
such clauses with respect to mortgage loans that were (i) originated or
assumed during the "window period" under the Garn-St. Germain Act which ended
in all cases not later than October 15, 1982, and (ii) originated by lenders
other than national banks, federal savings institutions and federal credit
unions. FHLMC has taken the position in its published mortgage servicing
standards that, out of a total of eleven "window period states," five states
(Arizona, Michigan, Minnesota, New Mexico and Utah) have enacted statutes
extending, on various terms and for varying periods, the prohibition on
enforcement of due-on-sale clauses with respect to certain categories of
window period loans. Also, the Garn-St. Germain Act does "encourage" lenders
to permit assumption of loans at the original rate of interest or at some
other rate less than the average of the original rate and the market rate.
As to loans secured by an owner-occupied residence, the Garn-St.
Germain Act sets forth nine specific instances in which a mortgagee covered by
the Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred.
The inability to enforce a due-on-sale clause may result in transfer of the
related Property to an uncreditworthy person, which could increase the
likelihood of default or may result in a mortgage bearing an interest rate
below the current market rate being assumed by a new home buyer, which may
affect the average life of the Loans and the number of Loans which may extend
to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may
not be enforceable in bankruptcy proceedings and may, under certain
circumstances, be eliminated in any modified mortgage resulting from such
bankruptcy proceeding.
Enforceability of Prepayment and Late Payment Fees
Forms of notes, mortgages and deeds of trust used by lenders may
contain provisions obligating the borrower to pay a late charge if payments
are not timely made, and in some circumstances may provide for prepayment fees
or penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon the late charges which a lender
may collect from a borrower for delinquent payments. Certain states also limit
the amounts that a lender may collect from a borrower as an additional charge
if the loan is prepaid. Late charges and prepayment fees are typically
retained by servicers as additional servicing compensation.
Equitable Limitations on Remedies
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. Examples of judicial remedies that have
been fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes of the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have substituted their judgment for the lender's
judgment and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from temporary
financial disability. In other cases, courts have limited the right of a
lender to realize upon his security if the default under the security
agreement is not monetary, such as the borrower's failure to adequately
maintain the property or the borrower's execution of secondary financing
affecting the property. Finally, some courts have been faced with the issue of
whether or not federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under security
agreements receive notices in addition to the statutorily-prescribed minimums.
For the most part, these cases have upheld the notice provisions as being
reasonable or have found that, in some cases involving the sale by a trustee
under a deed of trust or by a mortgagee under a mortgage having a power of
sale, there is insufficient state action to afford constitutional protections
to the borrower.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V") provides that state
usury limitations shall not apply to certain types of residential first
mortgage loans originated by certain lenders after March 31, 1980. The Office
of Thrift Supervision, as successor to the Federal Home Loan Bank Board, is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized the states to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects an application of the federal
law. Fifteen states adopted such a law prior to the April 1, 1993 deadline. In
addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to
reimpose interest rate limits and/or to limit discount points or other
charges.
The Home Improvement Contracts
General. The Home Improvement Contracts, other than those Home
Improvement Contracts that are unsecured or secured by mortgages on real
estate (such Home Improvement Contracts are hereinafter referred to in this
section as "contracts") generally are "chattel paper" or constitute "purchase
money security interests" each as defined in the Uniform Commercial Code (the
"UCC"). Pursuant to the UCC, the sale of chattel paper is treated in a manner
similar to perfection of a security interest in chattel paper. Under the
related Agreement, the Depositor will transfer physical possession of the
contracts to the Trustee or a designated custodian or may retain possession of
the contracts as custodian for the Trustee. In addition, the Depositor will
make an appropriate filing of a UCC-1 financing statement in the appropriate
states to give notice of the Trustee's ownership of the contracts. Unless
otherwise specified in the related Prospectus Supplement, the contracts will
not be stamped or otherwise marked to reflect their assignment from the
Depositor to the Trustee. Therefore, if through negligence, fraud or
otherwise, a subsequent purchaser were able to take physical possession of the
contracts without notice of such assignment, the Trustee's interest in the
contracts could be defeated.
Security Interests in Home Improvements. The contracts that are
secured by the Home Improvements financed thereby grant to the originator of
such contracts a purchase money security interest in such Home Improvements to
secure all or part of the purchase price of such Home Improvements and related
services. A financing statement generally is not required to be filed to
perfect a purchase money security interest in consumer goods. Such purchase
money security interests are assignable. In general, a purchase money security
interest grants to the holder a security interest that has priority over a
conflicting security interest in the same collateral and the proceeds of such
collateral. However, to the extent that the collateral subject to a purchase
money security interest becomes a fixture, in order for the related purchase
money security interest to take priority over a conflicting interest in the
fixture, the holder's interest in such Home Improvement must generally be
perfected by a timely fixture filing. In general, a security interest does not
exist under the UCC in ordinary building material incorporated into an
improvement on land. Home Improvement Contracts that finance lumber, bricks,
other types of ordinary building material or other goods that are deemed to
lose such characterization upon incorporation of such materials into the
related property, will not be secured by a purchase money security interest in
the Home Improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as the
Home Improvement has not become subject to the real estate law, a creditor can
repossess a Home Improvement securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the
peace) or, in the absence of voluntary surrender and the ability to repossess
without breach of the peace, by judicial process. The holder of a contract
must give the debtor a number of days' notice, which varies from 10 to 30 days
depending on the state, prior to commencement of any repossession. The UCC and
consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit that
the debtor may redeem at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws. The so-called "Holder-in-Due Course" rule
of the Federal Trade Commission is intended to defeat the ability of the
transferor of a consumer credit contract which is the seller of goods which
gave rise to the transaction (and certain related lenders and assignees) to
transfer such contract free of notice of claims by the debtor thereunder. The
effect of this rule is to subject the assignee of such a contract to all
claims and defenses which the debtor could assert against the seller of goods.
Liability under this rule is limited to amounts paid under a contract;
however, the obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trustee against such
obligor. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to the
contracts, including the Truth in Lending Act, the Federal Trade Commission
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act and the Uniform
Consumer Credit Code. In the case of some of these laws, the failure to comply
with their provisions may affect the enforceability of the related contract.
Applicability of Usury Laws. Title V provides that, subject to the
following conditions, state usury limitations shall not apply to any contract
which is secured by a first lien on certain kinds of consumer goods. The
contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading
to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest
rates and finance charges by adopting before April 1, 1983 a law or
constitutional provision which expressly rejects application of the federal
law. Fifteen states adopted such a law prior to the April 1, 1983 deadline. In
addition, even where Title V was not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
loans covered by Title V.
Installment Contracts
The Loans may also consist of installment contracts. Under an
installment contract ("Installment Contract") the seller (hereinafter referred
to in this section as the "lender") retains legal title to the property and
enters into an agreement with the purchaser hereinafter referred to in this
section as the "borrower") for the payment of the purchase price, plus
interest, over the term of such contract. Only after full performance by the
borrower of the contract is the lender obligated to convey title to the
property to the purchaser. As with mortgage or deed of trust financing, during
the effective period of the Installment Contract, the borrower is generally
responsible for maintaining the property in good condition and for paying real
estate taxes, assessments and hazard insurance premiums associated with the
property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to the terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the Installment
Contract may be reinstated upon full payment of the default amount and the
borrower may have a post-foreclosure statutory redemption right. In other
states, courts in equity may permit a borrower with significant investment in
the property under an Installment Contract for the sale of real estate to
share in the proceeds of sale of the property after the indebtedness is repaid
or may otherwise refuse to enforce the forfeiture clause. Nevertheless,
generally speaking, the lender's procedures for obtaining possession and clear
title under an Installment Contract in a given state are simpler and less
time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a property subject to one or more liens.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Loan (including a borrower
who is a member of the National Guard or is in reserve status at the time of
the origination of the Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such interest rate limitation
could have an effect, for an indeterminate period of time, on the ability of
the Master Servicer to collect full amounts of interest on certain of the
Loans. Any shortfall in interest collections resulting from the application of
the Relief Act could result in losses to the Securityholders. The Relief Act
also imposes limitations which would impair the ability of the Master Servicer
to foreclose on an affected Loan during the borrower's period of active duty
status. Moreover, the Relief Act permits the extension of a Loan's maturity
and the re-adjustment of its payment schedule beyond the completion of
military service. Thus, in the event that such a Loan goes into default, there
may be delays and losses occasioned by the inability to realize upon the
Property in a timely fashion.
Junior Mortgages; Rights of Senior Mortgagees
To the extent that the Loans comprising the Trust Fund for a Series
are secured by mortgages which are junior to other mortgages held by other
lenders or institutional investors, the rights of the Trust Fund (and
therefore the Securityholders), as mortgagee under any such junior mortgage,
are subordinate to those of any mortgagee under any senior mortgage. The
senior mortgagee has the right to receive hazard insurance and condemnation
proceeds and to cause the property securing the Loan to be sold upon default
of the mortgagor, thereby extinguishing the junior mortgagee's lien unless the
junior mortgagee asserts its subordinate interest in the property in
foreclosure litigation and, possibly, satisfies the defaulted senior mortgage.
A junior mortgagee may satisfy a defaulted senior loan in full and, in some
states, may cure such default and bring the senior loan current, in either
event adding the amounts expended to the balance due on the junior loan. In
most states, absent a provision in the mortgage or deed of trust, no notice of
default is required to be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in connection with
condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the mortgage, in such order as the mortgagee may
determine. Thus, in the event improvements on the property are damaged or
destroyed by fire or other casualty, or in the event the property is taken by
condemnation, the mortgagee or beneficiary under underlying senior mortgages
will have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the senior
mortgages. Proceeds in excess of the amount of senior mortgage indebtedness,
in most cases, may be applied to the indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon
a failure of the mortgagor to perform any of these obligations, the mortgagee
is given the right under certain mortgages to perform the obligation itself,
at its election, with the mortgagor agreeing to reimburse the mortgagee for
any sums expended by the mortgagee on behalf of the mortgagor. All sums so
expended by the mortgagee become part of the indebtedness secured by the
mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Revolving Credit Line Loans typically
contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the borrower by the beneficiary
or lender are to be secured by the deed of trust or mortgage. Any amounts so
advanced after the Cut-off Date with respect to any mortgage will not be
included in the Trust Fund. The priority of the lien securing any advance made
under the clause may depend in most states on whether the deed of trust or
mortgage is called and recorded as a credit line deed of trust or mortgage. If
the beneficiary or lender advances additional amounts, the advance is entitled
to receive the same priority as amounts initially advanced under the trust
deed or mortgage, notwithstanding the fact that there may be junior trust
deeds or mortgages and other liens which intervene between the date of
recording of the trust deed or mortgage and the date of the future advance,
and notwithstanding that the beneficiary or lender had actual knowledge of
such intervening junior trust deeds or mortgages and other liens at the time
of the advance. In most states, the trust deed or mortgage lien securing
mortgage loans of the type which includes home equity credit lines applies
retroactively to the date of the original recording of the trust deed or
mortgage, provided that the total amount of advances under the home equity
credit line does not exceed the maximum specified principal amount of the
recorded trust deed or mortgage, except as to advances made after receipt by
the lender of a written notice of lien from a judgment lien creditor of the
trustor.
The Title I Program
General. Certain of the Loans contained in a Trust Fund may be loans
insured under the FHA Title I Credit Insurance program created pursuant to
Sections 1 and 2(a) of the National Housing Act of 1934 (the "Title I
Program"). Under the Title I Program, the FHA is authorized and empowered to
insure qualified lending institutions against losses on eligible loans. The
Title I Program operates as a coinsurance program in which the FHA insures up
to 90% of certain losses incurred on an individual insured loan, including the
unpaid principal balance of the loan, but only to the extent of the insurance
coverage available in the lender's FHA insurance coverage reserve account. The
owner of the loan bears the uninsured loss on each loan.
The types of loans which are eligible for insurance by the FHA under
the Title I Program include property improvement loans ("Property Improvement
Loans" or "Title I Loans"). A Property Improvement Loan or Title I Loan means
a loan made to finance actions or items that substantially protect or improve
the basic livability or utility of a property and includes single family
improvement loans.
There are two basic methods of lending or originating such loans
which include a "direct loan" or a "dealer loan". With respect to a direct
loan, the borrower makes application directly to a lender without any
assistance from a dealer, which application may be filled out by the borrower
or by a person acting at the direction of the borrower who does not have a
financial interest in the loan transaction, and the lender may disburse the
loan proceeds solely to the borrower or jointly to the borrower and other
parties to the transaction. With respect to a dealer loan, the dealer, who has
a direct or indirect financial interest in the loan transaction, assists the
borrower in preparing the loan application or otherwise assists the borrower
in obtaining the loan from the lender. The lender may disburse proceeds solely
to the dealer or the borrower or jointly to the borrower and the dealer or
other parties to the transaction. With respect to a dealer Title I Loan, a
dealer may include a seller, a contractor or supplier of goods or services.
Loans insured under the Title I Program are required to have fixed
interest rates and generally provide for equal installment payments due
weekly, biweekly, semi-monthly or monthly, except that a loan may be payable
quarterly or semi-annually where a borrower has an irregular flow of income.
