As filed with the Securities and Exchange Commission on August 24, 1998
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMRESCO Residential Securities Corporation
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2620414
(State of Incorporation) (I.R.S. Employer Identification Number)
--------------------------------------------
700 N. Pearl Street, Suite 2400
Dallas, Texas 75201-7424
(214) 953-7700
(Address and telephone number of
principal executive offices)
---------------------------------
L. Keith Blackwell
Vice President, General Counsel and Secretary
AMRESCO, INC.
700 N. Pearl Street, Suite 2400
Dallas, Texas 75201-7424
(214) 953-7700
Fax: (214) 953-7757
(Name, address and telephone number
of agent for service)
---------------------------------
Please send copies of communications to:
Janice M. Cott Joseph V. Gatti, Esq.
Managing Director, Capital Markets Arter & Hadden LLP
AMRESCO Residential Credit Corporation 1801 K Street, N.W.
16800 Aston Street Suite 400K
Irvine, California 92714 Washington, DC 20006
(949) 798-4710 (202) 775-4442
Fax: (949) 798-4610 Fax: (202) 857-0172
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC. From time to
time after the effective date of this Registration Statement as determined by
market conditions and pursuant to Rule 415.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus filed
as part of this Registration Statement may be used in connection with the
securities covered by Registration Statement No. 333-30759.
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Offering Price Amount of
Being Registered Registered Per Unit* Per Unit* Registration Fee
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<S> <C> <C> <C> <C>
Mortgage Loan Asset Backed $1,000,000.00** 100% $1,000,000.00 $295.00***
Certificates and Notes
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</TABLE>
* Estimated solely for purposes of calculating the registration fee.
** In addition to the amount being registered hereto, pursuant to Rule 429,
$1,054,458,000 is being carried forward from Registration Statement No.
333-30759, for which a filing fee was paid equal to $319,532.72.
*** Registration fee was wired on August 24, 1998.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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<PAGE>
This registration statement registers up to $1,000,000 of mortgage loan
asset backed certificates and notes collateralized by various types of mortgage
collateral described herein. The registration statement contains a form of
prospectus covering, one-to-four ("single") family residential first and junior
lien, fixed and adjustable rate mortgage loans or interests therein represented
by agency or private label pass-through securities and notes ("Securities"). The
prospectus is accompanied by three forms of prospectus supplement describing
each of the structures that are expected to be employed by the Registrant for
the issuance of certificates and notes. As described in the Prospectus, each
transaction may have Classes of Securities with various characteristics,
mortgage assets with various characteristics, various forms and terms of credit
enhancement, one or more subservicers, various underwriting and servicing
standards with respect to mortgage assets, various tax consequences and various
other characteristics, each of which will be fully described in the actual form
of prospectus supplement filed pursuant to Rule 424(b)(2), (3) or (5).
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Items and Caption in Form S-3 Location in Prospectus
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<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus.............................................. Forepart of Registration
Statement and Outside Front
Cover Page **
2. Inside Front and Outside Back Cover Pages of Prospectus............ Inside Front Cover Page and
Outside Back Cover Page of
Prospectus **
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................................... Summary **; The Seller**; Risk
Factors**
4. Use of Proceeds.................................................... Use of Proceeds**
5. Determination of Offering Price.................................... *
6. Dilution........................................................... *
7. Selling Security-Holders........................................... *
8. Plan of Distribution............................................... Plan of Distribution **
9. Description of Securities to be Registered......................... Outside Front Cover; Summary;
The Trusts; The Securities; The
Pooling and Servicing
Agreement; The Indenture; and
Certain Federal Income Tax
Consequences**
10. Interests of Named Experts and Counsel............................. *
11. Material Changes................................................... *
12. Incorporation of Certain Information by Reference.................. Inside Front Cover Page**;
Incorporation of Certain
Documents by Reference**
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities...................................... See Page II-2
</TABLE>
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* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement.
<PAGE>
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Mortgage Loan Asset Backed Securities
(Issuable in Series)
AMRESCO Residential Securities Corporation
(Depositor)
This Prospectus relates to Mortgage Loan Asset Backed Securities
("Securities") to be issued from time to time in one or more series (and one or
more classes within a series), certain classes of which may be offered on terms
determined at the time of sale and described in this Prospectus and the related
Prospectus Supplement. Each series of Securities will be issued by a separate
trust (each, a "Trust") and will evidence either a debt obligation of, or a
beneficial ownership interest in, such Trust. The assets of a Trust will include
one or more of the following: (i) single family residential mortgage loans,
including mortgage loans secured by first or junior liens on the related
mortgaged properties and Title I loans and other types of home improvement
retail installment contracts and timeshare mortgages, (ii) conditional sales
contracts and installment sales or loan agreements or participation interests
therein secured by manufactured housing, (iii) mortgage-backed securities, (iv)
other mortgage-related assets and securities and (v) reinvestment income,
reserve funds, cash accounts, insurance policies (including financial guaranty
insurance policies and surety bonds), guaranties, letters of credit or similar
types of credit support or enhancement as more particularly described in the
related Prospectus Supplement.
One or more classes of Securities of a series may be (i) entitled to
receive distributions allocable to principal, principal prepayments, interest or
any combination thereof prior to one or more other classes of Securities of such
series or after the occurrence of certain events or (ii) subordinated in the
right to receive such distributions to one or more senior classes of Securities
of such series, in each case as specified in the related Prospectus Supplement.
Interest on each class of Securities entitled to distributions allocable to
interest may accrue at a fixed rate or at a rate that is subject to change from
time to time as specified in the related Prospectus Supplement. The Depositor or
its affiliates may retain or hold for sale from time to time one or more classes
of a series of Securities.
Distributions on the Securities will be made at the intervals and on the
dates specified in the related Prospectus Supplement from the assets of the
related Trust and any other assets pledged for the benefit of the Securities. An
affiliate of the Depositor may make or obtain for the benefit of the Securities
limited representations and warranties with respect to mortgage assets assigned
to the related Trust. Neither the Depositor nor any of its affiliates will have
any other obligation with respect to the Securities.
The yield on Securities will be affected by the rate of payment of
principal (including prepayments) of mortgage assets in the related Trust. Each
series of Securities will be subject to early termination under the
circumstances described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election may be made to treat
the Trust for the related series or specified portions thereof as a "real estate
mortgage investment conduit" ("REMIC") or a financial asset securitization
investment trust ("FASIT") for federal income tax purposes. See "Certain Federal
Income Tax Consequences" herein and in the related Prospectus Supplement.
It is a condition to the issuance of the Securities that the Securities be
rated in not less than the fourth highest rating category by a nationally
recognized rating organization.
See "Risk Factors" beginning on Page 7 herein and in the section entitled
"Risk Factors" in the related Prospectus Supplement for a discussion of
significant risk factors.
See "ERISA Considerations" herein and in the related Prospectus Supplement
for a discussion of restrictions on the acquisition of Securities by "plan
fiduciaries."
An investor should carefully review the information in the related
Prospectus Supplement concerning the risks associated with the different types
and classes of Securities.
THE ASSETS OF A TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE RELATED
SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, ANY SERVICER, ANY MASTER SERVICER, ANY ORIGINATOR, ANY TRUSTEE OR ANY
OF THEIR AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT. NEITHER THE SECURITIES NOR THE UNDERLYING MORTGAGE ASSETS WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE
DEPOSITOR, ANY SERVICER, ANY MASTER SERVICER, ANY ORIGINATOR, ANY TRUSTEE OR ANY
OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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Offers of the Securities may be made through one or more different methods,
including offerings through underwriters, as more fully described herein and in
the related Prospectus Supplement. See "Plan of Distribution" herein and
"Underwriting" in the related Prospectus Supplement. There will have been no
public market for any series of Securities prior to the offering thereof. There
can be no assurance that a secondary market will develop for the Securities of
any series or, if it does develop, that such market will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
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The date of this Prospectus is September __, 1998.
<PAGE>
AVAILABLE INFORMATION
A Registration Statement under the Securities Act of 1933, as amended
(the "1933 Act"), has been filed with the Securities and Exchange Commission
(the "Commission") with respect to the Securities. The Registration Statement
and amendments thereof and the exhibits thereto, as well as such reports and
other information, are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located as follows: 7 World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the
Registration Statement and amendments thereof and exhibits thereto may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's Web site (http:\\www.sec.gov).
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
REPORTS TO OWNERS
Periodic and annual reports concerning the Securities and the related
Trust will be provided to the persons in whose names the Securities are
registered. See "The Pooling and Servicing Agreement -- Reports," "The Indenture
- -- Indenture Trustee's Annual Report" and "-- Reports by Indenture Trustee to
Note Owners" herein. If specified in the related Prospectus Supplement, a series
of the Securities may be issuable in book-entry form. In such event, the related
Securities will be registered in the name of a Clearing Agency (as defined
herein) and, therefore, the Clearing Agency will be the registered owner for
purposes hereof. All reports will be provided to the Clearing Agency, which in
turn will provide such reports to its Clearing Agency Participants (as defined
herein). Such Clearing Agency Participants will then forward such reports to the
beneficial owners of Securities. See "Description of the Securities-Book-Entry
Registration." The Depositor will file or cause to be filed with the Commission
such periodic reports with respect to each Trust as are required under the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations of the Commission thereunder. It is the Depositor's intent to
suspend filing such reports as soon as such reports are no longer statutorily
required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with respect to each respective Trust pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the
Securities of such Trust offered hereby shall be deemed to be incorporated by
reference into this Prospectus when delivered with respect to such Trust. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without
charge, upon written or oral request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
(other than the documents expressly incorporated therein by reference). Requests
should be directed to AMRESCO Residential Securities Corporation, 700 N. Pearl
Street, Suite 2400, Dallas, Texas 75201 (telephone number (214) 953-7700).
The Prospectus Supplement or Current Report on Form 8-K relating to the
Securities of each series to be offered hereunder will, among other things, set
forth with respect to such Securities, as appropriate: (i) a description of the
class or classes of Securities and the interest rate or method of determining
the rate or the amount of interest, if any, to be paid to each such class; (ii)
the aggregate principal amount and Payment Dates relating to such series and, if
applicable, the initial and final scheduled Payment Dates for each class; (iii)
information as to the assets comprising the Trust, including the general
characteristics of the Trust assets included therein and, if applicable, the
insurance policies, surety bonds, guarantees, letters of credit, reserve funds,
cash accounts, reinvestment income or other
<PAGE>
instruments or agreements included in the Trust or otherwise, and the amount and
source of any reserve account or cash account; (iv) the circumstances, if any,
under which the Trust may be subject to early termination; (v) the methods used
to calculate the amount of principal to be distributed with respect to each
class of Securities; (vi) the order of application of distributions to each of
the classes within such Series, whether sequential, pro rata, or otherwise;
(vii) additional information with respect to the method of distribution of such
Securities; (viii) whether one or more REMIC or FASIT elections will be made and
designation of the regular interests and residual interests; (ix) the aggregate
original percentage ownership interest in the Trust to be evidenced by each
class of Securities; (x) information as to the Trustee or Indenture Trustee;
(xi) information as to the nature and extent of subordination with respect to
any class of Securities that is subordinate in right of payment to any other
class; and (xii) information as to the Master Servicer or Special Servicer, if
any.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligations of dealers to deliver a Prospectus Supplement and the Prospectus
when acting as underwriters of the Securities covered by such Prospectus
Supplement and with respect to their unsold allotments or subscriptions.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY OF PROSPECTUS..........................................................1
RISK FACTORS...................................................................7
DESCRIPTION OF THE SECURITIES.................................................11
General ............................................................11
Classes of Securities................................................12
Distributions of Principal and Interest..............................13
Book Entry Registration..............................................15
List of Owners of Securities.........................................15
THE TRUSTS....................................................................15
Mortgage Loans.......................................................16
Contracts............................................................18
Mortgage-Backed Securities...........................................19
Other Mortgage Securities............................................19
CREDIT ENHANCEMENT............................................................19
SERVICING OF MORTGAGE LOANS AND CONTRACTS.....................................23
Payments on Mortgage Loans...........................................24
Advances ............................................................24
Collection and Other Servicing Procedures............................24
Primary Mortgage Insurance...........................................26
Standard Hazard Insurance............................................26
Title Insurance Policies.............................................27
Claims Under Primary Mortgage Insurance Policies
and Standard Hazard Insurance Policies;
Other Realization Upon Defaulted Loan.......................28
Servicing Compensation and Payment of Expenses.......................28
Master Servicer......................................................28
Special Servicer.....................................................29
THE POOLING AND SERVICING AGREEMENT...........................................29
Assignment of Mortgage Assets........................................29
Evidence as to Compliance............................................31
The Trustee..........................................................32
Administration of the Security Account...............................32
Reports ............................................................33
Forward Commitments; Pre-Funding.....................................34
Servicer Events of Default...........................................34
Rights Upon Servicer Event of Default................................34
Amendment............................................................35
Termination..........................................................35
THE INDENTURE.................................................................35
General ............................................................35
Modification of Indenture ...........................................36
Note Events of Default...............................................36
Rights Upon Note Events of Default...................................36
List of Note Owners..................................................37
Annual Compliance Statement..........................................37
Indenture Trustee's Annual Report....................................37
Satisfaction and Discharge of Indenture..............................37
Redemption of Notes..................................................37
Reports by Indenture Trustee to Note Owners..........................38
Limitation on Suits..................................................38
The Sale and Servicing Agreement.....................................38
USE OF PROCEEDS...............................................................39
THE DEPOSITOR.................................................................39
CERTAIN LEGAL ASPECTS OF THE MORTGAGE
ASSETS...............................................................39
General ............................................................39
Foreclosure..........................................................40
Enforceability.......................................................44
Soldiers' and Sailors' Civil Relief Act..............................45
The Contracts........................................................45
The Title I Program..................................................47
LEGAL INVESTMENT MATTERS......................................................48
ERISA CONSIDERATIONS..........................................................49
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................50
REMIC Securities.....................................................50
Non-REMIC Securities.................................................65
Taxation of Certain Foreign Investors................................70
Debt Certificates....................................................70
Notes................................................................72
Securities Classified as Partnership Interests.......................72
FASIT Securities.....................................................72
PLAN OF DISTRIBUTION..........................................................75
RATINGS .....................................................................76
LEGAL MATTERS.................................................................76
FINANCIAL INFORMATION.........................................................76
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.................................A-1
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the Prospectus Supplement relating to a particular series of Securities and to
the related Agreement (as defined herein) which will be prepared in connection
with each series of Securities. Unless otherwise specified, capitalized terms
used and not defined in this Summary of Prospectus have the meanings given to
them in this Prospectus and in the related Prospectus Supplement. An index
indicating where certain capitalized terms used herein are defined appears at
Appendix A hereto.
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Securities............................ Mortgage Loan Asset Backed Certificates (the "Certificates") and Mortgage
Loan Asset Backed Notes (the "Notes"; and together with the Certificates, the
"Securities"), issuable from time to time in series, in fully registered form or
book entry only form, in authorized denominations, as described in the
Prospectus Supplement. Each Security will evidence a debt obligation of, or
a beneficial ownership interest in, a trust (a "Trust") created from time to time
pursuant to a pooling and servicing agreement or trust agreement (each, an
"Agreement"). Securities evidencing a debt obligation of a Trust will be
issued pursuant to a trust indenture (each, an "Indenture") between the Trust
and an indenture trustee.
The Depositor......................... AMRESCO Residential Securities Corporation (the "Depositor") is a
Delaware corporation. The Depositor's principal executive offices are located
at 700 N. Pearl Street, Suite 2400, Dallas, Texas 75201; telephone number
(214) 953-7700. See "The Depositor" herein. The Depositor or its affiliates
may retain or hold for sale from time to time one or more classes of a series
of Securities.
The Servicer.......................... The entity or entities named as the Servicer in the Prospectus Supplement (the
"Servicer"), will act as servicer, with respect to the Mortgage Loans and
Contracts included in the related Trust. The Servicer may be an affiliate of
the Depositor and may be the seller of Mortgage Assets to the Depositor
(each, a "Seller").
The Master Servicer................... A "Master Servicer" may be specified in the related Prospectus Supplement
for the related series of Securities.
Trustees.............................. The trustee (the "Trustee") for each series of Certificates will be specified in
the related Prospectus Supplement. The owner trustee (the "Owner Trustee")
and the indenture trustee (the "Indenture Trustee") for each series of Notes
will be specified in the related Prospectus Supplement.
Issuer of Notes....................... With respect to each Series of Notes, the issuer (the "Issuer") will be the
Depositor or an owner trust established by it for the purpose of issuing such
Series of Notes. Each such owner trust will be created pursuant to a Trust
Agreement between the Depositor and the Owner Trustee. Each Series of
Notes will represent indebtedness of the Issuer and will be issued pursuant to
an Indenture between the Issuer and the Trustee whereby the Issuer will
pledge the assets of the related Trust to secure the Notes under the lien of the
Indenture. As to each Series of Notes where the Issuer is an owner trust, the
ownership of the related Trust will be evidenced by certificated or
noncertificated interests (the "Equity Certificates") issued under the Trust
Agreement, which, unless otherwise specified in the Prospectus Supplement,
are not offered hereby. The Notes will represent nonrecourse obligations
solely of the Issuer, and the proceeds of the related Trust will be the sole
1
<PAGE>
source of payments on the Notes, except as described herein under "Credit
Enhancement" and in the related Prospectus Supplement.
Trust Assets.......................... The assets of a Trust will be mortgage-related assets (the "Mortgage Assets")
consisting of one or more of the following types of assets:
A. The Mortgage Loans................ "Mortgage Loans" may include: (i) conventional (i.e., not insured or
guaranteed by any governmental agency) Mortgage Loans secured by one-to-
four family residential properties; (ii) loans insured by the Federal Housing
Administration (the "FHA"); (iii) Mortgage Loans secured by security
interests in shares issued by private, non-profit, cooperative housing
corporations ("Cooperatives") and in the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specific dwelling
units in such Cooperatives' buildings; (iv) Mortgage Loans secured by junior
liens on the related mortgaged properties, including Title I Loans and other
types of home improvement retail installment contracts; and (v) Mortgage
Loans secured by timeshare estates representing an ownership interest in
common with other owners in one or more vacation units entitling the owner
thereof to the exclusive use of a unit and access to the accompanying
recreational facilities for the week or weeks owned. See "The Trusts --
Mortgage Loans" herein. The Mortgage Loans will be either closed-end loans
(the "Closed-End Loans") or revolving credit line loans (or certain balances
therein) (such Mortgage Loans, the "Revolving Credit Line Loans")
B. Contracts......................... Contracts may include conditional sales contracts and installment sales or
loan agreements or participation interests therein secured by new or used
Manufactured Homes (as defined herein). Contracts may be conventional
(i.e., not insured or guaranteed by any government agency) or insured by the
FHA, including Title I Contracts, or partially guaranteed by the Veterans
Administration ("VA"), as specified in the related Prospectus Supplement.
See "The Trusts -- Contracts" herein.
C. Mortgage-Backed Securities......... "Mortgage-Backed Securities" (or "MBS") may include (i) private (that is,
not guaranteed or insured by the United States or any agency or
instrumentality thereof) mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities or (ii) certificates insured or
guaranteed by Federal Home Loan Mortgage Corporation ("FHLMC") or
Federal National Mortgage Association ("FNMA") or Government National
Mortgage Association ("GNMA"). See "The Trusts-- Mortgage-Backed
Securities" herein.
D. Other Mortgage Assets............. Trust assets may also include reinvestment income, reserve funds, cash
accounts, insurance policies (including financial guaranty insurance policies
and surety bonds), guaranties, letters of credit or similar types of credit
support or enhancement as described in the related Prospectus Supplement.
The related Prospectus Supplement for a series of Securities will describe the
Mortgage Assets to be included in the Trust for such series.
The Securities........................ The Securities of any series may be issued in one or more classes, as specified
in the Prospectus Supplement. One or more classes of Securities of each
series (i) may be entitled to receive distributions allocable only to principal,
only to interest or to any combination thereof; (ii) may be entitled to receive
distributions only of prepayments of principal throughout the lives of the
Securities or during specified periods; (iii) may be subordinated in the right
2
<PAGE>
to receive distributions of scheduled payments of principal, prepayments of
principal, interest or any combination thereof to one or more other classes of
Securities of such series throughout the lives of the Securities or during
specified periods; (iv) may be entitled to receive such distributions only after
the occurrence of events specified in the Prospectus Supplement; (v) may be
entitled to receive distributions in accordance with a schedule or formula or on
the basis of collections from designated portions of the Mortgage Assets in the
related Trust; (vi) as to Securities entitled to distributions allocable to
interest, may be entitled to receive interest at a fixed rate or a rate that is
subject to change from time to time; (vii) may accrue interest, with such accrued
interest added to the principal or notional amount of the Securities, and no
payments being made thereon until certain other classes of the series have been
paid in full; and (viii) as to Securities entitled to distributions allocable to
interest, may be entitled to distributions allocable to interest only after the
occurrence of events specified in the Prospectus Supplement and may accrue
interest until such events occur, in each case as specified in the related
Prospectus Supplement. The timing and amounts of such distributions may vary
among classes, over time, or otherwise as specified in the related Prospectus
Supplement.
Distributions on
the Securities...................... The related Prospectus Supplement will specify (i) whether distributions on
the Securities entitled thereto will be made monthly, quarterly, semi-annually
or at other intervals and dates out of the payments received in respect of the
Mortgage Assets included in the related Trust and other assets, if any,
pledged for the benefit of the related Owners of Securities; (ii) the amount
allocable to payments of principal and interest on any Distribution Date; and
(iii) whether all distributions will be made pro rata to Owners of Securities
of the class entitled thereto.
The aggregate original principal balance of the Securities will equal the
aggregate distributions allocable to principal that such Securities will be
entitled to receive; the Securities will have an aggregate original principal
balance equal to or less than the aggregate unpaid principal balance of the
related Mortgage Assets (plus amounts held in a Pre-Funding Account, if any) as
of the first day of the month of creation of the Trust; and the Securities will
bear interest in the aggregate at a rate (the "Pass-Through Rate") equal to the
interest rate borne by the related Mortgage Assets net of servicing fees and any
other specified amounts.
Pre-Funding Account................... A Trust may enter into an agreement (each, a "Pre-Funding Agreement")
with the Depositor whereby the Depositor will agree to transfer additional
Mortgage Assets to such Trust following the date on which such Trust is
established and the related Securities are issued. Any Pre-Funding
Agreement will require that any Mortgage Loans so transferred conform to
the requirements specified in such Pre-Funding Agreement. If a Pre-Funding
Agreement is to be utilized, the related Trustee will be required to deposit in
a segregated account (each, a "Pre-Funding Account") all or a portion of the
proceeds received by the Trustee in connection with the sale of one or more
classes of Securities of the related series; subsequently, the additional
Mortgage Assets will be transferred to the related Trust in exchange for
money released to the Depositor from the related Pre-Funding Account. The
maximum amount deposited in the Pre-Funding Account to acquire Mortgage
Assets for transfer to a Trust will not exceed 25% of the aggregate principal
amount of the Securities offered pursuant to the related Prospectus
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Supplement. Each Pre-Funding Agreement will set a specified period during which
any such transfers must occur, which period will not exceed 90 days from the date
the Trust is established. If all moneys originally deposited to such Pre-Funding
Account are not used by the end of such specified period, then any remaining
moneys will be applied as a mandatory prepayment of a class or classes of
Securities as specified in the related Prospectus Supplement.
Optional Termination.................. The Servicer, the Seller, the Depositor or, if specified in the related
Prospectus Supplement, the Owners of a related class of Securities or a credit
enhancer may at their respective options effect early retirement of a series of
Securities through the purchase of the Mortgage Assets in the related Trust. See
"The Pooling and Servicing Agreement -- Termination" and "The Indenture -
Redemption of Notes" herein.
Mandatory Termination................. The Trustee, the Servicer or certain other entities specified in the related
Prospectus Supplement may be required to effect early retirement of a series of
Securities by soliciting competitive bids for the purchase of the Mortgage Assets
of the related Trust or otherwise. See " Pooling and Servicing Agreement --
Termination" and "The Indenture -- Rights Upon Note Events of Default" herein.
Advances.............................. The Servicer of the Mortgage Loans and Contracts will be obligated (but only
as specified in the related Prospectus Supplement) to advance delinquent
installments of principal and/or interest (less applicable servicing fees) on the
Mortgage Loans and Contracts in a Trust. Any such obligation to make
advances may be limited to amounts due to the Owners of Securities of the
related series, to amounts deemed to be recoverable from late payments or
liquidation proceeds, to specified periods or to any combination thereof, in
each case as specified in the related Prospectus Supplement. Any such
advance will be recoverable under the terms and conditions specified in the
related Prospectus Supplement. See "Servicing of Mortgage Loans and
Contracts" herein.
Credit Enhancement.................... If specified in the related Prospectus Supplement, a series of Securities, or
certain classes within such series, may have the benefit of one or more types
of credit enhancement ("Credit Enhancement"), including, but not limited to,
subordination, cross support, mortgage pool insurance, special hazard
insurance, financial guaranty insurance policies, a bankruptcy bond, reserve
funds, other insurance, guaranties and similar instruments and arrangements.
Credit enhancement may also be provided in the form of subordination of one
or more classes of Securities in a series under which losses are first allocated
to any Subordinated Securities up to a specified limit. The protection against
losses afforded by any such Credit Enhancement will be limited. If Owners
of Securities are materially dependent upon Credit Enhancement for timely
payments of interest and/or principal on their Securities, the related
Prospectus Supplement will include information, including financial
information, concerning the provider of such Credit Enhancement. See
"Credit Enhancement" herein.
Book Entry Registration............... Securities of one or more classes of a series may be issued in book entry form
("Book Entry Securities") in the name of a clearing agency (a "Clearing
Agency") registered with the Securities and Exchange Commission, or its
nominee. Transfers and pledges of Book Entry Securities may be made only
through entries on the books of the Clearing Agency in the name of brokers,
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dealers, banks and other organizations eligible to maintain accounts with the
Clearing Agency ("Clearing Agency Participants") or their nominees. Transfers and
pledges by purchasers and other beneficial owners of Book Entry Securities
("Beneficial Owners") other than Clearing Agency Participants may be effected
only through Clearing Agency Participants. All references to the Owners of
Securities shall mean Beneficial Owners to the extent Beneficial Owners may
exercise their rights through a Clearing Agency. Except as otherwise specified in
this Prospectus or a related Prospectus Supplement, the term "Owners" shall be
deemed to include Beneficial Owners. See "Risk Factors -- Book Entry
Registration" and "Description of the Securities -- Book Entry Registration"
herein.
Certain Federal Income Tax
Consequences....................... Federal income tax consequences will depend on, among other factors,
whether one or more elections are made to treat a Trust or specified portions
thereof as a "real estate mortgage investment conduit" ("REMIC") or a
financial asset securitization investment trust ("FASIT") under the Internal
Revenue Code of 1986, as amended (the "Code"), or, if no REMIC or FASIT
election is made, whether the Securities are considered to be debt obligations,
Standard Securities, Stripped Securities or Partnership Interests. The related
Prospectus Supplement for each series of Securities will specify whether a
REMIC or FASIT election will be made. See "Certain Federal Income Tax
Consequences" herein and in the related Prospectus Supplement.
ERISA Considerations.................. A fiduciary of any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the Code should
carefully review with its own legal advisors whether the purchase or holding
of Securities could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. Certain classes of Securities may
not be transferred unless the Trustee and the Depositor are furnished with a
letter of representation or an opinion of counsel to the effect that such transfer
will not result in a violation of the prohibited transaction provisions of ERISA
and the Code and will not subject the Trustee, the Depositor or the Servicer
to additional obligations. See "Description of the Securities-- General"
herein and "ERISA Considerations" herein and in the related Prospectus
Supplement.
Legal Investment Matters.............. 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 certain types of
institutional investors to the extent provided in SMMEA, subject, in any case,
to any other regulations which may govern investments by such institutional
investors. Institutions whose investment activities are subject to review by
federal or state authorities should consult with their counsel or the applicable
authorities to determine whether an investment in a particular class of
Securities (whether or not such class constitutes a "mortgage related
security") complies with applicable guidelines, policy statements or
restrictions. See "Legal Investment." See "Legal Investment Considerations"
herein and in the related Prospectus Supplement.
Use of Proceeds....................... Substantially all the net proceeds from the sale of a series of Securities will
be applied to the purchase of the Mortgage Assets included or to be included
in the related Trust (or to reimburse the amounts previously used to effect
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such purchase), the costs of carrying the Mortgage Assets until sale of the
Securities and to pay other expenses. See "Use of Proceeds" herein.
Rating................................ It is a condition to the issuance of each class of Securities that each class of
the Securities of such Series be rated by one or more of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Services ("S&P"), Duff
& Phelps Credit Rating Co. ("DCR") and Fitch IBCA, Inc. ("Fitch" and each
of Fitch, Moody's, DCR and S&P, a "Rating Agency") in one of their four
highest rating categories; provided, however, that one or more classes of
Subordinated Securities and Residual Securities need not be so rated. A
security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time. No person is obligated
to maintain any rating on any Security, and, accordingly, there can be no
assurance that the ratings assigned to any class of Securities upon initial
issuance thereof will not be lowered or withdrawn by a Rating Agency at any
time thereafter. If a rating of any class of Securities of a Series is revised or
withdrawn, the liquidity of such class of Securities may be adversely affected.
In general, the ratings address credit risk and do not represent any assessment
of the likelihood or rate of principal prepayments. See "Risk Factors" herein
and "Ratings" in the related Prospectus Supplement.
Risk Factors.......................... Investment in the Securities will be subject to one or more risk factors,
including declines in the value of Mortgaged Properties, prepayment of
Mortgage Loans, higher risks of defaults on particular types of Mortgage
Loans, limitations on security for the Mortgage Loans, limitations on credit
enhancement, consumer credit laws affecting the Mortgage Assets, interest
rates on the Mortgage Assets resetting at different times or using different
indices than the Securities, availability of Mortgage Assets to satisfy Pre-
Funding Agreements and various other factors. See "Risk Factors" herein
and in the related Prospectus Supplement.
</TABLE>
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RISK FACTORS
Prospective investors should consider, among other things, the
following risk factors in connection with the purchase of the Securities:
Declining Real Estate Market; Geographic Concentration. If the
residential real estate market in general or a regional or local area where
Mortgage Assets for a Trust are concentrated should experience an overall
decline in property values, a significant downturn in economic conditions or a
natural disaster, rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry.
See "The Trusts -- Mortgage Loans" herein.
Limited Obligations. The Securities will not represent an interest in
or obligation of the Depositor. The Securities of each series will not be
insured or guaranteed by any government agency or instrumentality, the
Depositor, any Servicer or the Seller.
Prepayment Considerations; Optional Termination. The prepayment
experience on Mortgage Loans or Contracts constituting or underlying the
Mortgage Assets will affect the average life of each class of Securities
relating to a Trust. Prepayments may be influenced by a variety of economic,
geographic, social and other factors, including changes in interest rate levels.
In general, if mortgage interest rates fall, the rate of prepayment would be
expected to increase. Conversely, if mortgage interest rates rise, the rate of
prepayment would be expected to decrease. Other factors affecting prepayment of
mortgage loans include changes in housing needs, job transfers, unemployment and
servicing decisions. See "Prepayment and Yield Considerations" in the related
Prospectus Supplement. In addition, investors in the Securities should be aware
that the Servicer, the Seller or, if specified in the related Prospectus
Supplement, the Owners of a Class of Securities or a credit enhancer may at
their respective options effect early retirement of a series of Securities
through the purchase of Mortgage Assets from the related Trust. See "The Pooling
and Servicing Agreement -- Termination" and "The Indenture -- Rights Upon Note
Events of Default" herein.
Risk of Higher Default Rates for Mortgage Loans with Balloon Payments.
A portion of the aggregate principal balance of the Mortgage Loans at any time
may be "balloon loans" that provide for the payment of the unamortized principal
balance of such Mortgage Loan in a single payment at maturity ("Balloon Loans").
Such Balloon Loans provide for equal monthly payments, consisting of principal
and interest, generally based on a 30-year amortization schedule, and a single
payment of the remaining balance of the Balloon Loan generally 5, 7, 10 or 15
years after origination. Amortization of a Balloon Loan based on a scheduled
period that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. The Depositor does not have any information regarding the default
history or prepayment history of payments on Balloon Loans. Because borrowers of
Balloon Loans are required to make substantial single payments upon maturity, it
is possible that the default risk associated with the Balloon Loans is greater
than that associated with fully-amortizing Mortgage Loans.
Security Interests and Other Aspects of the Contracts. Contracts may be
secured by a security interest in a Manufactured Home. Perfection of security
interests in the Manufactured Homes and enforcement of rights to realize upon
the value of the Manufactured Homes as collateral for the Contracts are subject
to a number of federal and state laws, including the Uniform Commercial Code as
adopted in each state and each state's certificate of title statutes. The steps
necessary to perfect the security interest in a Manufactured Home will vary from
state to state. Because of the expense and administrative inconvenience
involved, no party will be required to amend any certificates of title to change
the lienholder specified therein to the Trustee and no party will be required to
deliver any certificate of title to the Trustee or note thereon the Trustee's
interest. Consequently, in some states, in the absence of such an amendment, the
assignment to the Trustee of the security interest in the Manufactured Home may
not be effective or such security interest may not be perfected and, in the
absence of such notation or delivery to the Trustee, the assignment of the
security interest in the Manufactured Home may not be effective against
creditors of the previous owner of the related Contract or a trustee in
bankruptcy of such previous owner. In addition, numerous federal and state
consumer protection laws impose requirements on lending under conditional sales
contracts and installment loan agreements such as the Contracts, and the failure
by the lender or seller of goods to comply with such requirements could give
rise to liabilities of assignees for amounts due under such agreements and
claims by such assignees may be subject to set-off as a result of such lender's
or seller's noncompliance. These laws would apply to the Trustee as assignee of
the Contracts. Each Seller of Contracts will warrant that each Contract sold by
it complies with all requirements of law and will make certain warranties
relating to the validity, subsistence, perfection and priority of the security
interest in each Manufactured
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Home securing a Contract. A breach of any such warranty that materially
adversely affects any Contract would create an obligation of the Seller to
repurchase such Contract unless such breach is cured. If any related Credit
Enhancement is exhausted and recovery of amounts due on the Contracts is
dependent on repossession and resale of Manufactured Homes securing Contracts
that are in default, certain other factors may limit the ability of the Trust to
realize upon the Manufactured Homes or may limit the amount realized to less
than the amount due. See "Certain Legal Aspects of the Mortgage Assets -- The
Contracts" herein.
Limited Liquidity. There will be no market for the Securities of any
series prior to the issuance thereof, and there can be no assurance that a
secondary market will develop or, if it does develop, that it will provide
liquidity of investment or will continue for the life of the Securities of such
series. The market value of some or all of the classes of Securities will
fluctuate with changes in prevailing rates of interest. Consequently, the sale
of Securities in any market that may develop may be at a discount from the
principal amount or purchase price. Owners of Securities generally have no right
to request redemption of Securities, and the Securities are subject to
redemption only under the limited circumstances described in the related
Prospectus Supplement
Limited Assets. Owners of Securities of each series must rely upon
distributions on the related Mortgage Assets, together with the other specific
assets pledged for the benefit of such series (which assets may be subject to
release from such pledge prior to payment in full of the Securities), for the
payment of principal of, and interest on, that series of Securities. If the
assets comprising the Trust are insufficient to make payments on such
Securities, no other assets of the Depositor will be available for payment of
the deficiency. Because payments of principal will be applied to classes of
outstanding Securities of a series in the priority specified in the related
Prospectus Supplement, a deficiency may have a disproportionately greater effect
on the Securities of classes having lower priority in payment. In addition, due
to the priority of payments and the allocation of losses, defaults experienced
on the assets comprising a Trust may have a disproportionate effect on a
specified class or classes within such series.
Limitations, Reduction and Substitution of Credit Enhancement. Credit
Enhancement may be provided in one or more of the forms described in the related
Prospectus Supplement, including, but not limited to, prioritization as to
payments of one or more classes of such series, a Mortgage Pool Insurance
Policy, a Financial Guaranty Insurance Policy, a Special Hazard Insurance
Policy, a bankruptcy bond, one or more Reserve Funds, other insurance,
guaranties and similar instruments and agreements, or any combination thereof.
Regardless of the Credit Enhancement provided, the amount of coverage may be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such Credit Enhancement may
provide only very limited coverage as to certain types of losses and may provide
no coverage as to certain other types of losses. The Trustee or the Indenture
Trustee, as applicable, may be permitted to reduce, terminate or substitute all
or a portion of the Credit Enhancement for any series of Securities, if the
applicable rating agencies indicate that the then-current rating thereof will
not be adversely affected.
Original Issue Discount. All the Compound Interest Securities and
Stripped Securities that are entitled only to interest distributions will be,
and certain of the other Securities may be, issued with original issue discount
for federal income tax purposes. An Owner of a Security issued with original
issue discount will be required to include original issue discount in ordinary
gross income for federal income tax purposes as it accrues, in advance of
receipt of the cash attributable to such income. Accrued but unpaid interest on
such Securities generally will be treated as original issue discount for this
purpose. Moreover, the calculation of original issue discount on REMIC
Securities and FASIT Securities (each, as defined herein) is subject to
uncertainties because of the lack of guidance from the Internal Revenue Service
under applicable statutory provisions. See "Certain Federal Income Tax
Consequences -- REMIC Securities," "-- Taxation of Regular Securities --
Variable Rate Regular Securities," "Certain Federal Income Tax Consequences --
Non-REMIC Securities - Standard Securities," "Certain Federal Income Tax
Consequences -- Premium and Discount" and "-- Stripped Securities" and "Certain
Federal Income Tax Consequences - FASIT Securities" herein.
Year 2000 Readiness. The inability of computers, software and other
equipment utilizing microprocessors to recognize and properly process date
fields containing a two-digit year is commonly referred to as the "Year 2000
Issue". As the year 2000 approaches, such systems may recognize a date using
"00" as the year 1900 rather than the year 2000 and be unable to accurately
process certain date-based information.
The Depositor and its affiliates have reviewed mission-critical
computer systems in order to evaluate necessary modifications for Year 2000
readiness. The Depositor and its affiliates do not anticipate any material
difficulties in achieving Year 2000 readiness with respect to mission-critical
computer systems. Furthermore, the Depositor and its
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affiliates do not anticipate that they will incur material expenditures in
connection with any modifications necessary to achieve Year 2000 readiness. In
addition, the Depositor and its affiliates are in the process of communicating
with other companies with whom they do significant business to determine their
Year 2000 readiness status and the extent to which the Depositor and its
affiliates could be affected by any third party Year 2000 readiness issues.
Although the Depositor and its affiliates have not received responses from all
third parties with whom they do business, the Depositor and its affiliates do
not anticipate that it will be materially affected by any third party Year 2000
readiness issues. However, there can be no assurance that the systems of the
Depositor and its affiliates or those of the other companies on which the
Depositor's or its affiliate's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible with
the Depositor's or its affiliate's systems, would not have a material adverse
effect on the Depositor or its affiliates and their ability to perform their
obligations under any Agreement.
The anticipated costs and timeliness of completion of Year 2000
modifications are based on management's best estimates, which were derived using
numerous assumptions relating to future events, including, without limitation,
the continued availability of certain resources and third party modification
plans. However, there can be no assurance that the estimates and assumptions
will prove to be accurate.
Book Entry Registration. Because transfers and pledges of Book Entry
Securities may be effected only through book entries at a Clearing Agency
through Clearing Agency Participants, the liquidity of the secondary market for
Book Entry Securities may be reduced to the extent that some investors are
unwilling to hold Securities in book entry form in the name of Clearing Agency
Participants and the ability to pledge Book Entry Securities may be limited due
to lack of a physical certificate. Beneficial Owners of Book Entry Securities
may, in certain cases, experience delay in the receipt of payments of principal
and interest because such payments will be forwarded by the Trustee to the
Clearing Agency who will then forward payment to the Clearing Agency
Participants who will thereafter forward payment to Beneficial Owners. In the
event of the insolvency of the Clearing Agency or of a Clearing Agency
Participant in whose name Securities are recorded, the ability of Beneficial
Owners to obtain timely payment and (if the limits of applicable insurance
coverage by the Securities Investor Protection Corporation are exceeded, or if
such coverage is otherwise unavailable) ultimate payment of principal and
interest on Book Entry Securities may be impaired.
The Status of the Mortgage Assets in the Event of Bankruptcy of the
Seller. The Seller and the Depositor intend that the transfers of the Mortgage
Assets from the Seller to the Depositor, and in turn to the applicable Trust,
constitute sales rather than pledges to secure indebtedness for insolvency
purposes. If, however, the Seller were to become a debtor under the federal
bankruptcy code, it is possible that a creditor, trustee-in-bankruptcy or
receiver of the Seller may argue that the sale thereof by the Seller is a pledge
rather than a sale. This position, if argued or accepted by a court, could
result in a delay in or reduction of distributions on the related Securities.