The first or last payments (or both) may vary in amount but may not exceed
150% of the regular installment payment, and the first payment may be due no
later than two months from the date of the loan. The note must contain a
provision permitting full or partial prepayment of the loan. The interest rate
must be negotiated and agreed to by the borrower and the lender and must be
fixed for the term of the loan and recited in the note. Interest on an insured
loan must accrue from the date of the loan and be calculated according to the
actuarial method. The lender must assure that the note and all other documents
evidencing the loan are in compliance with applicable federal, state and local
laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence
and diligence to determine whether the borrower and any co-maker is solvent
and an acceptable credit risk, with a reasonable ability to make payments on
the loan obligation. The lender's credit application and review must determine
whether the borrower's income will be adequate to meet the periodic payments
required by the loan, as well as the borrower's other housing and recurring
expenses, which determination must be made in accordance with the
expense-to-income ratios published by the Secretary of HUD unless the lender
determines and documents in the loan file the existence of compensating
factors concerning the borrower's creditworthiness which support approval of
the loan.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the
time of approval by the lending institution (as is typically the case with
other federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatements of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
Requirements for Title I Loans. The maximum principal amount for
Title I Loans must not exceed the actual cost of the project plus any
applicable fees and charges allowed under the Title I Program; provided that
such maximum amount does not exceed $25,000 (or the current applicable amount)
for a single family property improvement loan. Generally, the term of a Title
I Loan may not be less than six months nor greater than 20 years and 32 days.
A borrower may obtain multiple Title I Loans with respect to multiple
properties, and a borrower may obtain more than one Title I Loan with respect
to a single property, in each case as long as the total outstanding balance of
all Title I Loans in the same property does not exceed the maximum loan amount
for the type of Title I Loan thereon having the highest permissible loan
amount.
Borrower eligibility for a Title I Loan requires that the borrower
have at least a one-half interest in either fee simple title to the real
property, a lease thereof for a term expiring at least six months after the
final maturity of the Title I Loan or a recorded land installment contract for
the purchase of the real property. In the case of a Title I Loan with a total
principal balance in excess of $15,000, if the property is not occupied by the
owner, the borrower must have equity in the property being improved at least
equal to the principal amount of the loan, as demonstrated by a current
appraisal. Any Title I Loan in excess of $7,500 must be secured by a recorded
lien on the improved property which is evidenced by a mortgage or deed of
trust executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I Loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
Loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD approved form, signed by the
borrower and the dealer. With respect to any direct Title I Loan, the lender
is required to obtain, promptly upon completion of the improvements but not
later than 6 months after disbursement of the loan proceeds with one 6 month
extension if necessary, a completion certificate, signed by the borrower. The
lender is required to conduct an on-site inspection on any Title I Loan where
the principal obligation is $7,500 or more, and on any direct Title I Loan
where the borrower fails to submit a completion certificate.
FHA Insurance Coverage. Under the Title I Program, the FHA
establishes an insurance coverage reserve account for each lender which has
been granted a Title I contract of insurance. The amount of insurance coverage
in this account is a maximum of 10% of the amount disbursed, advanced or
expended by the lender in originating or purchasing eligible loans registered
with the FHA for Title I insurance, with certain adjustments. The balance in
the insurance coverage reserve account is the maximum amount of insurance
claims the FHA is required to pay to the Title I lender. Loans to be insured
under the Title I Program will be registered for insurance by the FHA and the
insurance coverage attributable to such loans will be included in the
insurance coverage reserve account for the originating or purchasing lender
following the receipt and acknowledgment by the FHA of a loan report on the
prescribed form pursuant to the Title I regulations. For each eligible loan
reported and acknowledged for insurance, the FHA charges a fee (the
"Premium"). For loans having a maturity of 25 months or less, the FHA bills
the lender for the entire Premium in an amount equal to the product of 0.50%
of the original loan amount and the loan term. For home improvement loans with
a maturity greater than 25 months, each year that a loan is outstanding the
FHA bills the lender for a Premium in an amount equal to 0.50% of the original
loan amount. If a loan is prepaid during the year, the FHA will not refund or
abate the Premium paid for such year.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect
to loans insured under the lender's contract of insurance by (i) the amount of
the FHA insurance claims approved for payment relating to such insured loans
and (ii) the amount of insurance coverage attributable to insured loans sold
by the lender, and such insurance coverage may be reduced for any FHA
insurance claims rejected by the FHA. The balance of the lender's FHA
insurance coverage reserve account will be further adjusted as required under
Title I or by the FHA, and the insurance coverage therein may be earmarked
with respect to each or any eligible loans insured thereunder, if a
determination is made by the Secretary of HUD that it is in its interest to do
so. Originations and acquisitions of new eligible loans will continue to
increase a lender's insurance coverage reserve account balance by 10% of the
amount disbursed, advanced or expended in originating or acquiring such
eligible loans registered with the FHA for insurance under the Title I
Program. The Secretary of HUD may transfer insurance coverage between
insurance coverage reserve accounts with earmarking with respect to a
particular insured loan or group of insured loans when a determination is made
that it is in the Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide
transaction) insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an
insured loan is transferred with recourse or with a guaranty or repurchase
agreement, the FHA, upon receipt of written notification of the transfer of
such loan in accordance with the Title I regulations, will transfer from the
transferor's insurance coverage reserve account to the transferee's insurance
coverage reserve account an amount, if available, equal to 10% of the actual
purchase price or the net unpaid principal balance of such loan (whichever is
less). However, under the Title I Program not more than $5,000 in insurance
coverage shall be transferred to or from a lender's insurance coverage reserve
account during any October 1 to September 30 period without the prior approval
of the Secretary of HUD. Amounts which may be recovered by the Secretary of
HUD after payment of an insurance claim are not added to the amount of
insurance coverage in the related lender's insurance coverage reserve account.
Claims Procedures Under Title I. Under the Title I Program the lender
may accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the
lender may either (a) proceed against the property under any security
instrument, or (b) make a claim under the lender's contract of insurance. If
the lender chooses to proceed against the property under a security instrument
(or if it accepts a voluntary conveyance or surrender of the property), the
lender may file an insurance claim only with the prior approval of the
Secretary of HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation
of the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower is bankrupt or deceased.
Generally, a claim for reimbursement for loss on any Title I Loan must be
filed with the FHA no later than 9 months after the date of default of such
loan. Concurrently with filing the insurance claim, the lender shall assign to
the United States of America the lender's entire interest in the loan note (or
a judgment in lien of the note), in any security held and in any claim filed
in any legal proceedings. If, at the time the note is assigned to the United
States, the Secretary has reason to believe that the note is not valid or
enforceable against the borrower, the FHA may deny the claim and reassign the
note to the lender. If either such defect is discovered after the FHA has paid
a claim, the FHA may require the lender to repurchase the paid claim and to
accept a reassignment of the loan note. If the lender subsequently obtains a
valid and enforceable judgment against the borrower, the lender may resubmit a
new insurance claim with an assignment of the judgment. Although the FHA may
contest any insurance claim and make a demand for repurchase of the loan at
any time up to two years from the date the claim was certified for payment and
may do so thereafter in the event of fraud or misrepresentation on the part of
the lender, the FHA has expressed an intention to limit the period of time
within which it will take such action to one year from the date the claim was
certified for payment.
Under the Title I Program the amount of an FHA insurance claim
payment, when made, is equal to the Claimable Amount, up to the amount of
insurance coverage in the lender's insurance coverage reserve account. For the
purposes hereof, the "Claimable Amount" means an amount equal to 90% of the
sum of: (a) the unpaid loan obligation (net unpaid principal and the
uncollected interest earned to the date of default) with adjustments thereto
if the lender has proceeded against property securing such loan; (b) the
interest on the unpaid amount of the loan obligation from the date of default
to the date of the claim's initial submission for payment plus 15 calendar
days (but not to exceed 9 months from the date of default), calculated at the
rate of 7% per annum; (c) the uncollected court costs; (d) the attorney's fees
not to exceed $500; and (e) the expenses for recording the assignment of the
security to the United States.
The Secretary of HUD may deny a claim for insurance in whole or in
part for any violations of the regulations governing the Title I Program;
however, the Secretary of HUD may waive such violations if it determines that
enforcement of the regulations would impose an injustice upon a lender which
has substantially complied with the regulations in good faith.
Other Legal Considerations
The Loans are also subject to federal laws, including: (i) Regulation
Z, which requires certain disclosures to the borrowers regarding the terms of
the Loans; (ii) the Equal Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public assistance
or the exercise of any right under the Consumer Credit Protection Act, in the
extension of credit; and (iii) the Fair Credit Reporting Act, which regulates
the use and reporting of information related to the borrower's credit
experience. Violations of certain provisions of these federal laws may limit
the ability of the Sellers to collect all or part of the principal of or
interest on the Loans and in addition could subject the Sellers to damages and
administrative enforcement.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of certain anticipated material federal
income tax consequences of the purchase, ownership, and disposition of the
Securities and is based on the opinion of Brown & Wood LLP, special counsel to
the Depositor (in such capacity, "Tax Counsel"). The summary is based upon the
provisions of the Code, the regulations promulgated thereunder, including,
where applicable, proposed regulations, and the judicial and administrative
rulings and decisions now in effect, all of which are subject to change or
possible differing interpretations. The statutory provisions, regulations, and
interpretations on which this interpretation is based are subject to change,
and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances. This summary focuses primarily upon investors who
will hold Securities as "capital assets" (generally, property held for
investment) within the meaning of section 1221 of the Code. Prospective
investors may wish to consult their own tax advisers concerning the federal,
state, local and any other tax consequences as relates specifically to such
investors in connection with the purchase, ownership and disposition of the
Securities.
The federal income tax consequences to holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness; (ii) an
election is made to treat the Trust Fund relating to a particular Series of
Securities as a REMIC under the Internal Revenue Code of 1986, as amended (the
"Code"); (iii) the Securities represent an ownership interest in some or all
of the assets included in the Trust Fund for a Series; or (iv) an election is
made to treat the Trust Fund relating to a particular Series of Certificates
as a partnership. The Prospectus Supplement for each Series of Securities will
specify how the Securities will be treated for federal income tax purposes and
will discuss whether a REMIC election, if any, will be made with respect to
such Series.
As used herein, the term "U.S. Person" means a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States, any state thereof or the
District of Columbia (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), an estate whose
income is subject to U.S. federal income tax regardless of its source, or a
trust with respect to which (i) a court within the United States is able to
exercise primary supervision over the administration of the trust and (ii) one
or more U.S. persons have the authority to control all substantial decisions
of the trust. Notwithstanding the preceding sentence, to the extent provided
in regulations, certain trusts in existence on August 20, 1996 and treated as
United States Persons prior to such date that elect to continue to be treated
as United States persons shall be considered U.S. Persons as well.
Taxation of Debt Securities
Status as Real Property Loans. Except to the extent otherwise
provided in the related Prospectus Supplement, if the Securities are regular
interests in a REMIC ("Regular Interest Securities") or represent interests in
a grantor trust, Tax Counsel is of the opinion that: (i) Securities held by a
domestic building and loan association will constitute "loans... secured by an
interest in real property" within the meaning of section 7701(a)(19)(C)(v) of
the Code; and (ii) Securities held by a real estate investment trust will
constitute "real estate assets" within the meaning of section 856(c)(4)(A) of
the Code and interest on Securities will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of section 856(c)(3)(B) of the Code.
Interest and Acquisition Discount. In the opinion of Tax Counsel,
Regular Interest Securities are generally taxable to holders in the same
manner as evidences of indebtedness issued by the REMIC. Stated interest on
the Regular Interest Securities will be taxable as ordinary income and taken
into account using the accrual method of accounting, regardless of the
holder's normal accounting method. Interest (other than original issue
discount) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be
includible in income by holders thereof in accordance with their usual methods
of accounting. Securities characterized as debt for federal income tax
purposes and Regular Interest Securities will be referred to hereinafter
collectively as "Debt Securities."
Tax Counsel is of the opinion that Debt Securities that are Compound
Interest Securities will, and certain of the other Debt Securities issued at a
discount may, be issued with "original issue discount" ("OID"). The following
discussion is based in part on the rules governing OID which are set forth in
sections 1271 through 1275 of the Code and the Treasury regulations issued
thereunder on February 2, 1994, as amended on June 11, 1996 (the "OID
Regulations"). A holder should be aware, however, that the OID Regulations do
not adequately address certain issues relevant to prepayable securities, such
as the Debt Securities.
In general, OID, if any, will equal the excess of the stated
redemption price at maturity of a Debt Security over its issue price. In the
opinion of Tax Counsel, a holder of a Debt Security must include such OID in
gross income as ordinary interest income as it accrues under a method taking
into account an economic accrual of the discount. In general, OID must be
included in income in advance of the receipt of the cash representing that
income. The amount of OID on a Debt Security will be considered to be zero if
it is less than a de minimis amount determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash
on or prior to the Closing Date, the issue price for such class will be
treated as the fair market value of such class on the Closing Date. The issue
price of a Debt Security also includes the amount paid by an initial Debt
Security holder for accrued interest that relates to a period prior to the
issue date of the Debt Security. The stated redemption price at maturity of a
Debt Security includes the original principal amount of the Debt Security, but
generally will not include distributions of interest if such distributions
constitute "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Debt
Security. The OID Regulations state that interest payments are unconditionally
payable only if a late payment or nonpayment is expected to be penalized or
reasonable remedies exist to compel payment. Certain Debt Securities may
provide for default remedies in the event of late payment or nonpayment of
interest. In the opinion of Tax Counsel, the interest on such Debt Securities
will be unconditionally payable and constitute qualified stated interest, not
OID. However, absent clarification of the OID Regulations, where Debt
Securities do not provide for default remedies, the interest payments will be
included in the Debt Security's stated redemption price at maturity and taxed
as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on Debt Securities with respect to which deferred
interest will accrue, will not constitute qualified stated interest payments,
in which case the stated redemption price at maturity of such Debt Securities
includes all distributions of interest as well as principal thereon. Where the
interval between the issue date and the first Distribution Date on a Debt
Security is either longer or shorter than the interval between subsequent
Distribution Dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the
shorter interval, will be included in the stated redemption price at maturity
and tested under the de minimis rule described below. In the case of a Debt
Security with a long first period which has non-de minimis OID, all stated
interest in excess of interest payable at the effective interest rate for the
long first period will be included in the stated redemption price at maturity
and the Debt Security will generally have OID. Holders of Debt Securities
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Debt Security.
Under the de minimis rule, OID on a Debt Security will be considered
to be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Security multiplied by the weighted average maturity of
the Debt Security. For this purpose, the weighted average maturity of the Debt
Security is computed as the sum of the amounts determined by multiplying the
number of full years (i.e., rounding down partial years) from the issue date
until each distribution in reduction of stated redemption price at maturity is
scheduled to be made by a fraction, the numerator of which is the amount of
each distribution included in the stated redemption price at maturity of the
Debt Security and the denominator of which is the stated redemption price at
maturity of the Debt Security. Holders generally must report de minimis OID
pro rata as principal payments are received, and such income will be capital
gain if the Debt Security is held as a capital asset. However, accrual method
holders may elect to accrue all de minimis OID as well as market discount
under a constant interest method.
Debt Securities may provide for interest based on a qualified
variable rate. Under the OID Regulations, interest is treated as payable at a
qualified variable rate and not as contingent interest if, generally, (i) such
interest is unconditionally payable at least annually, (ii) the issue price of
the debt instrument does not exceed the total noncontingent principal payments
and (iii) interest is based on a "qualified floating rate," an "objective
rate," or a combination of "qualified floating rates" that do not operate in a
manner that significantly accelerates or defers interest payments on such Debt
Security. In the case of Compound Interest Securities, certain Interest
Weighted Securities, and certain of the other Debt Securities, none of the
payments under the instrument will be considered qualified stated interest,
and thus the aggregate amount of all payments will be included in the stated
redemption price.
The Internal Revenue Service (the "IRS") issued regulations (the
"Contingent Regulations") governing the calculation of OID on instruments
having contingent interest payments. The Contingent Regulations represent the
only guidance regarding the views of the IRS with respect to contingent
interest instruments and specifically do not apply for purposes of calculating
OID on debt instruments subject to section 1272(a)(6) of the Code, such as the
Debt Securities. Additionally, the OID Regulations do not contain provisions
specifically interpreting section 1272(a)(6) of the Code. Until the Treasury
issues guidance to the contrary, the Trustee intends to base its computation
on section 1272(a)(6) of the Code and the OID Regulations as described in this
Prospectus. However, because no regulatory guidance currently exists under
section 1272(a)(6) of the Code, there can be no assurance that such
methodology represents the correct manner of calculating OID.
The holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Security, the sum of the "daily portions" of such original issue discount. The
amount of OID includible in income by a holder will be computed by allocating
to each day during a taxable year a pro rata portion of the original issue
discount that accrued during the relevant accrual period. In the case of a
Debt Security that is not a Regular Interest Security and the principal
payments on which are not subject to acceleration resulting from prepayments
on the Loans, the amount of OID includible in income of a holder for an
accrual period (generally the period over which interest accrues on the debt
instrument) will equal the product of the yield to maturity of the Debt
Security and the adjusted issue price of the Debt Security, reduced by any
payments of qualified stated interest. The adjusted issue price is the sum of
its issue price plus prior accruals or OID, reduced by the total payments made
with respect to such Debt Security in all prior periods, other than qualified
stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through Security at the
beginning of the accrual period. The present value of the remaining payments
is to be determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding
at the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method
is to increase the portions of OID required to be included in income by a
holder to take into account prepayments with respect to the Loans at a rate
that exceeds the Prepayment Assumption, and to decrease (but not below zero
for any period) the portions of original issue discount required to be
included in income by a holder of a Pay-Through Security to take into account
prepayments with respect to the Loans at a rate that is slower than the
Prepayment Assumption. Although original issue discount will be reported to
holders of Pay-Through Securities based on the Prepayment Assumption, no
representation is made to holders that Loans will be prepaid at that rate or
at any other rate.
The Depositor may adjust the accrual of OID on a Class of Regular
Interest Securities (or other regular interests in a REMIC) in a manner that
it believes to be appropriate, to take account of realized losses on the
Loans, although the OID Regulations do not provide for such adjustments. If
the Internal Revenue Service were to require that OID be accrued without such
adjustments, the rate of accrual of OID for a Class of Regular Interest
Securities could increase.
Certain classes of Regular Interest Securities may represent more
than one class of REMIC regular interests. Unless otherwise provided in the
related Prospectus Supplement, the Trustee intends, based on the OID
Regulations, to calculate OID on such Securities as if, solely for the
purposes of computing OID, the separate regular interests were a single debt
instrument.
A subsequent holder of a Debt Security will also be required to
include OID in gross income, but such a holder who purchases such Debt
Security for an amount that exceeds its adjusted issue price will be entitled
(as will an initial holder who pays more than a Debt Security's issue price)
to offset such OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. In the opinion of Tax Counsel,
holders will be required to report income with respect to the related
Securities under an accrual method without giving effect to delays and
reductions in distributions attributable to a default or delinquency on the
Loans, except possibly to the extent that it can be established that such
amounts are uncollectible. As a result, the amount of income (including OID)
reported by a holder of such a Security in any period could significantly
exceed the amount of cash distributed to such holder in that period. The
holder will eventually be allowed a loss (or will be allowed to report a
lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Loan default.
However, the timing and character of such losses or reductions in income are
uncertain and, accordingly, holders of Securities should consult their own tax
advisors on this point.
Interest Weighted Securities. It is not clear how income should be
accrued with respect to Regular Interest Securities or Stripped Securities (as
defined under "--Tax Status as a Grantor Trust; General" below) the payments
on which consist solely or primarily of a specified portion of the interest
payments on qualified mortgages held by the REMIC or on Loans underlying
Pass-Through Securities ("Interest Weighted Securities"). The Issuer intends
to take the position that all of the income derived from an Interest Weighted
Security should be treated as OID and that the amount and rate of accrual of
such OID should be calculated by treating the Interest Weighted Security as a
Compound Interest Security. However, in the case of Interest Weighted
Securities that are entitled to some payments of principal and that are
Regular Interest Securities the IRS could assert that income derived from an
Interest Weighted Security should be calculated as if the Security were a
security purchased at a premium equal to the excess of the price paid by such
holder for such Security over its stated principal amount, if any. Under this
approach, a holder would be entitled to amortize such premium only if it has
in effect an election under section 171 of the Code with respect to all
taxable debt instruments held by such holder, as described below.
Alternatively, the IRS could assert that an Interest Weighted Security should
be taxable under the rules governing bonds issued with contingent payments.
Such treatment may be more likely in the case of Interest Weighted Securities
that are Stripped Securities as described below. See "--Tax Status as a
Grantor Trust--Discount or Premium on Pass-Through Securities" below.
Variable Rate Debt Securities. In the opinion of Tax Counsel, in the
case of Debt Securities bearing interest at a rate that varies directly,
according to a fixed formula, with an objective index, it appears that (i) the
yield to maturity of such Debt Securities and (ii) in the case of Pay-Through
Securities, the present value of all payments remaining to be made on such
Debt Securities, should be calculated as if the interest index remained at its
value as of the issue date of such Securities. Because the proper method of
adjusting accruals of OID on a variable rate Debt Security is uncertain,
holders of variable rate Debt Securities should consult their own tax advisers
regarding the appropriate treatment of such Securities for federal income tax
purposes.
Market Discount. In the opinion of Tax Counsel, a purchaser of a
Security may be subject to the market discount rules of sections 1276 through
1278 of the Code. A Holder that acquires a Debt Security with more than a
prescribed de minimis amount of "market discount" (generally, the excess of
the principal amount of the Debt Security over the purchaser's purchase price)
will be required to include accrued market discount in income as ordinary
income in each month, but limited to an amount not exceeding the principal
payments on the Debt Security received in that month and, if the Securities
are sold, the gain realized. Such market discount would accrue in a manner to
be provided in Treasury regulations but, until such regulations are issued,
such market discount would in general accrue either (i) on the basis of a
constant yield (in the case of a Pay-Through Security, taking into account a
prepayment assumption) or (ii) in the ratio of (a) in the case of Securities
(or in the case of a Pass-Through Security, as set forth below, the Loans
underlying such Security) not originally issued with original issue discount,
stated interest payable in the relevant period to total stated interest
remaining to be paid at the beginning of the period or (b) in the case of
Securities (or, in the case of a Pass-Through Security, as described below,
the Loans underlying such Security) originally issued at a discount, OID in
the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security (or, in the case of a Pass-Through Security, the
Loans), the excess of interest paid or accrued to purchase or carry a Security
(or, in the case of a Pass-Through Security, as described below, the
underlying Loans) with market discount over interest received on such Security
is allowed as a current deduction only to the extent such excess is greater
than the market discount that accrued during the taxable year in which such
interest expense was incurred. In general, the deferred portion of any
interest expense will be deductible when such market discount is included in
income, including upon the sale, disposition, or repayment of the Security (or
in the case of a Pass-Through Security, an underlying Loan). A holder may
elect to include market discount in income currently as it accrues, on all
market discount obligations acquired by such holder during the taxable year
such election is made and thereafter, in which case the interest deferral rule
will not apply.
Premium. In the opinion of Tax Counsel, a holder who purchases a Debt
Security (other than an Interest Weighted Security to the extent described
above) at a cost greater than its stated redemption price at maturity,
generally will be considered to have purchased the Security at a premium,
which it may elect to amortize as an offset to interest income on such
Security (and not as a separate deduction item) on a constant yield method.
The legislative history of the 1986 Act indicates that premium is to be
accrued in the same manner as market discount. Accordingly, it appears that
the accrual of premium on a class of Pay-Through Securities will be calculated
using the prepayment assumption used in pricing such class. If a holder makes
an election to amortize premium on a Debt Security, such election will apply
to all taxable debt instruments (including all REMIC regular interests and all
pass-through certificates representing ownership interests in a trust holding
debt obligations) held by the holder at the beginning of the taxable year in
which the election is made, and to all taxable debt instruments acquired
thereafter by such holder, and will be irrevocable without the consent of the
IRS. Purchasers who pay a premium for the Securities should consult their tax
advisers regarding the election to amortize premium and the application of
recently finalized regulations under Section 171 issued December 30, 1997.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all
interest, discount (including de minimis market or original issue discount)
and premium in income as interest, based on a constant yield method for Debt
Securities acquired on or after April 4, 1994. If such an election were to be
made with respect to a Debt Security with market discount, the holder of the
Debt Security would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such holder of the Debt Security acquires during the year
of the election or thereafter. Similarly, a holder of a Debt Security that
makes this election for a Debt Security that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such holder owns or
acquires. The election to accrue interest, discount and premium on a constant
yield method with respect to a Debt Security is irrevocable.
Taxation of the REMIC and its Holders
General. In the opinion of Tax Counsel, if a REMIC election is made
with respect to a Series of Securities, then the arrangement by which the
Securities of that Series are issued will be treated as a REMIC as long as all
of the provisions of the applicable Agreement are complied with and the
statutory and regulatory requirements are satisfied. Securities will be
designated as "Regular Interests" or "Residual Interests" in a REMIC, as
specified in the related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement,
if a REMIC election is made with respect to a Series of Securities, in the
opinion of Tax Counsel (i) Securities held by a domestic building and loan
association will constitute "a regular or a residual interest in a REMIC"
within the meaning of section 7701(a)(19)(C)(xi) of the Code (assuming that at
least 95% of the REMIC's assets consist of cash, government securities, "loans
secured by an interest in real property," and other types of assets described
in section 7701(a)(19)(C)) of the Code; and (ii) Securities held by a real
estate investment trust will constitute "real estate assets" within the
meaning of section 856(c)(4)(A) of the Code, and income with respect to the
Securities will be considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the meaning of section
856(c)(3)(B) of the Code (assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets). If less than 95% of the REMIC's
assets consist of assets described in clause (i) or (ii) above, then a
Security will qualify for the tax treatment described in clause (i) or (ii) in
the proportion that such REMIC assets are qualifying assets.
REMIC Expenses; Single Class REMICs
As a general rule, in the opinion of Tax Counsel, all of the expenses
of a REMIC will be taken into account by holders of the Residual Interest
Securities. In the case of a "single class REMIC," however, the expenses will
be allocated, under Treasury regulations, among the holders of the Regular
Interest Securities and the holders of the Residual Interest Securities on a
daily basis in proportion to the relative amounts of income accruing to each
holder on that day. In the case of a holder of a Regular Interest Security who
is an individual or a "pass-through interest holder" (including certain
pass-through entities but not including real estate investment trusts), such
expenses will be deductible only to the extent that such expenses, plus other
"miscellaneous itemized deductions" of the holder, exceed 2% of such Holder's
adjusted gross income. In addition, for taxable years beginning after December
31, 1990, the amount of itemized deductions otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds the
applicable amount (which amount will be adjusted for inflation for taxable
years beginning after 1990) will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the applicable amount, or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. The
reduction or disallowance of this deduction may have a significant impact on
the yield of the Regular Interest Security to such a holder. In general terms,
a single class REMIC is one that either (i) would qualify, under existing
Treasury regulations, as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt for
federal income tax purposes) or (ii) is similar to such a trust and which is
structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise specified in the related Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related residual
interest securities.
Taxation of the REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, in the opinion of Tax Counsel, a REMIC is not generally subject to
entity-level tax. Rather, the taxable income or net loss of a REMIC is taken
into account by the holders of residual interests. As described above, the
regular interests are generally taxable as debt of the REMIC.