Junior Lien Mortgage Loans. Because Mortgage Loans secured by junior
(i.e., second, third, etc.) liens are subordinate to the rights of the
beneficiaries under the related senior deeds of trust or senior mortgages, a
decline in the residential real estate market would adversely affect the
position of the related Trust as a junior beneficiary or junior mortgagee before
having such an effect on the position of the related senior beneficiaries or
senior mortgagees. A rise in interest rates over a period of time, the general
condition of a Mortgaged Property and other factors may also have the effect of
reducing the value of the Mortgaged Property from the value at the time the
junior lien Mortgage Loan was originated and, as a result, may reduce the
likelihood that, in the event of a default by the borrower, liquidation or other
proceeds will be sufficient to satisfy the junior lien Mortgage Loan after
satisfaction of any senior liens and the payment of any liquidation expenses.
Liquidation expenses with respect to defaulted Mortgage Loans do not
vary directly with the outstanding principal balance of the Mortgage Loans at
the time of default. Therefore, assuming that a Servicer took the same steps in
realizing upon defaulted Mortgage Loans having small remaining principal
balances as in the case of defaulted Mortgage Loans having larger principal
balances, the amount realized after expenses of liquidation would be smaller as
a percentage of the outstanding principal balance of the smaller Mortgage Loans.
To the extent the average outstanding principal balances of the Mortgage Loans
in a Trust are relatively small, realizations net of liquidation expenses may
also be relatively small as a percentage of the principal amount of the Mortgage
Loans.
Reliance on Management of the Timeshare Unit. Unlike most conventional
single-family residential properties, the value of a timeshare unit is
substantially dependent on the management of the resort property in which it is
located. Management of timeshare resort properties includes operation of a
reservation system, maintenance of the physical structure, refurbishing of
individual units, maintenance and management of common areas and recreational
facilities,
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and facilitating the rental of individual units on behalf of timeshare owners.
In addition, timeshare units, which are purchased for intervals of one or more
specified weeks each year, are marketed as the owner's purchase of future
vacation opportunities rather than as a primary residence, a second home or an
investment. Accordingly, while Mortgagors are obligated to make payments under
their Mortgage Loan irrespective of any defect in, damage to or change in
conditions (such as poor management, faulty construction or physical, social or
environmental conditions) relating to the timeshare properties, any such defect,
damage or change in conditions could result in delays in payment or in defaults
by Mortgagors whose timeshare units are affected.
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, a Mortgagor who enters military
service after the origination of the related Mortgage Loan (including a
Mortgagor who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest (including fees and charges) above an annual rate of
6% during the period of such Mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. It is possible that such action
could have an effect, for an indeterminate period of time, on the ability of the
related Servicer to collect full amounts of interest on certain of the Mortgage
Loans. In addition, the Relief Act imposes limitations that would impair the
ability of the related Servicer to foreclose on an affected Mortgage Loan during
the Mortgagor's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely fashion.
Limited Nature of Ratings. It is a condition to the issuance of the
Securities that each class of Securities be rated in one of the four highest
rating categories by one or more of Moody's, S&P, DCR or Fitch. See "Summary of
Prospectus-Ratings" herein. A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or withdrawal at any
time. No person is obligated to maintain the rating on any Security, and,
accordingly, there can be no assurance that the ratings assigned to any class of
Securities on the date on which such Securities are initially issued will not be
lowered or withdrawn by a Rating Agency at any time thereafter. In the event any
rating is revised or withdrawn, the liquidity of the related Securities may be
adversely affected. Issuance of any of the Securities in book-entry form may
reduce the liquidity of such Securities in the secondary trading market because
investors may be unwilling to purchase Securities for which they cannot obtain
physical securities. The rating of Securities credit enhanced through external
credit enhancement such as a letter of credit, financial guaranty insurance
policy or mortgage pool insurance will depend primarily on the creditworthiness
of the issuer of such external credit enhancement device (a "Credit Enhancer").
Any reduction in the rating assigned to the claims-paying ability of the related
Credit Enhancer below the rating initially given to the related Securities would
likely result in a reduction in the rating of the Securities. The rating of
Securities credit enhanced through subordination or reserve amounts will depend
on the actual performance of the related Mortgage Loans, and a reduction in such
rating could occur if defaults and losses on the related Mortgage Loans exceed
the rate assumed in determining the original level of credit enhancement.
Reduction of a rating would adversely affect the market value and possibly the
liquidity of the related Securities. See "Ratings" in the Prospectus Supplement.
Funds Available for Redemptions at the Request of Note Owners. With
respect to any Series of Notes for which the related Prospectus Supplement
provides for redemptions of such Notes at the request of Note Owners, there can
be no assurance that amounts available for such redemptions for such Notes will
be sufficient to permit such Notes to be redeemed within a reasonable time after
redemption is requested, for reasons including the following:
(i) Scheduled principal payments on the related Mortgage Loans
generally will be minimal in the early years and will increase in the
later years of such Mortgage Loans. As a result, funds available to be
applied to redemptions at the request of Note Owners, may be expected
to be limited in the early years and to increase during the later years
of each Series. Accordingly, the availability of funds for redemptions
of Notes of any Series at the request of Note Owners will depend
largely upon the rates of prepayment of the related Mortgage Loans.
(ii) Prepayments of principal on Mortgage Loans are less
likely to occur during periods of higher interest rates when it is more
likely that requests for redemption by Note Owners will be made. During
periods in which prevailing interest rates are higher than the interest
rate paid on Notes that may be redeemed at the request of Note Owners,
greater numbers of such Notes are expected to be tendered
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for redemption in order to take advantage of the higher interest rates
payable on other investments then available. During such periods, there
will likely also be a reduction in the rate of prepayments on the
related Mortgage Loans, thus limiting the funds available to satisfy
requested redemption by Note Owners.
Applicable Legal and Regulatory Risks. Applicable federal and state
laws generally regulate interest rates and other charges, require certain
disclosures, prohibit unfair and deceptive practices, regulate debt collection
and require licensing of the originators of the mortgage loans and contracts.
Depending on the provisions of the applicable law and the specified facts and
circumstances involved, violations of those laws, policies and principles may
limit the ability to collect all or part of the principal of or interest on the
Mortgage Loans and Contracts and may entitle the borrower to a refund of amounts
previously paid. In addition, many state and local authorities have imposed
stringent restrictions on the operations of timeshare developers, including
requirements of filing registration statements and advertising material with
state regulatory authorities regarding timeshare units being offered and
permitting the right to rescind an executed contract within specified time
periods and possibly permitting such purchasers to recover damages from such
timeshare developers. Such remedies could adversely affect the quality of
management of the related resort, in particular, the ability of the management
of the related resorts to minimize losses through remarketing efforts and/or
through the assumption programs. See "Certain Legal Aspects of the Mortgage
Assets" herein.
DESCRIPTION OF THE SECURITIES
Each Trust will be created pursuant to an Agreement entered into among
the Depositor, the Trustee, the Master Servicer, if any, and the Servicer. 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.
Securities which represent beneficial interests in the Trust will be issued
pursuant to one of the Pooling and Servicing Agreements similar to the form
filed as on Exhibit to the Registration Statement of which the Property is a
part. Securities which represent debt obligations of the Trust will be issued
pursuant to an Indenture between the Trust and the Indenture Trustee. The
following summaries and the summaries set forth under "The Pooling and Servicing
Agreement" and "The Indenture" describe certain provisions relating to each
series of Securities. The Prospectus Supplement for a series of Securities will
describe the specific provisions relating to such series. Such summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Agreement for each series of
Securities. The Depositor will provide Owners, without charge, on written
request a copy of the Agreement for the related series. Requests should be
addressed to AMRESCO Residential Securities Corporation, 700 N. Pearl Street,
Suite 2400, Dallas, Texas 75201. The Pooling and Servicing Agreement or the
Indenture, Sale and Servicing Agreement and the Trust Agreement, as applicable,
relating to a series of Securities will be filed with the Securities and
Exchange Commission within 15 days after the date of issuance of such series of
Securities (the "Delivery Date").
The Securities of a series will be entitled to payment only from the
Mortgage Assets of the Trust and any other assets pledged for the benefit of the
Securities 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, the Trustee, the Master
Servicer, if any, any Servicer or any affiliate thereof and will not be
guaranteed by any governmental agency. See "The Trusts" herein.
The Mortgage Assets relating to a series of Securities, other than
Title I Loans and GNMA MBS, will not be insured or guaranteed by any
governmental entity and, to the extent that delinquent payments on or losses in
respect of defaulted Mortgage Assets, are not advanced or paid from any
applicable Credit Enhancement, such delinquencies may result in delays in the
distribution of payments on, or losses allocated to one or more classes of
Securities of such series.
General
The Securities of each series will be issued either in book entry form
or in fully registered form. The minimum original denomination of each class of
Securities will be specified in the related Prospectus Supplement. The original
"Security Principal Balance" of each Security will equal the aggregate
distributions or payments allocable to principal to which such Security is
entitled and 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.
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Except as described below under "Book Entry Registration" with respect
to Book Entry Securities, the Securities of each series will be transferable and
exchangeable on a "Security Register" to be maintained at the corporate trust
office or such other office or agency maintained for such purposes by the
Trustee or the Indenture Trustee. The Trustee or the Indenture Trustee will be
appointed initially as the "Security Registrar" and no service charge will be
made for any registration of transfer or exchange of Securities, but payment of
a sum sufficient to cover any tax or other governmental charge may be required.
Under current law the purchase and holding of certain classes of
Securities may result in "prohibited transactions" within the meaning of ERISA
and the Code. See "ERISA Considerations" herein and in the related Prospectus
Supplement. Transfer of Securities of such a class will not be registered unless
the transferee (i) executes a representation letter stating 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 Servicer or the Depositor to any obligation or liability in
addition to those undertaken in the Agreement.
As to each series, one or more elections may be made to treat the
related Trust or designated portions thereof as a REMIC or FASIT for federal
income tax purposes. The related Prospectus Supplement will specify whether a
REMIC or FASIT election is to be made. Alternatively, the Agreement for a series
may provide that a REMIC or FASIT election may be made at the discretion of the
Depositor or the Servicer and may only be made if certain conditions are
satisfied. See "Certain Federal Income Tax Considerations" herein. As to any
such series, the terms and provisions applicable to the making of a REMIC or
FASIT election, as well as any material federal income tax consequences to
Owners of Securities 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 "residual
interests" in the related REMIC or "ownership interest security" in the related
FASIT, each as defined in the Code. All other classes of Securities in such a
series will constitute "regular interests" in the related REMIC or "regular
securities" in the related FASIT, each as defined in the Code. As to each series
with respect to which a REMIC or FASIT election is to be made, the Servicer, the
Trustee, an Owner of Residual Securities, an Owner of the Ownership Interest
Security or another person as specified in the related Prospectus Supplement
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 person so specified will be entitled to reimbursement for
any such payment.
Classes of Securities
Each series of Securities will be issued in one or more classes which
will evidence a beneficial ownership interest in, or a debt obligation payable
from, the Mortgage Assets of the Trust that are allocable to (i) principal of
such class of Securities and (ii) interest on such Securities. If specified in
the Prospectus Supplement, one or more classes of a series of Securities may
evidence a beneficial ownership interest in, or a debt obligation payable from,
separate groups of assets included in the related Trust.
The Securities will have an aggregate original Security Principal
Balance equal to the aggregate unpaid principal balance of the Mortgage Assets
(plus, amounts held in a Pre-Funding Account, if any) as of the time and day
prior to creation of the Trust specified in the related Prospectus Supplement
(the "Cut-Off Date") after deducting payments of principal due before the
Cut-Off Date and will bear interest at rates which, on a weighted basis, will be
equal to the Pass-Through Rate. The Pass-Through Rate will equal the weighted
average rate of interest borne by the related Mortgage Assets, net of the
aggregate servicing fees, amounts allocated to the residual interests and any
other amounts as are specified in the Prospectus Supplement. The original
Security Principal Balance (or Notional Principal Balance) of the Securities of
a series and the interest rate on the classes of such Securities will be
determined in the manner specified in the Prospectus Supplement.
Each class of Securities that is entitled to distributions allocable to
interest will bear interest at a fixed rate or a rate that is subject to change
from time to time (a) in accordance with a schedule, (b) by reference to an
index, or (c) otherwise (each, a "Security Interest Rate"). One or more classes
of Securities may provide for interest that accrues but is not currently payable
("Compound Interest Securities"). With respect to any class of Compound Interest
Securities, 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.
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A series of Securities may include one or more classes entitled only to
distributions or payments (i) allocable to interest, (ii) allocable to principal
(and allocable as between scheduled payments of principal and Principal
Prepayments, as defined below) or (iii) allocable to both principal (and
allocable as between scheduled payments of principal and Principal Prepayments)
and interest. A series of Securities may consist of one or more classes as to
which distributions or payments will be allocated (i) on the basis of
collections from designated portions of the Trust, (ii) in accordance with a
schedule or formula, (iii) in relation to the occurrence of events or (iv)
otherwise. The timing and amounts of such distributions or payments may vary
among classes, over time or otherwise.
A series of Securities may include one or more Classes of Scheduled
Amortization Securities and Companion Securities. "Scheduled Amortization
Securities" are Securities with respect to which payments of principal are to be
made in specified amounts on specified Distribution Dates, to the extent of
funds available on such Distribution Date. "Companion Securities" are Securities
which receive payments of all or a portion of any funds available on a given
Distribution Date which are in excess of amounts required to be applied to
payments on Scheduled Amortization Securities on such Distribution Date. Because
of the manner of application of payments of principal to Companion Securities,
the weighted average lives of Companion Securities of a series may be expected
to be more sensitive to the actual rate of prepayments on the Mortgage Assets in
the related Trust than will the Scheduled Amortization Securities of such
series.
One or more series of Securities may constitute series of "Special
Allocation Securities," which may include Senior Securities, Subordinated
Securities, Priority Securities and Non-Priority Securities. As specified in the
related Prospectus Supplement for a series of Special Allocation Securities, the
timing and/or priority of payments of principal and/or interest may favor one or
more classes of Securities over one or more other classes of Securities. Such
timing and/or priority may be modified or reordered upon the occurrence of one
or more specified events. Losses on Trust assets for such series may be
disproportionately borne by one or more classes of such series, and the proceeds
and distributions from such assets may be applied to the payment in full of one
or more classes within such series before the balance, if any, of such proceeds
are applied to one or more other classes within such series. For example,
Special Allocation Securities in a series may be comprised of one or more
classes of Senior Securities having a priority in right to distributions of
principal and interest over one or more classes of Subordinated Securities, as a
form of Credit Enhancement. See "Credit Enhancement -- Subordination" herein.
Typically, the Subordinated Securities will carry a rating by the rating
agencies lower than that of the Senior Securities. In addition, one or more
classes of Securities ("Priority Securities") may be entitled to a priority of
distributions of principal or interest from assets in the Trust over another
class of Securities ("Non-Priority Securities"), but only after the exhaustion
of other Credit Enhancement applicable to such series. The Priority Securities
and Non-Priority Securities nonetheless may be within the same rating category.
Distributions of Principal and Interest
General. Distributions of principal and interest will be made to the
extent of funds available therefor, on the dates specified in the Prospectus
Supplement (each, a "Distribution Date") to the persons in whose names the
Securities are registered (the "Owners") at the close of business on the dates
specified in the Prospectus Supplement (each, a "Record Date"). With respect to
Securities other than Book Entry Securities, distributions will be made by check
or money order mailed to the person entitled thereto at the address appearing in
the Security Register or, if specified in the Prospectus Supplement, in the case
of Securities that are of a certain minimum denomination as specified in the
Prospectus Supplement, upon written request by the Owner of a Security, by wire
transfer or by such other means as are agreed upon with the person entitled
thereto; provided, however, that the final distribution in retirement of the
Securities (other than Book Entry Securities) will be made only upon
presentation and surrender of the Securities at the office or agency of the
Trustee specified in the notice of such final distribution. With respect to Book
Entry Securities, such payments will be made as described below under "Book
Entry Registration."
Distributions will be made out of, and only to the extent of, funds in
a separate account established and maintained for the benefit of the Securities
of the related series (the "Security Account" with respect to such series),
including any funds transferred from any related Reserve Fund. Amounts may be
invested in the Eligible Investments specified herein and in the Prospectus
Supplement, and all income or other gain from such investments will be deposited
in the related Security Account and may be available to make payments on the
Securities of the applicable series on the next succeeding Distribution Date or
pay other amounts owed by the Trust.
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Distributions of Interest. Unless otherwise specified in the Prospectus
Supplement relating to a given Series of Securities, each Class of Certificates
may bear interest at a different Security Interest Rate, which may be fixed or
adjustable. All of the Notes of a given Series will bear interest at the same
rate, which may be fixed or adjustable (the "Note Rate"). Interest will accrue
on the aggregate Security Principal Balance (or, in the case of Securities
entitled only to distributions allocable to interest, the aggregate Notional
Principal Balance (as defined below)) of each class of Securities entitled to
interest from the date, at the applicable Security Interest Rate and for the
periods (each, an "Interest Accrual Period") specified in the Prospectus
Supplement. The aggregate Security Principal Balance of any class of Securities
entitled to distributions of principal will be the aggregate original Security
Principal Balance of such class of Securities, reduced by all distributions
allocable to principal, and, in the case of Compound Interest Securities,
increased by all interest accrued but not then distributable on such Compound
Interest Securities. With respect to a class of Securities entitled only to
distributions allocable to interest, such interest will accrue on a notional
principal balance (the "Notional Principal Balance") of such class, computed
solely for purposes of determining the amount of interest accrued and payable on
such class of Securities.
To the extent funds are available therefor, interest accrued during
each Interest Accrual Period on each class of Securities entitled to interest
(other than a class of Compound Interest Securities) will be distributable on
the Distribution Dates specified in the 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
Prospectus Supplement. Distributions of interest on each class of Compound
Interest Securities will commence only after the occurrence of the events
specified in the Prospectus Supplement and, prior to such time, the aggregate
Security Principal Balance (or Notional Principal Balance) of such class of
Compound Interest Securities, will increase on each Distribution Date by the
amount of interest that accrued on such class of Compound Interest 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 Compound
Interest Securities will thereafter accrue interest on its outstanding Security
Principal Balance (or Notional Principal Balance) as so adjusted.
Distributions of Principal. The 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.
One or more classes of Securities may be entitled to receive all or a
disproportionate percentage of the payments of principal which are received on
the related Mortgage Assets 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"). Any such allocation may have the effect
of accelerating the amortization of such Securities relative to the interests
evidenced by the other Securities.
Unscheduled Distributions. The Securities of a series may be subject to
receipt of distributions before the next scheduled Distribution Date under the
circumstances and in the manner described below and in the related Prospectus
Supplement. If applicable, such unscheduled distributions will be made on the
Securities of a series on the date and in the amount specified in the related
Prospectus Supplement if, due to substantial payments of principal (including
Principal Prepayments) on the related Mortgage Assets, low rates then available
for reinvestment of such payments or both, it is determined, based on specified
assumptions, that the amount anticipated to be on deposit in the Security
Account for such series on the next related Distribution Date, together with, if
applicable, any amounts available to be withdrawn from any related Reserve Fund
or from any other Credit Enhancement provided for such series, may be
insufficient to make required distributions on the Securities on such
Distribution Date. 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 and will include interest at the applicable Security Interest
Rate (if any) on the amount of the unscheduled distribution allocable to
principal for the period and to the date specified in the Prospectus Supplement.
All 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
except as otherwise stated in the related Prospectus Supplement, and, with
respect to Securities of the same class, unscheduled distributions of principal
will be made on a pro rata basis. Notice of any unscheduled distribution will be
given by the Trustee prior to the date of such distribution.
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Book Entry Registration
Securities may be issued as Book Entry Securities and held in the name
of a Clearing Agency registered with the Commission or its nominee. Transfers
and pledges of Book Entry Securities may be made only through entries on the
books of the Clearing Agency in the name of Clearing Agency Participants or
their nominees. Clearing Agency Participants may also be Beneficial Owners of
Book Entry Securities.
Purchasers and other Beneficial Owners may not hold Book Entry
Securities directly but may hold, transfer or pledge their ownership interest in
the Securities only through Clearing Agency Participants. Furthermore,
Beneficial Owners will receive all payments of principal and interest with
respect to the Securities and, if applicable, may request redemption of
Securities, only through the Clearing Agency and the Clearing Agency
Participants. Beneficial Owners will not be registered Owners of Securities or
be entitled to receive definitive certificates representing their ownership
interest in the Securities except under the limited circumstances, if any,
described in the related Prospectus Supplement. See "Risk Factors - Book Entry
Registration" herein.
If Securities of a series are issued as Book Entry Securities, the
Clearing Agency will be required to make book entry transfers among Clearing
Agency Participants, to receive and transmit payments of principal and interest
with respect to the Securities of such series, and to receive and transmit
requests for redemption with respect to such Securities. Clearing Agency
Participants with whom Beneficial Owners have accounts with respect to such Book
Entry Securities will be similarly required to make book entry transfers and
receive and transmit payments and redemption requests on behalf of their
respective Beneficial Owners. Accordingly, although Beneficial Owners will not
be registered Owners of Securities and will not possess physical certificates, a
method will be provided whereby Beneficial Owners may receive payments, transfer
their interests, submit redemption requests and receive the reports provided
herein.
List of Owners of Securities
Upon written request of a specified number or percentage of interests
of Owners of Securities of record of a series of Securities for purposes of
communicating with other Owners of Securities with respect to their rights as
Owners of Securities, the Trustee will afford such Owners access during business
hours to the most recent list of Owners of Securities of that series held by the
Trustee. With respect to Book Entry Securities, the only named Owner on the
Security Register will be the Clearing Agency.
The Pooling and Servicing Agreement or the Trust Indenture, as
applicable, will not provide for the holding of any annual or other meetings of
Owners of Securities.
THE TRUSTS
The Trust for a series of Securities will consist of: (i) the Mortgage
Assets (subject, if specified in the related Prospectus Supplement, to certain
exclusions, such as a portion of the mortgage interest rate being retained by
the Seller and not sold to the Trust) received on and after the related Cut-Off
Date; (ii) amounts, if any, deposited in a Pre-Funding Account; (iii) all
payments (subject, if specified in the Prospectus Supplement, to certain
exclusions, such as the retention by the Seller of payments due and accrued
before the related Cut-Off Date but collected after such Cut-Off Date) in
respect of such Mortgage Assets, which may be adjusted, to the extent specified
in the related Prospectus Supplement, in the case of interest payments on
Mortgage Assets, to the Pass-Through Rate; (iv) if specified in the Prospectus
Supplement, reinvestment income on such payments; (v) with respect to a Trust
that includes Mortgage Loans, or Contracts, all property acquired by foreclosure
or deed in lieu of foreclosure with respect to any such Mortgage Loan or
Contract; (vi) certain rights of the Trustee or the Indenture Trustee, the
Depositor and the Servicer under any insurance policies, hazard insurance or
surety bonds required to be maintained in respect of the related Mortgage
Assets; and (vii) if so specified in the Prospectus Supplement, one or more
forms of Credit Enhancement.
The Securities of each series will be entitled to payment only from the
assets of the related Trust and any other assets pledged therefor and will not
be entitled to payments in respect of the assets of any other trust established
by the Depositor.
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Mortgage Assets may be acquired by the Depositor from affiliated or
unaffiliated originators. The following is a brief description of the Mortgage
Assets expected to be included in the Trusts. If specific information respecting
the Mortgage Assets is not known at the time the related series of Securities
initially are 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 Commission within
15 days after the initial issuance of such Securities. A copy of the Pooling and
Servicing Agreement or the Indenture, Sale and Servicing Agreement and Trust
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
Mortgage Assets relating to each series of Securities, will be attached to the
related Agreement delivered to the Trustee or the Indenture Trustee upon
delivery of such Securities.
Mortgage Loans
The Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by mortgages or deeds of trust (the "Mortgages") creating liens
on residential properties (the "Mortgaged Properties"). Such Mortgage Loans will
be within the broad classification of single family mortgage loans, defined
generally as loans on residences containing one to four dwelling units. The
Mortgage Loans in a series will be either Closed-End Loans or Revolving Credit
Line Loans. The Mortgage Loans may have fixed or adjustable interest rates and
may provide for other payment characteristics as described below and in the
related Prospectus Supplement.
If specified in the Prospectus Supplement, the Mortgage Loans may
include cooperative apartment loans ("Cooperative Loans") secured by security
interests in shares issued by Cooperatives and in the related proprietary leases
or occupancy agreements granting exclusive rights to occupy specific dwelling
units in such Cooperatives' buildings, or the Mortgage Loans may be secured by
junior liens on the related mortgaged properties, including Title I Loans and
other types of home improvement retail installment contracts. The Mortgaged
Properties securing the Mortgage Loans may include investment properties and
vacation and second homes, including timeshare estates. Each Mortgage Loan will
be selected by the Depositor for inclusion in the Trust from among those
acquired by the Depositor or originated or acquired by one or more affiliated or
unaffiliated originators, including newly originated loans.
The Mortgage Loans will either be "conventional" mortgage loans, that
is they will not be insured or guaranteed by any governmental agency or they
will be insured by FHA. Principal and interest on the Mortgage Loans included in
the Trust for a series of Securities will be payable either on the first day of
each month or on different scheduled due dates throughout each month, and the
interest will be calculated either on a simple-interest or actuarial method as
described in the related Prospectus Supplement. When a full principal amount is
paid on a Mortgage Loan during a month, the mortgagor is generally charged
interest only on the days of the month actually elapsed up to the date of such
prepayment, at a daily interest rate that is applied to the principal amount of
the Mortgage Loan so prepaid.
The full principal amount of a Closed-End Loan is advanced at
origination of the loan and generally is repayable in equal (or substantially
equal) installments of an amount sufficient to fully amortized such loan at its
stated maturity. Unless otherwise described in the related Prospectus
Supplement, the original terms to stated maturity of Closed-End Loans will not
exceed 360 months. 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 assets of the Trust will not include
any amounts borrowed under a Revolving Credit Line Loan after the Cut-Off Date.
As more fully described in the related Prospectus Supplement, interest on each
Revolving Credit Line Loan, excluding introductory rates offered from time to
time during promotional periods, is computed and payable monthly on the average
daily Principal Balance of such Mortgage Loan. 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 that 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.
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The payment terms of the Mortgage Loans to be included in a Trust for a
series will be described in the related Prospectus Supplement and may include
any of the following features or combinations thereof or other features
described 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, a rate that is fixed for a
period of time or under certain circumstances and 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
Mortgage Loan for such periods and under such circumstances as may be
specified in the related Prospectus Supplement. Mortgage Loans may
provide for the payment of interest at a rate lower than the specified
mortgage rate for a period of time or for the life of the Mortgage Loan
with the amount of any difference contributed from funds supplied by
the seller of the Mortgaged Property or another source.
(b) Principal may be payable on a level debt service basis to
fully amortize the Mortgage Loan over its term, may be calculated on
the basis of an amortization schedule that is longer than the original
term to maturity or on an interest rate that is different from the
interest rate on the Mortgage 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. Principal may include
interest that has been deferred and added to the principal balance of
the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed
for the life of the Mortgage Loan, may increase over a specified period
of time or may change from period to period. Mortgage 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 Mortgage Loan or may
decline over time, and may be prohibited for the life of the Mortgage
Loan or for certain periods ("lockout periods"). Certain Mortgage 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 Mortgage Loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The Mortgage Loans may include
"due-on-sale" clauses which permit the mortgagee to demand payment of
the entire Mortgage Loan in connection with the sale or certain
transfers of the related mortgaged property. Other Mortgage Loans may
be assumable by persons meeting the then applicable underwriting
standards of the Servicer, or as may be required by any applicable
government program.
With respect to a series for which the related Trust includes Mortgage
Loans, the related Prospectus Supplement may specify, among other things,
information regarding the interest rates (the "Mortgage Rates"), the average
Principal Balance and the aggregate Principal Balance, the years of origination
and original principal balances and the original loan-to-value ratios. The
"Principal Balance" of any Mortgage Loan will be the unpaid principal balance of
such Mortgage Loan as of the Cut-Off Date, after deducting any principal
payments due before the Cut-Off Date, reduced by all principal payments,
including principal payments advanced pursuant to the related Agreement,
previously distributed with respect to such Mortgage Loan and reported as
allocable to principal.
The "loan-to-value ratio" of any Mortgage Loan will be determined by
dividing the principal amount of the Mortgage Loan by the original value
(defined below) of the related Mortgaged Property. The "principal amount" of the
Mortgage Loan, for purposes of computation of the Loan-to-Value Ratio of any
Mortgage Loan, will include any part of an origination fee that has been
financed. In some instances, it may also include amounts which the seller or
some other party to the transaction has paid to the mortgagee, such as minor
reductions in the purchase price made at the closing. The "original value" of a
Mortgage Loan is (a) in the case of any purchase money Mortgage Loan, the lesser
of (i) the value of the mortgaged property, based on an appraisal thereof, and
(ii) the selling price, and (b) otherwise the value of the mortgaged property,
based on an appraisal thereof.
There can be no assurance that the Original Value will reflect actual
real estate values during the term of a Mortgage Loan. If the residential real
estate market should experience an overall decline in property values such that
the outstanding principal balances of the Mortgage Loans become equal to or
greater than the values of the Mortgaged
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Properties, the actual rates of delinquencies, foreclosures and losses could be
significantly higher than those now generally experienced in the mortgage
lending industry. In addition, adverse economic conditions (which may or may not
affect real estate values) may affect the timely and ultimate payment by
mortgagors of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies, foreclosures and losses
with respect to the Mortgage Loans.
Mortgage 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 1937, as amended. Such Mortgage Loans will be insured
under the various FHA programs. These programs generally limit the principal
amount and interest rates of the mortgage loans insured. Mortgage Loans insured
by the FHA generally require a minimum down payment of approximately 5% of the
original principal amount of the loan. No FHA-insured Mortgage Loans relating to
a series may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time or origination of such loan.
The insurance premiums for Mortgage Loans insured by the FHA are
collected by lenders approved by the Department of Housing and Urban Development
("HUD") 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 HUD or upon assignment of the defaulted Mortgage Loan to
HUD. With respect to a defaulted FHA-insured Mortgage Loan, the Servicer is
limited in its ability to initiate foreclosure proceedings. When it is
determined, either by the Servicer or HUD, that default was caused by
circumstances beyond the mortgagor's control, the 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 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
Servicer in partial or full satisfaction of amounts due under the Mortgage Loan
(which payments are to be repaid by the mortgagor to HUD) or by accepting
assignment of the loan from the Servicer. With certain exceptions, at least
three full monthly installments must be due and unpaid under the Mortgage Loan
and HUD must have rejected any request for relief from the mortgagor before the
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
debenture interest rate. The Servicer of each FHA-insured Mortgage Loan will be
obligated to purchase any such debenture issued in satisfaction of such Mortgage
Loan upon default for any amount equal to the principal amount of any such
debenture.
The amount of insurance benefits generally paid by the FHA is equal to
the entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Servicer for certain costs and expenses and to deduct certain
amounts received or retained by the Servicer after default. When entitlement to
insurance benefits results from foreclosure (or other acquisition of possession)
and conveyance to HUD, the 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 Mortgage 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 Mortgage Loan,
bears interest from a date 30 days after the mortgagor's first uncorrected
failure to perform any obligation to make any payment due under the Mortgage
Loan 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.
Contracts
Contracts included in the Trust with respect to a series of Securities
will consist of manufactured housing conditional sales contracts and installment
loan agreements or participation interests therein (collectively, "Contracts").
The Contracts may be conventional manufactured housing contracts or contracts
insured by the FHA, including Title I Contracts, or partially guaranteed by the
VA. Each Contract is secured by a Manufactured Home. The Prospectus
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Supplement will specify whether the Contracts will be fully amortizing or have a
balloon payment and whether they will bear interest at a fixed or variable rate.
The related Prospectus Supplement may specify for the Contracts
contained in the related Contract Pool, among other things, the date of
origination of the Contracts; the annual percentage rates on the Contracts; the
loan-to-value ratios; the minimum and maximum outstanding principal balance as
of the Cut-Off Date and the average outstanding principal balance; the
outstanding principal balances of the Contracts included in the Contract Pool;
the original maturities of the Contracts; and the last maturity date of any
Contract.
Mortgage-Backed Securities
"Mortgage-Backed Securities" (or "MBS") may include (i) private (that
is, not guaranteed or insured by the United States or any agency or
instrumentality thereof) mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities or (ii) certificates insured or
guaranteed by FNMA, FHLMC or GNMA.
The Prospectus Supplement for a series of Securities that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust, (ii) the original and remaining term to stated maturity
of the MBS, if applicable, (iii) the pass-through or bond rate of the MBS or the
formula for determining such rates, (iv) the payment characteristics of the MBS,
(v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable, (vi) a
description of the credit support, if any, (vii) the circumstances under which
the stated underlying mortgage loans, or the MBS themselves may be purchased
prior to their maturity, (viii) the terms on which mortgage loans may be
substituted for those originally underlying the MBS, (ix) the servicing fees
payable under the MBS Agreement, (x) to the extent available to the Depositor,
information in respect of the underlying mortgage loans and (xi) the
characteristics of any cash flow agreements that relate to the MBS.
Other Mortgage Securities
Other Mortgage Securities include other securities that directly or
indirectly represent an ownership interest in, or are secured by and payable
from, single-family mortgage loans on real property or mortgage-backed
securities, including residual interests in issuances of collateralized mortgage
obligations or mortgage pass-through certificates, as well as other types of
mortgage-related assets and securities that may be developed and marketed from
time to time. The Prospectus Supplement for a series of Securities will describe
any Other Mortgage Securities to be included in the Trust for such series.
CREDIT ENHANCEMENT
General. Various forms of Credit Enhancement may be provided with
respect to one or more classes of a series of Securities or with respect to the
Mortgage Assets in the related Trust. Credit Enhancement may be in the form of
(i) the subordination of one or more classes of the Securities of such series,
(ii) the establishment of one or more Reserve Funds, (iii) the use of a
cross-support feature, (iv) use of a Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy, bankruptcy bond, or (v) another form of Credit
Enhancement described in the related Prospectus Supplement, or any combination
of the foregoing. Credit Enhancement may not provide protection against all
risks of loss and may not guarantee repayment of the entire principal balance of
the Securities and interest thereon. If losses occur which exceed the amount
covered by Credit Enhancement or which are not covered by the Credit
Enhancement, Owners will bear their allocable share of losses.
Subordination. Distributions in respect of scheduled principal,
interest or any combination thereof otherwise payable to one or more classes of
Securities of a series (the "Subordinated Securities") may be paid to one or
more other classes of such series (the "Senior Securities") under the
circumstances and to the extent provided in the Prospectus Supplement. If
specified in the Prospectus Supplement, delays in receipt of scheduled payments
on the Mortgage Assets and losses on defaulted Mortgage Assets will 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 the Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage Assets over the
lives of the Securities or at any time, the aggregate losses in respect of
defaulted Mortgage Assets which must be borne by the Subordinated Securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Securities that will be distributable to
Owners of Senior Securities on any Distribution Date may be limited as specified
in the Prospectus Supplement. If aggregate distributions in respect of
delinquent
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payments on the Mortgage Assets or aggregate losses in respect of such Mortgage
Assets were to exceed the total amounts payable and available for distribution
to Owners of Subordinated Securities or, if applicable, were to exceed the
specified maximum amount, Owners of Senior Securities could experience losses on
the Securities.
In addition to or in lieu of the foregoing, all or any portion of
distributions otherwise payable to Subordinated Securities on any Distribution
Date may instead be deposited into one or more Reserve Funds (as defined below)
established by the Trustee. If so specified in the Prospectus Supplement, such
deposits may be made on each Distribution Date, on each Distribution Date for
specified periods, or on each Distribution Date until the balance in the Reserve
Fund has reached a specified amount and, following payments from the Reserve
Fund to Owners of Senior Securities or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Fund to required levels, in each
case as specified in the Prospectus Supplement. If so specified in the
Prospectus Supplement, amounts on deposit in the Reserve Fund may be released to
the Depositor or the Owners of any class of Securities at the times and under
the circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, various classes of
Subordinate 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 Prospectus Supplement. As
between classes of Subordinated Securities, payments with respect to Senior
Securities on account of delinquencies or losses and payments to any Reserve
Fund will be allocated as specified in the Prospectus Supplement.
Financial Guaranty Insurance Policies. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond
("Financial Guaranty Insurance Policy") may be obtained and maintained for each
class or series of Securities. The issuer of any Financial Guaranty Insurance
Policy (a "Financial Guaranty Insurer") will be described in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, a
Financial Guaranty Insurance Policy will unconditionally and irrevocably
guarantee to holders of Securities that an amount equal to each full and
complete insured payment will be received by an agent (an "Insurance Paying
Agent") of the Trustee or Indenture Trustee on behalf of such holders, for
distribution by the Trustee to them. The "insured payment" will be defined in
the related Prospectus Supplement, and will generally equal the full amount of
the distributions of principal and interest to which such holders are entitled
under the related Agreement or Indenture plus any other amounts specified
therein or in the related Prospectus Supplement (the "Insured Payment").
Financial Guaranty Insurance Policies may apply only to certain
specified classes, or may apply at the Mortgage Asset level and only to
specified Mortgage Assets.
The specific terms of any Financial Guaranty Insurance Policy will be
as set forth in the related Prospectus Supplement. Financial Guaranty Insurance
Policies may have limitations including (but not limited to) limitations on the
insurer's obligation to guarantee the obligations of the Originators to
repurchase or substitute for any Mortgage Loans. Financial Guaranty Insurance
Policies will not guarantee any specified rate of prepayments and/or to provide
funds to redeem Securities on any specified date.
Subject to the terms of the related Agreement, the Financial Guaranty
Insurer may be subrogated to the rights of each holder of Securities to receive
payments under the Securities to the extent of any payment by such Financial
Guaranty Insurer under the related Financial Guaranty Insurance Policy.
Cross-Support. If specified in the related Prospectus Supplement, the
beneficial ownership of separate groups of assets included in the Trust for a
series may be evidenced by separate classes of related series of Securities. In
such case, Credit Enhancement may be provided by a cross-support feature which
may require that distributions be made with respect to Securities evidencing
beneficial ownership of one or more asset groups prior to distributions to
Subordinated Securities evidencing a beneficial ownership interest in other
asset groups within the same Trust. The Prospectus
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Supplement for a series which includes a cross-support feature will describe the
manner and conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one
or more forms of Credit Enhancement may apply concurrently to two or more
separate Trusts for a separate series of Securities. If applicable, the
Prospectus Supplement will identify the Trusts 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 Trusts.
Pool Insurance. If specified in the related Prospectus Supplement, one
or more mortgage pool insurance policies (each, a "Mortgage Pool Insurance
Policy") will be obtained.
Any such Mortgage Pool Insurance Policy will, subject to the
limitations described below and in the Prospectus Supplement, cover loss by
reason of default in payments on such Mortgage Loans up to the amounts specified
in the Prospectus Supplement or report on Form 8-K and for the periods specified
in the Prospectus Supplement. The Trustee under the related Agreement will agree
to use its best reasonable efforts to cause to be maintained in effect any such
Mortgage Pool Insurance Policy and to supervise the filing of claims thereunder
to the issuer of such Mortgage Pool Insurance Policy (the "Pool Insurer") for
the period of time specified in the related Prospectus Supplement. A Mortgage
Pool Insurance Policy, however, is not a blanket policy against loss, because
claims thereunder may only be made respecting particular defaulted Mortgage
Loans and only upon satisfaction of certain conditions precedent set forth in
such policy as described in the related Prospectus Supplement. The Mortgage Pool
Insurance Policies, if any, will not cover loss due to a failure to pay or
denial of a claim under a primary mortgage insurance policy, irrespective of the
reason therefor. The related Prospectus Supplement will describe the terms of
any applicable Mortgage Pool Insurance Policy and will set forth certain
information with respect to the related Pool Insurer.
In general, a Mortgage Pool Insurance Policy may 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 Mortgage Loan,
including misrepresentation by the Mortgagor or persons involved in the
origination thereof or (ii) failure to construct a Mortgaged Property in
accordance with plans and specifications. If so specified in the related
Prospectus Supplement, a failure of coverage attributable to one of the
foregoing events might result in a breach of a representation and in such event
might give rise to an obligation to purchase the defaulted Mortgage Loan if the
breach materially and adversely affects the interests of the Owners and cannot
be cured.
The original amount of coverage under any Mortgage Pool Insurance
Policy will be reduced 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 will generally include
certain expenses incurred with respect to the applicable Mortgage Loans as well
as accrued interest on delinquent Mortgage Loans to the date of payment of the
claim. See "Certain Legal Aspects of the Mortgage Assets - Foreclosure" herein.
Accordingly, if aggregate net claims paid under any Mortgage Pool Insurance
Policy reach the original policy limit, coverage under that Mortgage Pool
Insurance Policy will be exhausted and any further losses will be borne by one
or more classes of Securities unless otherwise covered by another form of Credit
Enhancement, as specified in the Prospectus Supplement.