Calculation of REMIC Income. In the opinion of Tax Counsel, the
taxable income or net loss of a REMIC is determined under an accrual method of
accounting and in the same manner as in the case of an individual, with
certain adjustments. In general, the taxable income or net loss will be the
difference between (i) the gross income produced by the REMIC's assets,
including stated interest and any original issue discount or market discount
on loans and other assets, and (ii) deductions, including stated interest and
original issue discount accrued on Regular Interest Securities, amortization
of any premium with respect to Loans, and servicing fees and other expenses of
the REMIC. A holder of a Residual Interest Security that is an individual or a
"pass-through interest holder" (including certain pass-through entities, but
not including real estate investment trusts) will be unable to deduct
servicing fees payable on the loans or other administrative expenses of the
REMIC for a given taxable year, to the extent that such expenses, when
aggregated with such holder's other miscellaneous itemized deductions for that
year, do not exceed two percent of such holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the
aggregate fair market value of the regular interests and the residual
interests on the Startup Day (generally, the day that the interests are
issued). That aggregate basis will be allocated among the assets of the REMIC
in proportion to their respective fair market values.
The OID provisions of the Code apply to loans of individuals
originated on or after March 2, 1984, and the market discount provisions apply
to loans originated after July 18, 1984. Subject to possible application of
the de minimis rules, the method of accrual by the REMIC of OID income on such
loans will be equivalent to the method under which holders of Pay-Through
Securities accrue original issue discount (i.e., under the constant yield
method taking into account the Prepayment Assumption). The REMIC will deduct
OID on the Regular Interest Securities in the same manner that the holders of
the Regular Interest Securities include such discount in income, but without
regard to the de minimis rules. See "Taxation of Debt Securities" above.
However, a REMIC that acquires loans at a market discount must include such
market discount in income currently, as it accrues, on a constant interest
basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant
yield method. Although the law is somewhat unclear regarding recovery of
premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Contributions Tax. The REMIC will be
subject to a 100% tax on any net income derived from a "prohibited
transaction." For this purpose, net income will be calculated without taking
into account any losses from prohibited transactions or any deductions
attributable to any prohibited transaction that resulted in a loss. In
general, prohibited transactions include: (i) subject to limited exceptions,
the sale or other disposition of any qualified mortgage transferred to the
REMIC; (ii) subject to a limited exception, the sale or other disposition of a
cash flow investment; (iii) the receipt of any income from assets not
permitted to be held by the REMIC pursuant to the Code; or (iv) the receipt of
any fees or other compensation for services rendered by the REMIC. It is
anticipated that a REMIC will not engage in any prohibited transactions in
which it would recognize a material amount of net income. In addition, subject
to a number of exceptions, a tax is imposed at the rate of 100% on amounts
contributed to a REMIC after the close of the three-month period beginning on
the Startup Day. The holders of Residual Interest Securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such holders or otherwise, however, such taxes will be paid
out of the Trust Fund and will be allocated pro rata to all outstanding
classes of Securities of such REMIC.
Residual Interest Securities
In the opinion of Tax Counsel, the holder of a Certificate
representing a residual interest (a "Residual Interest Security") will take
into account the "daily portion" of the taxable income or net loss of the
REMIC for each day during the taxable year on which such holder held the
Residual Interest Security. The daily portion is determined by allocating to
each day in any calendar quarter its ratable portion of the taxable income or
net loss of the REMIC for such quarter, and by allocating that amount among
the holders (on such day) of the Residual Interest Securities in proportion to
their respective holdings on such day.
In the opinion of Tax Counsel, the holder of a Residual Interest
Security must report its proportionate share of the taxable income of the
REMIC whether or not it receives cash distributions from the REMIC
attributable to such income or loss. The reporting of taxable income without
corresponding distributions could occur, for example, in certain REMIC issues
in which the loans held by the REMIC were issued or acquired at a discount,
since mortgage prepayments cause recognition of discount income, while the
corresponding portion of the prepayment could be used in whole or in part to
make principal payments on REMIC Regular Interests issued without any discount
or at an insubstantial discount (if this occurs, it is likely that cash
distributions will exceed taxable income in later years). Taxable income may
also be greater in earlier years of certain REMIC issues as a result of the
fact that interest expense deductions, as a percentage of outstanding
principal on REMIC Regular Interest Securities, will typically increase over
time as lower yielding Securities are paid, whereas interest income with
respect to loans will generally remain constant over time as a percentage of
loan principal.
In any event, because the holder of a residual interest is taxed on
the net income of the REMIC, the taxable income derived from a Residual
Interest Security in a given taxable year will not be equal to the taxable
income associated with investment in a corporate bond or stripped instrument
having similar cash flow characteristics and pretax yield. Therefore, the
after-tax yield on the Residual Interest Security may be less than that of
such a bond or instrument.
Limitation on Losses. In the opinion of Tax Counsel, the amount of
the REMIC's net loss that a holder may take into account currently is limited
to the holder's adjusted basis at the end of the calendar quarter in which
such loss arises. A holder's basis in a Residual Interest Security will
initially equal such holder's purchase price, and will subsequently be
increased by the amount of the REMIC's taxable income allocated to the holder,
and decreased (but not below zero) by the amount of distributions made and the
amount of the REMIC's net loss allocated to the holder. Any disallowed loss
may be carried forward indefinitely, but may be used only to offset income of
the REMIC generated by the same REMIC. The ability of holders of Residual
Interest Securities to deduct net losses may be subject to additional
limitations under the Code, as to which such holders should consult their tax
advisers.
Distributions. In the opinion of Tax Counsel, distributions on a
Residual Interest Security (whether at their scheduled times or as a result of
prepayments) will generally not result in any additional taxable income or
loss to a holder of a Residual Interest Security. If the amount of such
payment exceeds a holder's adjusted basis in the Residual Interest Security,
however, the holder will recognize gain (treated as gain from the sale of the
Residual Interest Security) to the extent of such excess.
Sale or Exchange. In the opinion of Tax Counsel, a holder of a
Residual Interest Security will recognize gain or loss on the sale or exchange
of a Residual Interest Security equal to the difference, if any, between the
amount realized and such holder's adjusted basis in the Residual Interest
Security at the time of such sale or exchange. Except to the extent provided
in regulations, which have not yet been issued, any loss upon disposition of a
Residual Interest Security will be disallowed if the selling holder acquires
any residual interest in a REMIC or similar mortgage pool within six months
before or after such disposition.
Excess Inclusions. In the opinion of Tax Counsel, the portion of the
REMIC taxable income of a holder of a Residual Interest Security consisting of
"excess inclusion" income may not be offset by other deductions or losses,
including net operating losses, on such holder's federal income tax return.
Further, if the holder of a Residual Interest Security is an organization
subject to the tax on unrelated business income imposed by section 511 of the
Code, such holder's excess inclusion income will be treated as unrelated
business taxable income of such holder. In addition, under Treasury
regulations yet to be issued, if a real estate investment trust, a regulated
investment company, a common trust fund, or certain cooperatives were to own a
Residual Interest Security, a portion of dividends (or other distributions)
paid by the real estate investment trust (or other entity) would be treated as
excess inclusion income. If a Residual Security is owned by a foreign person
excess inclusion income is subject to tax at a rate of 30% which may not be
reduced by treaty, is not eligible for treatment as "portfolio interest" and
is subject to certain additional limitations. See "--Tax Treatment of Foreign
Investors" below. The Small Business Job Protection Act of 1996 has eliminated
the special rule permitting section 593 institutions ("thrift institutions")
to use net operating losses and other allowable deductions to offset their
excess inclusion income from REMIC residual certificates that have
"significant value" within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to
residual certificates continuously held by a thrift institution since November
1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless a residual holder elects to have
such rules apply only to tax years beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal
to the excess, if any, of REMIC taxable income for the quarterly period
allocable to a Residual Interest Security, over the daily accruals for such
quarterly period of (i) 120% of the long term applicable federal rate on the
Startup Day multiplied by (ii) the adjusted issue price of such Residual
Interest Security at the beginning of such quarterly period. The adjusted
issue price of a Residual Interest at the beginning of each calendar quarter
will equal its issue price (calculated in a manner analogous to the
determination of the issue price of a Regular Interest), increased by the
aggregate of the daily accruals for prior calendar quarters, and decreased
(but not below zero) by the amount of loss allocated to a holder and the
amount of distributions made on the Residual Interest Security before the
beginning of the quarter. The long-term federal rate, which is announced
monthly by the Treasury Department, is an interest rate that is based on the
average market yield of outstanding marketable obligations of the United
States government having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See "--Restrictions on Ownership and
Transfer of Residual Interest Securities" and "--Tax Treatment of Foreign
Investors" below.
Restrictions on Ownership and Transfer of Residual Interest
Securities. As a condition to qualification as a REMIC, reasonable
arrangements must be made to prevent the ownership of a REMIC residual
interest by any "Disqualified Organization." Disqualified Organizations
include the United States, any State or political subdivision thereof, any
foreign government, any international organization, or any agency or
instrumentality of any of the foregoing, a rural electric or telephone
cooperative described in section 1381(a)(2)(C) of the Code, or any entity
exempt from the tax imposed by sections 1 through 1399 of the Code, if such
entity is not subject to tax on its unrelated business income. Accordingly,
the applicable Pooling and Servicing Agreement will prohibit Disqualified
Organizations from owning a Residual Interest Security. In addition, no
transfer of a Residual Interest Security will be permitted unless the proposed
transferee shall have furnished to the Trustee an affidavit representing and
warranting that it is neither a Disqualified Organization nor an agent or
nominee acting on behalf of a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax will be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all
federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Security is a
"noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the Residual Interest
Security at least equals the product of the present value of the anticipated
excess inclusions and the highest rate of tax for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. If a transfer of a Residual Interest
is disregarded, the transferor would be liable for any Federal income tax
imposed upon taxable income derived by the transferee from the REMIC. The
REMIC Regulations provide no guidance as to how to determine if a significant
purpose of a transfer is to impede the assessment or collection of tax. A
similar type of limitation exists with respect to certain transfers of
residual interests by foreign persons to United States persons. See "--Tax
Treatment of Foreign Investors" below.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Interest Security should be aware that the IRS recently finalized regulations
(the "Mark-to-Market Regulations") which provide that a REMIC Residual
Interest Security acquired after January 3, 1995 cannot be marked-to-market.
Prospective purchasers of a REMIC Residual Interest Security should consult
their tax advisors regarding the possible application of the Mark-to-Market
Regulations.
Administrative Matters
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in
a unified administrative proceeding.
Tax Status as a Grantor Trust
General. As further specified in the related Prospectus Supplement,
if a REMIC election is not made and the Trust Fund is not structured as a
partnership, then, in the opinion of Tax Counsel, the Trust Fund relating to a
Series of Securities will be classified for federal income tax purposes as a
grantor trust under subpart E, part 1 of subchapter J of the Code and not as
an association taxable as a corporation (the Securities of such Series,
"Pass-Through Securities"). In some Series there will be no separation of the
principal and interest payments on the Loans. In such circumstances, a holder
will be considered to have purchased a pro rata undivided interest in each of
the Loans. In other cases ("Stripped Securities"), sale of the Securities will
produce a separation in the ownership of all or a portion of the principal
payments from all or a portion of the interest payments on the Loans.
In the opinion of Tax Counsel, each holder must report on its federal
income tax return its share of the gross income derived from the Loans (not
reduced by the amount payable as fees to the Trustee and the Servicer and
similar fees (collectively, the "Servicing Fee")), at the same time and in the
same manner as such items would have been reported under the Holder's tax
accounting method had it held its interest in the Loans directly, received
directly its share of the amounts received with respect to the Loans, and paid
directly its share of the Servicing Fees. In the case of Pass-Through
Securities other than Stripped Securities, such income will consist of a pro
rata share of all of the income derived from all of the Loans and, in the case
of Stripped Securities, such income will consist of a pro rata share of the
income derived from each stripped bond or stripped coupon in which the holder
owns an interest. The holder of a Security will generally be entitled to
deduct such Servicing Fees under section 162 or section 212 of the Code to the
extent that such Servicing Fees represent "reasonable" compensation for the
services rendered by the Trustee and the Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
holder, however, Servicing Fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, for taxable years beginning
after December 31, 1990, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount (which amount will be adjusted for inflation in taxable
years beginning after 1990) will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the applicable amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Securities. In the opinion of Tax
Counsel, the holder's purchase price of a Pass-Through Security is to be
allocated among the Loans in proportion to their fair market values,
determined as of the time of purchase of the Securities. In the typical case,
the Trustee (to the extent necessary to fulfill its reporting obligations)
will treat each Loan as having a fair market value proportional to the share
of the aggregate principal balances of all of the Loans that it represents,
since the Securities, unless otherwise specified in the related Prospectus
Supplement, will have a relatively uniform interest rate and other common
characteristics. To the extent that the portion of the purchase price of a
Pass-Through Security allocated to a Loan (other than to a right to receive
any accrued interest thereon and any undistributed principal payments) is less
than or greater than the portion of the principal balance of the Loan
allocable to the Security, the interest in the Loan allocable to the
Pass-Through Security will be deemed to have been acquired at a discount or
premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in excess of
a prescribed de minimis amount or a Stripped Security, a holder of a Security
will be required to report as interest income in each taxable year its share
of the amount of OID that accrues during that year in the manner described
above. OID with respect to a Loan could arise, for example, by virtue of the
financing of points by the originator of the Loan, or by virtue of the
charging of points by the originator of the Loan in an amount greater than a
statutory de minimis exception, in circumstances under which the points are
not currently deductible pursuant to applicable Code provisions. Any market
discount or premium on a Loan will be includible in income, generally in the
manner described above, except that in the case of Pass-Through Securities,
market discount is calculated with respect to the Loans underlying the
Certificate, rather than with respect to the Security. A holder that acquires
an interest in a Loan originated after July 18, 1984 with more than a de
minimis amount of market discount (generally, the excess of the principal
amount of the Loan over the purchaser's allocable purchase price) will be
required to include accrued market discount in income in the manner set forth
above. See "--Taxation of Debt Securities; Market Discount" and "--Premium"
above.
In the case of market discount on a Pass-Through Security
attributable to Loans originated on or before July 18, 1984, the holder
generally will be required to allocate the portion of such discount that is
allocable to a loan among the principal payments on the Loan and to include
the discount allocable to each principal payment in ordinary income at the
time such principal payment is made. Such treatment would generally result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described in the preceding
paragraph.
Stripped Securities. A Stripped Security may represent a right to
receive only a portion of the interest payments on the Loans, a right to
receive only principal payments on the Loans, or a right to receive certain
payments of both interest and principal. Certain Stripped Securities ("Ratio
Strip Securities") may represent a right to receive differing percentages of
both the interest and principal on each Loan. Pursuant to section 1286 of the
Code, the separation of ownership of the right to receive some or all of the
interest payments on an obligation from ownership of the right to receive some
or all of the principal payments results in the creation of "stripped bonds"
with respect to principal payments and "stripped coupons" with respect to
interest payments. Section 1286 of the Code applies the OID rules to stripped
bonds and stripped coupons. For purposes of computing original issue discount,
a stripped bond or a stripped coupon is treated as a debt instrument issued on
the date that such stripped interest is purchased with an issue price equal to
its purchase price or, if more than one stripped interest is purchased, the
ratable share of the purchase price allocable to such stripped interest.
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Loan
principal balance) or the Securities are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Securities should be
treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Loan by Loan basis, which could result in
some Loans being treated as having more than 100 basis points of interest
stripped off.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and original issue discount rules are to apply
to Stripped Securities and other Pass-Through Securities. Under the method
described above for Pay-Through Securities (the "Cash Flow Bond Method"), a
prepayment assumption is used and periodic recalculations are made which take
into account with respect to each accrual period the effect of prepayments
during such period. However, the 1986 Act does not, absent Treasury
regulations, appear specifically to cover instruments such as the Stripped
Securities which technically represent ownership interests in the underlying
Loans, rather than being debt instruments "secured by" those loans.
Nevertheless, it is believed that the Cash Flow Bond Method is a reasonable
method of reporting income for such Securities, and it is expected that OID
will be reported on that basis unless otherwise specified in the related
Prospectus Supplement. In applying the calculation to Pass-Through Securities,
the Trustee will treat all payments to be received by a holder with respect to
the underlying Loans as payments on a single installment obligation. The IRS
could, however, assert that original issue discount must be calculated
separately for each Loan underlying a Security.
Under certain circumstances, if the Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a holder's recognition of income. If, however, the Loans prepay at
a rate slower than the Prepayment Assumption, in some circumstances the use of
this method may decelerate a holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted
Security, the Trustee intends, absent contrary authority, to report income to
Security holders as OID, in the manner described above for Interest Weighted
Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations
of the applicable Code provisions. Among other possibilities, the Internal
Revenue Service could contend that (i) in certain Series, each non-Interest
Weighted Security is composed of an unstripped undivided ownership interest in
Loans and an installment obligation consisting of stripped principal payments;
(ii) the non-Interest Weighted Securities are subject to the contingent
payment provisions of the Proposed Regulations; or (iii) each Interest
Weighted Stripped Security is composed of an unstripped undivided ownership
interest in Loans and an installment obligation consisting of stripped
interest payments.
Given the variety of alternatives for treatment of the Stripped
Securities and the different federal income tax consequences that result from
each alternative, potential purchasers are urged to consult their own tax
advisers regarding the proper treatment of the Securities for federal income
tax purposes.
Character as Qualifying Loans. In the case of Stripped Securities,
there is no specific legal authority existing regarding whether the character
of the Securities, for federal income tax purposes, will be the same as the
Loans. The IRS could take the position that the Loans character is not carried
over to the Securities in such circumstances. Pass-Through Securities will be,
and, although the matter is not free from doubt, Stripped Securities should be
considered to represent "real estate assets" within the meaning of section
856(c)(4)(A) of the Code, and "loans secured by an interest in real property"
within the meaning of section 7701(a)(19)(C)(v) of the Code; and interest
income attributable to the Securities should be considered to represent
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of section 856(c)(3)(B) of the Code.
Reserves or funds underlying the Securities may cause a proportionate
reduction in the above-described qualifying status categories of Securities.
Sale or Exchange
Subject to the discussion below with respect to Trust Funds as to
which a partnership election is made, in the opinion of Tax Counsel, a
holder's tax basis in its Security is the price such holder pays for a
Security, plus amounts of original issue or market discount included in income
and reduced by any payments received (other than qualified stated interest
payments) and any amortized premium. Gain or loss recognized on a sale,
exchange, or redemption of a Security, measured by the difference between the
amount realized and the Security's basis as so adjusted, will generally be
capital gain or loss, assuming that the Security is held as a capital asset
and will generally be long-term capital gain or loss if the holding period of
the security is one year or more. Non-corporate taxpayers are subject to
reduced maximum rates on long-term capital gains and are generally subject to
tax at ordinary income rates on short-term capital gains. The deductibility of
capital losses is subject to certain limitations. Prospective investors should
consult their own tax advisors concerning these tax law provisions.
In the case of a Security held by a bank, thrift, or similar
institution described in section 582 of the Code, however, gain or loss
realized on the sale or exchange of a Regular Interest Security will be
taxable as ordinary income or loss. In addition, gain from the disposition of
a Regular Interest Security that might otherwise be capital gain will be
treated as ordinary income to the extent of the excess, if any, of the amount
that would have been includible in the holder's income if the yield on such
Regular Interest Security had equaled 110% of the applicable federal rate as
of the beginning of such holder's holding period, over the amount of ordinary
income actually recognized by the holder with respect to such Regular Interest
Security.
Miscellaneous Tax Aspects
Backup Withholding. Subject to the discussion below with respect to
Trust Funds as to which a partnership election is made, a holder, other than a
holder of a REMIC Residual Security, may, under certain circumstances, be
subject to "backup withholding" at a rate of 31% with respect to distributions
or the proceeds of a sale of certificates to or through brokers that represent
interest or original issue discount on the Securities. This withholding
generally applies if the holder of a Security (i) fails to furnish the Trustee
with its taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or (iv) under certain
circumstances, fails to provide the Trustee or such holder's securities broker
with a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that the holder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to
certain payments made to holders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Nonresidents (as
defined below). Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
The Trustee will report to the holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
New Withholding Regulations
The Treasury Department has issued regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
Tax Treatment of Foreign Investors
Subject to the discussion below with respect to Trust Funds as to
which a partnership election is made, under the Code, unless interest
(including OID) paid on a Security (other than a Residual Interest Security)
is considered to be "effectively connected" with a trade or business conducted
in the United States by a nonresident alien individual, foreign partnership or
foreign corporation ("Nonresidents"), in the opinion of Tax Counsel, such
interest will normally qualify as portfolio interest (except where (i) the
recipient is a holder, directly or by attribution, of 10% or more of the
capital or profits interest in the issuer, (ii) the recipient is a controlled
foreign corporation to which the issuer is a related person) and will be
exempt from federal income tax, or (iii) the recipient is a bank receiving
interest described in section 881(c)(3)(A) of the Code. Upon receipt of
appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless such rate were
reduced or eliminated by an applicable tax treaty) on, among other things,
interest and other fixed or determinable, annual or periodic income paid to
Nonresidents. Holders of Pass-Through Securities and Stripped Securities,
including Ratio Strip Securities, however, may be subject to withholding to
the extent that the Loans were originated on or before July 18, 1984.
Interest and OID of holders who are foreign persons are not subject
to withholding if they are effectively connected with a United States business
conducted by the holder. They will, however, generally be subject to the
regular United States income tax.
Payments to holders of Residual Interest Securities who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax
as "portfolio interest." It is clear that, to the extent that a payment
represents a portion of REMIC taxable income that constitutes excess inclusion
income, a holder of a Residual Interest Security will not be entitled to an
exemption from or reduction of the 30% (or lower treaty rate) withholding tax
rule. If the payments are subject to United States withholding tax, they
generally will be taken into account for withholding tax purposes only when
paid or distributed (or when the Residual Interest Security is disposed of).
The Treasury has statutory authority, however, to promulgate regulations which
would require such amounts to be taken into account at an earlier time in
order to prevent the avoidance of tax. Such regulations could, for example,
require withholding prior to the distribution of cash in the case of Residual
Interest Securities that do not have significant value. Under the REMIC
Regulations, if a Residual Interest Security has tax avoidance potential, a
transfer of a Residual Interest Security to a Nonresident will be disregarded
for all Federal tax purposes. A Residual Interest Security has tax avoidance
potential unless, at the time of the transfer the transferor reasonably
expects that the REMIC will distribute to the transferee residual interest
holder amounts that will equal at least 30% of each excess inclusion, and that
such amounts will be distributed at or after the time at which the excess
inclusions accrue and not later than the calendar year following the calendar
year of accrual. If a Nonresident transfers a Residual Interest Security to a
United States person, and if the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, then the transfer is
disregarded and the transferor continues to be treated as the owner of the
Residual Interest Security for purposes of the withholding tax provisions of
the Code. See "--Residential Interest Securities--Excess Inclusions" above.
Tax Characterization of the Trust as a Partnership
Tax Counsel is of the opinion that a Trust Fund structured as a
partnership will not be an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes. This opinion is
based on the assumption that the terms of the Trust Agreement and related
documents will be complied with, and on counsel's conclusions that the nature
of the income of the Trust Fund will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations or the issuance of
the Certificates has been structured as a private placement under an IRS safe
harbor, so that the Trust Fund will not be characterized as a publicly traded
partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income
tax purposes, in the opinion of Tax Counsel, the Trust Fund would be subject
to corporate income tax on its taxable income. The Trust Fund's taxable income
would include all its income, possibly reduced by its interest expense on the
Notes. Any such corporate income tax could materially reduce cash available to
make payments on the Notes and distributions on the Certificates, and
Certificateholders could be liable for any such tax that is unpaid by the
Trust Fund.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Trust Fund will agree,
and the Noteholders will agree by their purchase of Notes, to treat the Notes
as debt for federal income tax purposes. In such a circumstance, Tax Counsel
is, except as otherwise provided in the related Prospectus Supplement, of the
opinion that the Notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified
stated interest" under the OID regulations, and that any OID on the Notes
(i.e., any excess of the principal amount of the Notes over their issue price)
does not exceed a de minimis amount (i.e., 0.25% of their principal amount
multiplied by the number of full years included in their term), all within the
meaning of the OID regulations. If these conditions are not satisfied with
respect to any given series of Notes, additional tax considerations with
respect to such Notes will be disclosed in the applicable Prospectus
Supplement.
Interest Income on the Notes. Based on the above assumptions, except
as discussed in the following paragraph, in the opinion of Tax Counsel, the
Notes will not be considered issued with OID. The stated interest thereon will
be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's method of tax accounting. Under
the OID regulations, a holder of a Note issued with a de minimis amount of OID
must include such OID in income, on a pro rata basis, as principal payments
are made on the Note. It is believed that any prepayment premium paid as a
result of a mandatory redemption will be taxable as contingent interest when
it becomes fixed and unconditionally payable. A purchaser who buys a Note for
more or less than its principal amount will generally be subject,
respectively, to the premium amortization or market discount rules of the
Code.
A holder of a Note that has a fixed maturity date of not more than
one year from the issue date of such Note (a "Short-Term Note") may be subject
to special rules. An accrual basis holder of a Short-Term Note (and certain
cash method holders, including regulated investment companies, as set forth in
section 1281 of the Code) generally would be required to report interest
income as interest accrues on a straight-line basis over the term of each
interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note). However, a cash
basis holder of a Short-Term Note reporting interest income as it is paid may
be required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Note until the
taxable disposition of the Short-Term Note. A cash basis taxpayer may elect
under Section 1281 of the Code to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on the Short-Term Note in income as it accrues, but
would not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Note is
purchased for more or less than its principal amount.
Sale or Other Disposition. In the opinion of Tax Counsel, if a
Noteholder sells a Note, the holder will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale and the
holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to a
particular Noteholder will equal the holder's cost for the Note, increased by
any market discount, acquisition discount, OID and gain previously included by
such Noteholder in income with respect to the Note and decreased by the amount
of bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note. Any
such gain or loss will be capital gain or loss if the Note was held as a
capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses generally
may be used only to offset capital gains.
Foreign Holders. In the opinion of Tax Counsel, interest payments
made (or accrued) to a Noteholder who is a nonresident alien, foreign
corporation or other non-United States person (a "foreign person") generally
will be considered "portfolio interest", and generally will not be subject to
United States federal income tax and withholding tax, if the interest is not
effectively connected with the conduct of a trade or business within the
United States by the foreign person and the foreign person (i) is not actually
or constructively a "10 percent shareholder" of the Trust or the Seller
(including a holder of 10% of the outstanding Certificates) or a "controlled
foreign corporation" with respect to which the Trust or the Seller is a
"related person" within the meaning of the Code and (ii) provides the Owner
Trustee or other person who is otherwise required to withhold U.S. tax with
respect to the Notes with an appropriate statement (on Form W-8 or a similar
form), signed under penalties of perjury, certifying that the beneficial owner
of the Note is a foreign person and providing the foreign person's name and
address. If a Note is held through a securities clearing organization or
certain other financial institutions, the organization or institution may
provide the relevant signed statement to the withholding agent; in that case,
however, the signed statement must be accompanied by a Form W-8 or substitute
form provided by the foreign person that owns the Note. If such interest is
not portfolio interest, then it will be subject to United States federal
income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a Note by a foreign person will be exempt from
United States federal income and withholding tax, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States by the foreign person and (ii) in the case of an individual
foreign person, the foreign person is not present in the United States for 183
days or more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt
holder such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust Fund will be
required to withhold 31 percent of the amount otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might
be treated as equity interests in the Trust Fund. If so treated, the Trust
Fund might be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities (including pension
funds) would be "unrelated business taxable income", income to foreign holders
generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of the Trust Fund's
expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Servicer will agree, and the Certificateholders will agree by their purchase
of Certificates, to treat the Trust Fund as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the
assets held by the Trust Fund, the partners of the partnership being the
Certificateholders, and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust Fund, the
Certificates, the Notes, the Trust Fund and the Servicer is not clear because
there is no authority on transactions closely comparable to that contemplated
herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a Series
of Securities includes a single class of Certificates. If these conditions are
not satisfied with respect to any given Series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. If the Trust Fund is a partnership, in the
opinion of Tax Counsel, the Trust Fund will not be subject to federal income
tax. Rather, in the opinion of Tax Counsel, each Certificateholder will be
required to separately take into account such holder's allocated share of
income, gains, losses, deductions and credits of the Trust Fund. The Trust
Fund's income will consist primarily of interest and finance charges earned on
the Loans (including appropriate adjustments for market discount, OID and bond
premium) and any gain upon collection or disposition of Loans. The Trust
Fund's deductions will consist primarily of interest accruing with respect to
the Notes, servicing and other fees, and losses or deductions upon collection
or disposition of Loans.