Since any Mortgage Pool Insurance Policy may require that the Mortgaged
Property subject to a defaulted Mortgage Loan be restored to its original
condition prior to claiming against the Pool Insurer, such policy may not
provide coverage against hazard losses. As set forth under "Servicing of
Mortgage Loans and Contracts -- Standard Hazard Insurance," the hazard policies
concerning the Mortgage Loans typically exclude from coverage physical damage
resulting from a number of causes and even when the damage is covered, may
afford recoveries which are significantly less than the full replacement cost of
such losses. Even if special hazard insurance is applicable as specified in the
Prospectus Supplement, no coverage in respect of special hazard losses will
cover all risks, and the amount of any such coverage will be limited. See
"Special Hazard Insurance" below. As a result, certain hazard risks will not be
insured against and will therefore be borne by Owners, unless otherwise covered
by another form of Credit Enhancement, as specified in the Prospectus
Supplement.
The terms of any Mortgage Pool Insurance Policy will be described in
the related Prospectus Supplement.
Special Hazard Insurance. If specified in the related Prospectus
Supplement, one or more special hazard insurance policies (each, a "Special
Hazard Insurance Policy") will be obtained.
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Any such Special Hazard Insurance Policy will, subject to limitations
described below and in the Prospectus Supplement, cover (i) loss by reason of
damage to Mortgaged Properties caused by certain hazards (including earthquakes
and, to a limited extent, tidal waves and related water damage) not covered by
the standard form of hazard insurance policy for the respective states in which
the Mortgaged Properties are located or under flood insurance policies, if any,
covering the Mortgaged Properties and (ii) loss caused by reason of the
application of the coinsurance clause contained in hazard insurance policies.
See "Servicing of Mortgage Loans and Contracts -- Standard Hazard Insurance."
Any Special Hazard Insurance Policy may not cover losses occasioned by war,
civil insurrection, certain governmental actions, errors in design, faulty
workmanship or materials (except under certain circumstances), nuclear reaction,
flood (if the Mortgaged Property is located in a federally designated flood
area), chemical contamination and certain other risks. Aggregate claims under
each Special Hazard Insurance Policy will be limited as described in the related
Prospectus Supplement. Any Special Hazard Insurance Policy may also provide that
no claim may be paid unless hazard and, if applicable, flood insurance on the
Mortgaged Property has been kept in force and other protection and preservation
expenses have been paid.
Subject to the foregoing limitations, any Special Hazard Insurance
Policy generally will provide that, where there has been damage to property
securing a foreclosed Mortgage 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 with respect to such
Mortgage Loan, the issuer of the Special Hazard Insurance Policy (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 Mortgage 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
with respect to such property. If the unpaid principal balance 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 or replacement of the property will also
reduce coverage by such amount. Restoration of the property with the proceeds
described under (i) above will satisfy the condition under any applicable
Mortgage Pool Insurance Policy that the property be restored before a claim
under such Mortgage Pool Insurance Policy may be validly presented with respect
to the defaulted Mortgage Loan secured by such property. The payment described
under (ii) above will render unnecessary presentation of a claim in respect of
such Mortgage Loan under any related Mortgage Pool Insurance Policy. Therefore,
so long as a Mortgage Pool Insurance Policy remains in effect, the payment by
the Special Hazard Insurer under a Special Hazard Insurance Policy of the cost
of repair or replacement or the unpaid principal balance of the Mortgage Loan
plus accrued interest and certain expenses will not affect the total insurance
proceeds but will affect the relative amounts of coverage remaining under any
related Special Hazard Insurance Policy and any related Mortgage Pool Insurance
Policy.
The terms of any Special Hazard Insurance Policy will be described in
the related Prospectus Supplement.
Bankruptcy Bond. In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the property securing the related
Mortgage Loan at an amount less than the then outstanding principal balance of
such Mortgage Loan. The amount of the secured debt could be reduced to such
value and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the property by the bankruptcy court. In
addition, certain other modifications of the terms of a Mortgage Loan can result
from a bankruptcy proceeding, including the reduction in monthly payments
required to be made by the borrower. See "Certain Legal Aspects of the Mortgage
Assets" herein. If so provided in the related Prospectus Supplement, the
Depositor will obtain a bankruptcy bond or similar insurance contract (the
"bankruptcy bond") for proceedings with respect to borrowers under the
bankruptcy code. The bankruptcy bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal of and
interest on a Mortgage Loan or a reduction by such court of the principal amount
of a Mortgage 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 bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement. Such amount will be reduced by
payments made under such bankruptcy bond in respect of the related Mortgage
Loans and will not be restored.
If specified in the related Prospectus Supplement, other forms of
Credit Enhancement may be provided to cover such bankruptcy-related losses. Any
bankruptcy bond or other form of Credit Enhancement provided to cover
bankruptcy-related losses will be described in the related Prospectus
Supplement.
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Reserve Funds. If specified in the Prospectus Supplement, cash, U.S.
Treasury securities, instruments evidencing ownership of principal or interest
payments thereon, letters of credit, surety bonds, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will be deposited by the Depositor on the Delivery Date in
one or more accounts (each, a "Reserve Fund") established and maintained with
the Trustee. Such cash and the principal and interest payments on such other
investments will be used to enhance the likelihood of timely payment of
principal of, and interest on, or, if so specified in the Prospectus Supplement,
to provide additional protection against losses in respect of, the assets in the
related Trust, to pay the expenses of the Trust or for such other purposes
specified in the Prospectus Supplement. Whether or not the Depositor has any
obligation to make such a deposit, certain amounts to which the Owners of
Subordinated Securities, if any, would otherwise be entitled may instead be
deposited into the Reserve Fund from time to time and in the amounts as
specified in the Prospectus Supplement. Any cash in any Reserve Fund and the
proceeds of any other instrument upon maturity will be invested in Eligible
Investments. 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 as a 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 Funds may be set forth in the
Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will
be available for withdrawal from the Reserve Fund for distribution with respect
to the Securities for the purposes, in the manner and at the times specified in
the Prospectus Supplement.
Other Insurance, Guaranties and Similar Instruments or Agreements. If
specified in the Prospectus Supplement, the related Trust may also include
insurance, guaranties, surety bonds, letters of credit, guaranteed investment
contracts or similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses on the assets
included in such Trust, (ii) paying administrative expenses, (iii) establishing
a minimum reinvestment rate on the payments made in respect of such assets or
principal payment rate on such assets, (iv) guaranteeing timely payment of
principal and interest under the Securities or (v) for such other purpose as is
specified in such Prospectus Supplement. Such arrangements may include
agreements under which Owners are entitled to receive amounts deposited in
various accounts held by the Trustee upon the terms specified in the Prospectus
Supplement. Such arrangements may be in lieu of any obligation of the Servicers
or the Seller to advance delinquent installments in respect of the Mortgage
loans. See "Servicing of Mortgage Loans and Contracts - Advances" herein.
SERVICING OF MORTGAGE LOANS AND CONTRACTS
With respect to each series of Securities, the related Mortgage Loans
and Contracts will be serviced by a sole servicer or by a master servicer with
various sub-servicers pursuant to, or as provided for in, the Agreement. The
Prospectus Supplement for each series will specify the servicer and the master
servicer, if any, for such series.
The Depositor will require adequate servicing experience, where
appropriate, and financial stability, generally including a net worth
requirement (to be specified in the Agreement) as well as satisfaction of
certain other criteria.
Each Servicer will be required to perform the customary functions of a
mortgage loan servicer, including collection of payments from borrowers (the
"Mortgagors") and remittance of such collections to the Trustee, maintenance of
applicable standard hazard insurance or primary mortgage insurance policies,
attempting to cure delinquencies, supervising foreclosures, management of
Mortgaged Properties under certain circumstances, and maintaining accounting
records relating to the Mortgage Loans and Contracts, as applicable, and, if
specified in the related Prospectus Supplement, maintenance of escrow or
impoundment accounts of Mortgagors for payment of taxes, insurance, and other
items required to be paid by the Mortgagor pursuant to the Mortgage Loan or
Contract. Each Servicer will also be obligated to make advances in respect of
delinquent installments on Mortgage Loans and Contracts, as applicable, as
described more fully under " - Payments on Mortgage Loans" and " - Advances"
below and in respect of certain taxes and insurance premiums not paid on a
timely basis by Mortgagors.
Each Servicer will be entitled to a monthly servicing fee as specified
in the related Prospectus Supplement. Each Servicer will also generally be
entitled to collect and retain, as part of its servicing compensation, late
payment charges and assumption underwriting fees. Each Servicer will be
reimbursed from proceeds of one or more of the insurance policies described
herein ("Insurance Proceeds") or from proceeds received in connection with the
liquidation of defaulted Mortgage Loans ("Liquidation Proceeds") for certain
expenditures pursuant to the Agreement. See " -- Advances" and " -- Servicing
Compensation and Payment of Expenses" below.
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Each Servicer will be required to service each Mortgage Loan and
Contract, as applicable, pursuant to the terms of the Agreement for the entire
term of such Mortgage Loan and Contract, as applicable, unless such Agreement is
earlier terminated. Upon termination, a replacement for the Servicer will be
appointed.
Payments on Mortgage Loans
Each Servicer will establish and maintain a separate account (each, a
"Custodial Account"). Subject to the following paragraph, each Custodial Account
must be an account the deposits in which are fully insured by either the Federal
Deposit Insurance Corporation ("FDIC") or the National Credit Union
Administration ("NCUA") or are, to the extent such deposits are in excess of the
coverage provided by such insurance, continuously secured by certain obligations
issued or guaranteed by the United States of America. If at any time the amount
on deposit in such Custodial Account shall exceed the amount so insured or
secured, the applicable Servicer must remit to the Trustee the amount on deposit
in such Custodial Account which exceeds the amount so insured or secured, less
any amount such Servicer may retain for its own account pursuant to the
Agreement.
Notwithstanding the foregoing, the deposits in a Servicer's Custodial
Account will not be required to be fully insured or secured as described above,
and such Servicer will not be required to remit amounts on deposit therein in
excess of the amount so insured or secured, so long as such Servicer meets
certain requirements established by the rating agencies requested to rate the
Securities.
Each Servicer is required to deposit into its Custodial Account on a
daily basis all amounts in respect of each Mortgage Loan received by such
Servicer, with interest adjusted to a rate (the "Remittance Rate") equal to the
related Mortgage Rate less the Servicer's servicing fee rate. On the day of each
month specified in the related Prospectus Supplement (the "Remittance Date"),
each Servicer of the Mortgage Loans will remit to the Trustee or Indenture
Trustee, if applicable, all funds held in its Custodial Account with respect to
each Mortgage Loan; provided, however, that Principal Prepayments may be
remitted on the Remittance Date in the month following the month of such
prepayment. Each Servicer will be required pursuant to the terms of the
Agreement and as specified in the related Prospectus Supplement, to remit with
each Principal Prepayment interest thereon at the Remittance Rate through the
last day of the month in which such Principal Prepayment is made. Each Servicer
may also be required to advance its own funds as described below.
Advances
With respect to a delinquent Mortgage Loan or Contract, the related
Servicer may be obligated (but only to the extent set forth in the related
Prospectus Supplement) to advance its own funds or funds from its Custodial
Account equal to the aggregate amount of payments of principal and interest
(adjusted to the applicable Remittance Rate) which were due on a due date and
which are delinquent as of the close of business on the business day preceding
the Remittance Date ("Monthly Advance"). Generally, such advances will be
required to be made by the Servicer unless the Servicer determines that such
advances ultimately would not be recoverable under any applicable insurance
policy, from the proceeds of liquidation of the related Mortgaged Properties or
from any other source (any amount not so reimbursable being referred to herein
as a "Nonrecoverable Advance"). Such advance obligation generally will continue
through the month following the month of final liquidation of such Mortgage Loan
or Contract. Any Servicer funds thus advanced will be reimbursable to such
Servicer out of recoveries on the Mortgage Loans or Contracts with respect to
which such amounts were advanced. Each Servicer will also be obligated to make
advances with respect to certain taxes and insurance premiums not paid by
Mortgagors on a timely basis. Funds so advanced are reimbursable to the
Servicers out of recoveries on the related Mortgage Loans or Contracts. Each
Servicer's right of reimbursement for any advance will be prior to the rights of
the Trust to receive any related Insurance Proceeds or Liquidation Proceeds.
Failure by a Servicer to make a required Monthly Advance will be grounds for
termination under the related Agreement.
Collection and Other Servicing Procedures
Each Servicer will service the Mortgage Loans and Contracts pursuant to
guidelines established in the related Agreement.
Mortgage Loans. The Servicer will be responsible for making reasonable
efforts to collect all payments called for under the Mortgage Loans. The
Servicer will be obligated to follow such normal practices and procedures as it
deems necessary or advisable to realize upon a defaulted Mortgage Loan. In this
regard, the Servicer may (directly or
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through a local assignee) sell the property at a foreclosure or trustee's sale,
negotiate with the Mortgagor for a deed in lieu of foreclosure or, in the event
a deficiency judgment is available against the Mortgagor or other person (see
"Certain Legal Aspects of the Mortgage Assets -- Foreclosure - Anti-Deficiency
Legislation and Other Limitations on Lenders" for a description of the limited
availability of deficiency judgments), foreclose against such property and
proceed for the deficiency against the appropriate person. The amount of the
ultimate net recovery (including the proceeds of any Mortgage Pool Insurance
Policy or other applicable Credit Enhancement), after reimbursement to the
Servicer of its expenses incurred in connection with the liquidation of any such
defaulted Mortgage Loan and prior unreimbursed advances of principal and
interest with respect thereto will be deposited in the Security Account when
realized and will be distributed to Owners on the next Distribution Date
following the month of receipt.
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Assets" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for those
shares and otherwise limit the Trust's ability to sell and realize the value of
those shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)
(2)) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Code Section 216(b)(1) is allowed a deduction for amounts
paid or accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders.
By virtue of this requirement, the status of a corporation for purposes of Code
Section 216(b)(1) must be determined on a year-to-year basis. Consequently,
there can be no assurance that Cooperatives relating to the Cooperative Loans
will qualify under such Section for any particular year. In the event that such
a Cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to its tenant-stockholders
under Code Section 216(a) with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies as a cooperative housing corporation, however, the likelihood
that such a failure would be permitted to continue over a period of years
appears remote.
The Servicer will expend its own funds to restore property securing a
Mortgage Loan which has sustained uninsured damage only if it determines that
such restoration will increase the proceeds to the Trust of liquidation of the
Mortgage Loan after the reimbursement to the Servicer of its expenses.
If a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer will be obligated (to the extent it has knowledge of
such conveyance) to accelerate the maturity of the Mortgage Loan, unless it
reasonably believes it is unable to enforce that Mortgage Loan's "due-on-sale"
clause under the applicable law. If it reasonably believes it may be restricted
by law, for any reason, from enforcing such a "due-on-sale" clause, the Servicer
may enter 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 under the Mortgage Note, provided such person satisfies the
criteria required to maintain the coverage provided by applicable insurance
policies (unless otherwise restricted by applicable law). Any fee collected by
the Servicer for entering into an assumption agreement will be retained by the
Servicer as additional servicing compensation. For a description of
circumstances in which the Servicer may be unable to enforce "due-on-sale"
clauses, see "Certain Legal Aspects of the Mortgage Assets -- Foreclosure --
Enforceability of Certain Provisions" herein. In connection with any such
assumption, the Mortgage Rate borne by the related Mortgage Note may not be
decreased.
If specified in the related Prospectus Supplement, the Servicer will
maintain with one or more depository institutions one or more accounts into
which it will deposit all payments of taxes, insurance premiums, assessments or
comparable items received for the account of the Mortgagors. Withdrawals from
such account or accounts may be made only to effect payment of taxes, insurance
premiums, assessments or comparable items, to reimburse the Servicer out of
related collections for any cost incurred in paying taxes, insurance premiums
and assessments or otherwise preserving or protecting the value of the
Mortgages, to refund to mortgagors any amounts determined to be overages and to
pay interest to Mortgagors on balances in such account or accounts to the extent
required by law.
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So long as it acts as servicer of the Mortgage Loans, the Servicer will
be required to maintain certain insurance covering errors and omissions in the
performance of its obligations as servicer and certain fidelity bond coverage
ensuring against losses through wrongdoing of its officers, employees and
agents.
Contracts. Pursuant to the Agreement, the Servicer, either directly or
through sub-servicers subject to general supervision by the Servicer, will
perform diligently all services and duties required to be performed under the
Agreement, in the same manner as performed by prudent lending institutions of
manufactured housing installment sales contracts of the same type as the
Contracts in those jurisdictions where the related Manufactured Homes are
located. The duties to be performed by the Servicer will include collection and
remittance of principal and interest payments, collection of insurance claims
and, if necessary, repossession.
Each Agreement will provide that when any Manufactured Home securing a
Contract is about to be conveyed by the borrower, the Servicer (to the extent it
has knowledge of such prospective conveyance and prior to the time of the
consummation of such conveyance) may exercise its rights to accelerate the
maturity of such Contract under the applicable "due-on-sale" clause, if any,
unless the Servicer reasonably believes it is unable to enforce such
"due-on-sale" clause under applicable law. In such case the Servicer is
authorized to take or enter into an assumption agreement from or with the person
to whom such Manufactured Home has been or is about to be conveyed, pursuant to
which such person becomes liable under the Contract, provided such person
satisfies the criteria required to maintain the coverage provided by applicable
insurance policies (unless otherwise restricted by applicable law). Where
authorized by the Contract, the annual percentage rate may be increased, upon
assumption, to the then-prevailing market rate but will not be decreased.
Under each Agreement the Servicer will repossess or otherwise
comparably convert the ownership of properties securing such of the related
Contracts as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such repossession or other conversion, the Servicer will follow such
practices and procedures as it deems necessary or advisable and as shall be
normal and usual in its general servicing activities. The Servicer, however,
will not be required to expend its own funds in connection with any repossession
or towards the restoration of any property unless it determines (i) that such
restoration or repossession will increase the proceeds of liquidation of the
related Contract to the Trust after reimbursement to itself for such expenses
and (ii) that such expenses will be recoverable to it either through Liquidation
Proceeds or through Insurance Proceeds.
Primary Mortgage Insurance
Mortgage Loans that the Depositor acquires will generally not have
primary mortgage insurance. If obtained, the primary mortgage insurance policies
will not insure against certain losses which may be sustained in the event of a
personal bankruptcy of the mortgagor under a Mortgage Loan.
Standard Hazard Insurance
Mortgage Loans. The Servicer will be required to cause to be maintained
for each Mortgage Loan a standard hazard insurance policy. The coverage of such
policy is required to be in an amount not less than the maximum insurable value
of the improvements securing such Mortgage Loan from time to time or the
principal balance owing on such Mortgage Loan from time to time, whichever is
less. In all events, such coverage shall be in an amount sufficient to ensure
avoidance of the applicability of the co-insurance provisions under the terms
and conditions of the applicable policy. The ability of each Servicer to assure
that hazard insurance proceeds are appropriately applied may be dependent on its
being named as an additional insured under any standard hazard insurance policy
and under any flood insurance policy referred to below, or upon the extent to
which information in this regard is furnished to such Servicer by Mortgagors.
Each Agreement may provide that the related Servicer may satisfy its obligation
to cause hazard insurance policies to be maintained by maintaining a blanket
policy insuring against hazard losses on the Mortgage Loans serviced by such
Servicer.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, wind-storm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting
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from the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and mud
flow), 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 Mortgage Property securing a Mortgage Loan is located in a
federally designated flood area, flood insurance will be required to be
maintained in such amounts as would be required by FNMA in connection with its
mortgage loan purchase program. The Depositor may also purchase special hazard
insurance against certain of the uninsured risks described above. See "Credit
Enhancement -- Special Hazard Insurance."
Since the amount of hazard insurance the Servicer is required to cause
to be maintained on the improvements securing the Mortgage Loans declines as the
principal balances owing thereon decrease, if the Mortgage Properties securing
the Mortgage Loans appreciate in value over time, the effect of coinsurance in
the event of partial loss may be that hazard insurance proceeds will be
insufficient to restore fully the damaged property.
The Depositor will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
Contracts. The Servicer will generally be required to cause to be
maintained with respect to each Contract one or more hazard insurance policies
which provide, at a minimum, the same coverage as a standard form fire and
extended coverage insurance policy that is customary for manufactured housing,
issued by a company authorized to issue such policies in the state in which the
Manufactured Home is located and in an amount which is not less than the maximum
insurable value of such Manufactured Home or the principal balance due from the
borrower on the related Contract, whichever is less. When a Manufactured Home's
location was, at the time of origination of the related Contract, within a
federally designated special flood hazard area, the Servicer also shall cause
such flood insurance to be maintained, which coverage shall be at least equal to
the minimum amount specified in the preceding sentence or such lesser amount as
may be available under the federal flood insurance program.
The Servicer may maintain, in lieu of causing individual hazard
insurance policies to be maintained with respect to each Manufactured Home, and
shall maintain, to the extent that the related Contract does not require the
borrower to maintain a hazard insurance policy with respect to the related
Manufactured Home, one or more blanket insurance policies covering losses on the
borrowers' interests in the Contracts resulting from the absence or
insufficiency of individual hazard insurance policies.
The Servicer, to the extent practicable, will cause the borrowers to
pay all taxes and similar governmental charges when and as due. To the extent
that nonpayment of any taxes or charges would result in the creation of a lien
upon any Manufactured Home having a priority equal or senior to the lien of the
related Contract, the Servicer will pay any such delinquent tax or charge.
If the Servicer repossesses a Manufactured Home on behalf of the
Trustee, the Servicer will either (i) maintain at its expense hazard insurance
with respect to such Manufactured Home or (ii) indemnify the Trustee against any
damage to such Manufactured Home prior to resale or other disposition.
Title Insurance Policies
The Agreements will generally require that a title insurance policy be
in effect on each of the Mortgaged Properties and that such title insurance
policy contain no coverage exceptions, except customary exceptions generally
accepted in the mortgage banking industry.
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Claims Under Primary Mortgage Insurance Policies and Standard Hazard Insurance
Policies; Other Realization Upon Defaulted Loan
Each Servicer will present claims to any primary insurer under any
related primary mortgage insurance policy and to the hazard insurer under any
related standard hazard insurance policy. All collections under any related
primary mortgage insurance policy or any related standard hazard insurance
policy (less any proceeds to be applied to the restoration or repair of the
related Mortgaged Property or to the reimbursement of Advances by the Servicer)
will be remitted to the Trustee.
If any Mortgaged Property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related standard hazard insurance policy are
insufficient to restore the damaged property to a condition sufficient to permit
recovery under any applicable Mortgage Pool Insurance Policy or any related
primary mortgage insurance policy, each Servicer may be required to expend its
own finds to restore the damaged property to the extent specified in the related
Prospectus Supplement, but only to the extent it determines such expenditures
are recoverable from Insurance Proceeds or Liquidation Proceeds.
If recovery under any applicable Mortgage Pool Insurance Policy or any
related primary mortgage insurance policy is not available, the Servicer will
nevertheless be obligated to attempt to realize upon the defaulted Mortgage
Loan. Foreclosure proceedings will be conducted by the Servicer in accordance
with the Agreement. If the proceeds of any liquidation of the Mortgaged Property
securing the defaulted Mortgage Loan are less than the Principal Balance of the
defaulted Mortgage Loan plus interest accrued thereon, a loss will be realized
on such Mortgage Loan, to the extent the applicable Credit Enhancement is not
sufficient, in the amount of such difference plus the aggregate of expenses
which are incurred by the Servicer in connection with such proceedings and are
reimbursable under the Agreement. In such case there will be a reduction in the
value of the Mortgage Loans and Trust may be unable to recover the full amount
of principal and interest due thereon.
In addition, where a Mortgaged Property securing a defaulted Mortgage
Loan can be resold for an amount exceeding the principal balance of the related
Mortgage Loan together with accrued interest and expenses, it may be expected
that, where retention of any such amount is legally permissible, the Pool
Insurer will exercise its right under the related Mortgage Pool Insurance
Policy, if any, to purchase such Mortgaged Property and realize for itself any
excess proceeds. Any amounts remaining in the Security Account after such
foreclosure or liquidation and attributable to such Mortgage Loan will be
distributed to Owners of the Securities.
Servicing Compensation and Payment of Expenses
As compensation for its servicing duties, each Servicer will be
entitled to a monthly servicing fee in the amount specified in the related
Prospectus Supplement. In addition to the primary compensation, Servicer may be
permitted to retain all assumption underwriting fees and late payment charges,
to the extent collected from Mortgagors.
As set forth above, each Servicer will be entitled to reimbursement for
certain expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans and Contracts and in connection with advancing delinquent
payments. No loss will be suffered on the Securities by reason of such expenses
to the extent claims for such expenses are paid directly under any applicable
Mortgage Pool Insurance Policy, a primary mortgage insurance policy, the special
hazard insurance policy or from other forms of Credit Enhancement. In the event,
however, that the defaulted Mortgage Loans are not covered by a Mortgage Pool
Insurance Policy, primary mortgage insurance policies, the Special Hazard
Insurance Policy or another form of Credit Enhancement, or claims are either not
made or paid under such policies or Credit Enhancement, or if coverage
thereunder has ceased, such a loss will occur to the extent that the proceeds
from the liquidation of a defaulted Mortgage Loan or Contract, after
reimbursement of the Servicer's expenses, are less than the Principal Balance of
such defaulted Mortgage Loan or Contract.
Master Servicer
A Master Servicer may be specified in the related Prospectus Supplement
for the related series of Securities. Customary servicing functions with respect
to Mortgage Loans constituting the Mortgage Pool will be provided by the
Servicer directly or through one or more Sub-Servicers subject to supervision by
the Master Servicer. If the Master Servicer is not directly servicing the
Mortgage Loans, then the Master Servicer will (i) administer and supervise the
performance by the Servicer of its servicing responsibilities under the
Agreement with the Master Servicer, (ii) maintain
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a current data base with the payment histories of each Mortgagor, (iii) review
monthly servicing reports and data relating to the Mortgage Pool for
discrepancies and errors and (iv) act as back-up Servicer during the term of the
transaction unless the Servicer is terminated or resigns in such case the Master
Servicer shall assume the obligations of the Servicer.
The Master Servicer will be a party to the Agreement for any series for
which Mortgage Loans comprise the assets of a Trust. The Master Servicer will be
required to satisfy the standard established for the qualification of the Master
Servicer in the related Agreement. The Master Servicer will be compensated for
the performance of its services and duties under each Agreement as specified in
the related Prospectus Supplement.
Special Servicer
A Special Servicer may be specified in the related Prospectus
Supplement for the related series of Securities. The duties of the Special
Servicer relate primarily to Special Serviced Mortgage Loans and to any REO
Property. The related Agreement may define a "Special Serviced Mortgage Loan" to
include one of more of the following with respect to the Mortgage Loans: (i) the
related borrower is 60 or more days delinquent in the payment of principal and
interest; (ii) the borrower under which has expressed to the Servicer an
inability to pay or a hardship in paying the Mortgage Loan in accordance with
its terms; (iii) the Servicer has received notice that the borrower has become
the subject of any bankruptcy, insolvency or similar proceeding, admitted in
writing the inability to pay its debts as they come due or made an assignment
for the benefit of creditors; (iv) the Servicer has received notice of a
foreclosure or threatened foreclosure of any lien on the Mortgaged Property
securing the Mortgage Loan; (v) a default of which the Master Servicer has
notice (other than a failure by the borrower to pay principal or interest) and
which materially and adversely affects the interests of the Owners has occurred
and remained unremedied for the applicable grace period specified in the
Mortgage Loan (or, if no grace period is specified, 60 days); or (vi) the
Servicer proposes to commence foreclosure or other workout arrangements;
provided, however, that a Mortgage Loan will cease to be a Specially Serviced
Mortgage Loan (a) with respect to the circumstances described in clause (i)
above, when the borrower thereunder has brought the Mortgage Loan current, (b)
with respect to the circumstances described in clauses (ii) and (iv) above, when
such circumstances cease to exist in the good faith judgment of the Special
Servicer and with respect to the circumstances described in clauses (iii) and
(vi), when such circumstances cease to exist or (c) with respect to the
circumstances described in clause (v) above, when such default is cured;
provided, in any such case, that at any time no circumstance exists (as
described above) that would cause the Mortgage Loan to continue to be
characterized as a Special Serviced Mortgage Loan.
Pursuant to the related Agreement, the Special Servicer will be
entitled to certain fees. The Special Servicer may also receive with respect to
any Special Serviced Mortgage Loan or REO Property that is sold or transferred
or otherwise liquidated, a disposition fee specified in the related Agreement.
THE POOLING AND SERVICING AGREEMENT
The following summary describes certain provisions which will be common
to each Pooling and Servicing Agreement. The summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of a particular Pooling and Servicing Agreement. Material terms of a
specific Pooling and Servicing Agreement will be further described in the
related Prospectus Supplement.
Assignment of Mortgage Assets
Assignment of the Mortgage Loans. At the time of issuance, the
Depositor will assign the Mortgage Loans to the Trustee, together with all
principal and interest adjusted to the Remittance Rate, subject to exclusions
specified in the Prospectus Supplement, due on or with respect to such Mortgage
Loans on or after the Cut-Off Date. The Trustee, if applicable, and the
Indenture Trustee will, concurrently with such assignment, execute, countersign
and deliver the Securities to the Depositor in exchange for the Mortgage Loans.
Each Mortgage Loan will be identified in a schedule appearing as an exhibit to
the Pooling and Servicing Agreement. Such schedule may include information as to
the Principal Balance of each Mortgage Loan as of the Cut-Off Date, as well as
information respecting the Mortgage Rate, the scheduled monthly payment of
principal and interest as of the Cut-Off Date and the maturity date of each
Mortgage Note.
In addition, as to each Mortgage Loan, the Depositor will deliver the
Mortgage Note and Mortgage, any assumption and modification agreement, an
assignment of the Mortgage in recordable form (but only recorded if so specified
in the related Prospectus Supplement), evidence of title insurance, if obtained,
and, if applicable, the certificate
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of private mortgage insurance. In instances where recorded documents cannot be
delivered due to delays in connection with recording, the Depositor may deliver
copies thereof and deliver the original recorded documents promptly upon
receipt.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered the related original Cooperative promissory
note, the original security agreement, the proprietary lease or occupancy
agreement, the recognition agreement, an executed financing agreement and the
relevant stock certificate and related blank stock powers. The Depositor will
file in the appropriate office an assignment of each Cooperative Loan.
Each Seller generally will represent and warrant to the Depositor with
respect to the Mortgage Loans sold by it, among other things, that (i) the
information set forth in the schedule of Mortgage Loans attached thereto is
correct in all material respects, (ii) a lender's title insurance policy or
binder for each Mortgage Loan subject to the Pooling and Servicing Agreement was
issued on the date of origination thereof and each such policy or binder
assurance is valid and remains in full force and effect or a legal opinion
concerning title or title search was obtained or conducted in connection with
the origination of the Mortgage Loan, (iii) at the Delivery Date, the Seller has
good title to the Mortgage Loans and the Mortgage Loans are free of offsets,
defenses or counterclaims; (iv) at the Delivery Date, each Mortgage is a valid
lien on the property securing the Mortgage Note (subject only to (a) the lien of
current real property taxes and assessments, (b) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of the recording of such Mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally in the area wherein
the property subject to the Mortgage is located or specifically reflected in the
appraisal obtained by the Depositor and (c) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage) and such
property is free of material damage and is in good repair or, with respect to a
junior lien Mortgage Loan, that such Mortgage is a valid junior lien Mortgage,
as the case may be and specifying the percentage of the Mortgage Loan Pool
comprised of junior lien Mortgage Loans; (v) at the Delivery Date, no Mortgage
Loan is 31 or more days delinquent (with such exceptions as may be specified in
the Prospectus Supplement) and there are no delinquent tax or assessment liens
against the property covered by the related Mortgage; (vi) at the Delivery Date,
the portion of each Mortgage Loan, if any, which in the circumstances set forth
below under "Servicing of Mortgage Loans and Contracts - Primary Mortgage
Insurance" should be insured with a private mortgage insurer is so insured; and
(vii) each Mortgage Loan at the time it was made complied in all material
respects with applicable state and federal laws, including, with out limitation,
usury, equal credit opportunity and disclosure laws. The Depositor's rights
against the Seller in the event of a breach of its representations will be
assigned to the Trustee, and, if applicable, the Indenture Trustee for the
benefit of the Securities of such series.
Assignment of Contracts. The Depositor will cause the Contracts to be
assigned to the Trustee, and, if applicable, to the Indenture Trustee, together
with principal and interest due on or with respect to the Contracts on and after
the Cut-Off Date. Each Contract will be identified in a schedule ("Contract Loan
Schedule") appearing as an exhibit to the related Pooling and Servicing
Agreement. Such Contract Loan Schedule may specify, with respect to each
Contract, among other things: the original principal balance and the outstanding
Principal Balance as of the Cut-Off Date; the interest rate; the current
scheduled payment of principal and interest; and the maturity date.
In addition, with respect to each Contract, the Depositor will deliver
or cause to be delivered to the Trustee, and if applicable, to the Indenture
Trustee, the original Contract and copies of documents and instruments related
to each Contract and the security interest in the Manufactured Home securing
each Contract. To give notice of the right, title and interest of the Trust,
and, if applicable, the Indenture Trustee, to the Contracts, the Depositor will
cause appropriate UCC-1 financing statements to be filed identifying the secured
party and identifying all Contracts as collateral. The Contracts will not be
stamped or otherwise marked to reflect their assignment by the Depositor.
Therefore, if a subsequent purchaser were able to take physical possession of
the Contracts without notice of such assignment, the interest of the Trust, and,
if applicable, the Indenture Trustee in the Contracts could be defeated. See
"Certain Legal Aspects of the Mortgage Assets" herein.
The Depositor or the related Seller, as the case may be, may provide
limited representations and warranties concerning the Contracts. Such
representations and warranties may include: (i) that the information contained
in the Contract Loan Schedule provides an accurate listing of the Contracts and
that the information respecting such Contracts set forth in such Contract Loan
Schedule is true and correct in all material respects at the date or dates
respecting which such information is furnished; (ii) that, immediately prior to
the conveyance of the Contracts, the Depositor had good
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title to and was sole owner of each such Contract; and (iii) that there has been
no other sale by it of such Contract and that the Contract is not subject to any
lien, charge, security interest or other encumbrance.
Assignment of Mortgage-Backed Securities and Other Mortgage Securities.
With respect to each series, the Depositor will cause any Mortgage-Backed
Securities and Other Mortgage Securities included in the related Trust to be
registered in the name of the Trustee or, if applicable, the Indenture Trustee
(directly or through a participant in a depository). The Trustee or, if
applicable, the Indenture Trustee (or its custodian) will have possession of any
certificated Mortgage-Backed Securities and Other Mortgage Securities but will
not be in possession of or be assignee of record of any underlying assets for a
Mortgage-Backed Security or Other Mortgage Security. Each Mortgage-Backed
Security and Other Mortgage Security will be identified in a schedule appearing
as an exhibit to the related Pooling and Servicing Agreement which may specify
certain information with respect to such security, including, as applicable, 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 such security. The Depositor will represent and
warrant, among other things, the information contained in such schedule is true
and correct and that immediately prior to the transfer of the related
securities, the Depositor had good title to, and was the sole owner of, each
such security.
Repurchase or Substitution of Mortgage Loans and Contracts. The Trustee
and, if applicable, the Indenture Trustee will review the documents delivered to
it with respect to the Mortgage Loans and Contracts included in the related
Trust. If any document is not delivered or is found to be defective in any
material respect and the Depositor or the related Seller, if so required, cannot
deliver such document or cure such defect within the period specified in the
related Prospectus Supplement after notice thereof (which will be required to be
given within the period specified in the related Prospectus Supplement), and if
any other party obligated to deliver such document or cure such defect has not
done so and has not substituted or repurchased the affected Mortgage Loan or
Contract, then the Depositor will cause the Seller, not later than the first
date designated for the deposit of payments into the Security Account (a
"Deposit Date") which is more than a specified number of days after such period,
(i) if so provided in the Prospectus Supplement to remove the affected Mortgage
Loan or Contract from the Trust and substitute one or more other Mortgage Loans
or Contracts therefor or (ii) repurchase the Mortgage Loan or Contract from the
Trustee for a price equal to 100% of its Principal Balance plus one month's
interest thereon at the applicable Remittance Rate. This repurchase and, if
applicable, substitution obligation will generally constitute the sole remedy
available for a material defect in a document relating to a Mortgage Loan or
Contract.
The Depositor is required to do or cause the Seller to do either of the
following (i) cure any breach of any representation or warranty that materially
and adversely affects the interests of the Owners in a Mortgage Loan (each, a
"Defective Mortgage Loan") or Contract within the period specified in the
related Prospectus Supplement of its discovery by the Depositor or its receipt
of notice thereof from the Trustee, (ii) repurchase such Defective Mortgage Loan
or Contract not later than the first Deposit Date which is more than a specified
number of days after such period for a price equal to 100% of its Principal
Balance plus one month's interest thereon at the applicable Remittance Rate or
(iii) if so specified in the Prospectus Supplement, remove the affected Mortgage
Loan or Contract from the Trust and substitute one or more other mortgage loans
or contracts therefor. This repurchase and, if applicable, substitution
obligation will generally constitute the sole remedies available to the Trustee
for any such breach.
If the related Prospectus Supplement so provides, the Depositor or a
designated affiliate may be obligated to repurchase or substitute Mortgage Loans
or Contracts as described above, whether or not the Depositor obtains such an
agreement from the Seller which sold such Mortgage Loans or Contracts.
If a REMIC or a FASIT election is to be made with respect to all or a
portion of a Trust, there may be federal income tax limitations on the right to
substitute Mortgage Loans or Contracts.
Evidence as to Compliance
The Agreement will provide that on or before a specified date in each
year, beginning the first such date that is at least a specified number of
months on and after the Cut-Off Date, a firm of independent public accountants
will furnish a statement to the Trustee to the effect that, based on an
examination of certain specified documents and records relating to the servicing
of the Depositor's mortgage loan portfolio conducted substantially in compliance
with the audit program for mortgages serviced for FNMA or FHLMC, the United
States Department of Housing and Urban Development Mortgage Audit Standards or
the Uniform Single Audit Program for Mortgage Bankers or in accordance with
other standards specified in the Agreement (the "Applicable Accounting
Standards"), such firm is of the opinion
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that such servicing has been conducted in compliance with the Applicable
Accounting Standards except for (i) such exceptions as such firm shall believe
to be immaterial and (ii) such other exceptions as shall be set forth in such
statement.
The Trustee
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Depositor. In addition, the Depositor and the
Trustee acting jointly will have the power and the responsibility for appointing
co-trustees or separate trustees of all or any part of the Trust relating to a
particular series of Securities. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
Pooling and Servicing Agreement shall be conferred or imposed upon the Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties and obligations solely at the direction of the
Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the Agreement, the Securities or of any Mortgage Asset or related
document, and will not be accountable for the use or application by the
Depositor of any funds paid to the Depositor in respect of the Securities or the
related assets, or amounts deposited in the Security Account or deposited into
the Distribution Account. If no Event of Default has occurred, the Trustee will
be required to perform only those duties specifically required of it under the
Pooling and Servicing Agreement. However, upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
Trustee will be required to examine them to determine whether they conform to
the requirements of the Pooling and Servicing Agreement.
The Trustee may resign at any time, and the Depositor may remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement, if the Trustee becomes insolvent or in such
other instances, if any, as are set forth in the Pooling and Servicing
Agreement. Following any resignation or removal of the Trustee, 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.
Administration of the Security Account
The Pooling and Servicing Agreement will require that the Security
Account be either (i) maintained with a depository institution the debt
obligations of which (or, in the case of a depository institution which is a
part of a holding company structure, the debt obligations of the holding company
of which) have a rating acceptable to each rating agency that was requested to
rate the Securities or (ii) an account or accounts the deposits in which are
fully 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 FDIC. The collateral eligible to secure
amounts in the Security Account is limited to United States government
securities and other investments acceptable to the rating agencies rating such
series of Securities, and may include one or more Securities of a series
("Eligible Investments"). If so specified in the related Prospectus Supplement,
a Security Account may be maintained as an interest bearing account, or the
funds held therein may be invested pending each succeeding Payment Date in
Eligible Investments. If so specified in the related Prospectus Supplement, the
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. The
Servicer will deposit in the Security Account from amounts previously deposited
by it into the Servicer's Custodial Account on the related Remittance Date the
following payments and collections received or made by it on and after the
Cut-Off Date (including scheduled payments of principal and interest due on and
after the Cut-Off Date but received before the Cut-Off Date):
(a) all Mortgagor payments on account of principal, including
Principal Prepayments and, if specified in the related Prospectus
Supplement, prepayment penalties:
(b) all Mortgagor payments on account of interest, adjusted to
the Remittance Rate;
(c) all Liquidation Proceeds net of certain amounts reimbursed
to the Servicer or other person entitled thereto, as described above;
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(d) all Insurance Proceeds, other than proceeds to be applied
to the restoration or repair of the related property or released to the
Mortgagor and net of certain amounts reimbursed to the Servicer or
other person entitled thereto, as described above;
(e) all condemnation awards or settlements which are not
released to the Mortgagor in accordance with normal servicing
procedures;
(f) any Advances made as described under "Servicing of
Mortgage Loans and Contracts - Advances" herein and certain other
amounts required under the Agreement to be deposited in the Security
Account;
(g) all proceeds of any Mortgage Loan or Contract or property
acquired in respect thereof repurchased by the Depositor, the Seller or
otherwise as described above or under "Termination" below;
(h) all amounts, if any, required to be deposited in the
Security Account from any Credit Enhancement for the related series;
and
(i) all other amounts required to be deposited in the Security
Account pursuant to the related Agreement.
Reports
Concurrently with each distribution on the Securities, there will be
mailed to Owners a statement generally setting forth, to the extent applicable
to any series, among other things:
(i) the aggregate amount of such distribution allocable to
principal, separately identifying the amount allocable to each class;
(ii) the amount of such distribution allocable to interest,
separately identifying the amount allocable to each class;
(iii) the aggregate Security Principal Balance of each class
of the Securities after giving effect to distributions on such
Distribution Date;
(iv) the aggregate Security Principal Balance of any class of
Compound Interest Securities after giving effect to any increase in
such Principal Balance that results from the accrual of interest that
is not yet distributable thereon;
(v) if applicable, the amount otherwise distributable to any
class of Securities that was distributed to other classes of
Securities;
(vi) if any class of Securities has priority in the right to
receive Principal Prepayments, the amount of Principal Prepayments in
respect of the related Mortgage Assets;
(vii) the aggregate Principal Balance and number of Mortgage
Loans and Contracts which were delinquent as to a total of two
installments of principal and interest; and
(viii) the aggregate Principal Balances of Mortgage Loans and
Contracts which (a) were delinquent 30-59 days, 60-89 days, and 90 days
or more, or other delinquency categories of similar nature and (b) were
in foreclosure.
Customary information deemed necessary for Owners to prepare their tax
returns will be furnished annually (in the case of Book Entry Securities, the
above described statement and such annual information will be sent to the
Clearing Agency, which will provide such reports to the Clearing Agency
Participants in accordance with its procedures).
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Forward Commitments; Pre-Funding
The Trustee of a Trust may enter into a Pre-Funding Agreement for the
transfer of additional Mortgage Loans and Contracts to such Trust following the
date on which such Trust is established and the related Securities are issued.
The Trustee of a Trust may enter into Pre-Funding Agreements to permit the
acquisition of additional Mortgage Loans that could not be delivered by the
Depositor or have not formally completed the origination process, in each case
prior to the Delivery Date. Any Pre-Funding Agreement will require that any
Mortgage Loans so transferred to a Trust conform to the requirements specified
in such Pre-Funding Agreement. If a Pre-Funding Agreement is to be utilized, the
related Trustee will be required to deposit in the Purchase Account all or a
portion of the proceeds received by the Trustee in connection with the sale of
one or more classes of Securities of the related series; the additional Mortgage
Loans will be transferred to the related Trust in exchange for money released
from the related Pre-Funding Account. The maximum amount deposited in the
Pre-Funding Account to acquire Mortgage Loans for transfer to a Trust will not
exceed 25% of the aggregate principal amount of the Securities offered pursuant
to the related Prospectus Supplement. Each Pre-Funding Agreement will set a
specified period during which any such transfers must occur, which period will
not exceed 90 days from the date the Trust is established. The Pre-Funding
Agreement or the related Agreement will require that, if all moneys originally
deposited to such Pre-Funding Account are not so used by the end of such
specified period, then any remaining moneys will be applied as a mandatory
prepayment of the related class or classes of Securities as specified in the
related Prospectus Supplement.
Servicer Events of Default
"Events of Default" under the Pooling and Servicing Agreement will
consist of (i) any failure by the Servicer to duly observe or perform in any
material respect any other of its covenants or agreements in the Agreement
materially affecting the rights of Owners which continues unremedied for a
specified number of days after the giving of written notice of such failure to
the Depositor by the Trustee or to the Servicer and the Trustee by the Owners of
Securities evidencing interests in the Trust aggregating not less than 25% of
the affected class of Securities; and (ii) certain events of insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings and certain actions by the Servicer indicating its insolvency,
reorganization or inability to pay its obligations.
Rights Upon Servicer Event of Default
As long as an Event of Default under the Pooling and Servicing
Agreement remains unremedied by the Servicer, the Trustee or Owners of
Securities evidencing an ownership interest in the Trust may terminate all the
rights and obligations of the Servicer under the Pooling and Servicing
Agreement, whereupon the Trustee or Master Servicer, if any, or a new Servicer
appointed pursuant to the Agreement, will succeed to all the responsibilities,
duties and liabilities of the Servicer under the Pooling and Servicing Agreement
and will be entitled to similar compensation arrangements. Following such
termination, the Depositor shall appoint any established mortgage loan servicer
satisfying the qualification standards established in the Pooling and Servicing
Agreement to act as successor to the Servicer under the Pooling and Servicing
Agreement. If no such successor shall have been appointed within a specified
number of days following such termination, then either the Depositor or the
Trustee may petition a court of competent jurisdiction for the appointment of a
successor Servicer. Pending the appointment of a successor Servicer, the Trustee
or the Master Servicer, if any, shall act as Servicer.
The Owners of Securities evidencing an ownership interest in the Trust
will not have any right under the Pooling and Servicing Agreement to institute
any proceeding with respect to the Pooling and Servicing Agreement, unless they
previously have given to the Trustee written notice of default and unless the
Owners of the percentage of such Securities specified in the Prospectus
Supplement have made written request to 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 a specified number of days has neglected or
refused to institute any such proceedings. Nevertheless, the Trustee is under no
obligation to exercise any of the trusts or powers vested in it by the Pooling
and Servicing Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the Owners, unless
such Owners have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein or thereby.
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Amendment
A Pooling and Servicing Agreement generally may be amended by the
Depositor, the Servicer and the Trustee, without the consent of the Owners of
the Securities evidencing an ownership interest in the Trust, to cure any
ambiguity, to correct or supplement any provision therein which may be defective
or inconsistent with any other provision therein, to take any action necessary
to maintain REMIC or FASIT status of any Trust as to which a REMIC or FASIT
election has been made or to add any other provisions with respect to matters or
questions arising under the Agreement which are not materially inconsistent with
the provisions of the Agreement; provided that such action will not, as
evidenced by an opinion of counsel satisfactory to the Trustee, adversely affect
in any material respect the interests of any Owners of such Securities. A
Pooling and Servicing Agreement may also be amended by the Depositor, the
Servicer, and the Trustee with the consent of the Owners of Securities
evidencing an ownership interest in the Trust aggregating not less than a
majority of the aggregate Security Principal Balance of such Securities for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Pooling and Servicing Agreement or of modifying in any
manner the rights of such Owners; provided, however, that no such amendment may
(i) reduce in any manner the amount of, or delay the timing of, collections of
payments received on the related Mortgage Assets or distributions which are
required to be made on any such Security without the consent of the Owner of
such Security, (ii) adversely affect in any material respect the interests of
the Owners of any class of such Securities in any manner other than as described
in (i) without the consent of the Owners of Securities of such class evidencing
not less than a majority of the interests of such class or (iii) reduce the
aforesaid percentage of Securities of any such class required to consent to any
such amendment without the consent of the Owners of all such Securities of such
class then outstanding. Any other amendment provisions inconsistent with the
foregoing shall be specified in the related Prospectus Supplement.
Termination
The obligations of the Depositor, the Servicer, and the Trustee created
by the Pooling and Servicing Agreement will terminate upon the payment as
required by the Pooling and Servicing Agreement of all amounts held by the
Servicer or in the Security Account and required to be paid to them pursuant to
the Pooling and Servicing Agreement after the later of (i) the maturity or other
liquidation of the last Mortgage Asset subject thereto or the disposition of all
property acquired upon foreclosure of any such Mortgage Loan or Contract or (ii)
the repurchase by the Depositor from the Trust of all the outstanding Securities
or all remaining assets in the Trust. The Pooling and Servicing Agreement will
establish the repurchase price for the assets in the Trust and the allocation of
such purchase price among the classes of Securities. The exercise of such right
will effect early retirement of the Securities of that series, but the
Depositor's right so to repurchase will be subject to the conditions described
in the related Prospectus Supplement. If a REMIC or a FASIT election is to be
made with respect to all or a portion of a Trust, there may be additional
conditions to the termination of such Trust which will be described in the
related Prospectus Supplement. In no event, however, will the Trust continue
beyond the expiration of 21 years from the death of the survivor of certain
persons named in the Pooling and Servicing Agreement. The Trustee will give
written notice of termination of the Pooling and Servicing Agreement to each
Owner, and the final distribution will be made only upon surrender and
cancellation of the Securities at an office or agency of the Trustee specified
in such notice of termination.
THE INDENTURE
General
Each series of Notes will be issued pursuant to an Indenture to be
entered into between the related Issuer and the related Trustee. Where
provisions or terms used in a particular Indenture differ from those provided
herein, a description of such provisions or terms will be included in the
related Prospectus Supplement.
The following summaries describe certain provisions of the Indenture
not described elsewhere in this Prospectus. Where particular provisions or terms
used in the Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summaries.
The description set forth below is subject to modification in the Prospectus
Supplement for a series of Notes to describe the terms and provisions of the
particular Indenture relating to such series of Notes.
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Modification of Indenture
With the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding Notes of any series issued under
an Indenture, the related Indenture Trustee and the related Issuer may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture with respect to such series or modify
(except as provided below) in any manner the rights of the holders of such
Notes.
Without the consent of the holders of the Notes of such series affected
thereby, however, no supplemental indenture shall (a) change the Distribution
Date of the principal of, or interest on, any Note of such series or reduce the
principal amount thereof the Note Rate specified thereon, change the provisions
relating to the application of collections on, or the proceeds of the Mortgage
Assets to the payment of principal of or interest on the Notes, or change any
place of payment where, or the coin or currency in which, any Note of such
series or any interest thereon is payable, or impair the right to institute suit
for the enforcement of certain provisions of the Indenture regarding payment,
(b) reduce the percentage of the aggregate principal amount of the outstanding
Notes of such series, the consent of the holders of which is required for any
such a supplemental indenture, or the consent of the holders of which is
required for any waiver of compliance with certain provisions of the Indenture
or of certain defaults thereunder and their consequences as provided for in the
Indenture, (c) reduce the percentage of the aggregate principal amount of the
outstanding Notes of any series to direct the Issuer to liquidate upon a Note
Event of Default (as described below), (d) modify or alter the provisions for
the Indenture except to increase any percentage specified therein or to provide
that certain other provisions of the Indenture cannot be modified or waived
without the consent of the holder of each outstanding Note affected thereby, (e)
modify any of the provisions of the Indenture in such manner as to affect the
calculation of the amount any payment of the interest and principal due on any
Note on any Distribution Date or to affect the rights of the holders of Notes of
such series to the benefits of any provisions for the mandatory redemption of
the Notes of such series contained therein, or (f) permit the creation of any
lien ranking prior to or on the parity with the lien of the Indenture with
respect to any part of the property subject to a lien under the Indenture or
terminate the lien of the Indenture on any property at any time subject thereto
or deprive the holder of any Note of such series of the security afforded by the
lien of the Indenture.
The related Issuer and the respective Indenture Trustee may also enter
into supplemental indentures, without obtaining the consent of the Owners of the
Notes of such series, to cure ambiguities or make minor corrections, to evidence
the succession of another person to the Issuer or the acceptance of a successor
trustee, each in accordance with the Indenture, and to do such other things as
would not adversely affect the interests of the Owners of the Notes of such
series.
Note Events of Default
Unless otherwise specified in the Prospectus Supplement relating to a
given series of Notes, a "Note Event of Default" with respect to any series of
Notes will be defined in the respective Indenture under which such Notes are
issued as: (a) a default in the payment of interest on any Note of such series
when due and payable; (b) a default in the payment of principal on any Note of
such series when due and payable; (c) a default in the observance of any
covenants or agreements of the Issuer made in the Indenture or any
representations and warranties of the Issuer made in the Indenture, the Sale and
Servicing Agreement or certain other documents, and the continuation of any such
default for a specified period after notice to the related Issuer by the
Indenture Trustee or to the related Issuer and the Indenture Trustee by the
holders of a majority of the principal amount of the Notes of such series then
outstanding; or (d) certain events of bankruptcy, insolvency, receivership or
reorganization of the related Issuer, whether voluntary or involuntary.
Rights Upon Note Events of Default
Unless otherwise specified in the Prospectus Supplement relating to a
given series of Notes, in case a Note Event of Default should occur and be
continuing with respect to a series of Notes, the Indenture Trustee may, and on
request of holders of not less than a majority in principal amount of the Notes
of such series then outstanding shall, declare the principal of such series of
Notes to be due and payable. Such declaration may under certain circumstances be
rescinded by the holders of a majority in principal amount of the Notes of such
series then outstanding.
If, following a Note Event of Default, a series of Notes has been
declared to be due and payable, the holders representing a majority in principal
amount of the Notes may, by written notice to the Issuer and Indenture Trustee,
rescind and annul the acceleration of the maturity of such Notes if the Issuer
has paid or deposited with the Indenture Trustee a sum sufficient to pay: (i)
all payments of principal of and interest on all Notes and all other amounts
that
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would then be due upon such Notes if the Note Event of Default giving rise to
such acceleration had not occurred; (ii) all sums paid or advanced by the
Indenture Trustee and the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel; and (iii) all Note
Events of Default, other than the nonpayment of the principal of the Notes that
has become due solely by such acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, in case a Note Event of Default shall occur and be
continuing, the Indenture Trustee may and at the direction of the holders of the
Notes representing a majority in principal amount of the Notes shall, upon
receipt of satisfactory indemnity and assurances, do one or more of the
following: (i) institute proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes or
under the Indenture, whether by declaration or otherwise, enforce any judgment
obtained, and collect from the Issuer and any other obligor upon such Notes
moneys adjudged due; (ii) institute proceedings from time to time for the
complete or partial foreclosure of the Indenture with respect to the Mortgage
Assets; (iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies of
the Indenture Trustee or the holders of the Notes; and (iv) sell the Mortgage
Assets or any portion thereof or rights or interest therein in a commercially
reasonable manner, at one or more public or private sales called and conducted
in any manner permitted by law; provided, however, that the Indenture Trustee
may not sell or otherwise liquidate the Mortgage Assets following a Note Event
of Default, unless (A) all holders of the Notes consent thereto, (B) the
proceeds of such sale or liquidation distributable to the holders of the Notes
are sufficient to discharge in full all amounts then due and unpaid upon such
Notes for principal and interest or (C) the Indenture Trustee determines that
the Mortgage Assets will not continue to provide sufficient funds for the
payment of principal of and interest on the Notes as they would have become due
if the Notes had not been declared due and payable, and the Indenture Trustee
obtains the consent of holders of 66-2/3% in principal amount of the Notes.
List of Note Owners
Unless otherwise specified in the Prospectus Supplement relating to a
given series of Notes, three or more holders of the Notes of any series (each of
whom has owned a Note of such series for at lease six months) may, by written
request to the Indenture Trustee, obtain access to the list of all Note Owners
of such series maintained by the Indenture Trustee for the purpose of
communicating with other such Note Owners with respect to their rights under the
Indenture. The Indenture Trustee may elect not to afford the requesting Note
Owners access to the list of Note Owners if it agrees to mail the desired
communication or proxy, on behalf of the requesting Note Owners, to all Note
Owners.
Annual Compliance Statement
The related Issuer will be required to file annually with the Indenture
Trustee a written statement as to the fulfillment of its obligations under the
Indenture.
Indenture Trustee's Annual Report
The Indenture Trustee will be required to mail each year to all Owners
of Notes a brief report relating to its eligibility and qualifications to
continue as the Indenture Trustee under the Indenture, any amounts advanced by
it under the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the related Issuer to it in the Indenture Trustee's
individual capacity, the property and funds physically held by the Indenture
Trustee as such, any release, or release and substitution, of property subject
to the lien of the Indenture that has not been previously reported, any
additional series of Notes not previously reported and any action taken by it
which materially affects the Notes and which has not been previously reported.
Satisfaction and Discharge of Indenture
The Indenture will be discharged with respect to the assets securing
the Notes of a series upon the delivery to the Indenture Trustee for
cancellation of all of the Notes of such series or, with certain limitations,
upon deposit with the Indenture Trustee of funds sufficient for the payment in
full of all of the Notes of such series.
Redemption of Notes
To the extent provided in the related Prospectus Supplement, the Notes
of any series may be (i) redeemed at the request of holders of such Notes; (ii)
redeemed at the option of the related Issuer or another party specified in the
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related Prospectus Supplement; or (iii) subject to special redemption under
certain circumstances. The circumstances and terms under which the Notes of a
series may be redeemed will be described in the related Prospectus Supplement.
Reports by Indenture Trustee to Note Owners
On each Payment Date, the Indenture Trustee will send a report to each
Note Owner setting forth, among other things, the amount of such payment
representing interest, the amount thereof, if any, representing principal and
the outstanding principal amount of an individual Note after giving effect to
the payments made on such Payment Date.
Limitation on Suits
Unless otherwise specified in the Prospectus Supplement relating to a
given series of Notes, no Note Owners of any series will have any right to
institute any proceedings with respect to the Indenture unless (1) such holder
has previously given written notice to the Indenture Trustee of a continuing
Note Event of Default with respect to such series; (2) the holders of a majority
of the principal amount of the Notes of such series then outstanding have made
written requests to the Indenture Trustee to institute proceedings in respect to
such Note Event of Default in its own name as Indenture Trustee; (3) such
holders have offered to the Indenture Trustee reasonable indemnity satisfactory
to it against the costs, expenses and liabilities to be incurred in compliance
with such request; (4) for a specified period after its receipt of such notice,
request and offer of indemnity the Indenture Trustee has failed to institute any
proceedings; and (5) no direction inconsistent with such written request has
been given to the Indenture Trustee during such period by the holders of not
less than a majority in principal amount of the Notes of such series then
outstanding.
The Sale and Servicing Agreement
General. The conveyance and servicing of the Mortgage Loans related to
the issuance of a Series of Notes will be pursuant to a Sale and Servicing
Agreement to be entered into between the Issuer, the Seller, the Servicer, the
Depositor and the Indenture Trustee (a "Sale and Servicing Agreement"). Where
provisions or terms used in a particular Sale and Servicing Agreement differ
from those provided herein, a description of such provisions or terms will be
included in the related Prospectus Supplement.
Assignment of Mortgage Assets. The Mortgage Loans to be included in the
related Trust will be assigned to the Indenture Trustee on behalf of the holders
of the Notes pursuant to provisions included in the related Sale and Servicing
Agreement that are substantially the same as and the Indenture Trustee with
respect to the Mortgage Loans so conveyed will be substantially similar to,
those described under "The Pooling and Servicing Agreement -- Assignment of
Mortgage Assets" herein.
Evidence as to Compliance. The Indenture Trustee will receive an
opinion from a firm of independent public accountants regarding the servicing of
the Mortgage Loans which is substantially the same as described under "The
Pooling and Servicing Agreement -- Evidence as to Compliance" herein.
The Indenture Trustee. The Indenture Trustee will be subject to rights
and duties under the Sale and Servicing Agreement substantially the same as
those of the Trustee described under "The Pooling and Servicing Agreement -- The
Trustee."
Administration of the Security Account. The Sale and Servicing
Agreement will require that a Security Account be maintained and used in
substantially the same manner as described under "The Pooling and Servicing
Agreement -- Administration of the Security Account."
Reports. The Sale and Servicing Agreement will provide that holders of
the Notes will receive reports substantially the same as those described under
"The Pooling and Servicing Agreement -- Reports."
Forward Commitments; Pre-Funding. Under the Sale and Servicing
Agreement, the Indenture Trustee of a Trust may enter into Subsequent Transfer
Agreements for the transfer of additional Mortgage Loans to such Trust following
the date on which such Trust is established and the related Notes are issued in
substantially the same manner as described under "The Pooling and Servicing
Agreement -- Forward Commitments; Pre-Funding."
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Servicer Events of Default. The "Events of Default" under the Sale and
Servicing Agreement will be substantially the same as those described under "The
Pooling and Servicing Agreement -- Servicer Events of Default."
Rights Upon Servicer Event of Default. The rights upon an Event of
Default under the Sale and Servicing Agreement will be substantially the same as
described under "The Pooling and Servicing Agreement -- Rights Upon Servicer
Event of Default."
USE OF PROCEEDS
Substantially all the net proceeds to be received from the sale of each
series of Securities will be applied to the simultaneous purchase of the
Mortgage Assets related to such series (or to reimburse the amounts previously
used to effect such a purchase), the costs of carrying such Mortgage Assets
until sale of the Securities and to pay other expenses.
THE DEPOSITOR
The Depositor will have no ongoing servicing obligations or
responsibilities with respect to any Mortgage Assets or Contracts. The Depositor
does not have, nor is it expected in the future to have, any significant net
worth.
The Depositor anticipates that it will acquire Mortgage Assets in the
open market or in privately negotiated transactions, which may be through or
from an affiliate. The Depositor will not receive any fees or other commissions
in connection with its acquisition of Mortgage Assets or its sale of such
Mortgage Assets to the Trust.
Neither the Depositor nor any of its affiliates will insure or
guarantee the Securities of any series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing contracts which are general in nature.
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 Mortgage Loans and Contracts is situated.
The summaries are qualified in their entirety be reference to the applicable
federal and state laws governing the Mortgage Loans and Contracts.
General
Mortgages. The Mortgage Loans will be secured either by deeds of trust
or mortgages. A mortgage creates a lien upon the real property encumbered by the
mortgage. It is not prior to liens for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order of
filing with a state or county office. There are two parties to a mortgage: the
mortgagor, who is the borrower and homeowner or the land trustee (as described
below), 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-homeowner 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 and generally with a
power of sale, to the trustee to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, the express provisions of the deed of trust and, in some
cases, the directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans.
The private, non-profit, cooperative apartment corporation owns all the real
property that comprises the project, including the land, separate dwelling units
and all common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the cooperative apartment
building and or underlying land, as is generally the case, the cooperative, as
project mortgagor, is also responsible for meeting these mortgage obligations. A
blanket mortgage is ordinarily incurred by the cooperative in connection with
the construction or purchase of the cooperative's apartment building. The
interest of the occupant under proprietary leases
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or occupancy agreements to which that cooperative is a party are generally
subordinate to the interest of the holder of the blanket mortgage in that
building. If the cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements. In addition, the blanket mortgage on a cooperative may
provide financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or in the case of a Trust including
Cooperative Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a cooperative must
make a monthly payment to the cooperative representing such tenant-stockholder's
pro rata share of the cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a cooperative and accompanying occupancy rights is
financed through a cooperative share loan evidenced by a promissory note and
secured by a security interest in the occupancy agreement or proprietary lease
and in the related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the cooperative shares is filed in the appropriate state and local offices
to perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares.
Timeshare Units. Because timeshare interests are considered to be
interests in real property, the manner and method of obtaining and enforcing a
security interest in a timeshare estate is similar to the methods used in other
real property lending transactions. The timeshare units comprising Mortgage
Loans are either mortgages or deeds of trust or other instruments under
applicable state law creating a first lien on the timeshare estate securing the
related Mortgage Note, depending upon the prevailing practice in the state in
which the timeshare estate is located. A mortgage creates a lien upon the
timeshare estate, which lien is generally not prior to liens for real estate
taxes and assessments. Priority between mortgages depends on their terms and
generally on the order of filing with a state or county office.
Foreclosure
Mortgages. Foreclosure of a deed of trust is generally accomplished by
a non-judicial trustee's sale under a specific provision in the deed of trust
that authorizes the trustee to sell the property to a third party upon any
default by the borrower under the terms of the note or deed of trust. In some
states, the trustee must record a notice of default and send a copy to the
borrower-trustor and any person who has recorded a request for a copy of a
notice of default and notice of sale. In addition, the trustee must provide
notice in some states to any other individual having an interest in the real
property, including any junior lienholders. The borrower, or any other person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the 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. 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
defendant. Judicial foreclosure proceedings are often not protested by any of
the parties defendant. However, when the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be time
consuming. After the completion of judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other court officer
to conduct the sale of the property.
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In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and expenses of foreclosure. Thereafter, the
lender will assume the burdens of ownership, including paying real estate taxes,
obtaining casualty 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 insurance proceeds.
When the junior mortgagee or beneficiary under a junior deed of trust
cures the default and state law allows it to reinstate or redeem by paying the
full amount of the senior mortgage or deed of trust, then in those states the
amount paid so to cure or redeem generally becomes a part of the indebtedness
secured by the junior mortgage or deed of trust. See "Junior Liens; Rights of
Senior Mortgagors or Beneficiaries" below.
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the trustee
confers, in most states, legal title to the real property to the purchaser, free
of all junior mortgages or deeds of trust and free of all other liens and claims
subordinate to the mortgage or deed of trust under which the sale is made (with
the exception of certain governmental liens). The purchaser's title is, however,
subject to all senior liens, encumbrances and mortgages and may be subject to
mechanic's and materialman's liens in some states. Thus, if the mortgage or deed
of trust being foreclosed is a junior mortgage or deed of trust, the sheriff or
trustee will convey title to the purchaser of the real property, subject to any
existing first mortgage or deed of trust and any other prior liens and claims.
The foreclosure of a junior mortgage or deed of trust, generally, will have an
effect on the first mortgage or deed of trust, if the senior mortgage or deed of
trust grants to the senior mortgagee or beneficiary the right to accelerate its
indebtedness under a "due-on-sale" clause or "due on further encumbrance" clause
contained in the senior mortgage or deed of trust. See "Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
The proceeds received by the sheriff or trustee from the sale are
applied pursuant to the terms of the deed of trust, which may require
application first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. In some states, any surplus money remaining may be
available to satisfy claims of the holders of junior mortgages or deeds of trust
and other junior liens and claims in order of their priority, whether or not the
mortgagor or trustor is in default, while in some states, any surplus money
remaining may be payable directly to the mortgagor or trustor. Any balance
remaining is generally payable to the mortgagor or trustor. Following the sale,
in some states the mortgagee or beneficiary following a foreclosure of a
mortgage or deed of trust may not obtain a deficiency judgment against the
mortgagor or trustor. A junior lienholder whose rights in the property are
terminated by the foreclosure by a senior lienholder will not share in the
proceeds from the subsequent disposition of the property.
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative's certificate of
incorporation and bylaws, as well as the proprietary lease or occupancy
agreement, and may be canceled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owned by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. The proprietary lease or occupancy
agreement generally permits the cooperative to terminate such lease or agreement
in the event an obligor fails to make payments or defaults in the performance of
covenants required thereunder. Typically, the lender and the cooperative enter
into a recognition agreement which establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against
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proceeds from a sale of the cooperative apartment, subject, however, to the
cooperative's right to sums due under such proprietary lease or occupancy
agreement. The total amount owed to the cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not monitor, could reduce
the value of the collateral below the outstanding principal balance of the
cooperative loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those shares.
Article 9 of the UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a foreclosure sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. The recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to the right of the
cooperative corporation to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible for
the deficiency. See "Anti- Deficiency Legislation and Other Limitations on
Lenders" below.
Junior Liens; Rights of Senior Mortgagees or Beneficiaries. Certain of
the Mortgage Loans, including Title I Loans, may be secured by mortgages or
deeds of trust providing for junior (i.e., second, third, etc.) liens on the
related Mortgaged Properties which are junior to the other mortgages or deeds of
trust held by other lenders or institutional investors. The rights of the
beneficiary under a junior deed of trust or as mortgagee under a junior mortgage
are subordinate to those of the mortgagee or beneficiary under the senior
mortgage or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the Mortgage Loans to be sold upon default of the
mortgagor or trustor. As discussed more fully below, a junior mortgagee or
beneficiary in some states 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 senior mortgage or deed of trust, no notice of
default is required to be given to a junior mortgagee or beneficiary.
The forms of the mortgage or deed of trust used by most institutional
lenders generally confer on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply such proceeds
and awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary 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 the underlying first mortgage or deed of trust may 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 first mortgage or deed of trust. In
those situations, proceeds in excess of the amount of first mortgage
indebtedness generally may be applied to the indebtedness of a junior mortgage
or trust deed.
Other provisions typically found in the form of the mortgagee or deed
of trust generally used by most institutional lenders obligate the mortgagor or
trustor 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 or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary typically is given the
right under the mortgage or deed of trust to perform the obligation itself at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or beneficiary on behalf
of the trustor. All sums so expended by the mortgagee or beneficiary generally
become part of the indebtedness secured by the mortgage or deed of trust
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Right 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 following
foreclosure. 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 is to diminish the ability of the lender to sell the foreclosed
property. The rights 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.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory prohibitions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. 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.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial 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 judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan. Federal bankruptcy law and limited case law indicate that the foregoing
modifications could not be applied to the terms of a loan secured by property
that is the principal residence of the debtor.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. 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. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the law. In some cases, this liability may affect assignees of the mortgage
loans.
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
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Enforceability of Certain Provisions.
Certain of the Mortgage Loans will contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of a loan if the borrower sells,
transfers or conveys the property. The enforceability of these clauses was the
subject of legislation or litigation in many states, and in some cases the
enforceability of these clauses was limited or denied. However, the Garn-St.
Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act")
preempts state constitutional, statutory and case law prohibiting the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. 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.
The Garn-St. Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St. Germain Act (including federal
savings and loan associations and federal savings banks) may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St. Germain Act by the
Federal Home Loan Bank Board as succeeded by the Office of Thrift Supervision
(the "OTS"), also prohibit the imposition of a prepayment penalty upon the
acceleration of a loan pursuant to a due-on-sale clause. Any inability of the
Depositor to enforce due-on-sale clauses may affect the average life of the
Mortgage Loans and the number of Mortgage Loans that may be outstanding until
maturity.
Upon foreclosure, courts have imposed general equitable principles.
These 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 requirements that the lender undertake
affirmative and expensive actions to determine the causes for 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 the lender to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower falling to adequately maintain the property or the borrower
executing a second mortgage or deed of trust 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 deeds of trust or mortgages receive notices in
addition to the statutory-prescribed minimum. 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, or under a mortgage having a power of
sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
The standard forms of note, mortgage and deed of trust generally
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 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. Under the Agreement, late charges (to the extent permitted by law and
not waived by the Servicer) will be retained by the Servicer as additional
servicing compensation.
Adjustable Rate Loans. The laws of certain states may provide that
mortgage notes relating to adjustable rate loans are not negotiable instruments
under the UCC. In such event, the Trustee will not be deemed to be a "holder in
due course," within the meaning of the UCC and may take such a mortgage note
subject to certain restrictions on its ability to foreclose and to certain
contractual defenses available to a mortgagor.
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Environmental Legislation. Certain states impose a statutory lien for
associated costs on property that is the subject of a cleanup action by the
state on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien will generally have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens including the lien of a mortgage. In
addition, under federal environmental legislation and under state law in a
number of states, a secured party which takes a deed in lieu of foreclosure or
acquires a mortgaged property at a foreclosure sale or assumes active control
over the operation or management of a property so as to be deemed an "owner" or
"operator" of the property may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender (such as a Trust) to
homeowners. In the event that title to a Mortgaged Property securing a Mortgage
Loan in a Trust was acquired by the Trust and cleanup costs were incurred in
respect of the Mortgaged Property, the Trust might realize a loss if such costs
were required to be paid by the Trust.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act, a borrower who enters military service after the origination of a Mortgage
Loan or Contract by such borrower (including a borrower who is a member of the
National Guard or is in reserve status at the time of the origination of the
Mortgage 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 or similar limitations under state
law could have an effect, for an indeterminate period of time, on the ability of
the Servicer to collect full amounts of interest on certain of the Mortgage
Loans. In addition, the Relief Act imposes limitations which would impair the
ability of the Servicer to foreclose on an affected Mortgage Loan during the
borrower's period of active duty status. Thus, in the event that such a Mortgage
Loan goes into default there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely fashion.
Any shortfalls in interest collections resulting from application of
the Relief Act could adversely affect Securities.
The Contracts
General. As a result of the Depositor's assignment of the Contracts,
the Owners will succeed collectively to all the rights (including the right to
receive payment on the Contracts) and will assume certain obligations of the
Depositor. Each Contract evidences both (a) the obligation of the obligor to
repay the loan evidenced thereby, and (b) the grant of a security interest in
the Manufactured Home to secure repayment of such loans. Certain aspects of both
features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the UCC in
effect in the states which the Manufactured Homes initially were registered.
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 Agreement, the
Depositor will transfer physical possession of the Contracts to the Trustee or,
if applicable, the Indenture Trustee or its custodians. 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
and, if applicable, the Indenture Trustee's security interest. The Contracts
will not be stamped or marked otherwise to reflect their assignment by the
Depositor. Therefore, if a subsequent purchaser were able to take physical
possession of the Contracts without notice of such assignment the Trustee's and,
if applicable, the Indenture Trustee's and, if applicable, the Indenture
Trustee's interest in Contracts could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Contracts may be located in all 50 states. Security interests in
manufactured homes may be perfected either by notation of the secured party's
lien on the certificate of title or by delivery of the required documents and
payment of a fee to the state motor vehicle authority, depending on state law.
In some nontitle states, perfection pursuant to the provisions of the UCC is
required. The Depositor may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of title, as
appropriate under the laws of the state in which any manufactured home securing
a manufactured housing conditional sales contract is registered. In the event
the Depositor fails, due to clerical errors, to effect such notation or
delivery, or files the security interest under the wrong law (for example, under
a motor vehicle title statute rather than under the UCC, in a few states), the
Trustee may not have a first priority security interest in the Manufactured Home
securing a Contract. As manufactured homes have become larger and often have
been attached to their sites without any apparent intention to move them, courts
in many states have held that manufactured homes,
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under certain circumstances, may become subject to real estate title and
recording laws. As a result, a security interest in a manufactured home could be
rendered subordinate to the interests of other parties claiming an interest in
the home under applicable state real estate law. In order to perfect a security
interest in a manufactured home under real estate law, the holder of the
security interest must file either a "fixture filing" under the provisions of
the UCC or a real estate mortgage under the real estate laws of the state where
the home is located. These filings must be made in the real state records office
of the county where the home is located. So long as the borrower does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest in
the Manufactured Home. If, however, a Manufactured Home is permanently attached
to this site, other parties could obtain an interest in the Manufactured Home
which is prior to the security interest transferred to the Trustee. With respect
to a series of Securities and as described in the related Prospectus Supplement,
the Depositor may be required to perfect a security interest in the Manufactured
Home under applicable real estate laws. If such real estate filings are not
required and if any of the foregoing events were to occur, the only recourse
would be to pursue the Trust's rights to require repurchase for breach of
warranties.
The Depositor will assign its security interest in the Manufactured
Homes. Neither the Depositor nor the Trustee or, if applicable, Indenture
Trustee will amend the certificates of title to identify a new secured party.
Accordingly, the Depositor or the Seller will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of title
and the new secured party succeeds to the rights of the secured party. However,
in some states there exists a risk that, in the absence of an amendment to the
certificate of title, such assignment of the security interest might not be held
effective against creditors of the Depositor or the Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien on the certificate
of title or delivery of the required documents and fees will be sufficient to
protect against the rights of subsequent purchasers of a Manufactured Home or
subsequent lenders who take a security interest in the Manufactured Home. If
there are any Manufactured Homes as to which the security interest is not
perfected, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying a new secured
party on the certificate of title that, through fraud or negligence, the
security interest could be released.
Enforcement of Security Interests in Manufactured Homes. The Servicer,
to the extent required by the related Agreement, may take action to enforce the
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such Contracts in default. So long as
the Manufactured Home has not become subject to the real estate law, a creditor
can repossess a Manufactured Home 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 so that the debtor may
redeem at or before such resale. In the event of such repossession and resale of
a Manufactured Home, the Trustee would be entitled to be paid out of the sale
proceeds before such proceeds could be applied to the payment of the claims of
unsecured creditors or the holders of subsequently perfected security interests
or, thereafter, to the debtor.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws of
most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter only if and after
the owner registers the Manufactured Home in such state. If the owner were to
relocate a Manufactured Home to another state and not re-register the
Manufactured Home in such state, and if steps are not taken to re-perfect the
security interest in such state, the security interest would cease to be
perfected. A majority of states generally requires surrender of a certificate of
title to re- register a Manufactured Home; accordingly, the Trustee or, if
applicable, the Indenture Trustee, must surrender possession if it holds the
certificate of title to such Manufactured Home or, in the case of Manufactured
Homes registered in states which provide for notation of lien, notice of
surrender would be given if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the there would be an
opportunity to re-perfect the security interest in the Manufactured Home in the
state of relocation. In states which do not require a certificate of
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title for registration of a Manufactured Home, re-registration could defeat
perfection. In the ordinary course of servicing the manufactured housing
conditional sales contracts, the Servicer will be required to take steps to
effect such re- perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly, when an obligor under
a manufactured housing conditional sales contract sells a Manufactured Home,
possession of the certificate of title must be surrendered or notice will be
received as a result of the lien noted thereon and accordingly there will be an
opportunity to require satisfaction of the related manufactured housing
conditional sales contract before release of the lien. Under each Agreement the
Servicer is obligated to take such steps, at the Servicer's expense, as are
necessary to maintain perfection of security interests in the Manufactured
Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will represent in the Agreement that it has no knowledge of any such
liens with respect to any Manufactured Home securing payment on any Contract.
Nevertheless, such liens could arise at any time during the term of a Contract.
No notice will be given in the event such a lien arises.
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 Manufactured Home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
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 against such obligor. Numerous other federal and state consumer
protection laws impose requirements applicable to the origination of 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.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale"
Clauses. The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without consent and permit the acceleration of the maturity
of the Contracts upon any such sale or transfer for which consent has not been
granted. In certain cases, the transfer may be made by a delinquent obligor in
order to avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the
Servicer desires to accelerate the maturity of the related Contract, the
Servicer's ability to do so will depend on the enforceability under state law of
the "due-on-sale" clause. The Garn-St. Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. Consequently, in some states the
Servicer may be prohibited from enforcing a "due-on-sale" clause in respect of
certain Manufactured Homes.
The Title I Program
Certain of the Mortgage Loans or Contracts contained in a Trust 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.
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The types of Title I loans, legal requirements, payment terms,
underwriting standards, eligibility requirements, insurance coverage and claims
proceeds related thereto shall be set forth in the related Prospectus
Supplement.
LEGAL INVESTMENT MATTERS
Unless otherwise set forth in the related Prospectus Supplement,
Securities of any series will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are rated by a Rating Agency in one of its two highest categories
and, as such, will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including,
but not limited to, state-chartered savings banks, commercial banks, savings and
loan associations and insurance companies, as well as trustees and state
government employee retirement systems) 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
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for 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," the Securities will constitute legal
investments for entities subject to such legislation only to the extent provided
in such legislation. Certain States have enacted legislation which overrides the
preemption provisions of SMMEA.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings bank may invest in, sell or otherwise deal with
mortgage-related 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 mortgage-related securities 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 regulatory authority may
prescribe.
The Federal Financial Institution Examination Counsel has adopted the
"Supervisory Policy Statement on Securities Activities" (the "Policy
Statement"), applicable to all depository institutions, setting forth guidelines
for and significant restrictions on investments in "high-risk mortgage
securities." The Policy Statement has been adopted by the Federal Reserve Board,
the Office of the Comptroller of the Currency, the FDIC and the OTS with an
effective date of February 10, 1992, as revised April 15, 1994. The Policy
Statement generally indicates that a mortgage derivative product will be deemed
to be high risk if it exhibits greater price volatility than a standard fixed
rate thirty-year mortgage security. According to the Policy Statement, prior to
purchase, a depository institution will be required to determine whether a
mortgage derivative product that it is considering acquiring is high-risk, and
if so that the proposed acquisition would reduce the institution's overall
interest rate risk. Reliance on analysis and documentation obtained from a
securities dealer or other outside party without internal analysis by the
institution would be unacceptable. There can be no assurance as to which classes
of the Securities of any series will be treated as high-risk under the Policy
Statement. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which prohibit investment
in certain specified types of securities, which may include certain classes of
Securities. Similar policy statement have been issued by regulators having
jurisdiction over other types of depository institutions.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Securities or to purchase any class of
Securities representing more than a specified percentage of the investors'
assets. The Depositor will make no representations as to the proper
characterization of any class of Securities for legal investment or other
purposes, or as to the ability of particular investors to purchase any class of
Securities under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Securities. Accordingly, all
investors whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
should consult with their own legal advisors in determining whether and to what
extent the Securities of any class constitute a legal investment under SMMEA or
are subject to investment, capital or other restrictions, and whether SMMEA has
been overridden in any jurisdiction applicable to such investor.
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ERISA CONSIDERATIONS
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. 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). 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.
The United States Department of Labor (the "DOL") has issued
regulations concerning the definition of what constitutes the assets of a Plan.
(DOL 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. In such case, the
fiduciary making such an investment for the Plan could be deemed to have
delegated his or her asset management responsibility, and the underlying assets
and properties could be subject to ERISA reporting and disclosure. Certain
exceptions to the regulation may apply in the case of a Plan's investment in the
Securities, but the Depositor cannot predict in advance whether such exceptions
apply due to the factual nature of the conditions to be met. Accordingly,
because the Mortgage Loans and Contracts may be deemed Plan assets of each Plan
that purchases Securities, an investment in the Securities by a Plan might give
rise to a prohibited transaction under ERISA Sections 406 and 407 and be subject
to an excise tax under Code Section 4975 unless a statutory or administrative
exemption applies.