In the opinion of Tax Counsel, the tax items of a partnership are
allocable to the partners in accordance with the Code, Treasury regulations
and the partnership agreement (here, the Trust Agreement and related
documents). The Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust Fund for each
month equal to the sum of (i) the interest that accrues on the Certificates in
accordance with their terms for such month, including interest accruing at the
Pass-Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust Fund income attributable
to discount on the Loans that corresponds to any excess of the principal
amount of the Certificates over their initial issue price (iii) prepayment
premium payable to the Certificateholders for such month; and (iv) any other
amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust Fund of premium on
Loans that corresponds to any excess of the issue price of Certificates over
their principal amount. All remaining taxable income of the Trust Fund will be
allocated to the Depositor. Based on the economic arrangement of the parties,
in the opinion of Tax Counsel, this approach for allocating Trust Fund income
should be permissible under applicable Treasury regulations, although no
assurance can be given that the IRS would not require a greater amount of
income to be allocated to Certificateholders. Moreover, in the opinion of Tax
Counsel, even under the foregoing method of allocation, Certificateholders may
be allocated income equal to the entire Pass-Through Rate plus the other items
described above even though the Trust Fund might not have sufficient cash to
make current cash distributions of such amount. Thus, cash basis holders will
in effect be required to report income from the Certificates on the accrual
basis and Certificateholders may become liable for taxes on Trust Fund income
even if they have not received cash from the Trust Fund to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders
may be required to report on their tax returns taxable income that is greater
or less than the amount reported to them by the Trust Fund.
In the opinion of Tax Counsel, all of the taxable income allocated to
a Certificateholder that is a pension, profit sharing or employee benefit plan
or other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
In the opinion of Tax Counsel, an individual taxpayer's share of
expenses of the Trust Fund (including fees to the Servicer but not interest
expense) would be miscellaneous itemized deductions. Such deductions might be
disallowed to the individual in whole or in part and might result in such
holder being taxed on an amount of income that exceeds the amount of cash
actually distributed to such holder over the life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to
income and allocations to Certificateholders on an aggregate basis. If the IRS
were to require that such calculations be made separately for each Loan, the
Trust Fund might be required to incur additional expense but it is believed
that there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust Fund for the Loans may be greater or less
than the remaining principal balance of the Loans at the time of purchase. If
so, in the opinion of Tax Counsel, the Loan will have been acquired at a
premium or discount, as the case may be. (As indicated above, the Trust Fund
will make this calculation on an aggregate basis, but might be required to
recompute it on a Loan by Loan basis.)
If the Trust Fund acquires the Loans at a market discount or premium,
the Trust Fund will elect to include any such discount in income currently as
it accrues over the life of the Loans or to offset any such premium against
interest income on the Loans. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Pursuant to final Treasury regulations
issued May 9, 1997 under section 708 of the Code a sale or exchange of 50
percent or more of the capital and profits in the issuer entity within a
12-month tax period would cause a deemed contribution of assets of the issuer
entity (the "old partnership") to a new partnership (the "new partnership") in
exchange for interest in the new partnership. Such interests would be deemed
distributed to the partners of the old partnership in liquidation thereof,
which would not constitute a sale or exchange.
Disposition of Certificates. Generally, in the opinion of Tax
Counsel, capital gain or loss will be recognized on a sale of Certificates in
an amount equal to the difference between the amount realized and the seller's
tax basis in the Certificates sold. A Certificateholder's tax basis in a
Certificate will generally equal the holder's cost increased by the holder's
share of Trust Fund income (includible in income) and decreased by any
distributions received with respect to such Certificate. In addition, both the
tax basis in the Certificates and the amount realized on a sale of a
Certificate would include the holder's share of the Notes and other
liabilities of the Trust Fund. A holder acquiring Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in
such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust Fund does not expect to have any
other assets that would give rise to such special reporting requirements.
Thus, to avoid those special reporting requirements, the Trust Fund will elect
to include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust Fund's taxable income and losses will be determined monthly and the tax
items for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing Certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust Fund might be reallocated among the Certificateholders.
The Trust Fund's method of allocation between transferors and transferees may
be revised to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust Fund's assets will not be adjusted to reflect
that higher (or lower) basis unless the Trust Fund were to file an election
under section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the Trust Fund
will not make such election. As a result, Certificateholders might be
allocated a greater or lesser amount of Trust Fund income than would be
appropriate based on their own purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust Fund. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and
the fiscal year of the Trust will be the calendar year. The Trustee will file
a partnership information return (IRS Form 1065) with the IRS for each taxable
year of the Trust Fund and will report each Certificateholder's allocable
share of items of Trust Fund income and expense to holders and the IRS on
Schedule K-1. The Trust Fund will provide the Schedule K-l information to
nominees that fail to provide the Trust Fund with the information statement
described below and such nominees will be required to forward such information
to the beneficial owners of the Certificates. Generally, holders must file tax
returns that are consistent with the information return filed by the Trust
Fund or be subject to penalties unless the holder notifies the IRS of all such
inconsistencies.
Under section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
Fund with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes (i)
the name, address and taxpayer identification number of the nominee and (ii)
as to each beneficial owner (x) the name, address and identification number of
such person, (y) whether such person is a United States person, a tax-exempt
entity or a foreign government, an international organization, or any wholly
owned agency or instrumentality of either of the foregoing, and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust Fund information as to themselves and their ownership of
Certificates. A clearing agency registered under section 17A of the Securities
Exchange Act of 1934, as amended, is not required to furnish any such
information statement to the Trust Fund. The information referred to above for
any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail
to provide the Trust Fund with the information described above may be subject
to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust Fund. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear
whether the Trust Fund would be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes with
respect to non-U.S. persons because there is no clear authority dealing with
that issue under facts substantially similar to those described herein.
Although it is not expected that the Trust Fund would be engaged in a trade or
business in the United States for such purposes, the Trust Fund will withhold
as if it were so engaged in order to protect the Trust Fund from possible
adverse consequences of a failure to withhold. The Trust Fund expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to section 1446 of the Code, as if such income
were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust to change its
withholding procedures. In determining a holder's withholding status, the
Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit
that number to the Trust on Form W-8 in order to assure appropriate crediting
of the taxes withheld. A foreign holder generally would be entitled to file
with the IRS a claim for refund with respect to taxes withheld by the Trust
Fund taking the position that no taxes were due because the Trust Fund was not
engaged in a U.S. trade or business. However, interest payments made (or
accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust Fund. If these interest payments are
properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest." As a result, Certificateholders will be
subject to United States federal income tax and withholding tax at a rate of
30 percent, unless reduced or eliminated pursuant to an applicable treaty. In
such case, a foreign holder would only be entitled to claim a refund for that
portion of the taxes in excess of the taxes that should be withheld with
respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code. The New Regulations
described herein make certain modifications to the backup withholding and
information reporting rules. The New Regulations will generally be effective
for payments made after December 31, 2000, subject to certain transition
rules. Prospective investors are urged to consult their own tax advisors
regarding the New Regulations.
FASIT Securities
General. The FASIT provisions of the Code were enacted by the Small
Business Job Protection Act of 1996 and create a new elective statutory
vehicle for the issuance of mortgage-backed and asset-backed securities.
Although the FASIT provisions of the Code became effective on September 1,
1997, no Treasury regulations or other administrative guidance has been issued
with respect to those provisions. Accordingly, definitive guidance cannot be
provided with respect to many aspects of the tax treatment of FASIT
Securityholders. Investors also should note that the FASIT discussions
contained herein constitutes only a summary of the federal income tax
consequences to holders of FASIT Securities. With respect to each Series of
FASIT Securities, the related Prospectus Supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT Securities will be classified as either FASIT Regular
Securities, which generally will be treated as debt for federal income tax
purposes, or FASIT Ownership Securities, which generally are not treated as
debt for such purposes, but rather as representing rights and responsibilities
with respect to the taxable income or loss of the related Series. The
Prospectus Supplement for each Series of Securities will indicate whether one
or more FASIT elections will be made for that Series and which Securities of
such Series will be designated as Regular Securities, and which, if any, will
be designated as Ownership Securities.
Qualification as a FASIT. The Trust Fund underlying a Series (or one
or more designated pools of assets held in the Trust Fund) will qualify under
the Code as a FASIT in which the FASIT Regular Securities and the FASIT
Ownership Securities will constitute the "regular interests" and the
"ownership interests," respectively, if (i) a FASIT election is in effect,
(ii) certain tests concerning (A) the composition of the FASIT's assets and
(B) the nature of the Securityholders' interest in the FASIT are met on a
continuing basis, and (iii) the Trust Fund is not a regulated company as
defined in section 851(a) of the Code.
Asset Composition. In order for a Trust Fund (on one or more
designated pools of assets held by a Trust Fund) to be eligible for FASIT
status, substantially all of the assets of the Trust Fund (or the designated
pool) must consist of "permitted assets" as of the close of the third month
beginning after the closing date and at all times thereafter (the "FASIT
Qualification Test"). Permitted assets include (i) cash or cash equivalents,
(ii) debt instruments with fixed terms that would qualify as REMIC regular
interests if issued by a REMIC (generally, instruments that provide for
interest at a fixed rate, a qualifying variable rate, or a qualifying
interest-only ("IO") type rate, (iii) foreclosure property, (iv) certain
hedging instruments (generally, interest and currency rate swaps and credit
enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments issued
by the holder of the FASIT's ownership interest or by any person related to
such holder.
Interests in a FASIT. In addition to the foregoing asset
qualification requirements, the interests in a FASIT also must meet certain
requirements. All of the interests in a FASIT must belong to either of the
following: (i) one or more classes of regular interests or (ii) a single class
of ownership interest that is held by a fully taxable domestic corporation. In
the case of Series that include FASIT Ownership Securities, the ownership
interest will be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it
is designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the IRS plus 5%, and (vi) if it
pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interest (i.e., certain qualified floating rates and weighted average rates).
See "--Taxation of Debt Securities--Variable Rate Debt Securities" above.
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv) or (v) above, but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest." In addition, if a FASIT Security fails to meet the
requirements of clause (vi), but the interest payable on the Security consists
of a specified portion of the interest payments on permitted assets and that
portion does not vary over the life of the Security, the Security also will
qualify as a High-Yield Interest. A High-Yield Interest may be held only by
domestic corporations that are fully subject to corporate income tax
("Eligible Corporations"), other FASITs and dealers in securities who acquire
such interests as inventory, rather than for investment. In addition, holders
of High-Yield Interests are subject to limitations on offset of income derived
from such interest. See "--Treatment of High-Yield Interests" below.
Consequences of Disqualification. If a Series of FASIT Securities
fails to comply with one or more of the Code's ongoing requirements for FASIT
status during any taxable year, the Code provides that its FASIT status may be
lost for that year and thereafter. If FASIT status is lost, the treatment of
the former FASIT and the interests therein for federal income tax purposes is
uncertain. The former FASIT might be treated as a grantor trust, as a separate
association taxed as a corporation, or as a partnership. The FASIT Regular
Securities could be treated as debt instruments for federal income tax
purposes or as equity interests. Although the Code authorizes the Treasury to
issue regulations that address situations where a failure to meet the
requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the FASIT's income for a period of time
in which the requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Regular Securities. Payments received by
holders of FASIT Regular Securities generally should be accorded the same tax
treatment under the Code as payments received on other taxable corporate debt
instruments and on REMIC Regular Securities. As in the case of holders of
REMIC Regular Securities, holders of FASIT Regular Securities must report
income from such Securities under an accrual method of accounting, even if
they otherwise would have used the case receipts and disbursements method.
Except in the case of FASIT Regular Securities issued with original issue
discount or acquired with market discount or premium, interest paid or accrued
on a FASIT Regular Security generally will be treated as ordinary income to
the Securityholder and a principal payment on such Security will be treated as
a return of capital to the extent that the Securityholder's basis is allocable
to that payment. FASIT Regular Securities issued with OID or acquired with
market discount or premium generally will treat interest and principal
payments on such Securities in the same manner described for REMIC Regular
Securities. See "--Taxation of Debt Securities", "--Market Discount", and
"--Premium" above. High-Yield Securities may be held only by fully taxable
domestic corporations, other FASITs, and certain securities dealers. Holders
of High-Yield Securities are subject to limitations on their ability to use
current losses or net operating loss carryforwards or carrybacks to offset any
income derived from those Securities.
If a FASIT Regular Security is sold or exchanged, the Securityholder
generally will recognize gain or loss upon the sale in the manner described
above for REMIC Regular Securities. See "--Sale or Exchange" above. In
addition, if a FASIT Regular Security becomes wholly or partially worthless as
a result of Default and Delinquencies of the underlying Assets, the holder of
such Security should be allowed to deduct the loss sustained (or alternatively
be able to report a lesser amount of income). See "--Taxation of Debt
Instruments--Effects of Default and Delinquencies" above.
FASIT Regular Securities held by a REIT will qualify as "real estate
assets" within the meaning of section 856(c)(4)(A) of the Code, and interest
on such Securities will be considered Qualifying REIT Interest to the same
extent that REMIC Securities would be so considered. FASIT Regular Securities
held by a Thrift Institution taxed as a "domestic building and loan
association" will represent qualifying assets for purposes of the
qualification requirements set forth in section 7701(a)(19) of the Code to the
same extent that REMIC Securities would be so considered. See "Certain
Material Federal Income Tax Considerations--Taxation of Debt
Securities--Status as Real Property Loans." In addition, FASIT Regular
Securities held by a financial institution to which section 585 of the Code
applies will be treated as evidences of indebtedness for purposes of section
582(c)(1) of the Code. FASIT Securities will not qualify as "Government
Securities" for either REIT or RIC qualification purposes.
Treatment of High-Yield Interests. High-Yield Interests are subject
to special rules regarding the eligibility of holders of such interests, and
the ability of such holders to offset income derived from their FASIT Security
with losses. High-Yield Interests may be held only by Eligible Corporations
other FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal to
the income from the High-Yield Interest multiplied by the highest corporate
income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor still will be treated as the holder of the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular Federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities backed
by the FASIT Regular Security and that have the same features as High-Yield
Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership
Security represents the residual equity interest in a FASIT. As such, the
holder of a FASIT Ownership Security determines its taxable income by taking
into account all assets, liabilities and items of income, gain, deduction,
loss and credit of a FASIT. In general, the character of the income to the
holder of a FASIT Ownership Interest will be the same as the character of such
income of the FASIT, except that any tax-exempt interest income taken into
account by the holder of a FASIT Ownership Interest is treated as ordinary
income. In determining that taxable income, the holder of a FASIT Ownership
Security must determine the amount of interest, original issue discount,
market discount and premium recognized with respect to the FASIT's assets and
the FASIT Regular Securities issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders of
FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "--Treatment of High-Yield Interests"
above.
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to FASIT Ownership Securities. Accordingly, losses
on dispositions of a FASIT Ownership Security generally will be disallowed
where, within six months before or after the disposition, the seller of such
Security acquires any other FASIT Ownership Security or, in the case of a
FASIT holding mortgage assets, any interest in a Taxable Mortgage Pool that is
economically comparable to a FASIT Ownership Security. In addition, if any
security that is sold or contributed to a FASIT by the holder of the related
FASIT Ownership Security was required to be marked-to-market under Code
section 475 by such holder, then section 475 will continue to apply to such
securities, except that the amount realized under the mark-to-market rules
will be a greater of the securities' value under present law or the
securities' value after applying special valuation rules contained in the
FASIT provisions. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established securities
market be determined by calculating the present value of the reasonably
expected payments under the instrument using a discount rate of 120% of the
applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration. Holders of
FASIT Securities will be subject to backup withholding to the same extent
holders of REMIC Securities would be subject. See "--Miscellaneous Tax
Aspects--Backup Withholding" above. For purposes of reporting and tax
administration, holders of record of FASIT Securities generally will be
treated in the same manner as holders of REMIC Securities.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Material Federal Income Tax Considerations," potential investors
should consider the state and local income tax consequences of the
acquisition, ownership, and disposition of the Securities. State and local
income tax law may differ substantially from the corresponding federal law,
and this discussion does not purport to describe any aspect of the income tax
laws of any state or locality. Therefore, potential investors should consult
their own tax advisors with respect to the various state and local tax
consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the
Code, which apply only to Securities of a Series that are not divided into
subclasses. If Securities are divided into subclasses the related Prospectus
Supplement will contain information concerning considerations relating to
ERISA and the Code that are applicable to such Securities.
ERISA imposes requirements on employee benefit plans (and on certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and
separate accounts in which such plans, accounts or arrangements are invested)
(collectively "Plans") subject to ERISA and on persons who are fiduciaries
with respect to such Plans. Generally, ERISA applies to investments made by
Plans. Among other things, ERISA requires that the assets of Plans be held in
trust and that the trustee, or other duly authorized fiduciary, have exclusive
authority and discretion to manage and control the assets of such Plans. ERISA
also imposes certain duties on persons who are fiduciaries of Plans. Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan (subject to certain exceptions not here relevant).
Certain employee benefit plans, such as governmental plans (as defined in
ERISA Section 3(32)) and, if no election has been made under Section 410(d) of
the Code, church plans (as defined in ERISA Section 3(33)), are not subject to
ERISA requirements. Accordingly, assets of such plans may be invested in
Securities without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which
is qualified and exempt from taxation under Code Sections 401(a) and 501(a),
however, is subject to the prohibited transaction rules set forth in Code
Section 503.
On November 13, 1986, the United States Department of Labor (the
"DOL") issued final regulations concerning the definition of what constitutes
the assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation,
the underlying assets and properties of corporations, partnerships and certain
other entities in which a Plan makes an "equity" investment could be deemed
for purposes of ERISA to be assets of the investing Plan in certain
circumstances. However, the regulation provides that, generally, the assets of
a corporation or partnership in which a Plan invests will not be deemed for
purposes of ERISA to be assets of such Plan if the equity interest acquired by
the investing Plan is a publicly-offered security. A publicly-offered
security, as defined in the Labor Reg. Section 2510.3-101, is a security that
is widely held, freely transferable and registered under the Securities
Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and persons ("Parties in Interest") having
certain specified relationships to a Plan and imposes additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan. Because
the Loans may be deemed Plan assets of each Plan that purchases Securities, an
investment in the Securities by a Plan might be a prohibited transaction under
ERISA Sections 406 and 407 and subject to an excise tax under Code Section
4975 unless a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's
prohibited transaction rules certain transactions relating to the operation of
residential mortgage pool investment trusts and the purchase, sale and holding
of "mortgage pool pass-through certificates" in the initial issuance of such
certificates. PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in Interest with
respect to those Plans related to the origination, maintenance and termination
of mortgage pools consisting of mortgage loans secured by first or second
mortgages or deeds of trust on single-family residential property, and the
acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans. If the general
conditions (discussed below) of PTE 83-1 are satisfied, investments by a Plan
in Securities that represent interests in a Pool consisting of Loans ("Single
Family Securities") will be exempt from the prohibitions of ERISA Sections
406(a) and 407 (relating generally to transactions with Parties in Interest
who are not fiduciaries) if the Plan purchases the Single Family Securities at
no more than fair market value and will be exempt from the prohibitions of
ERISA Sections 406(b)(1) and (2) (relating generally to transactions with
fiduciaries) if, in addition, the purchase is approved by an independent
fiduciary, no sales commission is paid to the pool sponsor, the Plan does not
purchase more than 25% of all Single Family Securities, and at least 50% of
all Single Family Securities are purchased by persons independent of the pool
sponsor or pool trustee. PTE 83-1 does not provide an exemption for
transactions involving Subordinate Securities. Accordingly, unless otherwise
provided in the related Prospectus Supplement, no transfer of a Subordinate
Security or a Security which is not a Single Family Security may be made to a
Plan.
The discussion in this and the next succeeding paragraph applies only
to Single Family Securities. The Depositor believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include: (i)
Securities issued in a Series consisting of only a single class of Securities;
and (ii) Securities issued in a Series in which there is only one class of
Trust Securities; provided that the Securities in the case of clause (i), or
the Securities in the case of clause (ii), evidence the beneficial ownership
of both a specified percentage of future interest payments (greater than 0%)
and a specified percentage (greater than 0%) of future principal payments on
the Loans. It is not clear whether a class of Securities that evidences the
beneficial ownership in a Trust Fund divided into Loan groups, beneficial
ownership of a specified percentage of interest payments only or principal
payments only, or a notional amount of either principal or interest payments,
or a class of Securities entitled to receive payments of interest and
principal on the Loans only after payments to other classes or after the
occurrence of certain specified events would be a "mortgage pass-through
certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying Securityholders against
reductions in pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the
aggregate principal balance of all covered pooled mortgage loans or the
principal balance of the largest covered pooled mortgage loan; (ii) the
existence of a pool trustee who is not an affiliate of the pool sponsor; and
(iii) a limitation on the amount of the payment retained by the pool sponsor,
together with other funds inuring to its benefit, to not more than adequate
consideration for selling the mortgage loans plus reasonable compensation for
services provided by the pool sponsor to the Pool. The Depositor believes that
the first general condition referred to above will be satisfied with respect
to the Securities in a Series issued without a subordination feature, or the
Securities only in a Series issued with a subordination feature, provided that
the subordination and Reserve Account, subordination by shifting of interests,
the pool insurance or other form of credit enhancement described herein (such
subordination, pool insurance or other form of credit enhancement being the
system of insurance or other protection referred to above) with respect to a
Series of Securities is maintained in an amount not less than the greater of
one percent of the aggregate principal balance of the Loans or the principal
balance of the largest Loan. See "Description of the Securities" herein. In
the absence of a ruling that the system of insurance or other protection with
respect to a Series of Securities satisfies the first general condition
referred to above, there can be no assurance that these features will be so
viewed by the DOL. The Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single Family
Securities must make its own determination as to whether the first and third
general conditions, and the specific conditions described briefly in the
preceding paragraph, of PTE 83-1 have been satisfied, or as to the
availability of any other prohibited transaction exemptions. Each Plan
fiduciary should also determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the Securities is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
On September 6, 1990, the DOL issued to Greenwich Capital Markets,
Inc. an individual exemption (Prohibited Transaction Exemption 90-59;
Exemption Application No. D-8374, 55 Fed. Reg. 36724) (the "Underwriter
Exemption") which applies to certain sales and servicing of "certificates"
that are obligations of a "trust" with respect to which Greenwich Capital
Markets, Inc. is the underwriter, manager or co-manager of an underwriting
syndicate. The Underwriter Exemption provides relief which is generally
similar to that provided by PTE 83-1, but is broader in several respects.
The Underwriter Exemption contains several requirements, some of
which differ from those in PTE 83-l. The Underwriter Exemption contains an
expanded definition of "certificate" which includes an interest which entitles
the holder to pass-through payments of principal, interest and/or other
payments. The Underwriter Exemption contains an expanded definition of "trust"
which permits the trust corpus to consist of secured consumer receivables. The
definition of "trust", however, does not include any investment pool unless,
inter alia, (i) the investment pool consists only of assets of the type which
have been included in other investment pools, (ii) certificates evidencing
interests in such other investment pools have been purchased by investors
other than Plans for at least one year prior to the Plan's acquisition of
certificates pursuant to the Underwriter Exemption, and (iii) certificates in
such other investment pools have been rated in one of the three highest
generic rating categories of the four credit rating agencies noted below.
Generally, the Underwriter Exemption holds that the acquisition of the
certificates by a Plan must be on terms (including the price for the
certificates) that are at least as favorable to the Plan as they would be in
an arm's length transaction with an unrelated party. The Underwriter Exemption
requires that the rights and interests evidenced by the certificates not be
"subordinated" to the rights and interests evidenced by other certificates of
the same trust. The Underwriter Exemption requires that certificates acquired
by a Plan have received a rating at the time of their acquisition that is in
one of the three highest generic rating categories of Standard & Poor's, a
division of the McGraw-Hill Companies, Inc., Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc., (the "Exemption Rating
Agencies"). The Underwriter Exemption specifies that the pool trustee must not
be an affiliate of the pool sponsor, nor an affiliate of the Underwriter, the
pool servicer, any obligor with respect to mortgage loans included in the
trust constituting more than five percent of the aggregate unamortized
principal balance of the assets in the trust, or any affiliate of such
entities. Finally, the Underwriter Exemption stipulates that any Plan
investing in the certificates must be an "accredited investor" as defined in
Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933.
Any Plan fiduciary which proposes to cause a Plan to purchase
Securities should consult with its counsel concerning the impact of ERISA and
the Code, the applicability of PTE 83-1 and the Underwriter Exemption, and the
potential consequences in its specific circumstances, prior to making such
investment. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans (the "Obligations") supporting payments to
certificateholders, and having a value equal to no more than twenty-five
percent (25%) of the total principal amount of the certificates being offered
by the trust, to be transferred to the trust within a 90-day or three-month
period following the closing date ("Pre-Funding Period"), instead of requiring
that all such Obligations be either identified or transferred on or before the
closing date. The relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding
account to the total principal amount of the certificates being
offered (the "Pre-Funding Limit") must not exceed twenty-five
percent (25%).
(2) All Obligations transferred after the closing date (the
"Additional Obligations") must meet the same terms and
conditions for eligibility as the original Obligations used to
create the trust, which terms and conditions have been approved
by an Exemption Rating Agency.
(3) The transfer of such Additional Obligations to the trust
during the Pre-Funding Period must not result in the
certificates to be covered by the Exemption receiving a lower
credit rating from an Exemption Rating Agency upon termination
of the Pre-Funding Period than the rating that was obtained at
the time of the initial issuance of the certificates by the
trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the Average Interest
Rate") for all of the Obligations in the trust at the end of
the Pre-Funding Period must not be more than 100 basis points
lower than the average interest rate for the Obligations which
were transferred to the trust on the closing date.
(5) Either:
(i) the characteristics of the Additional
Obligations must be monitored by an insurer or other
credit support provider which is independent of the
depositor; or
(ii) an independent accountant retained by
the depositor must provide the depositor with a letter
(with copies provided to each Exemption Rating Agency
rating the certificates, the related underwriter and
the related trustee) stating whether or not the
characteristics of the Additional Obligations conform
to the characteristics described in the related
prospectus or prospectus supplement and/or pooling
and servicing agreement. In preparing such letter,
the independent accountant must use the same type of
procedures as were applicable to the Obligations
which were transferred to the trust as of the closing
date.