DOL Prohibited Transaction Exemption 83-1 ("PTE 83-1") exempts from
ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage 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 involving 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 PTE.
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 Owners 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 sponsor and (iii) a limitation on the amount of the
payments 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.
Although the Trustee and, if applicable, the Indenture Trustee for any
series of Securities will be unaffiliated with the Depositor, there can be no
assurance that the system of insurance or subordination will meet the general or
specific conditions referred to above. In addition, the nature of a Trust's
assets or the characteristics of one or more classes of the related series of
Securities may not be included within the scope of PTE 83-1 or any other class
exemption under ERISA. The Prospectus Supplement will provide additional
information with respect to the application of ERISA and the Code to the related
Securities.
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transactions exemptions which are in some respects
broader than PTE 83-1. Such exemptions can only apply to mortgage-backed
securities which, among other conditions, are sold in an offering with respect
to which such underwriter serves as the sole or a managing underwriter, or as a
selling or placement agent. Several other underwriters have applied for similar
exemptions. If such an exemption might be applicable to a series of Securities,
the related Prospectus Supplement will refer to such possibility.
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Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Securities must
make its own determination as to whether the general and the specific conditions
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.
Any Plan proposing to invest in Securities should consult with its
counsel to confirm that such investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA and the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is based upon the opinion of Arter & Hadden LLP special
counsel to the Depositor ("Special Counsel"), with respect to the material
federal income tax consequences of the purchase, ownership and disposition of
Securities and is based upon the advice of Special Counsel. The discussion below
does not purport to address all federal income tax consequences that may be
applicable to particular categories of investors, some of which may be subject
to special rules. The authorities on which this discussion is based are subject
to change or differing interpretations, and any such change or interpretation
could apply retroactively. This discussion reflects the applicable provisions of
the Code, as well as final regulations concerning REMICs (the "REMIC
Regulations") and final regulations under Sections 1271 through 1273 and 1275 of
the Code concerning debt instruments (the "OID Regulations"). The Depositor
intends to rely on the OID Regulations for all Securities offered pursuant to
this Prospectus; however, investors should be aware that the OID Regulations do
not adequately address certain issues relevant to prepayable securities, such as
the Securities. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of Securities. The Prospectus Supplement for
each series of Securities will discuss any special tax consideration applicable
to any class of Securities of such series, and the discussion below is qualified
by any such discussion in the related Prospectus Supplement.
For purposes of this opinion, where the applicable Prospectus
Supplement provides for a fixed retained yield with respect to the Mortgage
Assets underlying a series of Securities, references to the Mortgage Assets will
be deemed to refer to that portion of the Mortgage Assets held by the Trust
which does not include the fixed retained yield.
REMIC Securities
General. With respect to a particular series of Securities, an election
may be made to treat the Trust or one or more trusts or segregated pools of
assets therein as one or more REMICs within the meaning of Code Section 860D. A
Trust or a portion or portions thereof as to which one or more REMIC elections
will be made will be referred to as a "REMIC Pool." For purposes of this
discussion, Securities of a series as to which one or more REMIC elections are
made are referred to as "REMIC Securities" and will consist of one or more
classes of "Regular Securities" and one class of "Residual Securities" in the
case of each REMIC Pool. Qualification as a REMIC requires ongoing compliance
with certain conditions. With respect to each series of REMIC Securities,
Special Counsel has advised the Depositor that in their opinion, assuming (i)
the making of an appropriate election, (ii) compliance with the Agreement and
(iii) compliance with any changes in the law, including any amendments to the
Code or applicable Treasury regulations thereunder, each REMIC Pool will qualify
as a REMIC and that, if a Trust qualifies as a REMIC, the tax consequences to
the Owners will be as described below. In such case, the Regular Securities will
be considered to be "regular interests" in the REMIC Pool and generally will be
treated for federal income tax purposes as if they were newly originated debt
instruments, and the Residual Securities will be considered to be "residual
interests" in the REMIC Pool. The Prospectus Supplement for each series of
Securities will indicate whether one or more REMIC elections with respect to the
related Trust will be made, in which event references to "REMIC" or "REMIC Pool"
herein shall be deemed to refer to each such REMIC Pool.
Status of REMIC Securities. REMIC Securities held by a mutual savings
bank or a domestic building and loan association (a "Thrift Institution") will
constitute "qualifying real property loans" within the meaning of Code Section
593(d)(1) in the same proportion that the assets of the REMIC Pool would be so
treated. REMIC Securities held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a) (19)(C) (xi) in the same proportion that the assets of the
REMIC Pool would be treated as "loans secured by an interest in real property"
within the meaning of Code Section 7701(a)(19)(C)(v) or as other assets
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described in Code Section 7701(a)(19)(C). REMIC Securities held by a real estate
investment trust (a "REIT") will constitute "real estate assets" within the
meaning of Code Section 856(c)(5)(A), and interest on the REMIC Securities will
be considered "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section 856(c)(3)(B)
in the same proportion that, for both purposes, the assets of the REMIC Pool
would be so treated. If at all times 95% or more of the assets of the REMIC Pool
constitute qualifying assets for Thrift Institutions and REITs, the REMIC
Securities will be treated entirely as qualifying assets for such entities.
Moreover, the REMIC Regulations provide that, for purposes of Code Sections
593(d)(1) and 856(c)(5)(A), payments of principal and interest on the Mortgage
Assets that are reinvested pending distribution to holders of REMIC Securities,
constitute qualifying assets for such entities. Where two REMIC Pools are part
of a tiered structure they will be treated as one REMIC for purposes of the
tests described above respecting asset ownership of more or less than 95%.
Notwithstanding the foregoing, however, REMIC income received by a REIT owning a
residual interest in a REMIC Pool could be treated in part as non-qualifying
REIT income if the REMIC Pool holds Mortgage Assets with respect to which income
is contingent on mortgagor profits or property appreciation. In addition, if the
assets of the REMIC include buy-down Mortgage Assets, it is possible that the
percentage of such assets constituting "qualifying real property loans" or
"loans secured by an interest in real property" for purposes of Code Sections
593(d)(1) and 7701(a)(19)(C)(v), respectively, may be required to be reduced by
the amount of the related buy-down funds. REMIC Securities held by a regulated
investment company will not constitute "government securities" within the
meaning of Code Section 851(b)(4)(A)(i). REMIC Securities held by certain
financial institutions will constitute an "evidence of indebtedness" within the
meaning of Code Section 582(c)(i). REMIC Securities representing interests in
obligations secured by manufactured housing treated as single family residences
under Code Section 25(e)(10) will be considered interests in "qualified
mortgages" as defined in Code Section 860E(a)(3).
Qualification as a REMIC. In order for the REMIC Pool to qualify as a
REMIC, there must be ongoing compliance on the part of the REMIC Pool with the
requirements set forth in the Code. The REMIC Pool must fulfill an asset test,
which requires that no more than a de minimis amount of the assets of the REMIC
Pool, as of the close of the third calendar month beginning after the Delivery
Date (which for purposes of this discussion is the date of issuance of the REMIC
Securities) and at all times thereafter, may consist of assets other than
"qualified mortgages" and "permitted investments." The REMIC Regulations provide
a "safe harbor" pursuant to which the de minimis requirement will be met if at
all times the aggregate adjusted basis of any nonqualified assets (i.e., assets
other than qualified mortgages and permitted investments) is less than 1% of the
aggregate adjusted basis of all the REMIC Pool's assets.
If a REMIC Pool fails to comply with one or more of the requirements of
the Code for REMIC status during any taxable year, the REMIC Pool will not be
treated as a REMIC for such year and thereafter. In this event, the
classification of the REMIC Pool for federal income tax purposes is uncertain.
The REMIC Pool might be entitled to treatment as a grantor trust under the rules
described in "Non-REMIC Securities." In that case, no entity-level tax would be
imposed on the REMIC Pool. Alternatively, the Regular Securities may continue to
be treated as debt instruments for federal income tax purposes; but the REMIC
Pool could be treated as a taxable mortgage pool (a "TMP"). If the REMIC Pool is
treated as a TMP, any residual income of the REMIC Pool (income from the
Mortgage Assets less interest and original issue discount expense allocable to
the Regular Securities and any administrative expenses of the REMIC Pool) would
be subject to corporate income tax at the REMIC Pool level. On the other hand,
an entity with multiple classes of ownership interests may be treated as a
separate association taxable as a corporation under Treasury regulations, and
the Regular Securities may be treated as equity interests therein. The Code,
however, authorizes the Treasury Department to issue regulations that address
situations where failure to meet one or more of the requirements for REMIC
status occurs inadvertently and in good faith, and disqualification of the REMIC
Pool would occur absent regulatory relief. Investors should be aware, however,
that the Conference Committee Report to the Tax Reform Act of 1986 (the "1986
Act") indicates that the relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC Pool's income for
the period of time in which the requirements for REMIC status are not satisfied.
Taxation of Regular Securities
General. Payments received by holders of Regular Securities generally
should be accorded the same tax treatment under the Code as payments received on
ordinary taxable corporate debt instruments. In general, interest, original
issue discount and market discount on a Regular Security will be treated as
ordinary income to a holder of the Regular Security (the "Regular
Securityholder") as they accrue, and principal payments on a Regular Security
will be treated as a return of capital to the extent of the Regular
Securityholder's basis in the Regular Security allocable thereto.
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Regular Securityholders must use the accrual method of accounting with regard to
Regular Securities, regardless of the method of accounting otherwise used by
such Regular Securityholders.
Original Issue Discount. Regular Securities may be issued with
"original issue discount" within the meaning of Code Section 1273(a). Holders of
any class of Regular Securities having original issue discount generally must
include original issue discount in ordinary income for federal income tax
purposes as it accrues, in accordance with a constant interest method that takes
into account the compounding of interest, in advance of receipt of the cash
attributable to such income. While the Depositor anticipates that the amount of
original issue discount required to be included in a Regular Securityholder's
income in any taxable year will be computed as described below, there can be no
assurance that the rules described below will be applied to the Regular
Securities in the manner described.
Each Regular Security (except to the extent described below with
respect to a Regular Security on which distributions of principal are made in a
single installment or upon an earlier distribution by lot of a specified
principal amount upon the request of a Regular Securityholder or by random lot
(a "Retail Class Security")) will be treated as a single installment obligation
for purposes of determining the original issue discount includible in a Regular
Securityholder's income. The total amount of original issue discount on a
Regular Security is the excess of the "stated redemption price at maturity" of
the Regular Security over its "issue price." The issue price of a Regular
Security is the first price at which a substantial amount of Regular Securities
of that class are first sold to the public. The Depositor will determine
original issue discount by including the amount paid by an initial Regular
Securityholder for accrued interest that relates to a period prior to the issue
date of the Regular Security in the issue price of a Regular Security and will
include in the stated redemption price at maturity any interest paid on the
first Distribution Date to the extent such interest is attributable to a period
in excess of the number of days between the issue date and such first
Distribution Date. The stated redemption price at maturity of a Regular Security
always includes the original principal amount of the Regular Security, but
generally will not include distributions of stated interest if such interest
distributions constitute "qualified stated interest." Qualified stated interest
generally means stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at (i) a
single fixed rate, (ii) one or more qualified floating rates (as described
below), (iii) a fixed rate followed by one or more qualified floating rates,
(iv) a single objective rate (as described below) or (v) a fixed rate and an
objective rate that is a qualified inverse floating rate. 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. 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. Any
stated interest in excess of the qualified stated interest is included in the
stated redemption price at maturity. If the amount of original issue discount is
"de minimis" as described below, the amount of original issue discount is
treated as zero, and all stated interest is treated as qualified stated
interest. Distributions of interest on Regular Securities with respect to which
deferred interest will accrue may not constitute qualified stated interest, in
which case the stated redemption price at maturity of such Regular Securities
includes all distributions of interest as well as principal thereon. Moreover,
if the interval between the issue date and the first Distribution Date on a
Regular Security is longer than the interval between subsequent Distribution
Dates (and interest paid on the first Distribution Date is less than would have
been earned if the stated interest rate were applied to outstanding principal
during each day in such interval), the stated interest distributions on such
Regular Security technically do not constitute qualified stated interest. In
such case a special rule, applying solely for the purpose of determining whether
original issue discount is de minimis, provides that the interest shortfall for
the long first period (i.e., the interest that would have been earned if
interest had been paid on the first Distribution Date for each day the Regular
Security was outstanding) is treated as made at a fixed rate if the value of the
rate on which the payment is based is adjusted in a reasonable manner to take
into account the length of the interval. Regular Securityholders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a Regular Security.
Under a de minimis rule, original issue discount on a Regular Security
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Security multiplied by
the weighted average maturity of the Regular Security. For this purpose, the
weighted maturity of the Regular 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 Regular Security and the denominator of
which is the stated redemption price at maturity of the Regular Security.
Although currently unclear, it appears that the schedule of such distributions
should be determined
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in accordance with the assumed rate of prepayment of the Mortgage Assets and the
anticipated reinvestment rate, if any, relating to the Regular Securities (the
"Prepayment Assumption"). The Prepayment Assumption with respect to a series of
Regular Securities will be set forth in the related Prospectus Supplement. The
holder of a debt instrument includes any de minimis original issue discount in
income pro rata as stated principal payments are received.
Of the total amount of original issue discount on a Regular Security,
the Regular Securityholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Security accrued during an accrual period for each
day on which he holds the Regular Security, including the date of purchase but
excluding the date of disposition. Although not free from doubt, the Depositor
intends to treat the monthly period ending on the day before each Distribution
Date as the accrual period, rather than the monthly period corresponding to the
prior calendar month. With respect to each Regular Security, a calculation will
be made of the original issue discount that accrues during each successive full
accrual period (or shorter period from the date of original issue) that ends on
the day before the related Distribution Date on the Regular Security. For a
Regular Security, original issue discount is to be calculated initially based on
a schedule of maturity dates that takes into account the level of prepayments
and an anticipated reinvestment rate that are most likely to occur, which is
expected to be based on the Prepayment Assumption. The original issue discount
accruing in a full accrual period would be the excess, if any, of (i) the sum of
(a) the present value of all of the remaining distributions to be made on the
Regular Security as of the end of that accrual period that are included in the
Regular Security's stated redemption price at maturity and (b) the distributions
made on the Regular Security during the accrual period that are included in the
Regular Security's stated redemption price at maturity over (ii) the adjusted
issue price of the Regular Security at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence is calculated based on (i) the yield to maturity of the Regular
Security at the issue date, (ii) events (including actual prepayments) that have
occurred prior to the end of the accrual period and (iii) the Prepayment
Assumption. For these purposes, the adjusted issue price of a Regular Security
at the beginning of any accrual period equals the issue price of the Regular
Security, increased by the aggregate amount of original issue discount with
respect to the Regular Security that accrued in all prior accrual periods and
reduced by the amount of distributions included in the Regular Security's stated
redemption price at maturity that were made on the Regular Security in such
prior period. The original issue discount accruing during any accrual period (as
determined in this paragraph) will then be divided by the number of days in the
period to determine the daily portion of original issue discount for each day in
the period.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Securityholder generally
will increase to take into account prepayments on the Regular Securities as a
result of prepayments on the Mortgage Assets or that exceed the Prepayment
Assumption, and generally will decrease (but not below zero for any period) if
the prepayments are slower than the Prepayment Assumption. In the event of a
change in circumstances that does not result in a substantially contemporaneous
pro rata prepayment, the yield and maturity of the Regular Securities are
redetermined by treating the Regular Securities as reissued on the date of the
change for an amount equal to the adjusted issue price of the Regular
Securities. To the extent specified in the applicable Prospectus Supplement, an
increase in prepayments on the Mortgage Assets with respect to a series of
Regular Securities can result in both a change in the priority of principal
payments with respect to certain classes of Regular Securities and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Securities.
A purchaser of a Regular Security at a price greater than the issue
price also will be required to include in gross income the daily portions of the
original issue discount on the Regular Security. With respect to such a
purchaser, the daily portion for any day is reduced by the amount that would be
the daily portion for such day (computed in accordance with the rules set forth
above) multiplied by a fraction, the numerator of which is the amount, if any,
by which the price paid by such purchaser for the Regular Security exceeds the
sum of the issue price and the aggregate amount of original issue discount that
would have been includible in the gross income of an original holder of the
Regular Security who purchased the Regular Security at its issue price, less any
prior distributions included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for such Regular Security
(computed in accordance with the rules set forth above) for all days after the
date of purchase and ending on the date on which the remaining principal amount
of such Regular Security is expected to be reduced to zero under the Prepayment
Assumption.
A Securityholder may elect to include in gross income all stated
interest, original issue discount, de minimis original issue discount, market
discount (as described below under "Market Discount"), de minimis market
discount and unstated interest (as adjusted for any amortizable bond premium or
acquisition premium) currently as it accrues using
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the constant yield to maturity method. If this election is made, the holder is
treated as satisfying the requirements for making the elections with respect to
amortization of premium and current inclusion of market discount, each as
described under "Premium" and "Market Discount" below.
Variable Rate Regular Securities. Regular Securities may provide for
interest based on a variable rate. The OID Regulations provide special rules for
variable rate instruments that meet three requirements. First, the noncontingent
principal payments may not exceed the instrument's issue price by more than a
specified amount equal to the lesser of (i) .015 multiplied by the product of
the total noncontingent payments and the weighted average maturity or (ii) 15%
of the total noncontingent principal payments. Second, the instrument must
provide for stated interest (compounded or paid at least annually) at (i) one or
more qualified floating rates, (ii) a single fixed rate followed by one or more
qualified floating rates, (iii) a single objective rate or (iv) a single fixed
rate and a single objective rate that is a qualified inverse floating rate.
Third, the instrument must provide that each qualified floating rate or
objective rate in effect during an accrual period is set at a current value of
that rate (one occurring in the interval beginning three months before and
ending one year after the rate is first in effect on the Regular Security). A
rate is a qualified floating rate if variations in the rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds. Generally, neither (i) a multiple of a qualified floating rate in excess
of a fixed multiple that is greater than zero but not more than 1.35 (and
increased or decreased by a fixed rate) nor (ii) a cap or floor that is likely
to cause the interest rate on a Regular Security to be significantly less or
more than the overall expected return on the Regular Security is considered a
qualified floating rate. An objective rate is a rate based on changes in the
price of actively traded property or an index of such prices or is a rate based
on (including multiples of) one or more qualified floating rates. An objective
rate is a qualified inverse floating rate if the rate is equal to a fixed rate
minus a qualified floating rate and variations in such rate can reasonably be
expected to reflect inversely contemporaneous variations in the cost of newly
borrowed funds. A rate will not be an objective rate if it is reasonably
expected that the average rate during the first half of the instrument's term
will be significantly more or less than the average rate in the final term. An
objective rate must be determined according to a single formula that is fixed
throughout the term of the Regular Security and that is based on objective
financial or economic information; however, an objective rate does not include a
rate based on information that is in the control of the issuer or that is unique
to the circumstances of a related party. Stated interest on a variable rate debt
instrument is qualified stated interest if the interest is unconditionally
payable in cash or property at least annually.
In general, the determination of original issue discount and qualified
stated interest on a variable rate debt instrument is made by converting the
debt instrument into a fixed rate debt instrument and then applying the general
original issue discount rules described above to the instrument. If a variable
rate debt instrument provides for stated interest at a single qualified floating
rate or objective rate, all stated interest is qualified stated interest and the
amount of original issue discount, if any, is determined by assuming the
variable rate is a fixed rate equal to (a) in the case of a qualified floating
or inverse floating rate, the value, as of the issue date, of the qualified
floating inverse floating rate or (b) in the case of an objective rate (other
than a qualified inverse floating rate), a fixed rate that reflects the yield
that is reasonably expected for the debt instrument. For all other variable rate
debt instruments, the amount of interest and original issue discount accruals
are determined using the following steps. First, a fixed rate substitute for
each variable rate under the debt instrument is determined. In general, the
fixed rate substitute is a fixed rate equal to the rate of the applicable type
of variable rate as of the issue date. Second, an equivalent fixed rate debt
instrument is constructed using the fixed rate substitute(s) in lieu of the
variable rates and keeping all other terms identical. Third, the amount of
qualified stated interest and original issue discount with respect to the
equivalent fixed rate debt instrument are determined under the rules for fixed
rate debt instruments. Finally, appropriate adjustments for actual variable
rates are made during the term by increasing or decreasing the qualified stated
interest to reflect the amount actually paid during the applicable accrual
period as compared to the interest assumed to be accrued or paid under the
equivalent fixed rate debt instrument. If there is no qualified stated interest
under the equivalent fixed rate debt instrument, the adjustment is made to the
original issue discount for the period.
The application of the OID Regulations to variable rate debt
instruments is limited and may not apply to some Regular Securities having
variable rates. In that event, the provisions of regulations issued on June 11,
1996, applicable to instruments having contingent payments, may apply to those
Regular Securities. The application of these provisions to instruments such as
variable rate Regular Securities is subject to varying interpretations.
Prospective purchasers of variable rate Regular Securities are advised to
consult their tax advisors concerning the tax treatment of such Regular
Securities.
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Market Discount. A purchaser of a Regular Security also may be subject
to the market discount rules of Code Sections 1276 through 1278. Under these
sections and the principles applied by the OID Regulations in the context of
original issue discount, "market discount" is the amount by which a subsequent
purchaser's initial basis in the Regular Security (i) is exceeded by the stated
redemption price at maturity of the Regular Security or (ii) in the case of a
Regular Security having original issue discount, is exceed by the sum of the
issue price of such Regular Security plus any original issue discount that would
have previously accrued thereon if held by an original Regular Securityholder
(who purchased the Regular Security at its issue price), in either case less any
prior distributions included in the stated redemption price at maturity of such
Regular Security. Such purchaser generally will be required to recognize accrued
market discount as ordinary income as distributions includible in the stated
redemption price at maturity of such Regular Security are received in an amount
not exceeding any such distribution. That recognition rule would apply
regardless of whether the purchaser is a cash-basis or accrual-basis taxpayer.
Such market discount would accrue in a manner to be provided in Treasury
regulations and should take into account the Prepayment Assumption. The
Conference Committee Report to the 1986 Act provides that until such regulations
are issued, such market discount would accrue either (i) on the basis of a
constant interest rate or (ii) in the ratio of stated interest allocable to the
relevant period to the sum of the interest for such period plus the remaining
interest as of the end of such period, or in the case of a Regular Security
issued with original issue discount, in the ratio of original issue discount
accrued for the relevant period to the sum of the original issue discount
accrued for such period plus the remaining original issue discount as of the end
of such period. Such purchaser also generally will be required to treat a
portion of any gain on a sale or exchange of the Regular Security as ordinary
income to the extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the stated
redemption price at maturity were received. Such purchaser will be required to
defer deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Security over the interest
distributable thereon. The deferred portion of such interest expense in any
taxable year generally will not exceed the accrued market discount on the
Regular Security for such year. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which the related
market discount income is recognized or the Regular Security is disposed of. As
an alternative to the inclusion of market discount in income on the foregoing
basis, the Regular Securityholder may elect to include market discount in income
currently as it accrues in all market discount instruments acquired by such
Regular Securityholder in that taxable year or thereafter, in which case the
interest deferral rule will not apply. In Revenue Procedure 92-67, the Internal
Revenue Service set forth procedures for taxpayers (1) electing under Code
Section 1278(b) to include market discount in income currently, (2) electing
under rules of Code Section 1276(b) to use a constant interest rate to determine
accrued market discount on a bond where the holder of the bond is required to
determine the amount of accrued market discount at a time prior to the holder's
disposition of the bond, and (3) requesting consent to revoke an election under
Code Section 1278(b).
By analogy to the OID Regulations, market discount with respect to a
Regular Security will be considered to be zero if such market discount is less
than 0.25% of the remaining stated redemption price at maturity of such Regular
Security multiplied by the weighted average maturity of the Regular Security
(determined as described above under "Original Issue Discount") remaining after
the date of purchase. Treasury regulations implementing the market discount
rules have not yet been issued, and therefore investors should consult their own
tax advisors regarding the application of these rules as well as the
advisability of making any of the elections with respect thereto.
Premium. A Regular Security purchased at a cost greater than its
remaining stated redemption price at maturity generally is considered to be
purchased at a premium. If the Regular Securityholder holds such Regular
Security as a "capital asset" within the meaning of Code Section 1221, the
Regular Securityholder may elect under Code Section 171 to amortize such premium
under a constant yield method that reflects compounding based on the interval
between payments on the Regular Securities. This election, once made, applies to
all obligations held by the taxpayer at the beginning of the first taxable year
to which such section applies and to all taxable debt obligations thereafter
acquired and is binding on such taxpayer in all subsequent years. The Conference
Committee Report to the 1986 Act indicates a Congressional intent that the same
rules that apply to the accrual of market discount on installment obligations
will also apply to amortizing bond premium under Code Section 171 on installment
obligations such as the Regular Securities. The IRS recently published final
regulations (the "Premium Regulations") covering the amortization of bond
premiums. The Premium Regulations describe the constant yield method for
amortizing premium and provide that the Regular Securityholder may offset the
premium against corresponding interest income only as that income is taken into
account under the Regular Securityholder's method of accounting. For instruments
that may be called or prepaid prior to maturity, a Regular Securityholder will
be deemed to exercise its option and an issuer will be deemed to exercise its
redemption right in a manner that maximizes the Regular Securityholder's yield.
The Premium Regulations are effective for debt instruments acquired on or after
March 2, 1998. A Regular Securityholder may elect to amortize bond premium
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under the Premium Regulations for 1998, with the election applying to all the
Regular Securityholders' debt instruments held on January 1, 1998. Purchasers
who pay a premium for their Regular Securities should consult their tax advisors
regarding the election to amortize premium and the method to be employed.
Sale or Exchange of Regular Securities. If a Regular Securityholder
sells or exchanges a Regular Security, the Regular Securityholder will recognize
gain or loss equal to the difference, if any, between the amount received and
his adjusted basis in the Regular Security. The adjusted basis of a Regular
Security generally will equal the cost of the Regular Security to the seller,
increased by any original issue discount or market discount previously included
in the seller's gross income with respect to the Regular Security and reduced by
amounts included in the stated redemption price at maturity of the Regular
Security that were previously received by the seller and by any amortized
premium.
Except as described above with respect to market discount, and except
as provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Security realized by an investor who holds the Regular Security as a
capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Security has been held for the long-term
capital gain holding period (currently more than one year). Gain from the
disposition of a Regular Security that might otherwise be capital gain will be
treated as ordinary income to the extent that such gain does not exceed the
excess, if any, of (i) the amount that would have been includible in the gross
income of the holder if his yield on such Regular Security were 110% of the
applicable Federal rate under Code Section 1274(d) as of the date of purchase
over (ii) the amount of income actually includible in the gross income of such
holder with respect to the Regular Security. In addition, gain or loss
recognized from the sale of a Regular Security by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code Section
582(c). For corporate taxpayers, there is no preferential rate afforded to
long-term capital gains. For individual taxpayers, net capital gains are subject
to varying tax rates depending upon the holding period of the Regular Security.
Taxation of Residual Securities
Taxation of REMIC Income. Generally, the "daily portions" of REMIC
taxable income or net loss will be includible as ordinary income or loss in
determining the federal taxable income of holders of Residual Securities
("Residual Securityholders") and will not be taxed separately to the REMIC Pool.
The daily portions of REMIC taxable income or net loss of a Residual
Securityholder are determined by allocating the REMIC Pool's taxable income or
net loss for each calendar quarter ratably to each day in such quarter and by
allocating such daily portion among the Residual Securityholders in proportion
to their respective holdings of Residual Securities in the REMIC Pool on such
day. REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using a calendar year and the accrual method of
accounting, except that (i) the limitation on deductibility of investment
interest expense and expenses for the production of income do not apply, (ii)
all bad loans will be deductible as business bad debts and (iii) the limitation
on the deductibility of interest and expenses related to tax-exempt income will
apply. REMIC taxable income generally means the REMIC Pool's gross income,
including interest, original issue discount income and market discount income,
if any, on the Mortgage Assets, plus income on reinvestment of cashflows and
reserve assets, minus deductions, including interest and original issue discount
expense on the Regular Securities, servicing fees on the Mortgage Assets and
other administrative expenses of the REMIC Pool, amortization of premium, if
any, with respect to the Mortgage Assets, and any tax imposed on the REMIC's
income from foreclosure property. The requirement that Residual Securityholders
report their pro rata share of taxable income or net loss of the REMIC Pool will
continue until there are no Securities of any class of the related series
outstanding.
The taxable income recognized by a Residual Securityholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the Mortgage Assets,
on the one hand, and the timing of deductions for interest (including original
issue discount) on the Regular Securities, on the other hand. Because of the way
REMIC taxable income is calculated, a Residual Securityholder may recognize
"phantom" income (i.e., income recognized for tax purposes in excess of income
as determined under financial accounting or economic principles) which will be
matched in later years by a corresponding tax loss or reduction in taxable
income, but which could lower the yield to Residual Securityholders due to the
lower present value of such future loss or reduction. For example, if an
interest in the Mortgage Assets is acquired by the REMIC Pool at a discount, and
one or more of such Mortgage Assets is prepaid, the Residual Securityholder may
recognize taxable income without being entitled to receive a corresponding
amount of cash because (i) the prepayment may be used in whole or in part to
make distributions in reduction of principal on the Regular Securities and (ii)
the discount income on the Mortgage Loan which is includible in the REMIC's
taxable income may exceed the discount deduction allowed to the REMIC upon such
distributions on the Regular Securities.
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When there is more than one class of Regular Securities that distribute
principal sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Securities when distributions in reduction of principal are being made
in respect of earlier maturing classes of Securities to the extent that such
classes are not issued with substantial discount. If taxable income attributable
to such a mismatching is realized in general, losses would be allowed in later
years as distributions on the later classes of Regular Securities are made.
Taxable income may also be greater in earlier years than in later years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of such a series of Regular Securities, may
increase over time as distributions in reduction of principal are made on the
lower yielding classes of Regular Securities, where interest income with respect
to any given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual
Securityholders must have sufficient other sources of cash to pay any federal,
state or local income taxes due as a result of such mismatching or unrelated
deductions against which to offset such income. Prospective investors should be
aware, however, that a portion of such income may be ineligible for offset by
such investor's unrelated deductions. See the discussion of "excess inclusions"
below under "Treatment of Certain Items of REMIC Income and Expense --
Limitations on Offset or Exemption of REMIC Income; Excess Inclusions." The
timing of such mismatching of income and deductions described in this paragraph,
if present with respect to a series of Securities, may have a significant
adverse effect upon the Residual Securityholders after-tax rate of return. In
addition, a Residual Securityholder's taxable income during certain periods may
exceed the income reflected by such Securityholder for such periods in
accordance with generally accepted accounting principles. Investors should
consult their own advisors concerning the proper tax and accounting treatment of
their investment in Residual Securities.
Basis and Losses. The amount of any net loss of the REMIC Pool that may
be taken into account by the Residual Securityholder is limited to the adjusted
basis of the Residual Security as of the close of the quarter (or time of
disposition of the Residual Security if earlier), determined without taking into
account the net loss for the quarter. The initial adjusted basis of a purchaser
of a Residual Security is the amount paid for such Residual Security. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
Pool reportable by the Residual Securityholder and decreased by the amount of
loss of the REMIC Pool reportable by the Residual Securityholder. A cash
distribution from the REMIC Pool also will reduce such adjusted basis (but not
below zero). Any loss that is disallowed on account of this limitation may be
carried over indefinitely with respect to the Residual Securityholder as to whom
such loss was disallowed and may be used by such Residual Securityholder only to
offset any income generated by the same REMIC Pool. Residual Securityholders
should consult their tax advisors about other limitations on the deductibility
of net losses that may apply to them.
A Residual Securityholder will not be permitted to amortize directly
the cost of its Residual Security as an offset to its share of the taxable
income of the related REMIC Pool. Such taxable income will not include cash
received by the REMIC Pool that represents a recovery of the REMIC Pool's basis
in its assets. Such recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Securities over their life.
However, in view of the possible acceleration of the income of Residual
Securityholders described above under "Taxation of REMIC Income," the period of
time over which such issue price is effectively amortized may be longer than the
economic life of the Residual Securities.
If a Residual Security has a negative value, it is not clear whether
its issue price would be considered to be zero or such negative amount for
purposes of determining the REMIC Pool's basis in its assets. The REMIC
Regulations do not address whether residual interests could have a negative
basis and a negative issue price. The Depositor does not intend to treat a class
of Residual Securities as having a value of less than zero for purposes of
determining the bases of the related REMIC Pool in its assets.
Further, to the extent that the initial adjusted basis of Residual
Securityholder (other than an original holder) in the Residual Security is
greater than the corresponding portion of the REMIC Pool's basis in the Mortgage
Assets, the Residual Securityholder will not recover a portion of such basis
until termination of the REMIC Pool unless Treasury regulations yet to be issued
provide for periodic adjustments to the REMIC income otherwise reportable by
such holder. The REMIC Regulations do not so provide. See "Treatment of Certain
Items of REMIC Income and Expense -- Market Discount" below regarding the basis
of Mortgage Assets to the REMIC Pool and "Sale or Exchange of Residual
Securities" below regarding possible treatment of a loss upon termination of the
REMIC Pool as a capital loss.
Mark to Market Rules. Prospective purchasers of a Residual Security
should be aware that final regulations (the "Mark to Market Regulations")
provide that for purposes of the mark-to-market requirements of Code Section
475,
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a Residual Security acquired on or after January 4, 1995, is not treated as a
security and thus may not be marked to market. Prospective purchasers of a
Residual Security should consult their tax advisor regarding the possible
application of the Mark to Market Regulations.
Treatment of Certain Items of REMIC Income and Expense
Original Issue Discount. Generally, the REMIC Pool's deductions for
original issue discount will be determined in the same manner as original issue
discount income on Regular Securities as described above under "Taxation of
Regular Securities -- Original Issue Discount" and "Variable Rate Regular
Securities," without regard to the de minimis rule described therein.
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Assets if, in general, the basis of the REMIC Pool in such
Mortgage Assets is exceeded by their unpaid principal balances. The REMIC Pool's
basis in such Mortgage Assets is generally the fair market value of the Mortgage
Assets immediately after the transfer thereof to the REMIC Pool. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. In respect of
Mortgage Assets that have market discount to which Code Section 1276 applies,
the accrued portion of such market discount would be recognized currently by the
REMIC as an item of ordinary income. Market discount income generally should
accrue in the manner described above under "Taxation of Regular Securities --
Market Discount." The rules of Code Section 1276 concerning market discount
income will not, however, apply in the case of Mortgage Assets originated on or
prior to July 18, 1984, if any. With respect to such Mortgage Assets market
discount is generally includible in REMIC taxable income or ordinary gross
income pro rata as principal payments are received. Under another interpretation
of the Code and relevant legislative history, market discount on such Mortgage
Assets might be required to be recognized currently by the REMIC, in the same
manner that market discount would be recognized with respect to Mortgage Assets
originated after July 18, 1984. Under that method, a REMIC would tend to
recognize market discount more rapidly than it would otherwise. In either case,
the deduction of a portion of the interest expense on the Regular Securities
allocable to such discount may be deferred until such discount is included in
income, and any gain on the sale or exchange thereof will be treated as ordinary
income to the extent of the deferred interest deductible at that time.
Premium. Generally, if the basis of the REMIC Pool in the Mortgage
Assets exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Assets at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in the Mortgage
Assets is the fair market value of the Mortgage Assets, based on the aggregate
of the issue prices of the regular and residual interests in the REMIC Pool
immediately after the transfer thereof to the REMIC Pool. In a manner analogous
to the discussion above under "Taxation of Regular Securities - Premium," a
person that holds Mortgage Assets as a capital asset under Code Section 1221 may
elect under Code Section 171 to amortize premium on Mortgage Assets under a
constant yield method. Amortizable bond premium will be treated as an offset to
interest income on the Mortgage Assets, rather than as a separate deduction
item. Because substantially all the mortgagors with respect to the Mortgage
Assets are expected to be individuals, Code Section 171 will not be available.
Premium on Mortgage Assets may be deductible in accordance with a reasonable
method regularly employed by the holder thereof. The allocation of such premium
pro rata among principal payments should be considered a reasonable method;
however, the Internal Revenue Service may argue that such premium should be
allocated in a different manner, such as allocating such premium entirely to the
final payment of principal.
Limitations on Offset or Exemption of REMIC Income; Excess Inclusions.
A portion of the income allocable to a Residual Security (referred to in the
Code as an "excess inclusion") for any calendar quarter, with an exception
discussed below for certain thrift institutions, will be subject to federal
income tax in all events. Thus, for example, an excess inclusion (i) cannot,
except as described below, be offset by any unrelated losses or loss carryovers
of a Residual Securityholder, (ii) will be treated as "unrelated business
taxable income" within the meaning of Code Section 512 if the Residual
Securityholder is a pension fund or any other organization that is subject to
tax only on its unrelated business taxable income and (iii) is not eligible for
any reduction in the rate of withholding tax in the case of a Residual
Securityholder that is a foreign investor, as further discussed in "Taxation of
Certain Foreign Investors - Residual Securities" below. Members of an affiliated
group are treated as one corporation for purposes of applying the limitation on
offset of excess inclusion income. The Small Business Protection Act of 1996
(the "1996 Act") eliminated a special rule that permitted thrift institutions to
use net operating losses and other allowable deductions to offset their excess
inclusion income from Residual Securities with significant value for taxable
years beginning after December 31, 1995 (subject to exceptions for certain
certificates held continuously since November 1, 1995). The 1996 Act also
provides
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rules affecting the determination of alternative minimum taxable income ("AMTI")
of a Residual Securityholder. First, AMTI is calculated without regard to the
special rule that taxable income cannot be less than excess inclusion income for
the year. Second, AMTI cannot be less than excess inclusion income for the year.
Finally, any AMTI net operating loss deduction is computed without regard to
excess inclusion income . These rules are effective for tax years ending
beginning after December 31, 1986, unless a Residual Security holder elects to
have the rules apply only to tax years after August 20, 1996.
Except as discussed in the following paragraph, with respect to excess
inclusions from Residual Securities without "significant value," for any
Residual Securityholder, the excess inclusion for any calendar quarter is the
excess, if any, of (i) the income of such Residual Securityholder for that
calendar quarter from its Residual Security over (ii) the sum of the "daily
accruals" (as defined below) for all days during the calendar quarter on which
the Residual Securityholder holds such Residual Security. For this purpose, the
daily accruals with respect to a Residual Security are determined by allocating
to each day in the calendar quarter its ratable portion of the product of the
"adjusted issue price" (as defined below) of the Residual Security at the
beginning of the calendar quarter and 120 percent of the "Federal long-term
rate" in effect at the time the Residual Security is issued. For this purposes
the "adjusted issue price" of a Residual Security at the beginning of any
calendar quarter equals the issue price of the Residual Security (adjusted for
contributions), increased by the amount of daily accruals for all prior
quarters, and decreased (but not below zero) by the aggregate amount of payments
made on the Residual Security before the beginning of such quarter. The Federal
long-term rate is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
The Code provides that to the extent provided in regulations, as an
exception to the general rule described above, the entire amount of income
accruing on a Residual Security will be treated as an excess inclusion if the
Residual Securities in the aggregate are considered not to have "significant
value." The Treasury Department has not yet provided regulations in this respect
and the REMIC Regulations did not adopt this rule. The exception from the excess
inclusion rules applicable to thrift institutions does not apply, however, if
the Residual Securities do not have significant value. Under the REMIC
Regulations, the Residual Securities will have significant value if: (i) the
aggregate of the issue prices of the Residual Securities is at least two percent
of the aggregate issue prices of all Regular Securities and Residual Securities
in the REMIC and (ii) the anticipated weighted average life of the Residual
Securities is at least 20 percent of the REMIC's anticipated weighted average
life based on the prepayment and reinvestment assumptions used in pricing the
transaction and any recognized or permitted clean up calls or any required
qualified liquidation. Although not entirely clear, the REMIC Regulations
indicate that the significant value determination is made only on the Startup
Day. The anticipated weighted average life of a Residual Security with a
principal balance and a market rate of interest is computed by multiplying the
amount of each expected principal payment by the number of years (or portions
thereof) from the Startup Day, adding these sums and dividing by the total
principal expected to be paid on such Residual Security based on the relevant
prepayment assumption and expected reinvestment income. The anticipated weighted
average life of a Residual Security with either no specified principal balance
or a principal balance and rights to interest payments disproportionate to such
principal balance, would be computed under the formula described above but would
include all payments expected on the Residual Security instead of only the
principal payments. The anticipated weighted average life of a REMIC is a
weighted average of the anticipated weighted average lives of all classes of
interest in the REMIC.
Under Treasury regulations to be promulgated, a portion of the
dividends paid by a REIT which owns a Residual Security are to be designated as
excess inclusions in an amount corresponding to the Residual Security's
allocable share of the excess inclusions. Similar rules apply in the case of
regulated investment companies, common trust funds and cooperatives. Thus,
investors in such entities which own a Residual Security will be subject to the
limitations on excess inclusions described above. The REMIC Regulations do not
provide guidance on this issue.
Tax-Related Restrictions on Transfer of Residual Securities
Disqualified Organizations. If legal title or beneficial interest in a
Residual Security is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Security for periods after the transfer and (ii) the highest marginal
federal corporate income tax rate. The REMIC Regulations provide that the
anticipated excess inclusion are based on actual prepayment experience to the
date of the transfer and projected payments based on the Prepayment Assumption.
The present value discount rate equals the applicable Federal rate under Code
Section 1274(d) that would apply to a debt instrument that was issued on the
date the Disqualified
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Organization acquired the Residual Security and whose term ended on the close of
the last quarter in which excess inclusion was expected to accrue with respect
to the Residual Security. Such a tax generally would be imposed on the
transferor of the Residual Security, except that where such transfer is through
an agent (including a broker, nominee, or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. A transferor of a
Residual Security would in no event, however, be liable for such tax with
respect to a transfer if the transferee furnishes to the transferor an affidavit
that the transferee is not a Disqualified Organization and, as of the time of
the transfer, the transferor does not have actual knowledge that such affidavit
is false. The tax also may be waived by the Treasury Department if the
Disqualified Organization promptly disposes of the Residual Security and the
transferor pays income tax at the highest corporate rate on the excess inclusion
for the period the Residual Security is actually held by the Disqualified
Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Security during a taxable year and a
Disqualified Organization is the record holder of an equity interest in such
entity, then a tax is imposed on such entity equal to the product of (i) the
amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that (i) states
under penalty of perjury that it is not a Disqualified Organization or (ii)
furnishes a social security number and states under penalties of perjury that
the social security number is that of the transferee, provided that during the
period such person is the record holder of the Residual Security, the
Pass-Through Entity does not have actual knowledge that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511 and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations yet to be issued, any person holding an interest in a Pass-Through
Entity as a nominee for another will, with respect to such interest, be treated
as a Pass-Through Entity.
The Agreement with respect to a series of Securities will provide that
neither legal title nor beneficial interest in a Residual Security may be
transferred or registered unless (i) the proposed transferee provides to the
Depositor and the Trustee an affidavit to the effect that such transferee is not
a Disqualified Organization, is not purchasing such Residual Securities on
behalf of a Disqualified Organization (i.e., as a broker, nominee or middleman
thereof) and is not an entity that holds REMIC residual securities as nominee to
facilitate the clearance and settlement of such securities through electronic
book-entry changes in accounts of participating organizations and (ii) the
transferor provides a statement in writing to the Depositor and the Trustee that
it has no actual knowledge that such affidavit is false. Moreover, the Agreement
will provide that any attempted or purported transfer in violation of these
transfer restrictions will be null and void and will vest no rights in any
purported transferee. Each Residual Security with respect to a series will have
a legend referring to such restrictions on transfer, and each Residual
Securityholder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Agreement required under the Code or
applicable Treasury regulations to effectuate the foregoing restrictions.
Information necessary to compute an applicable excise tax must be furnished to
the Internal Revenue Service and to the requesting party within 60 days of the
request, and the Depositor or the Trustee may charge a fee for computing and
providing such information.
Noneconomic Residual Interests. Under the REMIC Regulations certain
transfers of Residual Securities are disregarded, in which case the transferor
continues to be treated as the owner of the Residual Securities and thus
continues to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the Final REMIC Regulations, a transfer of a Noneconomic
Residual Interest (defined below) to a Residual Securityholder (other than a
Residual Securityholder who is not a U.S. Person, as defined below under
"Foreign Investors") is disregarded for all federal income tax purposes unless
no significant purpose of the transfer is to impede the assessment or collection
of tax. A residual interest in a REMIC (including a residual interest with a
positive value at issuance) is a "Noneconomic Residual Interest" unless, at the
time of the transfer, (i) the present value of the expected future distributions
on the
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residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest federal corporate income tax rate
in effect 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 taxes accrue on the anticipated excess inclusions
in an amount sufficient to satisfy the accrued taxes. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "Disqualified Organizations." A significant purpose to impede
the assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferor would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. Under the REMIC Regulations, a transferor is
presumed not to have improper knowledge if (i) the transferor conducted, at the
time of the transfer, a reasonable investigation of the financial condition of
the transferee and, as a result of the investigation, the transferor found that
the transferee had historically paid its debts as they came due and found no
significant evidence to indicate that the transferor will not continue to pay
its debts as they come due in the future; and (ii) the transferee represents to
the transferor that it understands that, as the holder of the Noneconomic
Residual Interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the residual interest and that the transferee intends to
pay taxes associated with holding of residual interest as they become due. The
Agreement will require the transferee of a Residual Security to state as part of
the affidavit described above under the heading "Disqualified Organizations"
that such transferee (i) has historically paid its debts as they come due, (ii)
intends to continue to pay its debts as they come due in the future, (iii)
understands that, as the holder of a Noneconomic Residual Interest, it may incur
tax liabilities in excess of any cash flows generated by the Residual Security,
and (iv) intends to pay any and all taxes associated with holding the Residual
Security as they become due. The transferor must have no reason to believe that
such statement is untrue.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Security that has "tax avoidance potential" to a "foreign person" will
be disregarded for all federal tax purposes. This rule appears intended to apply
to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Security is deemed to have tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that, for each excess inclusion, (i) the REMIC Pool will
distribute to the transferee residual interest holder an amount that will equal
at least 30% of the excess inclusions and (ii) that each such amount will be
distributed at or after the time at which the excess inclusion accrues and not
later than the close of the calendar year following the calendar year of
accrual. If the non-U.S. Person transfers the Residual Security back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The Prospectus Supplement relating to a series of Securities may
provide that a Residual Security may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. 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 or any political subdivision thereof or an estate or trust that is
subject to U.S. federal income tax regardless of the source of its income.
Sale or Exchange of a Residual Security
Upon the sale or exchange of a Residual Security, the Residual
Securityholder will recognize gain or loss equal to the excess, if any, of the
amount realized over the adjusted basis (as described above under "Taxation of
Residual Securities -- Basis and Losses") of such Residual Securityholder in
such Residual Security at the time of the sale or exchange. In addition to
reporting the taxable income of the REMIC Pool, a Residual Securityholder will
have taxable income to the extent that any cash distribution to him from the
REMIC Pool exceeds such adjusted basis on that Distribution Date. Such income
will be treated as gain from the sale or exchange of the Residual Security. It
is possible that the termination of the REMIC Pool may be treated as a sale or
exchange of a Residual Securityholder's Residual Security, in which case, if the
Residual Securityholder has an adjusted basis in his Residual Security remaining
when his interest in the REMIC Pool terminates, and if he holds such Residual
Security as a capital asset under Code Section 1221, then he will recognize a
capital loss at that time in the amount of such remaining adjusted basis.
The Conference Committee Report to the 1986 Act provides that, except
as provided in Treasury regulations yet to be issued, the wash sale rules of
Code Section 1091 will apply to disposition of Residual Securities.
Consequently, losses on dispositions of Residual Securities will be disallowed
where the seller of the Residual Security, during the period beginning six
months before the sale or disposition of the Residual Security and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section
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1091) any residual interest in any REMIC or any interest in a "taxable mortgage
pool" (such as a non-REMIC owner trust) that is economically comparable to a
Residual Security.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions. Net income from certain transactions by the
REMIC Pool, called prohibited transactions, will not be part of the calculation
of income or loss includible in the federal income tax returns of Residual
Securityholders, but rather will be taxed directly to the REMIC Pool at a 100%
rate. Prohibited transactions generally include (i) the disposition of a
qualified mortgage other than for (a) substitution within two years of the
Startup Day for a defective (including a defaulted) obligation (or repurchase in
lieu of substitution of a defective (including a defaulted) obligation at any
time) or for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c) bankruptcy
or insolvency of the REMIC Pool or (d) a qualified (complete) liquidation, (ii)
the receipt of income from assets that are not the type of mortgages or
investments that the REMIC Pool is permitted to hold, (iii) the receipt of
compensation for services or (iv) the receipt of gain from disposition of cash
flow investments other than pursuant to a qualified liquidation. Notwithstanding
(i) and (iv), it is not a prohibited transaction to sell REMIC Pool property to
prevent a default on Regular Securities as a result of a default on qualified
mortgages or to facilitate a clean-up call (generally, an optional termination
to save administrative costs when no more than a small percentage of the
Securities is outstanding). The REMIC Regulations indicate that the modification
of a Mortgage Loan generally will not be treated as a disposition if it is
occasioned by a default or reasonably foreseeable default, an assumption of the
Mortgage Loan, the waiver of a due-on-sale or encumbrance clause or the
conversion of an interest rate by a mortgagor pursuant to the terms of a
convertible adjustable rate Mortgage Loan. The REMIC Regulations also provide
that the modification of mortgage loans underlying Mortgage-Backed Securities
will not be treated as a modification of the Mortgage-Backed Securities,
provided that the trust including the was not created to avoid prohibited
transaction rules.
Contributions to the REMIC Pool After the Startup Day. In general, the
REMIC Pool will be subject to a tax at a 100% rate on the value of any property
contributed to the REMIC Pool after the Startup Day. Exceptions are provided for
cash contributions to the REMIC Pool (i) during the three months following the
Startup Day, (ii) made to a qualified reserve fund by a Residual Securityholder,
(iii) in the nature of a guarantee, (iv) made to facilitate a qualified
liquidation or clean-up call and (v) as otherwise permitted in Treasury
regulations yet to be issued.
Net Income from Foreclosure Property. The REMIC Pool will 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. Generally, property acquired by the REMIC Pool through
foreclosure or deed in lieu of foreclosure would be treated as "foreclosure
property" for a period of two years, with possible extensions. Net income from
foreclosure property generally means (i) gain from the sale of a foreclosure
property that is inventory property and (ii) gross income from foreclosure
property other than qualifying rents and other qualifying income for a real
estate investment trust.
Liquidation of the REMIC Pool
If a REMIC Pool and the Trustee adopt a plan of complete liquidation,
within the meaning of Code Section 860F(a)(4)(A)(i) and sell all the REMIC
Pool's assets (other than cash) within a 90-day period beginning on the date of
the adoption of the plan of liquidation, the REMIC Pool will recognize no gain
or loss on the sale of its assets, provided that the REMIC Pool credits or
distributes in liquidation all the sale proceeds plus its cash (other than
amounts retained to meet claims against the REMIC Pool) to holders of Regular
Securities and Residual Securityholders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file federal income tax returns for federal income tax
purposes in a manner similar to a partnership. The form for such income tax
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. The Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual Securityholder
for an entire taxable year, the REMIC Pool generally will be subject to the
procedural and administrative rules of the Code applicable to partnerships,
including the determination by the Internal Revenue Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction or credit
in a unified administrative proceeding. The
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Depositor or other designated Residual Securityholders will be obligated to act
as "tax matters person," as defined in applicable Treasury regulations, with
respect to the REMIC Pool. If the Code or applicable Treasury regulations do not
permit the Depositor to act as tax matters person in its capacity as agent of
the Residual Securityholders, the Residual Securityholder chosen by the Residual
Securityholders or such other person specified pursuant to Treasury regulations
will be required to act as tax matters person.
Treasury regulations provide that a holder of a Residual Security is
not required to treat items on its return consistently with their treatment on
the REMIC Pool's return if a holder owns 100% of the Residual Securities for the
entire calendar year. Otherwise, each holder of a Residual Security is required
to treat items on its return consistently with their treatment on the REMIC
Pool's return, unless the holder of a Residual Security either files a statement
identifying the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC Pool. The Service may assess
a deficiency resulting from a failure to comply with the consistency requirement
without instituting an administrative proceeding at the REMIC Pool level.
Limitations on Deduction of Certain Expenses
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000, adjusted yearly for inflation
($50,000, adjusted yearly for inflation, in the case of a married individual
filing a separate return), or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. In the case of a REMIC Pool, such deductions
may include deductions under Code Section 212 for servicing fees and all
administrative and other expenses relating to the REMIC Pool or any similar
expenses allocated to the REMIC Pool with respect to a regular interest it holds
in another REMIC. Such investors who hold REMIC Securities either directly or
indirectly through certain pass-through entities may have their pro rata share
of such expenses allocated to them as additional gross income, but may be
subject to such limitation on deductions. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and may
cause such investors to be subject to significant additional tax liability.
Treasury regulations provide that the additional gross income and corresponding
amount of expenses generally are to be allocated entirely to the holders of
Residual Securities in the case of a REMIC Pool that would not qualify as a
fixed investment trust in the absence of a REMIC election. However, such
additional gross income and limitation on deductions will apply to the allocable
portion of such expenses to holders of Regular Securities, as well as holders of
Residual Securities, where such Regular Securities are issued in a manner that
is similar to pass-through certificates in a fixed investment trust. In general,
such allocable portion will be determined based on the ratio that a REMIC
Securityholder's income, determined on a daily basis, bears to the income of all
holders of Regular Securities and Residual Securities with respect to a REMIC
Pool. As a result, individuals, estates or trusts holding REMIC Securities
(either directly or indirectly through a grantor trust, partnership, S
corporation, REMIC, or certain other pass-through entities described in the
foregoing Treasury regulations) may have taxable income in excess of the
interest income at the pass-through rate on Regular Securities that are issued
in a single class or otherwise consistently with fixed investment trust status
or in excess of cash distributions for the related period on Residual
Securities.
Taxation of Certain Foreign Investors
Regular Securities. Interest, including original issue discount,
distributable to Regular Securityholders who are nonresident aliens, foreign
corporations, or other Non-U.S. Persons (as defined below), will be considered
"portfolio interest" and therefore, generally will not be subject to 30% United
States withholding tax, provided that such Non-U.S. Person (i) is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B) or a
controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the Trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Sections 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the Regular Security is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless reduced
or eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Security is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning a Regular
Security. The term "Non-U.S. Person" means any person who is not a U.S. Person.
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Residual Securities. The Conference Committee Report to the 1986 Act
indicates that amounts paid to Residual Securityholders who are Non-U.S. Persons
are treated as interest for purposes of the 30% (or lower treaty rate) United
States withholding tax. Treasury regulations provide that amounts distributed to
Residual Securityholders qualify as "portfolio interest," subject to the
conditions described in "Regular Securities" above, but only to the extent that
(i) the Mortgage Assets were issued after July 18, 1984. and (ii) the Trust fund
or segregated pool of assets therein (as to which a separate REMIC election will
be made), to which the Residual Security relates, consists of obligations issued
in "registered form" within the meaning of Code Section 163(f)(1). Generally,
Mortgage Assets will not be, but regular interests in another REMIC Pool will
be, considered obligations issued in registered form. Furthermore, a Residual
Securityholder will not be entitled to any exemption from the 30% withholding
tax (or lower treaty rate) to the extent of that portion of REMIC taxable income
that constitutes an "excess inclusion." See "Treatment of Certain Items of REMIC
Income and Expense -- Limitations on Offset or Exemption of REMIC Income; Excess
Inclusions." If the amounts paid to Residual Securityholders who are Non-U.S.
Persons are effectively connected with the conduct of a trade or business within
the United States by such Non-U.S. Persons, 30% (or lower treaty rate)
withholding will not apply. Instead, the amounts paid to such Non-U.S. Persons
will be subject to United States federal income tax at regular rates. If 30% (or
lower treaty rate) withholding is applicable, such amounts generally will be
taken into account for purposes of withholding only when paid or otherwise
distributed (or when the Residual Security is disposed of) under rules similar
to withholding upon disposition of debt instruments that have original issue
discount. See "Tax-Related Restrictions on Transfer of Residual Securities --
Foreign Investors" above concerning the disregard of certain transfers having
"tax avoidance potential." Investors who are Non-U.S. Persons should consult
their own tax advisors regarding the specific tax consequences to them of owning
Residual Securities.
On October 6, 1997, the IRS issued final regulations which could have
an effect on the United States taxation of foreign investors owning Regular
Securities or Residual Securities. The regulations would apply to payments after
December 31, 1999. Investors who are Non-U.S. Persons should consult their tax
advisors regarding the specific tax consequences to them of owning Residual
Securities.
Backup Withholding
Distributions made on the Regular Securities, and proceeds from the
sale of the Regular Securities to or through certain brokers, may be subject to
a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and, under
certain circumstances, principal distributions) unless the Regular
Securityholder complies with certain reporting and/or certification procedures,
including the provision of its taxpayer identification number to the Trustee,
its agent or the broker who effected the sale of the Regular Security, or such
Securityholder is otherwise an exempt recipient under applicable provisions of
the Code. Any amounts to be withheld from distribution on the Regular Securities
would be refunded by the Internal Revenue Service or allowed as a credit against
the Regular Securityholder's federal income tax liability.
Reporting Requirements
Reports of accrued interest and original issue discount will be made
annually to the Internal Revenue Service and to individuals, estates, non-exempt
and non-charitable trusts, and partnerships who are either holders of record of
Regular Securities or beneficial owners who own Regular Securities through a
broker or middleman as nominee. All brokers, nominees and all other non-exempt
holders of record of Regular Securities (including corporations, non-calendar
year taxpayers, securities or commodities dealers, real estate investment
trusts, investment companies, common trust funds, thrift institutions and
charitable trusts) may request such information for any calendar quarter by
telephone or in writing by contacting the person designated in Internal Revenue
Service Publication 938 with respect to a particular series of Regular
Securities. Holders through nominees must request such information from the
nominee. Treasury regulations provide that information necessary to compute the
accrual of any market discount on the Regular Securities must be furnished for
calendar years beginning after 1990.
The Internal Revenue Service's Form 1066 has an accompanying Schedule
Q, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Securityholder by the end of the month following
the close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
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Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Securityholders, furnished annually, if applicable, to holders of Regular
Securities, and filed annually with the Internal Revenue Service concerning Code
Section 67 expenses (see "Limitations on Deduction of Certain Expenses" above)
allocable to such holders. Furthermore, under such regulations, information must
be furnished quarterly to Residual Securityholders, furnished annually to
holders of Regular Securities, and filed annually with the Internal Revenue
Service concerning the percentage of the REMIC Pool's assets meeting the
qualified asset tests described above under "REMIC Securities," above.
Non-REMIC Securities
Special Counsel is of the opinion that if a Trust does not elect REMIC
or FASIT status and is not treated as a partnership, the tax consequences to the
Owners will be as discussed below.
Standard Securities
General. If no election is made to treat a Trust (or a segregated pool
of assets therein) with respect to a series of Securities as a REMIC or FASIT,
the Trust may be classified as a grantor trust under subparagraph E, Part 1 of
subchapter J of the Code and not as a partnership or association taxable as a
corporation. Where there is no fixed retained yield with respect to the Mortgage
Assets underlying the Securities of a series, and where such Securities are not
designated as Debt Certificates, as described below under "Debt Certificates,"
as Stripped Securities, as described below under "Stripped Securities" or as
Partnership Interests described under "Securities Classified as Partnership
Interests," the holder of each such "Standard Security" in such series will be
treated as the owner of a pro rata undivided interest in the ordinary income and
corpus portions of the Trust represented by his Security and will be considered
the beneficial owner of a pro rata undivided interest in each of the Mortgage
Assets, subject to the discussion below under "Premium and Discount --
Recharacterization of Servicing Fees." Accordingly, the holder of a Security (a
"Securityholder") of a particular series will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Assets, original issue discount (if any), prepayment fees, assumption
fees, and late payment charges received by or on behalf of the Trust, in
accordance with such Securityholder's method of accounting. A Securityholder
generally will be able to deduct its share of servicing fees and all
administrative and other expenses of the Trust in accordance with his method of
accounting, provided that such amounts are reasonable compensation for services
rendered to that Trust. Securityholders who are individuals, estates or trusts,
however, either directly or indirectly through certain pass-through entities,
will be subject to limitation with respect to certain itemized deductions
described in Code Section 67, including deductions under Code Section 212 for
servicing fees and all such administrative and other expenses of the Trust, to
the extent that such deductions, in the aggregate, do not exceed two percent of
an investor's adjusted gross income. In addition, Code Section 68 provides that
itemized deductions otherwise allowable for a taxable year of an individual
taxpayer will be reduced by the lesser of (i) 3% of the excess, if any, of
adjusted gross income over $100,000, adjusted yearly for inflation ($50,000,
adjusted yearly for inflation, in the case of a married individual filing a
separate return), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors may have aggregate taxable
income in excess of the aggregate amount of cash received on such Securities
with respect to interest at the pass-through rate on such Securities or discount
thereon. In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax and may cause such investors to be subject
to significant additional tax liability. Moreover, where there is fixed retained
yield with respect to the Mortgage Assets underlying a series of Securities or
where the servicing fees are in excess of reasonable servicing compensation, the
transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "Stripped
Securities" and "Premium and Discount -- Recharacterization of Servicing Fees,"
respectively.
Tax Status. Subject to the discussion below, Special Counsel is of the
opinion that:
(i). A Standard Security owned by a "domestic building and
loan association" within the meaning of Code Section 7701(a)(19) will
be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v),
provided that the real property securing the Mortgage Assets
represented by that Security is of the type described in such section.
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(ii). A Standard Security owned by a financial institution
described in Code Section 593(a) will be considered to represent
"qualifying real property loans" within the meaning of Code Section
592(d)(1), provided that the real property securing the Mortgage Assets
represented by that Security is of the type described in such section.
(iii). A Standard Security owned by a real estate investment
trust will be considered to represent "real estate assets" within the
meaning of Code Section 856(C)(5)(A) to the extent that the assets of
the related Trust consist of qualified assets, and interest income on
such assets will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section
856(c)(3)(B).
(iv). A Standard Security owned by a REMIC will be considered
to represent an "obligation (including any participation or certificate
of beneficial ownership therein) which is principally secured by an
interest in real property" within the meaning of Code Section
860G(a)(3)(A) to the extent that the assets of the related Trust
consist of "qualified mortgages" within the meaning of Code Section
860G(a)(3).
An issue arises as to whether buy-down Mortgage Assets may be
characterized in their entirety under the Code provisions cited in the
immediately preceding paragraph. Code Section 593(d)(l)(C) provides that the
term "qualifying real property loan" does not include a loan "to the extent
secured by a deposit in or share of the taxpayer." The application of this
provision to a buy-down fund with respect to a buy-down Mortgage Loan is
uncertain, but may require that a taxpayer's investment in a buy-down Mortgage
Loan be reduced by the buy-down fund. As to the treatment of buy-down Mortgage
Assets as "qualifying real property loans" under Code Section 593(d)(i) if the
exception of Code Section 593(d)(1)(C) is inapplicable, as "loans . . . secured
"by an interest in real property" under Code Section 7701(a)(19)(C)(v), as "real
estate assets" under Code Section 856(c)(5)(A), and as "obligation[s]
principally secured by an interest in real property" under Code Section
860G(a)(3)(A), there is indirect authority supporting treatment of an investment
in a buy-down Mortgage Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal amount
of the loan at the time of issuance or acquisition, as the case may be. There is
no assurance that the treatment described above is proper. Accordingly,
Securityholders are urged to consult their own tax advisors concerning the
effects of such arrangements on the characterization of such Securityholder's
investment for federal income tax purposes.
Premium and Discount
Securityholders are advised to consult with their tax advisors as to
the federal income tax treatment of premium and discount arising either upon
initial acquisition of Securities or thereafter.
Premium. The treatment of premium incurred upon the purchase of a
Security will be determined generally as described above under " REMIC
Securities -- Taxation of Regular Securities -- Premium."
Original Issue Discount. The Internal Revenue Service has stated in
published rulings that, in circumstances similar to those described herein, the
original issue discount rules will be applicable to a Securityholder's interest
in those Mortgage Assets as to which the conditions for the application of those
sections are met. Rules regarding periodic inclusion of original issue discount
income are applicable to mortgages of corporations originated after May 27,
1969, mortgages of noncorporate mortgagors (other than individuals) originated
after July l, 1982, and mortgages of individuals originated after March 2, 1984.
Such original issue discount could arise by the charging of points by the
originator of the mortgages in an amount greater than a statutory de minimis
exception, to the extent that the points are not currently deductible under
applicable Code provisions or are not for services provided by the lender. It is
generally not anticipated that adjustable rate Mortgage Assets will be treated
as issued with original issue discount. However, the application of the OID
Regulations to adjustable rate mortgage loans with incentive interest rates or
annual or lifetime interest rate caps may result in original issue discount.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant yield method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Code Section 1272 provides, however, for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued original issue
discount, less prior payments of principal. Accordingly, if such Mortgage Assets
acquired by a Securityholder are purchased at a price equal to the then unpaid
principal amount of such
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Mortgage Assets, no original issue discount attributable to the difference
between the issue price and the original principal amount of such Mortgage
Assets (i.e., points) will be includible by such holder.
Market Discount. Securityholders also will be subject to the market
discount rules to the extent that the conditions for application of those
sections are met. Market discount on the Mortgage Assets will be determined and
will be reported as ordinary income generally in the manner described above
under "REMIC Securities -- Taxation of Regular Securities -- Market Discount."
Recharacterization of Servicing Fees. If the servicing fees paid to
Servicers were deemed to exceed reasonable servicing compensation, the amount of
such excess would be nondeductible under Code Section 162 or 212. In this
regard, there are no authoritative guidelines for federal income tax purposes as
to either the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions or whether, in the
case of the Securities, the reasonableness of servicing compensation should be
determined on a weighted average or loan-by-loan basis. If a loan-by-loan basis
is appropriate, the likelihood that such amount would exceed reasonable
servicing compensation as to some of the Mortgage Assets would be increased.
Recently issued Internal Revenue Service guidance indicates that a servicing fee
in excess of reasonable compensation ("excess servicing") will cause the
Mortgage Assets to be treated under the "stripped bond" rules. Such guidance
provides safe harbors for servicing deemed to be reasonable and requires
taxpayers to demonstrate that the value of servicing fees in excess of such
amounts is not greater than the value of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
servicer that receives excess servicing fees would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage Assets.
Under the rules of Code Section 1286, the separation of the right to receive
some of or all the interest payments on an obligation from the right to receive
some or all of the principal payments on the obligation would result in
treatment of such Mortgage Assets as "stripped coupons" and "stripped bonds."
While Securityholders would still be treated as owners of beneficial interests
in a grantor trust for federal income tax purposes, the corpus of such trust
could be viewed as excluding the portion of the Mortgage Assets the ownership of
which is attributed to a servicer, or as including such portion as a second
class of equitable interest. Applicable Treasury regulations treat such an
arrangement as a fixed investment trust, since the multiple classes of trust
interests should be treated as merely facilitating direct investments in the
trust assets and the existence of multiple classes of ownership interests is
incidental to that purpose. In general, such a recharacterization should not
have any significant effect upon the timing or amount of income reported by a
Securityholder, except that the income reported by a cash method holder may be
slightly accelerated. See "Stripped Securities" below for a further description
of the federal income tax treatment of stripped bonds and stripped coupons.
In the alternative, the amount, if any, by which the servicing fees
paid to the servicers are deemed to exceed reasonable compensation for servicing
could be treated as deferred payments of purchase price by the Securityholders
to purchase an undivided interest in the Mortgage Assets. In such event, the
present value of such additional payments might be included in the
Securityholder's basis in such undivided interests for purposes of determining
whether the Security was acquired at a discount, at par, or at a premium. Under
this alternative, Securityholders may also be entitled to a deduction for
unstated interest with respect to each deferred payment. The Internal Revenue
Service may take the position that the specific statutory provisions of Code
Section 1286 described above override the alternative described in this
paragraph. Securityholders are advised to consult their tax advisors as to the
proper treatment of the amounts paid to the servicers as set forth herein as
servicing compensation or under either of the alternatives set forth above.
Sale or Exchange of Securities. Upon sale or exchange of a Security, a
Securityholder will recognize gain or loss equal to the difference between the
amount realized on the sale and its aggregate adjusted basis in the Mortgage
Assets and other assets represented by the Security. In general, the aggregate
adjusted basis will equal the Securityholder's cost for the Security, increased
by the amount of any income previously reported with respect to the Security and
decreased by the amount of any losses previously reported with respect to the
Security and the amount of any distributions received thereon. Except as
provided above with respect to market discount on any Mortgage Assets, and
except for certain financial institutions subject to the provisions of Code
Section 582(c), any such gain or loss would be capital gain or loss if the
Security was held as a capital asset.
Stripped Securities
General. Pursuant to Code Section 1286, the separation of ownership of
the right to receive some of or all the principal payments on an obligation from
ownership of the right to receive some of or all the interest payments
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results in the creation of "stripped bonds" with respect to principal payments
and "stripped coupons" with respect to interest payments. For purposes of this
discussion, Securities that are subject to those rules will be referred to as
"Stripped Securities." The Securities will be subject to those rules if (i) the
Depositor or any of its affiliates retains (for its own account or for purposes
of resale), in the form of fixed retained yield or otherwise, an ownership
interest in a portion of the payments on the Mortgage Assets, (ii) the
Depositor, any of its affiliates or a servicer is treated as having an ownership
interest in the Mortgage Assets to the extent it is paid (or retains) servicing
compensation in an amount greater than reasonable consideration for servicing
the Mortgage Assets (see "Premium and Discount -- Recharacterization of
Servicing Fees" above) and (iii) a class of Securities are issued in two or more
classes or subclasses representing the right to non pro rata percentages of the
interest and principal payments on the Mortgage Assets.
In general, a holder of a Stripped Security (a "Stripped
Securityholder") will be considered to own "stripped bonds" with respect to its
pro rata share of all or a portion of the principal payments on each Mortgage
Loan and/or "stripped coupons" with respect to its pro rata share of all or a
portion of the interest payments on each Mortgage Loan, including the Stripped
Security's allocable share of the servicing fees paid, to the extent that such
fees represent reasonable compensation for services rendered. See discussion
above under "Standard Securities -- Recharacterization of Servicing Fees." For
this purpose the servicing fees will be allocated to the Stripped Securities in
proportion to the respective offering price of each class (or subclass) of
Stripped Securities. The holder of a Stripped Security generally will be
entitled to a deduction each year in respect of the servicing fees, as described
above under "Standard Securities -- General," subject to the limitation
described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally
as a new obligation issued (i) on the date that the stripped interest is
purchased and (ii) at a price equal to its purchase price or, if more than one
stripped interest is purchased, the share of the purchase price allocable to
such stripped interest. Each stripped interest generally will have original
issue discount equal to the excess of its stated redemption price at maturity
(or, in the case of a stripped coupon, the amount payable on the due date of
such coupon) over its issue price. Although the treatment of Stripped Securities
for federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Securities are issued with respect to a Trust
containing variable rate Mortgage Assets, the Depositor has been advised by
counsel that (i) the Trust will be treated as a grantor trust under subpart E,
Part 1 of subchapter J of the Code and not as an association taxable as a
corporation, and (ii) each Stripped Security should be treated as a single
installment obligation for purposes of calculating original issue discount and
gain or loss on disposition. This treatment is based on the interrelationship of
Code Section 1286 and the regulations thereunder, Code Sections 1272 through
1275, and the OID Regulations. While under Code Section 1286 computations with
respect to Stripped Securities arguably should be made in one of the ways
described below, the OID Regulations state, in general, that all debt
instruments issued in connection with the same transaction must be treated as a
single debt instrument. The Trustee will make and report all computations
described below using this aggregate approach, unless substantial legal
authority requires otherwise.
Furthermore, the regulations under Code Section 1286 support the
treatment of a Stripped Security as a single debt instrument issued on the date
it is originated for purposes of calculating any original issue discount. The
preamble to such regulations state that such regulations are premised on the
assumption that an aggregation approach is appropriate in determining whether
original issue discount on a stripped bond or stripped coupon is de minimis. In
addition, under these regulations, a Stripped Security that represents a right
to payments of both interest and principal may be viewed either as issued with
original issue discount or market discount (as described below), at a de minimis
original issue discount, or presumably, at a premium. The preamble to such
regulations also provide that such regulations are premised on the assumption
that generally the interest component of such a Stripped Security would be
treated as stated interest under the original issue discount rules. Further, the
regulations provide that the purchaser of such a Stripped Security may be
required to account for any discount as market discount rather than original
issue discount if either (i) the initial discount with respect to the Strip
Security was treated as zero under the de minimis rule or (ii) no more than 100
basis points in excess of reasonable servicing is stripped off the related
Mortgage Assets. Any such market discount would be reportable as described above
under "REMIC Securities - Taxation of Regular Securities - Market Discount,"
without regard to the de minimis rule therein.
Status of Stripped Securities. No specific legal authority exists as to
whether the character of the Stripped Securities, for federal income tax
purposes, will be the same as that of the Mortgage Assets. Although the issue is
not free from doubt, Special Counsel has advised the Depositor that Stripped
Securities owned by applicable holders should be considered to represent
"qualifying real property loans" within the meaning or Code Section 593(d)(1),
"real estate
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assets" within the meaning of Code Section 856(c)(A), "obligations(s) . . .
principally secured by an interest in real property" within the meaning of Code
Section 860G(a)(3)(A), and "loans . . . secured by an interest in real property"
within the meaning of Code Section 7701(a)(19)(C)(v), and interest (including
original issue discount) income attributable to Stripped Securities should be
considered to represent "interest on obligations secured by mortgages on real
property" within the meaning or Code Section 856(c)(3)(B), provided that in each
case the Mortgage Assets and interest on such Mortgage Assets qualify for such
treatment. The application of such Code provisions to buy-down Mortgage Assets
is uncertain. See "Standard Securities -- Tax Status" above.
Original Issue Discount. Except as described above under "General,"
each Stripped Security will be considered to have been issued (i) on the date
that the stripped interest is purchased and (ii) at a price equal to its
purchase price or, if more than one stripped interest is purchased, the share of
the purchase price allocable to such stripped interest. Each stripped interest
generally will have original issue discount equal to the excess of its stated
redemption price at maturity (or, in the case of a stripped coupon, the amount
payable on the due date of such coupon) over its issue price. Original issue
discount with respect to a Stripped Security must be included in ordinary income
as it accrues, in accordance with a constant yield method that takes into
account the compounding of interest, which may be prior to the receipt of the
cash attributable to such income. The amount of original issue discount required
to be included in the income of a Stripped Securityholder in any taxable year
should be computed generally as described above under "REMIC Securities --
Taxation of Regular Securities -- Original Issue Discount" and " -- Taxation of
Regular Securities -- Variable Rate Regular Securities." With the apparent
exception of a Stripped Security issued with de minimis original issue discount,
as described above under "General," however, the issue price of a Stripped
Security will be the purchase price paid by each holder thereof, and the stated
redemption price at maturity will include the aggregate amount of the payments
to be made on the Stripped Security to such Stripped Securityholder, presumably
under the Prepayment Assumption, other than amounts treated as qualified stated
interest.
If the Mortgage Assets prepay at a rate either faster or slower than
that under the Prepayment Assumption, a Stripped Securityholder's recognition of
original issue discount will be either accelerated or decelerated and the amount
of such original issue discount will be either increased or decreased depending
on the relative interests in principal and interest on each Mortgage Loan
represented by such Stripped Securityholder's Stripped Security. While the
matter is not free from doubt, the holder of a Stripped Security should be
entitled in the year that it becomes certain (assuming no further prepayments)
that the holder will not recover a portion of its adjusted basis in such
Stripped Security to recognize an ordinary loss equal to such portion of
unrecoverable basis.
As an alternative to the method described above, the fact that some of
or all the interest payments with respect to the Stripped Securities will not be
made if the Mortgage Assets are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the proposed
regulations issued under Code Section 1274 that address the treatment of
contingent payments. If the rules of those proposed regulations apply, treatment
of a Stripped Security under such rules depends on whether the aggregate amount
of principal payments, if any, to be made on the Stripped Security is less than
or greater than its issue price. If the aggregate principal payments are greater
than or equal to the issue price, the principal payments would be treated as a
separate installment obligation issued at a price equal to the purchase price
for the Stripped Security. In such case, original issue discount would be
calculated and accrued under the method described above without consideration of
the interest payments with respect to the Stripped Security. Such payments of
interest would be includible in the Stripped Securityholder's gross income in
the taxable year in which the amounts become fixed. If the aggregate amount of
principal payments to be made on the Stripped Security is less than its issue
price, each payment of principal would be treated as a return of basis. Each
payment of interest would be treated as includible in gross income to the extent
of the applicable Federal rate under Code Section 1274(d), as applied to the
adjusted basis of the Stripped Security, while amounts received in excess of the
applicable Federal rate, as applied to the adjusted basis of the Stripped
Security, would be characterized as a return of basis until the total amount of
interest payments treated as a return of basis equaled the excess of the
purchase price over the aggregate stated principal payments. Any additional
interest payments thereafter would be treated as ordinary income. While not free
from doubt, uncertainty as to the payment of interest arising as a result of the
possibility of prepayment of the Mortgage Assets should not cause the rules
under the proposed contingent payment regulations to apply to interest with
respect to the Stripped Securities.
Sale or Exchange of Stripped Securities. Sale or exchange of a Stripped
Security prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Securityholder's adjusted basis in such Stripped Security, as described above
under "REMIC Securities -- Taxation of Regular Securities -- Sale or Exchange of
Regular Securities." To the extent that a subsequent purchaser's purchase price
is exceeded by the
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remaining payments on the Stripped Securities, such subsequent purchaser will be
required for federal income tax purposes to accrue and report such excess as if
it were original issue discount in the manner described above. It is not clear
for this purpose whether the assumed prepayment rate that is to be used in the
case of a Stripped Securityholder other than by original Stripped Securityholder
should be the Prepayment Assumption or a new rate based on the circumstances at
the date of subsequent purchase.
Purchase of More Than One Class of Stripped Securities. Where an
investor purchases more than one class of Stripped Securities, it is currently
unclear whether for federal income tax purposes such classes of Stripped
Securities should be treated separately or aggregated for purposes of the rules
described above.
Because of these possible varying characterizations of Stripped
Securities and the resultant differing treatment of income recognition, Stripped
Securityholders are urged to consult their own tax advisors regarding the proper
treatment of Stripped Securities for federal income tax purposes.
Reporting Requirements and Backup Withholding
The Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Securityholder or Stripped Securityholder at any
time during such year, such information (prepared on the basis described above)
as the Trustee deems to be necessary or desirable to enable such Securityholders
to prepare their federal income tax returns. Such information will include the
amount of original issue discount accrued on Securities held by persons other
than Securityholders exempted from the reporting requirements. The amounts
required to be reported by the Trustee may not be equal to the proper amount of
original issue discount required to be reported as taxable income by a
Securityholder, other than an original Securityholder. The Trustee will also
file such original issue discount information with the Internal Revenue Service.
If a Securityholder fails to supply an accurate taxpayer identification number
or if the Secretary of the Treasury determines that a Securityholder has not
reported all interest and dividend income required to be shown on his federal
income tax return, 31% backup withholding may be required in respect of any
reportable payments, as described above under " - Backup Withholding."
Taxation of Certain Foreign Investors
To the extent that a Security evidences ownership in Mortgage Assets
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442,
which apply to nonresident aliens, foreign corporations, or other Non-U.S.
Persons generally will be subject to 30% United States withholding tax, or such
lower rate as may be provided for interest by an applicable tax treaty. Accrued
original issue discount or market discount recognized by the Securityholder on
the sale or exchange of such a Security also will be subject to federal income
tax at the same rate.
Treasury regulations provide that interest or original issue discount
paid by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Assets issued after July 18, 1984, will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements described above under "REMIC
Securities -- Taxation of Certain Foreign Investors -- Regular Securities."
Securityholders should be aware that the IRS issued final Regulations
on October 20, 1997, which could affect the United States taxation of foreign
investors owning Securities. The regulations would apply to payments after
December 31, 1999. Investors who are Non-U.S. Persons should consult their own
tax advisors regarding the specific tax consequences to them of owning
Securities.
Debt Certificates
General. Certain Securities ("Debt Certificates") may be issued with
the intention to treat them, for federal income tax purposes, either as (i)
non-recourse debt of the Depositor secured by the related Mortgage Assets, in
which case the related Trust will constitute only a security device which
constitutes a collateral arrangement for the issuance of secured debt and not an
entity for federal income tax purposes or (ii) debt of a partnership, in which
case the related Trust will constitute a partnership for federal income tax
purposes. Special Counsel is of the opinion that (unless otherwise limited in
the related Prospectus Supplement) for federal income tax purposes, assuming
compliance with all the provisions of the related Indenture, (i) Debt
Certificates will be characterized as debt issued by, and not equity
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in, the related Trust and (ii) the related Trust will not be characterized as an
association (or publicly traded partnership within the meaning of Code Section
7704) taxable as a corporation or as a taxable mortgage pool within the meaning
of Code Section 7701(i). Since different criteria are used to determine the
non-tax accounting treatment of the issuance of Debt Certificates, however, the
Depositor expects to treat such transactions, for financial accounting purposes,
as a transfer of an ownership interest in the related Mortgage Assets to the
related Trust and not as the issuance of debt obligations. In this regard, it
should be noted that the IRS has issued a notice stating that, upon examination,
it will scrutinize instruments treated as debt for federal income tax purposes
but as equity for regulatory, rating agency or financial accounting purposes to
determine if their purported status as debt for federal income tax purposes is
appropriate. Assuming, as Special Counsel advises, that Debt Certificates will
be treated as indebtedness for federal income tax purposes, holders of Debt
Certificates, using their method of tax accounting, will follow the federal
income tax treatment hereinafter described.
Original Issue Discount. It is likely that the Debt Certificates will
be treated as having been issued with "original issue discount" within the
meaning of Code Section 1273(a) because interest payments on the Debt
Certificates may, in the event of certain shortfalls, be deferred for periods
exceeding one year. As a result, interest payments may not be considered
"qualified stated interest" payments.
In general, a holder of a Debt Certificate having original issue
discount must include original issue discount in ordinary income as it accrues
in advance of receipt of the cash attributable to the discount, regardless of
the method of accounting otherwise used. The amount of original issue discount
on a Debt Certificate will be computed generally as described under "REMIC
Securities -- Taxation of Regular Securities -- Original Issue Discount" and
"Taxation of Regular Securities -- Variable Rate Regular Securities." The
Depositor intends to report any information required with respect to the Debt
Securities based on the OID Regulations.
Market Discount. A purchaser of a Debt Certificate may be subject to
the market discount rules of Code Sections 1276 through 1278. In general,
"market discount" is the amount by which the stated redemption price at maturity
(or, in the case of a Debt Certificate issued with original issue discount, the
adjusted issue price) of the Debt Certificate exceeds the purchaser's basis in a
Debt Certificate. The holder of a Debt Certificate that has market discount
generally will be required to include accrued market discount in ordinary income
to the extent payments includible in the stated redemption price at maturity of
such Debt Certificate are received. The amount of market discount on a Debt
Certificate will be computed generally as described under "REMIC Securities --
Taxation of Regular Securities -- Market Discount."
Premium. A Debt Certificate purchased at a cost greater than its
currently outstanding stated redemption price at maturity is considered to be
purchased at a premium. A holder of a Debt Certificate who holds a Debt
Certificate as a "capital asset" within the meaning of Code Section 1221 may
elect under Code Section 171 to amortize the premium under the constant interest
method. That election will apply to all premium obligations that the holder of a
Debt Certificate acquires on or after the first day of the taxable year for
which the election is made, unless the IRS permits the revocation of the
election. In addition, it appears that the same rules that apply to the accrual
of market discount on installment obligations are intended to apply in
amortizing premium on installment obligations such as the Debt Securities.The
treatment of premium incurred upon the purchase of a Debt Certificate will be
determined generally as described above under "REMIC Securities -- Taxation of
Regular Securities -- Premium."
Sale or Exchange of Debt Certificate. If a holder of a Debt Certificate
sells or exchanges a Debt Certificate, the holder of a Debt Certificate will
recognize gain or loss equal to the difference, if any, between the amount
received and the holder of a Debt Certificate's adjusted basis in the Debt
Certificate. The adjusted basis in the Debt Certificate generally will equal its
initial cost, increased by any original issue discount or market discount
previously included in the seller's gross income with respect to the Debt
Certificate and reduced by the payments previously received on the Debt
Certificate, other than payments of qualified stated interest, and by any
amortized premium.
In general, except as described above with respect to market discount,
and except for certain financial institutions subject to Code Section 582(c),
any gain or loss on the sale or exchange of a Debt Certificate recognized by an
investor who holds the Debt Certificate as a capital asset (within the meaning
of Code Section 1221), will be capital gain or loss and will be long-term or
short-term depending on whether the Debt Certificate has been held for more than
one year. For corporate taxpayers, there is no preferential rate afforded to
long-term capital gains. For individual taxpayers, net capital gains are subject
to varying tax rates depending upon the holding period of the Debt Certificate.
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Backup Withholding. Holders of Debt Certificates will be subject to
backup withholding rules identical to those applicable to REMIC Regular
Securities. See "REMIC Securities -- Backup Withholding."
Tax Treatment of Foreign Investors. Holders of Debt Certificates who
are foreign investors will be subject to taxation in the same manner as foreign
holders of REMIC Regular Securities. See "REMIC Securities -- Taxation of
Certain Foreign Investors -- Regular Securities."
Notes
With respect to those Securities issued as Notes, no regulations,
published rulings or judicial decisions exist that discuss the characterization
for federal income tax purposes of instruments with terms substantially the same
as the Notes. However, Special Counsel is of the opinion that (unless otherwise
limited in the related Prospectus Supplement), for federal income tax purposes,
assuming compliance with all the provisions of the related Indenture, (i) Notes
will be characterized as debt issued by, and not equity in, the related Trust
and (ii) the related Trust will not be characterized as an association (or
publicly traded partnership within the meaning of Code Section 7704) taxable as
a corporation or as a taxable mortgage pool within the meaning of Code Section
7701(i). Assuming, as Special Counsel advises, that Notes are treated as
indebtedness for federal income tax purposes, holders of Notes, using their
method of tax accounting, will follow the same federal income tax treatment as
Debt Certificates, as described above under "Debt Certificates."
For federal income tax purposes, (i) Notes held by a thrift institution
taxed as a "mutual savings bank" or "domestic building and loan association"
will not represent interests in "qualifying real property loans" within the
meaning of Code Section 593(d)(1); (ii) Notes held by a thrift institution taxed
as a domestic building and loan association will not constitute "loans . . .
secured by an interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v); (iii) interest on Notes held by a real estate investment
trust will not be treated as "interest on obligations secured by mortgages on
real property or on interests in real property " within the meaning of Code
Section 856(c)(3)(B); (iv) Notes held be a real estate investment trust will not
constitute "real estate assets" or "Government securities" within the meaning of
Code Section 856(c)(5)(A); and (v) Notes held by a regulated investment company
will not constitute "Government securities" within the meaning of Code Section
851(b)(4)(A)(i).
Securities Classified as Partnership Interests
Certain Trusts may be treated as partnerships for Federal income tax
purposes. In such event, the Trusts may issue Securities characterized as
"Partnership Interests" as discussed in the related Prospectus Supplement which
will also cover any material federal income tax consequences applicable to the
Owners. With respect to such series of Partnership Interests, Special Counsel is
of the opinion that (unless otherwise limited in the related Prospectus
Supplement) the Trust will be characterized as a partnership and not an
association taxable as a corporation for federal income tax purposes.
FASIT Securities
General. With respect to a particular series of Securities, an election
may be made to treat the Trust or one or more trusts or segregated pools of
assets therein as one or more FASITs within the meaning of Code Section 860L.
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. A Trust or a portion or
portions thereof as to which one or more FASIT elections will be made will be
referred to as a "FASIT Pool." For purposes of this discussion, Securities of a
series as to which one or more FASIT elections are made are referred to as
"FASIT Securities" and will consist of one or more classes of "FASIT Regular
Securities" and one "Ownership Interest Security" in the case of each FASIT
Pool. 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 Holders of FASIT
Securities. Investors also should note that the FASIT discussion contained
herein constitutes only a summary of the federal income tax consequences to
Holders of FASIT Securities.
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Qualification as a FASIT requires ongoing compliance with certain
conditions. With respect to each Series of FASIT Securities, Special Counsel has
advised the Depositor that in their opinion (unless otherwise limited in the
related Prospectus Supplement), assuming (i) the making of an appropriate
election, (ii) compliance with all provisions of the related Agreement and (iii)
compliance with the applicable provisions of the law, including any amendments
to the Code or applicable Treasury regulations thereunder, each FASIT Pool will
qualify as a FASIT. In such case, the FASIT Regular Securities will be
considered to be "regular interests" in the FASIT Pool and generally will be
treated for federal income tax purposes as if they were newly originated debt
instruments, and the Ownership Interest Security will be considered to be the
"ownership interest" in the FASIT Pool, which generally is not treated as debt
for such purposes, but rather as representing rights and responsibilities with
respect to the taxable income or loss of the FASIT Pool. The Prospectus
Supplement for each series of Securities will indicate whether one or more FASIT
elections with respect to the related Trust will be made and will also cover any
material federal income tax consequences applicable to the holders of FASIT
Securities.
Status of FASIT Regular Securities. 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 Code Section 7701(a)(19)
to the same extent that REMIC Securities would be so considered. See "Certain
Federal Income Tax Considerations -- REMIC Securities -- Status as REMIC
Securities." In addition, FASIT Regular Securities held by a financial
institution to which Code Section 585 applies will be treated as evidences of
indebtedness for purposes of Code Section 582(c)(1). FASIT Securities will not
qualify as "Government Securities" for either REIT or RIC qualification
purposes.
Qualification as a FASIT. On order for the FASIT Pool to qualify as a
FASIT, there must be ongoing compliance on the part of the FASIT Pool with the
requirements set forth in the Code. The FASIT Pool will qualify under the Code
as a FASIT in which the FASIT Regular Securities and the Ownership Interest
Security will constitute the "regular interests" and the "ownership interest,"
respectively, if (i) a FASIT election is in effect, (ii) certain tests
concerning (a) the composition of the FASIT Pool's assets and (b) the nature of
the Holders' interests in the FASIT Pool are met on a continuing basis and (iii)
the FASIT Pool is not a regulated company as defined in Code Section 851(a).
Asset Composition. In order for a FASIT Pool to be eligible for FASIT
status, substantially all of the assets of the FASIT 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 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 Ownership Interest Security or by any
person related to such Holder.
Interests in a FASIT. In addition to the FASIT Qualification Test, 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
directly by a fully taxable domestic corporation. A FASIT interest generally
qualifies as a regular interest if (i) it is designated as a regular interest,
(ii) it has a stated maturity (including options to renew) 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
federal 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 "Certain Federal Income Tax
Considerations -- REMIC Securities -- Taxation of Regular Securities -- Variable
Rate Regular Securities."
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
73
<PAGE>
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 the use of losses
to offset income derived from such interest. See "Certain Federal Income
Considerations -- FASIT Securities -- Tax Treatment of FASIT Regular Securities
- -- Treatment of High-Yield Interests."
Consequences of Disqualification. If a FASIT Pool 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 taxable 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 in the former FASIT. 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 cash 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 Holder and a principal
payment on such Security will be treated as a return of capital to the extent
that the Holder's basis is allocable to that payment. Holders of FASIT Regular
Securities issued with original issue discount 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
"Certain Federal Income Tax Considerations -- REMIC Securities --Taxation of
Regular Securities -- Market Discount," and "--Premium."
If a FASIT Regular Security is sold or exchanged, the Holder generally
will recognize gain or loss upon the sale in the same manner as that described
for REMIC Regular Securities. See "Certain Federal Income Tax Considerations --
REMIC Securities -- Taxation of Regular Securities -- Sale or Exchange of
Regular Securities." 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).
Treatment of High-Yield Interests. High-Yield Interests are subject to
taxation as FASIT Regular Interests. In addition, 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 or ceases to be a dealer, the dealer will become 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 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.
74
<PAGE>
Tax Treatment of Ownership Interest Security. A FASIT is not subject to
taxation. An Ownership Interest Security represents the residual equity interest
in a FASIT. As such, the Holder of an Ownership Interest Security determines its
taxable income by taking into account all assets, liabilities and items of
income, gain, deduction, loss and credit of a FASIT (other than those allocable
to prohibited transactions as described below). In general, the character of the
income to the Holder of an Ownership Interest Security 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 an Ownership Interest Security is
treated as ordinary income. In determining that taxable income, the Holder of an
Ownership Interest 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, the Holder of Ownership Interest Securities are subject to the same
limitations on its ability to use losses to offset income from its FASIT
Security as are the Holders of High-Yield Interests. See "Certain Federal Income
Tax Considerations -- FASIT Securities --- Treatment of High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to Ownership Interest Securities. Accordingly, losses
on dispositions of an Ownership Interest Security generally will be disallowed
where, within six months before or after the disposition, the seller of such
Security acquires any other Ownership Interest Security or, in the case of a
FASIT holding mortgage assets, any interest in a taxable mortgage pool that is
economically comparable to an Ownership Interest Security. In addition, if any
security that is sold or contributed to a FASIT by the Holder of the related
Ownership Interest 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 an Ownership Interest 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 FASIT Pool 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 as Holders
of REMIC Securities. See "Certain Federal Income Tax Considerations -- REMIC
Securities ---Backup Withholding." For purposes of reporting and tax
administration, Holders of FASIT Securities generally will be treated in the
same manner as Holders of REMIC Securities.
PLAN OF DISTRIBUTION
Securities are being offered hereby in series through one or more
underwriters or groups of underwriters (the "Underwriters"). The Prospectus
Supplement will set forth the terms of offering of the series of Securities,
including the public offering or purchase price of each class of Securities of
such series being offered thereby or the method by which such price will be
determined and the net proceeds to the Depositor from the sale of each such
class. Such Securities will be acquired by the Underwriters for their own
account and may be resold from time to time in one or more transactions
including negotiated transactions, at fixed public offering prices or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. The managing Underwriter or Underwriters with respect to the offer and
sale of a particular series of Securities will be set forth on the cover of the
Prospectus Supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement.
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. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Depositor and any profit on the resale of Securities by them may
be deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended. The Prospectus Supplement will describe any such
compensation paid by the Depositor.
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It is anticipated that the underwriting agreement pertaining to the
sale of any series of Securities will provide that the obligations of the
Underwriters will be subject to certain conditions precedent, that the
Underwriters will be obligated to purchase all such Securities if any are
purchased and that the Depositor will indemnify the Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
RATINGS
Each class of Securities of a Series will be rated at their initial
issuance in one of the four highest categories by at least one Rating Agency.
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 Agency. No person is obligated to maintain the rating on any
Security, and, accordingly, there can be no assurance that the ratings assigned
to a Security upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter. In general, ratings address credit risk and do
not represent any assessment of the likelihood or rate of principal prepayments.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Securities will be passed upon for the Depositor by Arter & Hadden LLP,
Washington, D.C. and by Internal Counsel for the Depositor. Certain legal
matters relating to insolvency issues and certain federal income tax matters
concerning the Securities will be passed upon for the Depositor by Arter &
Hadden.
FINANCIAL INFORMATION
A Trust will be formed with respect to each series of Securities. No
Trust will have any assets or obligations prior to the issuance of the related
series of Securities. No Trust will engage in any activities other than those
described herein or in the Prospectus Supplement. Accordingly, no financial
statement with respect to any Trust is included in this Prospectus or will be
included in the Prospectus Supplement.
The Depositor has determined that its financial statements are not
material to the offering made hereby.
A Prospectus Supplement and the related Form 8-K (which will be
incorporated by reference to the Registration Statement) may contain financial
statements of the related Credit Enhancer, if any.
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APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
----
1986 Act......................................................................51
Agreement......................................................................1
Applicable Accounting Standards...............................................31
Balloon Loans..................................................................7
Beneficial Owners..............................................................5
BIF...........................................................................32
Book Entry Certificates........................................................4
Certificate Account...........................................................13
Certificate Interest Rate.....................................................12
Certificate Register..........................................................12
Certificate Registrar.........................................................12
Certificates...................................................................1
Clearing Agency................................................................4
Clearing Agency Participants...................................................5
Closed-End Loans...............................................................2
Code...........................................................................5
Companion Certificates........................................................13
Compound Interest Certificates................................................12
Contract Loan Schedule........................................................30
Contracts.....................................................................18
Cooperative Loans.............................................................16
Cooperatives...................................................................2
Credit Enhancement.............................................................4
Credit Enhancer...............................................................10
Custodial Account.............................................................24
Cut-Off Date..................................................................12
DCR............................................................................6
Debt Securities...............................................................70
Defective Mortgage Loan.......................................................31
Delivery Date.................................................................11
Deposit Date..................................................................31
Depositor......................................................................1
Disqualified Organization.....................................................60
Distribution Date.............................................................13
DOL...........................................................................49
Eligible Investments..........................................................32
Equity Certificates............................................................1
ERISA..........................................................................5
Events of Default.............................................................34
FASIT Pool....................................................................72
FASIT Regular Securities......................................................72
FASIT Securities..............................................................72
FDIC..........................................................................24
FHA............................................................................2
Fitch..........................................................................6
Garn-St. Germain Act..........................................................44
GNMA...........................................................................2
HUD...........................................................................18
Insurance Proceeds............................................................23
Interest Accrual Period.......................................................14
Issuer.........................................................................1
Liquidation Proceeds..........................................................23
Loan-to-Value Ratio...........................................................17
Master Servicer................................................................1
MBS............................................................................2
Monthly Advance...............................................................24
Moody's........................................................................6
Mortgage Assets................................................................2
Mortgage Loans.................................................................2
Mortgage Notes................................................................16
Mortgage Pool Insurance Policy................................................21
Mortgage Rates................................................................17
Mortgaged Properties..........................................................16
Mortgages.....................................................................16
Mortgage-Backed Securities.....................................................2
Mortgagors....................................................................23
NCUA..........................................................................24
Non-Priority Certificates.....................................................13
Non-U.S. Person...............................................................63
Noneconomic Residual Interest.................................................60
Nonrecoverable Advance........................................................24
Note Event of Default.........................................................36
Note Rate.....................................................................14
Notes..........................................................................1
Notional Principal Balance....................................................14
OID Regulations...............................................................50
Original Value................................................................17
OTS...........................................................................44
Owners........................................................................13
Ownership Interest Security...................................................72
Partnership Interests.........................................................72
Pass-Through Entity...........................................................60
Pass-Through Rate..............................................................3
Plans.........................................................................49
Pool Insurer..................................................................21
Premium Regulations...........................................................55
Prepayment Assumption.........................................................53
Pre-Funding Account............................................................3
Pre-Funding Agreement..........................................................3
Principal Balance.............................................................17
Principal Prepayments.........................................................14
Priority Certificates.........................................................13
PTE 83-1......................................................................49
Rating Agency..................................................................6
REIT..........................................................................51
REMIC..........................................................................5
REMIC Certificates............................................................50
REMIC Pool....................................................................50
REMIC Regulations.............................................................50
Record Date...................................................................13
Regular Certificateholder.....................................................51
Regular Certificates..........................................................50
Relief Act....................................................................10
Remittance Date...............................................................24
Remittance Rate...............................................................24
Reserve Fund..................................................................23
Residual Certificateholders...................................................56
Residual Certificates.........................................................50
Retail Class Certificate......................................................52
Revolving Credit Line Loans....................................................2
S&P............................................................................6
Sale and Servicing Agreement..................................................38
SAIF..........................................................................32
Scheduled Amortization Certificates...........................................13
Securities.....................................................................1
Security Principal Balance....................................................11
Securityholder................................................................65
Seller.........................................................................1
Senior Certificates...........................................................19
Servicer.......................................................................1
Special Allocation Certificates...............................................13
Special Counsel...............................................................50
Special Hazard Insurance Policy...............................................21
Special Hazard Insurer........................................................22
Special Serviced Mortgage Loan................................................29
Standard Security.............................................................65
Stripped Securities...........................................................68
Stripped Securityholder.......................................................68
Subordinated Certificates.....................................................19
Thrift Institution............................................................50
Title I Program...............................................................47
TMP...........................................................................51
Trust..........................................................................1
Trustee........................................................................1
U.S. Person...................................................................61
UCC...........................................................................42
Underwriters..................................................................75
VA.............................................................................2
A-1
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Securities, other than underwriting
discounts and commissions.*
Filing Fee for Registration Statement..................... $295.00
Legal Fees and Expenses*.................................. **
Accounting Fees and Expenses*............................. **
Trustee's Fees and Expenses (including counsel fees)*..... **
Printing and Engraving Fees*.............................. **
Blue Sky Fees and Expenses*............................... **
Rating Agency Fees*....................................... **
Miscellaneous*............................................ **
Total............................................... $
- ---------------------
* Estimated in accordance with Item 511 of Regulation S-K.
** To be filed by Amendment.
Item 15. Indemnification of Directors and Officers.
The form of Underwriting Agreement to be filed as Exhibit 1.1 hereto,
will provide for indemnification by each Underwriter of any officer, director or
controlling person of the Registrant who becomes subject to liability arising
out of an untrue or alleged untrue statement of a material fact contained in
this Registration Statement, the Prospectus filed herewith or any Preliminary
Prospectus, related Prospectus Supplement or related Preliminary Prospectus
Supplement, or omission or alleged omission, that was made in reliance on
written information provided to the Registrant by such Underwriter.
The Certificate of Incorporation and Bylaws for the Registrant
(Exhibits 3.1 and 3.2 to the Form S-3, Registration No. 33-99346 filed by the
Registrant on November 14, 1995) provide for indemnification of directors and
officers to the full extent permitted by Delaware law. Section 145 of the
Delaware General Corporation Law provides, in substance, that Delaware
corporations shall have the power, under specified circumstances, to indemnify
their directors, officers, employees and agents in connection with actions,
suits or proceedings brought against them by a third party or in the right of
the corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding.
The Bylaws also provide that the Registrant may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any corporate
agent against any liability which may be asserted against him.
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Item 16. Exhibits.
<TABLE>
<S> <C> <C>
1.1** -- Form of Underwriting Agreement.
3.1** -- Certificate of Incorporation of AMRESCO Residential Securities Corporation.
3.2** -- Bylaws of AMRESCO Residential Securities Corporation.
4.1** -- Form of Pooling and Servicing Agreement (Insured Transaction).
4.2* -- Form of Pooling and Servicing Agreement (Senior/Subordinate Transaction).
4.3* -- Form of Indenture.
5.1* -- Opinion of Arter & Hadden LLP regarding the legality of the securities
(Asset Backed Certificates and Asset Backed Notes).
8.1* -- Opinion of Arter & Hadden LLP regarding tax matters.
10.1* -- Form of Sale and Servicing Agreement.
10.2* -- Form of Trust Agreement.
23.1* -- Consent of Arter & Hadden LLP (included as part of Exhibit 5.1 and 8.1).
24.1* -- Powers of Attorney (included on the signature page of this
Registration Statement).
25.1*** -- Form T-1 Statement of Eligibility of the Indenture Trustee.
99.1* -- Form of Prospectus Supplement (Certificates - Insured Transaction).
99.2* -- Form of Prospectus Supplement (Certificates - Senior/Subordinate Transaction).
99.3* -- Form of Prospectus Supplement (Notes).
</TABLE>
- -----------------
* Filed herewith.
** Incorporated by reference from the filing of November 14, 1995 made by the
Registrant on Form S-3, Registration No. 33-99346.
*** To be filed by post-effective amendment.
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<PAGE>
Item 17. Undertakings
A. Undertaking pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or the
more recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which is
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed or furnished to
the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
B. Undertaking pursuant to Securities Exchange Act of 1934.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-iii
<PAGE>
C. Undertaking for Equity Offerings.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each
purchaser.
D. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
E. Undertaking pursuant to Rule 430A.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(l) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
F. Undertaking pursuant to the Trust Indenture Act of 1939.
The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Indenture Trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act
("Act") in accordance with the rules and regulations prescribed by the
Securities and Exchange Commission under Section 305(b)(2) of the Act.
[Remainder of Page Intentionally Left Blank]
II-iv
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant hereby certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on the 24th day of
August, 1998.
AMRESCO RESIDENTIAL SECURITIES
CORPORATION
By: /s/ Robert L. Adair III
-------------------------------------
Name: Robert L. Adair III
Title: President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes Robert L.
Adair, III, Ronald B. Kirkland, Janice M. Cott and Scott J. Reading, and each of
them, to file one or more amendments (including post-effective amendments) to
this Registration Statement, which amendments may make such changes as any of
such persons deems appropriate, and each such person individually and in the
capacity stated below, hereby appoints each of such persons as attorney-in-fact
to execute in his name and on his behalf any such amendments to the Registration
Statement.
Signature Title Date
--------- ----- ----
/s/ Robert L. Adair III President (Chief Executive August 24, 1998
- ------------------------------- Officer) and Director
Robert L. Adair III
/s/ Ronald B. Kirkland Chief Accounting Officer August 24, 1998
- -------------------------------
Ronald B. Kirkland
/s/ M. Katheryn Boyle Director August 24, 1998
- -------------------------------
M. Katheryn Boyle
/s/ L. Keith Blackwell Director August 24, 1998
- -------------------------------
L. Keith Blackwell
<PAGE>
EXHIBIT INDEX
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
- ------ ----------------------- ----------------
4.2 Form of Pooling and Servicing Agreement
(Senior/Subordinate Transaction) 95
4.3 Form of Indenture 247
5.1 Opinion of Arter & Hadden LLP regarding the
legality of the securities (Asset-Backed
Certificates and Asset-Backed Notes) 311
8.1 Opinion of Arter & Hadden LLP regarding tax
matters 314
10.1 Form of Sale and Servicing Agreement 316
10.2 Form of Trust Agreement 404
23.1 Consent of Arter & Hadden LLP (included as
part of Exhibit 5.1 and 8.1)
24.1 Powers of Attorney (included on signature
page)
99.1 Form of Prospectus Supplement (Certificates -
Insured Transaction) 452
99.2 Form of Prospectus Supplement (Certificates -
Senior/Subordinate Transaction) 557
99.3 Form of Prospectus Supplement (Notes) 677
Exhibit 4.2
POOLING AND SERVICING AGREEMENT
Relating to
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN TRUST 199_-_
Among
AMRESCO RESIDENTIAL SECURITIES CORPORATION,
as Depositor,
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.,
as Seller and Master Servicer,
------------------------------
---------------------------------------------
------------------------------------------------------------
as Servicers
and
--------------------------------------------
as Trustee
Dated as of _______________ __, 199_
<PAGE>
CONTENTS
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CONVEYANCE........................................................................................................1
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION.......................................................................2
Section 1.01 Definitions............................................................................2
Section 1.02 Use of Words and Phrases..............................................................43
Section 1.03 Captions; Table of Contents...........................................................44
Section 1.04 Opinions..............................................................................44
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST.............................................................45
Section 2.01 Establishment of the Trust............................................................45
Section 2.02 Office................................................................................45
Section 2.03 Purposes and Powers...................................................................45
Section 2.04 Appointment of the Trustee; Declaration of Trust......................................45
Section 2.05 Expenses of the Trust.................................................................45
Section 2.06 Ownership of the Trust................................................................45
Section 2.07 Reserved..............................................................................45
Section 2.08 Miscellaneous REMIC Provisions........................................................46
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE SERVICERS, THE MASTER SERVICER
AND THE SELLER; COVENANT OF SELLER TO CONVEY MORTGAGE LOANS.............................................48
Section 3.01 Representations and Warranties of the Depositor.......................................48
Section 3.02 Representations and Warranties of the Servicers and the Master Servicer...............49
Section 3.03 Representations and Warranties of the Seller..........................................52
Section 3.04 Representations and Warranties Relating to the Mortgage Loans; Covenants of
Seller to Take Certain Actions with Respect to the Mortgage Loans In Certain
Situations............................................................................54
Section 3.05 Conveyance of the Mortgage Loans, Subsequent Mortgage Loans and Qualified
Replacement Mortgages.................................................................62
Section 3.06 Acceptance by Trustee; Certain Substitutions of Mortgage Loans; Certification
by Trustee............................................................................65
Section 3.07 Conveyance of the Subsequent Mortgage Loans...........................................66
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES.......................................................................69
Section 4.01 Issuance of Certificates..............................................................69
Section 4.02 Sale of Certificates..................................................................69
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS..................................................................70
Section 5.01 Terms.................................................................................70
Section 5.02 Forms.................................................................................70
</TABLE>
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Section 5.03 Execution, Authentication and Delivery................................................70
Section 5.04 Registration and Transfer of Certificates.............................................71
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates.....................................72
Section 5.06 Persons Deemed Owners.................................................................73
Section 5.07 Cancellation..........................................................................73
Section 5.08 Limitation on Transfer of Ownership Rights............................................73
Section 5.09 Assignment of Rights..................................................................74
ARTICLE VI
COVENANTS...............................................................................................75
Section 6.01 Distributions.........................................................................75
Section 6.02 Money for Distributions to be Held in Trust; Withholding..............................75
Section 6.03 Protection of Trust Estate............................................................76
Section 6.04 Performance of Obligations............................................................76
Section 6.05 Negative Covenants....................................................................77
Section 6.06 No Other Powers.......................................................................77
Section 6.07 Limitation of Suits...................................................................77
Section 6.08 Unconditional Rights of Owners to Receive Distributions...............................78
Section 6.09 Rights and Remedies Cumulative........................................................78
Section 6.10 Delay or Omission Not Waiver..........................................................78
Section 6.11 Control by Owners.....................................................................78
Section 6.12 Access to Owners of Certificates' Names and Addresses.................................79
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES....................................................................80
Section 7.01 Collection of Money...................................................................80
Section 7.02 Establishment of Accounts.............................................................80
Section 7.03 Flow of Funds.........................................................................80
Section 7.04 Pre-Funding Account and Capitalized Interest Account..................................88
Section 7.05 Investment of Accounts................................................................89
Section 7.06 Reserved..............................................................................90
Section 7.07 Eligible Investments..................................................................90
Section 7.08 Accounting and Directions by Trustee..................................................92
Section 7.09 Reports by Trustee....................................................................92
Section 7.10 Additional Reports by Trustee.........................................................95
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS.......................................................................................96
Section 8.01 Servicers and Subservicers............................................................96
Section 8.02 Collection of Certain Mortgage Loan Payments..........................................97
Section 8.03 Subservicing Agreements Between Servicer and Subservicer..............................97
Section 8.04 Successor Subservicer.................................................................98
Section 8.05 Liability of Servicer.................................................................98
Section 8.06 No Contractual Relationship Between Subservicer and the Trustee or the Owners.........98
Section 8.07 Assumption or Termination of Subservicing Agreement by Trustee........................98
Section 8.08 Principal and Interest Accounts; Escrow Accounts......................................98
Section 8.09 Delinquency Advances and Servicing Advances..........................................100
Section 8.10 Compensating Interest; Purchase of Mortgage Loans....................................101
Section 8.11 Maintenance of Insurance.............................................................102
</TABLE>
ii
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Section 8.12 Due-on-Sale Clauses; Assumption and Substitution Agreements..........................102
Section 8.13 Realization Upon Defaulted Mortgage Loans............................................103
Section 8.14 Trustee and Custodian to Cooperate; Release of Files.................................105
Section 8.15 Servicing Compensation...............................................................106
Section 8.16 Annual Statement as to Compliance....................................................106
Section 8.17 Annual Independent Certified Public Accountants' Reports.............................107
Section 8.18 Access to Certain Documentation and Information Regarding the
Mortgage Loans.......................................................................107
Section 8.19 Assignment of Agreement..............................................................107
Section 8.20 Events of Servicing Termination......................................................107
Section 8.21 Resignation of a Servicer and Appointment of Successor...............................109
Section 8.22 Waiver of Past Events of Servicing Termination.......................................111
Section 8.23 Assumption or Termination of Subservicing Agreement By the Trustee...................112
Section 8.24 Powers and Duties of the Trustee as Successor Servicer...............................112
Section 8.25 Liability of the Servicers...........................................................112
Section 8.26 Inspections by Trustee and Seller; Errors and Omissions Insurance....................113
Section 8.27 Merger, Conversion, Consolidation or Succession to Business of Servicer..............113
Section 8.28 Notices of Material Events...........................................................114
Section 8.29 Servicer's Monthly Servicing Report; Aggregate Monthly Servicing Report;
Reconciliation; Cooperation Procedures...............................................114
Section 8.30 Indemnification by the Servicer......................................................116
Section 8.31 Servicing Standard...................................................................117
Section 8.32 No Solicitation......................................................................117
Section 8.33 Powers and Duties of the Master Servicer.............................................117
Section 8.34 Liability of the Master Servicer.....................................................118
Section 8.35 Master Servicer Not to Resign........................................................118
ARTICLE IX
TERMINATION OF TRUST...................................................................................120
Section 9.01 Termination of Trust.................................................................120
Section 9.02 Auction Termination; Servicer Termination............................................120
Section 9.03 Termination Upon Loss of REMIC Status................................................122
Section 9.04 Disposition of Proceeds..............................................................123
ARTICLE X
THE TRUSTEE............................................................................................124
Section 10.01 Certain Duties and Responsibilities..................................................124
Section 10.02 Removal of Trustee for Cause.........................................................125
Section 10.03 Certain Rights of the Trustee........................................................126
Section 10.04 Not Responsible for Recitals or Issuance of Certificates.............................127
Section 10.05 May Hold Certificates................................................................128
Section 10.06 Money Held in Trust..................................................................128
Section 10.07 Compensation and Reimbursement; No Lien for Fees.....................................128
Section 10.08 Corporate Trustee Required; Eligibility..............................................128
Section 10.09 Resignation and Removal; Appointment of Successor....................................128
Section 10.10 Acceptance of Appointment by Successor Trustee.......................................129
Section 10.11 Merger, Conversion, Consolidation or Succession to Business of the Trustee...........130
Section 10.12 Reporting; Withholding...............................................................130
Section 10.13 Liability of the Trustee.............................................................131
</TABLE>
iii
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Section 10.14 Appointment of Co-Trustee or Separate Trustee........................................131
Section 10.15 Appointment of Custodians............................................................132
Section 10.16 No Solicitation......................................................................132
ARTICLE XI
MISCELLANEOUS..........................................................................................133
Section 11.01 Compliance Certificates and Opinions.................................................133
Section 11.02 Form of Documents Delivered to the Trustee...........................................133
Section 11.03 Acts of Owners.......................................................................134
Section 11.04 Notices, etc. to Trustee.............................................................134
Section 11.05 Notices and Reports to Owners; Waiver of Notices.....................................134
Section 11.06 Rules by Trustee.....................................................................135
Section 11.07 Successors and Assigns...............................................................135
Section 11.08 Severability.........................................................................135
Section 11.09 Benefits of Agreement................................................................135
Section 11.10 Legal Holidays.......................................................................135
Section 11.11 Governing Law; Submission to Jurisdiction............................................136
Section 11.12 Counterparts.........................................................................136
Section 11.13 Usury................................................................................136
Section 11.14 Amendment............................................................................137
Section 11.15 Paying Agent; Appointment and Acceptance of Duties...................................137
Section 11.16 REMIC Status.........................................................................138
Section 11.17 Additional Limitation on Action and Imposition of Tax................................139
Section 11.18 Appointment of Tax Matters Person....................................................140
Section 11.19 Attorneys' Fees......................................................................140
Section 11.20 Notices..............................................................................140
</TABLE>
iv
<PAGE>
SCHEDULE I-A SCHEDULE OF GROUP I MORTGAGE LOANS
SCHEDULE I-B SCHEDULE OF GROUP II MORTGAGE LOANS
SCHEDULE II SCHEDULE OF ADVANTA LOANS AND WENDOVER LOANS
EXHIBIT A-1 FORM OF CLASS A-1, M-1, M-2 and B CERTIFICATES
EXHIBIT B-1 FORM OF CLASS C-IO CERTIFICATE
EXHIBIT B-2 FORM OF CLASS D CERTIFICATE
EXHIBIT B-3 FORM OF CLASS R CERTIFICATE
EXHIBIT B-4 FORM OF CLASS S CERTIFICATE
EXHIBIT C FORM OF SUBSEQUENT TRANSFER AGREEMENT
EXHIBIT D FORM OF CERTIFICATE RE: MORTGAGE LOANS PREPAID
IN FULL AFTER CUT-OFF DATE
EXHIBIT E FORM OF CUSTODIAN'S RECEIPT
EXHIBIT F FORM OF POOL CERTIFICATION
EXHIBIT G FORM OF DELIVERY ORDER
EXHIBIT H FORM OF SERVICER'S TRUST RECEIPT
EXHIBIT I FORM OF CLASS R TAX MATTERS TRANSFER CERTIFICATE
EXHIBIT J FORM OF NOTICE
EXHIBIT K FORM OF LIQUIDATION REPORT
EXHIBIT L FORM OF CUSTODIAL AGREEMENT
EXHIBIT M AUCTION SALE BID PROCEDURES
v
<PAGE>
POOLING AND SERVICING AGREEMENT, relating to AMRESCO RESIDENTIAL
SECURITIES CORPORATION MORTGAGE LOAN TRUST 199_-_, dated as of __________ __,
199_, by and among AMRESCO RESIDENTIAL SECURITIES CORPORATION, a Delaware
corporation, in its capacity as Depositor (the "Depositor"), AMRESCO RESIDENTIAL
CAPITAL MARKETS, INC., a Delaware corporation, in its capacities as the Seller
(in such capacity, the "Seller") and the Master Servicer (in such capacity, the
"Master Servicer"), _______________ _______________ and, _______________
_______________ as Servicer (the "Servicers"), and _______________
_______________, in its capacity as the Trustee (the "Trustee").
WHEREAS, the Depositor wishes to establish a trust and two subtrusts
and provide for the allocation and sale of the beneficial interests therein and
the maintenance and distribution of the Trust Estate;
WHEREAS, each of the Servicers have agreed to service a portion of the
Mortgage Loans, respectively, which constitute the principal assets of the Trust
Estate and the Master Servicer has agreed to supervise the activities of the
Servicers;
WHEREAS, all things necessary to make the Certificates, when executed
by the Depositor and authenticated by the Trustee valid instruments, and to make
this Agreement a valid agreement, in accordance with their and its terms, have
been done;
WHEREAS, _______________ _______________ is willing to serve in the
capacity of the Trustee hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Depositor, the Seller, each Servicer, the
Master Servicer and the Trustee hereby agree as follows:
CONVEYANCE
To provide for the distribution of the principal of and/or interest on
the Certificates in accordance with their terms, all of the sums distributable
under this Agreement with respect to the Certificates and the performance of the
covenants contained in this Agreement, the Seller hereby bargains, sells,
conveys, assigns, and transfers to the Depositor and the Depositor hereby
bargains, sells, conveys, assigns and transfers to the Trustee, in trust,
without recourse and for the exclusive benefit of the Owners of the
Certificates, all of their respective right, title and interest in and to any
and all benefits accruing to them from (a) the Mortgage Loans (other than any
principal and interest payments due thereon on or prior to the Cut-Off Date or
Subsequent Cut-Off Date in the case of Subsequent Mortgage Loans) listed in
Schedules I-A and I-B to this Agreement (or Schedules I-A and I-B to any
Subsequent Transfer Agreement) which the Seller is causing to be delivered to
the Depositor and the Depositor is causing to be delivered to the Custodian, on
behalf of the Trustee (and all substitutions therefor as provided by Section
3.03, 3.04, 3.05 and 3.06), together with the related Mortgage Loan documents
and the Seller's and the Depositor's interest in any Property which secured a
Mortgage Loan but which has been acquired by foreclosure or deed in lieu of
foreclosure, and all payments thereon and proceeds of the conversion, voluntary
or involuntary, of the foregoing; (b) such amounts as may be held by the Trustee
in the Certificate Account, the Pre-Funding Account, the Capitalized Interest
Account, the Upper-Tier Group I Distribution Account and the Upper-Tier Group II
Distribution Account together with investment earnings on such amounts and such
amounts as may be held in the name of the Trustee in the Principal and Interest
Account, if any, exclusive of investment earnings thereon (except as otherwise
provided herein), whether in the form of cash, instruments, securities or other
properties (including any Eligible Investments held by the Servicers); (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, hazard insurance and title insurance policy
relating to the Mortgage Loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing) to pay the Certificates as specified herein; ((a)-(c)
above shall be collectively referred to herein as the "Trust Estate").
<PAGE>
The Trustee acknowledges such sale, accepts the Trust hereunder in
accordance with the provisions hereof and agrees to perform the duties herein to
the best of its ability.
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Account": Any account established in accordance with Section 7.02 or
8.08 hereof.
"Accrual Period": With respect to the Group I Certificates and any
Payment Date, the calendar month immediately preceding the month in which the
Payment Date occurs; a "calendar month" shall be deemed to be 30 days. With
respect to the Group II Certificates and any Payment Date, the period commencing
on the preceding Payment Date (or on the Closing Date in the case of the first
Payment Date) and ending on the day immediately preceding the current Payment
Date. All calculations of interest on the Group I Certificates will be made on
the basis of a 360-day year assumed to consist of twelve 30 day months and
calculations of interest on the Group II Certificates will be made on the basis
of the actual number of days elapsed in the related Accrual Period and a year of
360 days.
"Addition Notice": With respect to the transfer of Subsequent Mortgage
Loans to the Trust for inclusion in Group I or Group II pursuant to Section 3.07
hereof, notice given in accordance with Section 3.07(b)(i) regarding the
Depositor's designation of Subsequent Mortgage Loans to be sold to the Trust for
inclusion in Group I or Group II and the aggregate Loan Balance of such
Subsequent Mortgage Loans with respect to each such Group.
"Advisor": As defined in Section 9.02(a) hereof.
"Aggregate Certificate Principal Balance": As of any date of
determination thereof, the sum of the then outstanding Certificate Principal
Balance of the Class A Certificates, the Mezzanine Certificates and the Class B
Certificates.
"Aggregate Monthly Servicing Report": The monthly servicing report
prepared by the Master Servicer pursuant to Section 8.29(g), which report is
based on the information provided in the Servicer's Monthly Servicing Reports.
"Aggregate Servicing Fee Rate": 0.50% per annum.
"Agreement": This Pooling and Servicing Agreement, as it may be amended
from time to time, including the Exhibits and Schedules hereto.
"Applied Realized Loss Amount": The Group I Applied Realized Loss
Amount or the Group II Applied Realized Loss Amount, as applicable.
"Appraised Value": The appraised value of any Property based upon the
appraisal or other valuation made at the time of the origination of the related
Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase money
mortgage, the sales price of the Property at such time of origination, if such
sales price is less than such appraised value.
2
<PAGE>
"ARMC": AMRESCO Residential Mortgage Corporation, a Delaware
corporation.
"Authorized Officer": With respect to any Person, any officer of such
Person who is authorized to act for such Person in matters relating to this
Agreement, and whose action is binding upon, such Person; with respect to the
Depositor, the Seller, the Servicers and the Master Servicer initially including
those individuals whose names appear on the lists of Authorized Officers
delivered at the Closing; with respect to the Trustee, any Vice President,
Assistant Vice President, Trust Officer or any Officer of the Trustee located at
the Corporate Trust Office.
"Balloon Loan": A Mortgage Loan with respect to which the principal
balance by its original terms does not fully amortize at final maturity.
"Balloon Payment": The final payment of principal due with respect to a
Balloon Loan.
"Business Day": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in the States of California or in the city
in which the Corporate Trust Office is located, are authorized or obligated by
law or executive order to be closed.
"Capitalized Interest Account": The Capitalized Interest Account
established in accordance with Section 7.02(b) hereof and maintained by the
Trustee. Funds on deposit in the Capitalized Interest Account shall be invested
in a trust deposit with the Trustee from the day following the Startup Day until
the end of each Funding Period.
"Certificate": Any one of the Class A Certificates, the Mezzanine
Certificates, the Class B-1 Certificates, the Class C-IO Certificates, the Class
D Certificates, the Class S Certificates or the Class R Certificates, each
representing the interests and the rights described in this Agreement.
"Certificate Account": The certificate account established in
accordance with Section 7.02(a) hereof and maintained at the Corporate Trust
Office; provided that the funds in such account shall not be commingled with
other funds held by the Trustee.
"Certificate Principal Balance": As of the Startup Day as to each of
the following Classes of Certificates, the Certificate Principal Balances
thereof, as follows:
<TABLE>
<S> <C> <C>
Class A-1 Certificates - $
Class A-2 Certificates - $
Class A-3 Certificates - $
Class A-4 Certificates - $
Class A-5 Certificates - $
Class A-6 Certificates - $
Class A-7 Certificates - $
Class A-8 Certificates - $
Class M-1F Certificates - $
Class M-1A Certificates - $
Class M-2F Certificates - $
Class M-2A Certificates - $
Class B-1F Certificates - $
Class B-1A Certificates - $
</TABLE>
The Class S Certificates, the Class C-IO Certificates, the Class D
Certificates and the Class R Certificates do not have a Certificate Principal
Balance.
3
<PAGE>
"Class": Any Class of the Class A Certificates, any Class of the
Mezzanine Certificates, any class of the Class B-1 Certificates, the Class S
Certificates, either class of the Class C-IO Certificates, the Class D
Certificates, or the Class R Certificates.
"Class A Certificate": Any one of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class A-6 Certificates, Class A-7 Certificates and Class A-8
Certificates.
"Class A Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A Certificates less any amounts actually distributed on such Class A
Certificates with respect to the Class A Principal Distribution Amount pursuant
to Section 7.03(f) and 7.03(g) hereof with respect to principal thereon on all
prior Payment Dates plus any Preference Amount previously distributed with
respect to principal.
"Class A Distribution Amount": The sum of the Class A-1 Distribution
Amount, the Class A-2 Distribution Amount, the Class A-3 Distribution Amount,
the Class A-4 Distribution Amount, the Class A-5 Distribution Amount, the Class
A-6 Distribution Amount, the Class A-7 Distribution Amount and the Class A-8
Distribution Amount.
"Class A-1 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-1 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class A-1 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-1 Certificates less any amounts actually distributed to the Owners of
the Class A-1 Certificates pursuant to Section 7.03(f) hereof on all prior
Payment Dates plus any Preference Amount previously distributed to the Owners of
the Class A-1 Certificates with respect to principal.
"Class A-1 Certificate Termination Date": The Payment Date on which the
Class A-1 Certificate Principal Balance is reduced to zero.
"Class A-1 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-1 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-1 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-1 Certificates as it relates to interest previously paid on the Class
A-1 Certificates.
"Class A-1 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-1 Current Interest, (y) the Class A-1 Interest Carry
Forward Amount and (z) the Group I Class A Principal Distribution Amount payable
to the Owners of the Class A-1 Certificates pursuant to Section 7.03(f) hereof.
"Class A-1 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-1 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-1 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-1 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-1
Pass-Through Rate.
"Class A-1 Pass-Through Rate": ____% per annum.
4
<PAGE>
"Class A-2 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-2 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class A-2 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-2 Certificates less any amounts actually distributed to the Owners of
the Class A-2 Certificates pursuant to Section 7.03(f) hereof on all prior
Payment Dates plus any Preference Amount previously distributed to the Owners of
the Class A-2 Certificates with respect to principal.
"Class A-2 Certificate Termination Date": The Payment Date on which the
Class A-2 Certificate Principal Balance is reduced to zero.
"Class A-2 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-2 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-2 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-2 Certificates as it relates to interest previously paid on the Class
A-2 Certificates.
"Class A-2 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-2 Current Interest, (y) the Class A-2 Interest Carry
Forward Amount and (z) the Group I Class A Principal Distribution Amount payable
to the Owners of Class A-2 Certificates pursuant to Section 7.03(f) hereof.
"Class A-2 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-2 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-2 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-2 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-2
Pass-Through Rate.
"Class A-2 Pass-Through Rate": _______% per annum.
"Class A-3 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-3 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class A-3 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-3 Certificates less any amounts actually distributed to the Owners of
the Class A-3 Certificates pursuant to Section 7.03(f) hereof on all prior
Payment Dates plus any Preference Amount previously distributed to the Owners of
the Class A-3 Certificates with respect to principal.
"Class A-3 Certificate Termination Date": The Payment Date on which the
Class A-3 Certificate Principal Balance is reduced to zero.
"Class A-3 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-3 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-3 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-3 Certificates as it relates to interest previously paid on the Class
A-3 Certificates.
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"Class A-3 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-3 Current Interest, (y) the Class A-3 Interest Carry
Forward Amount and (z) the Group I Class A Principal Distribution Amount payable
to the Owners of the Class A-3 Certificates pursuant to Section 7.03(f) hereof.
"Class A-3 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-3 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-3 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-3 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-3
Pass-Through Rate.
"Class A-3 Pass-Through Rate": _______% per annum.
"Class A-4 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-4 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class A-4 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-4 Certificates less any amounts actually distributed to the Owners of
the Class A-4 Certificates pursuant to Section 7.03(f) hereof on all prior
Payment Dates plus any Preference Amount previously distributed to the Owners of
the Class A-4 Certificates with respect to principal.
"Class A-4 Certificate Termination Date": The Payment Date on which the
Class A-4 Certificate Principal Balance is reduced to zero.
"Class A-4 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-4 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-4 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-4 Certificates as it relates to interest previously paid on the Class
A-4 Certificates.
"Class A-4 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-4 Current Interest, (y) the Class A-4 Interest Carry
Forward Amount and (z) the Group I Class A Principal Distribution Amount payable
to the Owners of the Class A-4 Certificates pursuant to Section 7.03(f) hereof.
"Class A-4 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-4 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-4 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-4 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-4
Pass-Through Rate.
"Class A-4 Pass-Through Rate": _______% per annum.
"Class A-5 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-5 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class A-5 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-5 Certificates less any amounts actually distributed to the
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Owners of the Class A-5 Certificates pursuant to Section 7.03(f) hereof thereon
on all prior Payment Dates plus any Preference Amount previously distributed to
the Owners of Class A-5 Certificates with respect to principal.
"Class A-5 Certificate Termination Date": The Payment Date on which the
Class A-5 Certificate Principal Balance is reduced to zero.
"Class A-5 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-5 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-5 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-5 Certificates as it relates to interest previously paid on the Class
A-5 Certificates.
"Class A-5 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-5 Current Interest, (y) the Class A-5 Interest Carry
Forward Amount and (z) the Group I Class A Principal Distribution Amount payable
to the Owners of the Class A-5 Certificates pursuant to Section 7.03(f) hereof.
"Class A-5 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-5 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-5 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-5 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-5
Pass-Through Rate.
"Class A-5 Pass-Through Rate": On any Payment Date (i) on or prior to
the Group I Step Up Date, the lesser of (x) _______% per annum and (y) the Group
I Net Weighted Average Coupon Rate and (ii) after the Group I Step Up Date, the
lesser of (x) _______% and (y) the Group I Net Weighted Average Coupon Rate.
"Class A-6 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-6 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class A-6 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-6 Certificates less any amounts actually distributed to the Owners of
the Class A-6 Certificates pursuant to Section 7.03(f) hereof on all prior
Payment Dates plus any Preference Amount previously distributed to the Owners of
the Class A-6 Certificates with respect to principal.
"Class A-6 Certificate Termination Date": The Payment Date on which the
Class A-6 Certificate Principal Balance is reduced to zero.
"Class A-6 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-6 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-6 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-6 Certificates as it relates to interest previously paid on the Class
A-6 Certificates.
"Class A-6 Distribution Amount": With respect to any Payment Date, the
sum of (w) the Class A-6 Current Interest, (x) the Class A-6 Interest Carry
Forward Amount, (y) the Class A-6 Lockout Distribution Amount payable to the
Owners of the Class A-6 Certificates pursuant to Section 7.03(f) and (z) the
Group I Class A Principal Distribution Amount payable to the Owners of the Class
A-6 Certificates pursuant to Section 7.03(f) hereof.
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"Class A-6 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-6 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-6 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-6 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-6
Pass-Through Rate.
"Class A-6 Lockout Distribution Amount": For any Payment Date, the
product of (i) the applicable Class A-6 Lockout Percentage for such Payment Date
and (ii) the Class A-6 Lockout Pro Rata Distribution Amount for such Payment
Date.
"Class A-6 Lockout Percentage": For each Payment Date, the percentage
set forth below:
Class A-6
Payment Dates Lockout Percentage
- ------------- ------------------
"Class A-6 Lockout Pro Rata Distribution Amount": For any Payment Date,
an amount equal to the product of (x) a fraction, the numerator of which is the
Class A-6 Certificate Principal Balance immediately prior to such Payment Date
and the denominator of which is the aggregate Certificate Principal Balance of
the Class A Certificates relating to Group I immediately prior to such Payment
Date and (y) the Group I Class A Principal Distribution Amount for such Payment
Date.
"Class A-6 Pass-Through Rate": _______% per annum.
"Class A-7 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-7 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposed of the REMIC provisions.
"Class A-7 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-7 Certificates less any amounts actually distributed to the Owners of
the Class A-7 Certificate pursuant to Section 7.03(g) hereof on all prior
Payment Dates plus any Preference Amount previously distributed to the Owners of
the Class A-7 Certificates with respect to principal.
"Class A-7 Certificate Termination Date": The Payment Date on which the
Class A-7 Certificate Principal Balance is reduced to zero.
"Class A-7 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-7 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-7 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-7 Certificates as it relates to interest previously paid on the Class
A-7 Certificates.
"Class A-7 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-7 Current Interest, (y) the Class A-7 Interest Carry
Forward Amount and (z) the portion of the Group II Class
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A Principal Distribution Amount payable to the Owners of the Class A-7
Certificates pursuant to Section 7.03(g) hereof.
"Class A-7 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-7 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-7 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-7 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-7
Pass-Through Rate.
"Class A-7 Pass-Through Rate": With respect to the Payment Date in
__________ 199_, _______% per annum. Thereafter, on any Payment Date, the lesser
of (x) One-Month LIBOR plus _______% per annum and (y) the Group II Available
Funds Cap Rate for such Payment Date.
"Class A-8 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-8 Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposed of the REMIC provisions.
"Class A-8 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-8 Certificates less any amounts actually distributed to the Owners of
the Class A-8 Certificate pursuant to Section 7.03(g) hereof on all prior
Payment Dates plus any Preference Amount previously distributed to the Owners of
the Class A-8 Certificates with respect to principal.
"Class A-8 Certificate Termination Date": The Payment Date on which the
Class A-8 Certificate Principal Balance is reduced to zero.
"Class A-8 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-8 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-8 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-8 Certificates as it relates to interest previously paid on the Class
A-8 Certificates.
"Class A-8 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-8 Current Interest, (y) the Class A-8 Interest Carry
Forward Amount and (z) the portion of the Group II Class A Principal
Distribution Amount payable to the Owners of the Class A-8 Certificates pursuant
to Section 7.03(g) hereof.
"Class A-8 Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
A-8 Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class A-8 Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class A-8 Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class A-8
Pass-Through Rate.
"Class A-8 Pass-Through Rate": With respect to the Payment Date in
October 1998, _______% per annum. Thereafter, on any Payment Date on or prior to
the Group II Step Up Date, the lesser of (x) One- Month LIBOR plus _______% per
annum and (y) the Group II Available Funds Cap Rate for such Payment Date and on
any Payment Date after the Group II Step Up Date, the lesser of (x) One-Month
LIBOR plus _______% per annum and (y) the Group II Available Funds Cap Rate.
"Class B-1 Certificate": Any one of the Class B-1F Certificates or the
Class B-1A Certificates.
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"Class B-1A Applied Realized Loss Amount": As to any Payment Date, the
lesser of (x) the Class B-1A Certificate Principal Balance (after taking into
account the distribution of the Group II Principal Distribution Amount on such
Payment Date, but prior to the application of the Class B-1A Applied Realized
Loss Amount, if any, on such Payment Date) and (y) the Group II Applied Realized
Loss Amount as of such Payment Date.
"Class B-1A Certificate": Any one of the Certificates designated on the
face thereof as a Class B-1A Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class B-1A Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class B-1A Certificates less the sum of (x) any amounts actually distributed to
the Owners of the Class B-1A Certificates pursuant to Section 7.03(g) hereof on
all prior Payment Dates, (y) the aggregate, cumulative amount of the Class B-1A
Applied Realized Loss Amounts on all prior Payment Dates and (z) any Preference
Amount previously distributed to the Owners of the Class B-1A Certificates with
respect to principal.
"Class B-1A Certificate Termination Date": The Payment Date on which
the Class B-1A Certificate Principal Balance is reduced to zero.
"Class B-1A Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class B-1A Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class B-1A Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class B-1A Certificates as it relates to interest previously paid on the
Class B-1A Certificates.
"Class B-1A Distribution Amount": With respect to any Payment Date, the
sum of (w) the Class B-1A Current Interest, (x) the Class B-1A Principal
Distribution Amount, if any, (y) the Class B-1A Interest Carry Forward Amount,
if any, and (z) the Class B-1A Realized Loss Amortization Amount, if any.
"Class B-1A Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
B-1A Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class B-1A Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class B-1A Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class B-1A
Pass-Through Rate.
"Class B-1A Pass-Through Rate": With respect to the Payment Date in
__________ 199_, _______% per annum. Thereafter, on any Payment Date on or prior
to the Group II Step Up Date, the lesser of (x) One-Month LIBOR plus _______%
per annum and (y) the Group II Available Funds Cap Rate for such Payment Date
and on any Payment Date after the Group II Step Up Date, the lesser of (x)
One-Month LIBOR plus _______% per annum and (y) the Group II Available Funds Cap
Rate.
"Class B-1A Principal Distribution Amount": As of any Payment Date on
or after the Group II Stepdown Date and as long as a Group II Trigger Event is
not in effect, the excess of (x) the aggregate Certificate Principal Balance of
the Group II Certificates (after taking into account the payment of the Group II
Class A Principal Distribution Amount, the Class M-1A Principal Distribution
Amount and the Class M- 2A Principal Distribution Amount on such Payment Date)
over (y) the lesser of (A) the product of (i) _______% and (ii) the outstanding
aggregate Loan Balance of the Mortgage Loans in Group II as of the last day of
the related Remittance Period and (B) the aggregate outstanding Loan Balance of
the Mortgage Loans in Group II as of the last day of the related Remittance
Period minus $_______________.
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"Class B-1A Realized Loss Amortization Amount": As of any Payment Date,
the lesser of (x) the Unpaid Realized Loss Amount relating to the Class B-1A
Certificates as of such Payment Date and (y) the excess of (i) the Group II
Monthly Excess Cashflow Amount over (ii) the sum of the Group II Extra Principal
Distribution Amount, the Class M-1A Realized Loss Amortization Amount, the Class
M-2A Realized Loss Amortization Amount, the Class M-1A Interest Carry Forward
Amount, the Class M-2A Interest Carry Forward Amount and the Class B-1A Interest
Carry Forward Amount, in each case for such Payment Date.
"Class B-1F Applied Realized Loss Amount": As to any Payment Date, the
lesser of (x) the Class B-1F Certificate Principal Balance (after taking into
account the distribution of the Group I Principal Distribution Amount on such
Payment Date, but prior to the application of the Class B-1F Applied Realized
Loss Amount, if any, on such Payment Date) and (y) the Group I Applied Realized
Loss Amount as of such Payment Date.
"Class B-1F Certificate": Any one of the Certificates designated on the
face thereof as a Class B-1F Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class B-1F Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class B-1F Certificates less the sum of (x) any amounts actually distributed to
the Owners of the Class B-1F Certificates pursuant to Section 7.03(f) hereof on
all prior Payment Dates, (y) the aggregate, cumulative amount of the Class B-1F
Applied Realized Loss Amounts on all prior Payment Dates and (z) any Preference
Amount previously distributed to the Owners of the Class B-1F Certificates with
respect to principal.
"Class B-1F Certificate Termination Date": The Payment Date on which
the Class B-1F Certificate Principal Balance is reduced to zero.
"Class B-1F Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class B-1F Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class B-1F Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class B-1F Certificates as it relates to interest previously paid on the
Class B-1F Certificates.
"Class B-1F Distribution Amount": With respect to any Payment Date, the
sum of (w) the Class B- 1F Current Interest, (x) the Class B-1F Principal
Distribution Amount, if any, (y) the Class B-1F Interest Carry Forward Amount,
if any, and (z) the Class B-1F Realized Loss Amortization Amount, if any.
"Class B-1F Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
B-1F Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class B-1F Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class B-1F Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class B-1F
Pass-Through Rate.
"Class B-1F Pass-Through Rate": On any Payment Date, the lesser of (x)
_______% per annum and (y) the Group I Net Weighted Average Coupon Rate.
"Class B-1F Principal Distribution Amount": As of any Payment Date on
or after the Group I Stepdown Date and as long as a Group I Trigger Event is not
in effect, the excess of (x) the aggregate Certificate Principal Balance of the
Group I Certificates (after taking into account the payment of the Group I Class
A Principal Distribution Amount, the Class M-1F Principal Distribution Amount
and the Class M-2F Principal Distribution Amount on such Payment Date) over (y)
the lesser of (A) the product of (i) _______%
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and (ii) the outstanding aggregate Loan Balance of the Mortgage Loans in Group I
as of the last day of the related Remittance Period and (B) the aggregate
outstanding Loan Balance of the Mortgage Loans in Group I as of the last day of
the related Remittance Period minus $_______________.
"Class B-1F Realized Loss Amortization Amount": As of any Payment Date,
the lesser of (x) the Unpaid Realized Loss Amount relating to the Class B-1F
Certificates as of such Payment Date and (y) the excess of (i) the Group I
Monthly Excess Cashflow Amount over (ii) the sum of the Group I Extra Principal
Distribution Amount, the Class M-1F Realized Loss Amortization Amount, the Class
M-2F Realized Loss Amortization Amount, the Class M-1F Interest Carry Forward
Amount, the Class M-2F Interest Carry Forward Amount and the Class B-1F Interest
Carry Forward Amount, in each case for such Payment Date.
"Class C-AIO Certificate": Any one of the Certificates designated on
the face thereof as a Class C-AIO Certificate, substantially in the form
annexed hereto as Exhibit B-1, authenticated and delivered by the Trustee,
representing the right to distributions as set forth herein and each evidencing
an interest designated as a "regular interest" in the Upper-Tier REMIC created
hereunder for purposes of the REMIC Provisions.
"Class C-AIO Certificate Termination Date": _______________ __, 200_.
"Class C-AIO Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class C-AIO Notional Principal Amount
immediately prior to such Payment Date during the related Accrual Period at the
Class C-AIO Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class C-AIO Certificates as it relates to interest previously paid on the
Class C-AIO Certificates.
"Class C-AIO Distribution Amount": With respect to any payment date,
the sum of (x) the Class C-AIO Current Interest and (y) the Class C-AIO
Interest Carry Forward Amount, if any.
"Class C-AIO Interest Carry Forward Amount": With respect to any
Payment Date the sum of (x) the amount, if any, by which (i) the sum of (A) the
Class C-AIO Current Interest as of the immediately preceding Payment Date and
(B) any unpaid Class C-AIO Interest Carry Forward Amount from all previous
payment dates exceeds (ii) the amount of the actual distribution made to Owners
of the Class C-AIO Certificates on such immediately preceding Payment Date and
(y) 30 days' interest on such amount at the Class C-AIO Pass-Through Rate.
"Class C-AIO Notional Principal Amount": Until the Payment Date
occurring in June 2000, the sum of (x) the Lower-Tier Balance of the Lower-Tier
Interest M-2A and (y) the Lower-Tier Balance of the Lower-Tier Interest B-1A;
thereafter, zero.
"Class C-AIO Pass-Through Rate": On any Payment Date, _______% per
annum.
"Class C-FIO Certificate": Any one of the Certificates designated on
the face thereof as a Class C-FIO Certificate, substantially in the form
annexed hereto as Exhibit B-1, authenticated and delivered by the Trustee,
representing the right to distributions as set forth herein and each evidencing
an interest designated as a "regular interest" in the Upper-Tier REMIC created
hereunder for purposes of the REMIC Provisions.
"Class C-FIO Certificate Termination Date": __________ __, 200_.
"Class C-FIO Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class C-FIO Notional Principal Amount
immediately prior to such Payment Date during the related Accrual Period at the
Class C-FIO Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class C-FIO Certificates as it relates to interest previously paid on the
Class C-FIO Certificates.
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"Class C-FIO Distribution Amount": With respect to any Payment Date,
the sum of (x) the Class C-FIO Current Interest and (y) the Class C-FIO Carry
Forward Amount, if any.
"Class C-FIO Interest Carry Forward Amount": With respect to any
Payment Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the
Class C-FIO Current Interest as of the immediately preceding Payment Date and
(B) any unpaid Class C-FIO Interest Carry Forward Amount from all previous
Payment Dates exceeds (ii) the amount of the actual distribution with respect to
interest made to the Owners of the Class C-FIO Certificates on such immediately
preceding Payment Date and (y) 30 days' interest on such amount at the Class
C-FIO Pass-Through Rate.
"Class C-FIO Notional Principal Amount": Until the Payment Date
occurring in __________ 200_, the sum of (x) the Lower-Tier Balance of the
Lower-Tier Interest M-1F and (y) the Lower-Tier Balance of the Lower-Tier
Interest M-2F; thereafter, zero.
"Class C-FIO Pass-Through Rate": On any Payment Date, _______% per
annum.
"Class C-IO Certificate": Any one of the Class C-AIO Certificates or
Class C-FIO Certificates.
"Class D Carry Forward Amount": With respect to any Payment Date the
amount, if any, by which (x) the Class D Distribution Amount as of the
immediately preceding Payment Date exceeds (y) the amount of the actual
distribution made to Owners of the Class D Certificates on such immediately
preceding Payment Date.
"Class D Certificate": Any one of the Certificates designated on the
face thereof as a Class D Certificate, substantially in the form annexed hereto
as Exhibit B-2, authenticated and delivered by the Trustee, representing the
right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class D Distribution Amount": With respect to any Payment Date
beginning in __________ 200_, the sum of:
(1) with respect to Mortgage Loans in Group I, one-twelfth of
the product of (x) the sum of the aggregate Loan Balances of such
Mortgage Loans on the immediately preceding Payment Date and (y) the
excess, if greater than zero, of (I) the weighted average of the Coupon
Rates of such Mortgage Loans over (II) the sum of the following
payments allocable to Group I on or in respect of the related Payment
Date (in each case expressed as an annual rate based on such aggregate
outstanding Loan Balance): (A) the Aggregate Servicing Fee Rate, (B)
the Trustee Fee Rate, (C) the Master Servicer Fee Rate and (D) the
Class B-1F Pass-Through Rate;
(2) with respect to Mortgage Loans in Group II, one-twelfth of
the product of (x) the sum of the aggregate Loan Balances of such
Mortgage Loans on the immediately preceding Payment Date and (y) the
excess, if greater than zero, of (I) the weighted average of the Coupon
Rates of such Mortgage Loans on such immediately preceding Payment Date
(weighted on the basis of the Loan Balances as of such Payment Date)
over (II) the sum of the following payments allocable to Group II on or
in respect of the related Payment Date (in each case expressed as an
annual rate based on such aggregate outstanding Loan Balance): (A) the
Aggregate Servicing Fee Rate, (B) the Trustee Fee Rate, (C) the Master
Servicer Fee Rate and (D) the Class B-1A Pass-Through Rate; and
(3) the Class D Carry Forward Amount, if any.
"Class M-1 Certificate": Any one of the Class M-1F Certificates or the
Class M-1A Certificates.
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"Class M-1A Applied Realized Loss Amount": As to any Payment Date, the
lesser of (x) the Class M-1A Certificate Principal Balance (after taking into
account the distribution of the Group II Principal Distribution Amount on such
Payment Date, but prior to the application of the Class M-1A Applied Realized
Loss Amount, if any, on such Payment Date) and (y) the excess of (i) the Group
II Applied Realized Loss Amount as of such Payment Date over (ii) the sum of the
Class M-2A Applied Realized Loss Amount and the Class B-1A Applied Realized Loss
Amount, in each case as of such Payment Date.
"Class M-1A Certificate": Any one of the Certificates designated on the
face thereof as a Class M- 1A Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class M-1A Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class M-1A Certificates less the sum of (x) any amounts distributed to the
Owners of the Class M-1A Certificates pursuant to Section 7.03(g) hereof on all
prior Payment Dates, (y) the aggregate, cumulative amount of Class M-1A Applied
Realized Loss Amounts on all prior Payment Dates and (z) any Preference Amount
previously distributed to the Owners of the Class M-1A Certificates with respect
to principal.
"Class M-1A Certificate Termination Date": The Payment Date on which
the Class M-1A Certificate Principal Balance is reduced to zero.
"Class M-1A Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class M-1A Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class M-1A Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class M-1A Certificates as it relates to interest previously paid on the
Class M-1A Certificates.
"Class M-1A Distribution Amount": With respect to any Payment Date, the
sum of (w) the Class M-1A Current Interest, (x) the Class M-1A Principal
Distribution Amount, if any, (y) the Class M-1A Interest Carry Forward Amount,
if any, and (z) the Class M-1A Realized Loss Amortization Amount, if any.
"Class M-1A Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
M-1A Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class M-1A Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class M-1A Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class M-1A
Pass-Through Rate.
"Class M-1A Pass-Through Rate": With respect to the Payment Date in
__________ 199_, _______% per annum. Thereafter, on any Payment Date on or prior
to the Group II Step Up Date, the lesser of (x) One-Month LIBOR plus _______%
per annum and (y) the Group II Available Funds Cap Rate for such Payment Date
and on any Payment Date after the Group II Step Up Date, the lesser of (x)
One-Month LIBOR plus _______% per annum and (y) the Group II Available Funds Cap
Rate.
"Class M-1A Principal Distribution Amount": As of any Payment Date on
or after the Group II Stepdown Date and as long as a Group II Trigger Event is
not in effect, the excess of (x) the sum of (i) the Class A-7 Certificate
Principal Balance (after taking into account the payment of the Group II Class A
Principal Distribution Amount on such Payment Date) and (ii) the Class M-1A
Certificate Principal Balance immediately prior to such Payment Date over (y)
the lesser of (A) the product of (i) _______% and (ii) the outstanding Loan
Balance of the Mortgage Loans in Group II as of the last day of the related
Remittance Period and (B) the aggregate outstanding Loan Balance of the Mortgage
Loans in Group II as of the last day of the related Remittance Period minus
$_______________.
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"Class M-1A Realized Loss Amortization Amount": As of any Payment Date,
the lesser of (x) the Unpaid Realized Loss Amount relating to the Class M-1A
Certificates as of such Payment Date and (y) the excess of (i) the Group II
Monthly Excess Cashflow Amount over (ii) the sum of the Group II Extra Principal
Distribution Amount and the Class M-1A Interest Carry Forward Amount, in each
case for such Payment Date.
"Class M-1F Applied Realized Loss Amount": As to any Payment Date, the
lesser of (x) the Class M-1F Certificate Principal Balance (after taking into
account the distribution of the Group I Principal Distribution Amount on such
Payment Date, but prior to the application of the Class M-1F Applied Realized
Loss Amount, if any, on such Payment Date) and (y) the excess of (i) the Group I
Applied Realized Loss Amount as of such Payment Date over (ii) the sum of the
Class M-2F Applied Realized Loss Amount and the Class B-1F Applied Realized Loss
Amount, in each case as of such Payment Date.
"Class M-1F Certificate": Any one of the Certificates designated on the
face thereof as a Class M-1F Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class M-1F Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class M-1F Certificates less the sum of (x) any amounts actually distributed to
the Owners of the Class M-1F Certificates pursuant to Section 7.03(f) hereof on
all prior Payment Dates, and (y) the aggregate, cumulative amount of Class M-1F
Applied Realized Loss Amounts on all prior Payment Dates and (z) any Preference
Amount previously distributed to the Owners of the Class M-1F Certificates with
respect to principal.
"Class M-1F Certificate Termination Date": The Payment Date on which
the Class M-1F Certificate Principal Balance is reduced to zero.
"Class M-1F Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class M-1F Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class M-1F Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class M-1F Certificates as it relates to interest previously paid on the
Class M-1F Certificates.
"Class M-1F Distribution Amount": With respect to any Payment Date, the
sum of (w) the Class M-1F Current Interest, (x) the Class M-1F Principal
Distribution Amount, if any, (y) the Class M-1F Interest Carry Forward Amount,
if any, and (z) the Class M-1F Realized Loss Amortization Amount, if any.
"Class M-1F Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
M-1F Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class M-1F Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class M-1F Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class M-1F
Pass-Through Rate.
"Class M-1F Pass-Through Rate": On any Payment Date, the lesser of (x)
_______% per annum and (y) the Group I Net Weighted Average Coupon Rate.
"Class M-1F Principal Distribution Amount": As of any Payment Date on
or after the Group I Stepdown Date and as long as a Group I Trigger Event is not
in effect, the excess of (x) the sum of (i) the aggregate Certificate Principal
Balance of the Class A Certificates related to Group I (after taking into
account the payment of the Group I Class A Principal Distribution Amount on such
Payment Date) and (ii) the Class M-1F Certificate Principal Balance immediately
prior to such Payment Date over (y) the lesser of
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(A) the product of (i) _______% and (ii) the outstanding Loan Balance of the
Mortgage Loans in Group I as of the last day of the related Remittance Period
and (B) the aggregate outstanding Loan Balance of the Mortgage Loans in Group I
as of the last day of the related Remittance Period minus $__________.
"Class M-1F Realized Loss Amortization Amount": As of any Payment Date,
the lesser of (x) the Unpaid Realized Loss Amount relating to Class M-1F as of
such Payment Date and (y) the excess of (i) the Group I Monthly Excess Cashflow
Amount over (ii) the sum of the Group I Extra Principal Distribution Amount and
the Class M-1F Interest Carry Forward Amount, in each case for such Payment
Date.
"Class M-2 Certificate": Any one of the Class M-2F Certificates or the
Class M-2A Certificates.
"Class M-2A Applied Realized Loss Amount": As to any Payment Date, the
lesser of (x) the Class M-2A Certificate Principal Balance (after taking into
account the distribution of the Group II Principal Distribution Amount on such
Payment Date, but prior to the application of the Class M-2A Applied Realized
Loss Amount, if any, on such Payment Date) and (y) the excess of (i) the Group
II Applied Realized Loss Amount as of such Payment Date over (ii) the Class B-1A
Applied Realized Loss Amount as of such Payment Date.
"Class M-2A Certificate": Any one of the Certificates designated on the
face thereof as a Class M- 2A Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class M-2A Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class M-2A Certificates less the sum of (x) any amounts actually distributed to
the Owners of the Class M-2A Certificates, pursuant to Section 7.03(g) hereof on
all prior Payment Dates, (y) the aggregate, cumulative amount of Class M-2A
Applied Realized Loss Amounts on all prior Payment Dates, and (z) any Preference
Amount previously distributed to the Owners of the Class M-2A Certificates with
respect to principal.
"Class M-2A Certificate Termination Date": The Payment Date on which
the Class M-2A Certificate Principal Balance is reduced to zero.
"Class M-2A Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class M-2A Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class M-2A Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class M-2A Certificates as it relates to interest previously paid on the
Class M-2A Certificates.
"Class M-2A Distribution Amount": With respect to any Payment Date, the
sum of (w) the Class M-2A Current Interest, (x) the Class M-2A Principal
Distribution Amount, if any, (y) the Class M-2A Interest Carry Forward Amount,
if any, and (z) the Class M-2A Realized Loss Amortization Amount, if any.
"Class M-2A Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
M-2A Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class M-2A Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class M-2A Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class M-2A
Pass-Through Rate.
"Class M-2A Pass-Through Rate": With respect to the Payment Date in
__________ 199_, _______% per annum. Thereafter, on any Payment Date on or prior
to the Group II Step Up Date, the lesser of (x) One-Month LIBOR plus _______%
per annum and (y) the Group II Available Funds Cap Rate for
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such Payment Date and on any Payment Date after the Group II Step Up Date, the
lesser of (x) One-Month LIBOR plus _______% per annum and (y) the Group II
Available Funds Cap Rate.
"Class M-2A Principal Distribution Amount": As of any Payment Date on
or after the Group II Stepdown Date and as long as a Group II Trigger Event is
not in effect, the excess of (x) the sum of (i) the Class A-7 Certificate
Principal Balance (after taking into account the payment of the Group II Class A
Principal Distribution Amount on such Payment Date), (ii) the Class M-1A
Certificate Principal Balance (after taking into account the payment of the
Class M-1A Principal Distribution Amount on such Payment Date) and (iii) the
Class M-2A Certificate Principal Balance immediately prior to such Payment Date
over (y) the lesser of (A) the product of (i) _______% and (ii) the outstanding
Loan Balance of the Mortgage Loans in Group II as of the last day of the related
Remittance Period and (B) the aggregate outstanding Loan Balance of the Mortgage
Loans in Group II as of the last day of the related Remittance Period minus
$____________.
"Class M-2A Realized Loss Amortization Amount": As of any Payment Date,
the lesser of (x) the Unpaid Realized Loss Amount relating to the Class M-2A
Certificates as of such Payment Date and (y) the excess of (i) the Group II
Monthly Excess Cashflow Amount over (ii) the sum of the Group II Extra Principal
Distribution Amount, the Class M-1A Realized Loss Amortization Amount, the Class
M-1A Interest Carry Forward Amount and the Class M-2A Interest Carry Forward
Amount, in each case for such Payment Date.
"Class M-2F Applied Realized Loss Amount": As to any Payment Date, the
lesser of (x) the Class M-2F Certificate Principal Balance (after taking into
account the distribution of the Group I Principal Distribution Amount on such
Payment Date, but prior to the application of the Class M-2F Applied Realized
Loss Amount, if any, on such Payment Date) and (y) the excess of (i) the Group I
Applied Realized Loss Amount as of such Payment Date over (ii) the Class B-1F
Applied Realized Loss Amount as of such Payment Date.
"Class M-2F Certificate": Any one of the Certificates designated on the
face thereof as a Class M-2F Certificate, substantially in the form annexed
hereto as Exhibit A, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC created hereunder for
purposes of the REMIC Provisions.
"Class M-2F Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class M-2F Certificates less the sum of (x) any amounts actually distributed to
the Owners of the Class M-2F Certificates pursuant to Section 7.03(f) hereof on
all prior Payment Dates and (y) the aggregate, cumulative amount of Class M-2F
Applied Realized Loss Amounts on all prior Payment Dates plus any Preference
Amount previously distributed to the Owners of the Class M-2F Certificates with
respect to principal.
"Class M-2F Certificate Termination Date": The Payment Date on which
the Class M-2F Certificate Principal Balance is reduced to zero.
"Class M-2F Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class M-2F Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class M-2F Pass-Through Rate plus the Preference Amount owed to the Owners of
the Class M-2F Certificates as it relates to interest previously paid on the
Class M-2F Certificates.
"Class M-2F Distribution Amount": With respect to any Payment Date, the
sum of (w) the Class M-2F Current Interest, (x) the Class M-2F Principal
Distribution Amount, if any, (y) the Class M-2F Interest Carry Forward Amount,
if any, and (z) the Class M-2F Realized Loss Amortization Amount, if any.
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"Class M-2F Interest Carry Forward Amount": With respect to any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class
M-2F Current Interest as of the immediately preceding Payment Date and (B) any
unpaid Class M-2F Interest Carry Forward Amount from all previous Payment Dates
exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class M-2F Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class M-2F
Pass-Through Rate.
"Class M-2F Pass-Through Rate": On any Payment Date, the lesser of (x)
_______% per annum and (y) the Group I Net Weighted Average Coupon Rate.
"Class M-2F Principal Distribution Amount": As of any Payment Date on
or after the Group I Stepdown Date and as long as a Group I Trigger Event is not
in effect, the excess of (x) the sum of (i) the aggregate Certificate Principal
Balance of the Class A Certificates related to Group I (after taking into
account the payment of the Group I Class A Principal Distribution Amount on such
Payment Date), (ii) the Class M-1F Certificate Principal Balance (after taking
into account the payment of the Class M-1F Principal Distribution Amount on such
Payment Date) and (iii) the Class M-2F Certificate Principal Balance immediately
prior to such Payment Date over (y) the lesser of (A) the product of (i)
_______% and (ii) the outstanding Loan Balance of the Mortgage Loans in Group I
as of the last day of the related Remittance Period and (B) the aggregate
outstanding Loan Balance of the Mortgage Loans in Group I as of the last day of
the related Remittance Period minus $__________.
"Class M-2F Realized Loss Amortization Amount": As of any Payment Date,
the lesser of (x) the Unpaid Realized Loss Amount relating to Class M-2F as of
such Payment Date and (y) the excess of (i) the Group I Monthly Excess Cashflow
Amount over (ii) the sum of the Group I Extra Principal Distribution Amount, the
Class M-1F Realized Loss Amortization Amount, the Class M-1F Interest Carry
Forward Amount and the Class M-2F Interest Carry Forward Amount, in each case
for such Payment Date.
"Class R Certificate": Any one of the Certificates designated on the
face thereof as a Class R Certificate, substantially in the form annexed hereto
as Exhibit B-3, authenticated and delivered by the Trustee, representing the
right to distributions as set forth herein, and evidencing an interest
designated as the "residual interest" in the Upper-Tier REMIC for the purposes
of the REMIC Provisions.
"Class S Certificate": Any one of the Certificates designated on the
face thereof as a Class S Certificate, substantially in the form annexed hereto
as Exhibit B-4, authenticated and delivered by the Trustee representing the
right to distributions as set forth herein. The Class S Certificates are a
"regular interest" in the Lower-Tier REMIC for the purposes of the REMIC
Provisions.
"Class S Distribution Amount": With respect to any Payment Date, the
sum of (a) the product of (x) the outstanding Loan Balance of each
_________________________Loan as of the first day of the related Remittance
Period and (y) one-twelfth of the difference between the Aggregate Servicing Fee
Rate and the Servicing Fee Rate for such Mortgage Loans, and (b) any unpaid
Preference Amount, if any, for the Class S Certificates. The Class S
Distribution Amount shall be calculated on a loan-by-loan basis.
"Closing": As defined in Section 4.02 hereof.
"Code": The Internal Revenue Code of 1986, as amended.
"Compensating Interest": As defined in Section 8.10(a) hereof.
"Collection Period": The period beginning on the first day of the
calendar month immediately preceding the month in which a Monthly Remittance
Date occurs and ending on the last day of such
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immediately preceding calendar month; provided that in the case of the first
Monthly Remittance Date, the Collection Period is the period from __________ __,
199_ to __________ __, 199_.
"Corporate Trust Office": The principal corporate trust office of the
Trustee at _______________ _______________, _______________ _______________ or
any other address that the Trustee advises the parties hereto is its principal
corporate trust office.
"Coupon Rate": The rate of interest borne by each Note from time to
time.
"Cram Down Loss": With respect to a Mortgage Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Loan Balance or the Coupon Rate of such Mortgage Loan, the amount
of such reduction. A "Cram Down Loss" shall be deemed to have occurred on the
date of issuance of such order.
"Cumulative Loss Percentage": As of any date of determination thereof,
the Cumulative Realized Losses as a percentage of the Maximum Collateral Amount
(and with respect to the Servicer Loss Test the aggregate portion thereof
applicable to the related Servicer as set forth in the definition of Maximum
Collateral Amount).
"Cumulative Realized Losses": As of any date of determination, the
aggregate amount of Realized Losses with respect to the Mortgage Loans in the
related Group (and with respect to the Servicer Loss Test with respect to the
Mortgage Loans in the related