(6) The Pre-Funding Period must end no later than three months
or 90 days after the closing date or earlier in certain
circumstances if the pre-funding account falls below the
minimum level specified in the pooling and servicing agreement
or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the
pre-funding may be invested only in investments which are
permitted by the Exemption Rating Agencies rating the
certificates and must:
(i) be direct obligations of, or obligations
fully guaranteed as to timely payment of principal and
interest by, the United States or any agency or
instrumentality thereof (provided that such
obligations are backed by the full faith and credit of
the United States); or
(ii) have been rated (or the obligor has
been rated) in one or the three highest generic rating
categories by an Exemption Rating Agency ("DOL
Permitted Investments").
(8) The related prospectus or prospectus supplement must
describe:
(i) any pre-funding account and/or
capitalized interest account used in connection with a
pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of
the Pre-Funding Limit for the trust; and
(iv) that the amounts remaining in the pre-
funding account at the end of the Pre-Funding Period
will be remitted to certificateholders as repayments
of principal.
(9) The related pooling and servicing agreement must describe
the DOL Permitted Investments for the pre-funding account
and/or capitalized interest account and, if not disclosed in
the related prospectus or prospectus supplement, the terms and
conditions for eligibility of Additional Obligations.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Securities will specify
which, if any, of the classes of Securities offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of Securities that qualify as
"mortgage related securities" will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts, and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulations to the same
extent as, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any such entities. Under SMMEA,
if a state enacted legislation prior to October 4, 1991 specifically limiting
the legal investment authority of any such entities with respect to "mortgage
related securities", securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline. SMMEA provides, however, that in no event will the enactment of any
such legislation affect the validity of any contractual commitment to
purchase, hold or invest in securities, or require the sale or other
disposition of securities, so long as such contractual commitment was made or
such securities were acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and
loan associations and federal savings banks may invest in, sell or otherwise
deal in Securities without limitations as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase certificates for their own account
without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal authority may prescribe. In this
connection, federal credit unions should review the National Credit Union
Administration ("NCUA") Letter to Credit Unions No. 96, as modified by Letter
to Credit Unions No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related securities and the
NCUA's regulation "Investment and Deposit Activities" (12 C.F.R. Part 703),
which sets forth certain restrictions on investment by federal credit unions
in mortgage related securities.
All depository institutions considering an investment in the
Securities (whether or not the class of Securities under consideration for
purchase constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on
the Securities Activities (to the extent adopted by their respective
regulators) (the "Policy Statement") setting forth, in relevant part, certain
securities trading and sales practices deemed unsuitable for an institution's
investment portfolio, and guidelines for (and restrictions on) investing in
mortgage derivative products, including "mortgage related securities", which
are "high-risk mortgage securities" as defined in the Policy Statement.
According to the Policy Statement such "high-risk mortgage securities" include
securities such as Securities not entitled to distributions allocated to
principal or interest, or Subordinated Securities. Under the Policy Statement,
it is the responsibility of each depository institution to determine, prior to
purchase (and at stated intervals thereafter), whether a particular mortgage
derivative product is a "high-risk mortgage security", and whether the
purchase (or retention) of such a product would be consistent with the Policy
Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to "prudent investor" provisions which may restrict or prohibit
investment in securities which are not "interest bearing" or "income paying".
There may be other restrictions on the ability of certain investors,
including depositors institutions, either to purchase Securities or to
purchase Securities representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Securities constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the Prospectus Supplement will
be offered in Series. The distribution of the Securities may be effected from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices to be determined at the
time of sale or at the time of commitment therefor. If so specified in the
related Prospectus Supplement, the Securities will be distributed in a firm
commitment underwriting, subject to the terms and conditions of the
underwriting agreement, by Greenwich Capital Markets, Inc. ("GCM") acting as
underwriter with other underwriters, if any, named therein. In such event, the
related Prospectus Supplement may also specify that the underwriters will not
be obligated to pay for any Securities agreed to be purchased by purchasers
pursuant to purchase agreements acceptable to the Depositor. In connection
with the sale of the Securities, underwriters may receive compensation from
the Depositor or from purchasers of the Securities in the form of discounts,
concessions or commissions. The related Prospectus Supplement will describe
any such compensation paid by the Depositor.
Alternatively, the related Prospectus Supplement may specify that the
Securities will be distributed by GCM acting as agent or in some cases as
principal with respect to Securities that it has previously purchased or
agreed to purchase. If GCM acts as agent in the sale of Securities, GCM will
receive a selling commission with respect to each Series of Securities,
depending on market conditions, expressed as a percentage of the aggregate
principal balance of the related Trust Fund Assets as of the Cut-off Date. The
exact percentage for each Series of Securities will be disclosed in the
related Prospectus Supplement. To the extent that GCM elects to purchase
Securities as principal, GCM may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any Series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of
Securities of such Series.
The Depositor will indemnify GCM and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments GCM and any underwriters may be required to make
in respect thereof.
In the ordinary course of business, GCM and the Depositor may engage
in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's loans or private
asset backed securities, pending the sale of such loans or private asset
backed securities, or interests therein, including the Securities.
The Depositor anticipates that the Securities will be sold primarily
to institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Securities. Holders of Securities should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
LEGAL MATTERS
The legality of the Securities of each Series, including certain
material federal income tax consequences with respect thereto, will be passed
upon for the Depositor by Brown & Wood LLP, New York, New York 10048.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Securities and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Securities. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
AVAILABLE INFORMATION
The Depositor has filed with the SEC a Registration Statement under
the Securities Act of 1933, as amended, with respect to the Securities. This
Prospectus, which forms a part of the Registration Statement, and the
Prospectus Supplement relating to each Series of Securities contain summaries
of the material terms of the documents referred to herein and therein, but do
not contain all of the information set forth in the Registration Statement
pursuant to the Rules and Regulations of the SEC. For further information,
reference is made to such Registration Statement and the exhibits thereto.
Such Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the SEC at
its Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Regional Offices located as follows: Midwest Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048.
In addition, the SEC maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Depositor, that file electronically with the
Commission.
RATING
It is a condition to the issuance of the Securities of each Series
offered hereby and by the Prospectus Supplement that they shall have been
rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies (each, a "Rating Agency")
specified in the related Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy
of the value of the Trust Fund Assets and any credit enhancement with respect
to such class and will reflect such Rating Agency's assessment solely of the
likelihood that holders of a class of Securities of such class will receive
payments to which such Securityholders are entitled under the related
Agreement. Such rating will not constitute an assessment of the likelihood
that principal prepayments on the related Loans will be made, the degree to
which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the Series of
Securities. Such rating should not be deemed a recommendation to purchase,
hold or sell Securities, inasmuch as it does not address market price or
suitability for a particular investor. Such rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause such investor to experience a lower than anticipated yield
or that an investor purchasing a Security at a significant premium might fail
to recoup its initial investment under certain prepayment scenarios.
There is also no assurance that any such rating will remain in effect
for any given period of time or that it may not be lowered or withdrawn
entirely by the Rating Agency in the future if in its judgment circumstances
in the future so warrant. In addition to being lowered or withdrawn due to any
erosion in the adequacy of the value of the Trust Fund Assets or any credit
enhancement with respect to a Series, such rating might also be lowered or
withdrawn among other reasons, because of an adverse change in the financial
or other condition of a credit enhancement provider or a change in the rating
of such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any,
established with respect to a Series of Securities will be determined on the
basis of criteria established by each Rating Agency rating classes of such
Series. Such criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. Such analysis is often the basis
upon which each Rating Agency determines the amount of credit enhancement
required with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately reflect
future experience nor any assurance that the data derived from a large pool of
mortgage loans accurately predicts the delinquency, foreclosure or loss
experience of any particular pool of Loans. No assurance can be given that
values of any Properties have remained or will remain at their levels on the
respective dates of origination of the related Loans. If the residential real
estate markets should experience an overall decline in property values such
that the outstanding principal balances of the Loans in a particular Trust
Fund and any secondary financing on the related Properties become equal to or
greater than the value of the Properties, the rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. In additional, adverse economic conditions
(which may or may not affect real property values) may affect the timely
payment by mortgagors of scheduled payments of principal and interest on the
Loans and, accordingly, the rates of delinquencies, foreclosures and losses
with respect to any Trust Fund. To the extent that such losses are not covered
by credit enhancement, such losses will be borne, at least in part, by the
holders of one or more classes of the Securities of the related Series.
<PAGE>
INDEX OF DEFINED TERMS
Accrual Securities...........................................................21
Additional Obligations.......................................................82
Agreement....................................................................10
APR..........................................................................13
Asset Conservation Act.......................................................49
Available Funds..............................................................20
Average Interest Rate........................................................83
Bankruptcy Bond..............................................................29
BIF..........................................................................36
Book-Entry Securities........................................................24
Cash Flow Bond Method........................................................69
Cede.........................................................................24
CEDEL........................................................................24
CEDEL Participants...........................................................25
CERCLA.......................................................................48
Certificates.................................................................10
Code.........................................................................59
Collateral Value.............................................................13
Combined Loan-to-Value Ratio.................................................13
Contingent Regulations.......................................................60
Cooperative..................................................................26
Cut-off Date.................................................................10
Debt Securities..............................................................59
Definitive Security..........................................................24
Detailed Description.........................................................11
Determination Date...........................................................20
DOL..........................................................................80
DOL Permitted Investments....................................................83
DTC..........................................................................24
Eligible Corporations........................................................78
Euroclear....................................................................24
Euroclear Participants.......................................................26
European Depositaries........................................................24
FASCO........................................................................15
FASIT Qualification Test.....................................................77
FDIC.........................................................................36
Financial Intermediary.......................................................25
Garn-St. Germain Act.........................................................51
GCM..........................................................................85
High-Yield Interest..........................................................78
Home Equity Loans............................................................11
Home Improvement Contracts...................................................11
Home Improvements............................................................11
HUD..........................................................................31
Indenture....................................................................18
Installment Contract.........................................................53
Insurance Proceeds...........................................................37
Insured Expenses.............................................................37
Interest Weighted Securities.................................................62
IO...........................................................................77
IRS..........................................................................60
Liquidation Expenses.........................................................37
Liquidation Proceeds.........................................................37
Loan Rate....................................................................12
Mark-to-Market Regulations...................................................67
Mortgage.....................................................................35
NCUA.........................................................................84
New Regulations..............................................................70
Nonresidents.................................................................70
Notes........................................................................10
Obligations..................................................................82
OID..........................................................................59
OID Regulations..............................................................59
PABS Agreement...............................................................14
PABS Issuer..................................................................14
PABS Servicer................................................................14
PABS Trustee.................................................................14
Participants.................................................................24
Parties in Interest..........................................................80
Pass-Through Rate............................................................10
Pass-Through Securities......................................................67
Pay-Through Security.........................................................61
Permitted Investments........................................................37
Plans........................................................................80
Policy Statement.............................................................84
Pool.........................................................................10
Pool Insurance Policy........................................................29
Pool Insurer.................................................................29
Pooling and Servicing Agreement..............................................18
Pre-Funded Amount............................................................38
Pre-Funding Account..........................................................38
Pre-Funding Limit............................................................82
Pre-Funding Period...........................................................82
Premium......................................................................57
Prepayment Assumption........................................................61
Primary Insurer..............................................................41
Principal Prepayments........................................................22
Properties...................................................................11
Property Improvement Loans...................................................55
PTE 83-1.....................................................................80
Purchase Price...............................................................17
Rating Agency................................................................86
Ratio Strip Securities.......................................................68
RCRA.........................................................................49
Record Date..................................................................19
Refinance Loan...............................................................13
Regular Interest Securities..................................................59
Relevant Depositary..........................................................24
Relief Act...................................................................54
REMIC........................................................................19
Reserve Account..............................................................20
Residual Interest Security...................................................65
Retained Interest............................................................18
Rules........................................................................25
SAIF.........................................................................36
SEC..........................................................................15
Security Account.............................................................37
Security Owners..............................................................24
Security Register............................................................19
Sellers......................................................................10
Senior Securities............................................................27
Servicing Agreement..........................................................10
Servicing Fee................................................................67
Short-Term Note..............................................................72
Single Family Properties.....................................................11
Single Family Securities.....................................................81
Small Mixed-Use Properties...................................................12
SMMEA........................................................................84
Special Hazard Insurance Policy..............................................28
Special Hazard Insurer.......................................................28
Stripped Securities..........................................................67
Sub-Servicers................................................................10
Sub-Servicing Account........................................................36
Sub-Servicing Agreement......................................................38
Support Agreement............................................................23
Support Servicer.............................................................23
Tax Counsel..................................................................58
Terms and Conditions.........................................................26
TIN..........................................................................70
Title I Loans................................................................55
Title I Program..............................................................55
Title V......................................................................52
Trust Agreement..............................................................10
Trust Fund...................................................................10
Trust Fund Assets............................................................10
Trustee......................................................................18
U.S. Person..................................................................59
UCC..........................................................................52
Underwriter Exemption........................................................82
VA Guaranty Policy...........................................................31
<PAGE>
$218,493,000
(Approximate)
Financial Asset Securities Corp.
Depositor
Litton Loan Servicing LP
Servicer
Soundview Home Equity Loan Asset-Backed Certificates,
Series 2000-1
PROSPECTUS SUPPLEMENT
GREEWICH CAPITAL
========-----------------------------------------------------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Soundview Home Equity Loan Asset-Backed
Certificates, Series 2000-1 in any state where the offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting
as underwriters of the Soundview Home Equity Loan Asset-Backed Certificates,
Series 2000-1 and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Soundview Home Equity Loan Asset-Backed
Certificates, Series 2000-1 will be required to deliver a prospectus
supplement and prospectus for ninety days following the date of this
prospectus supplement.
May 31, 2000
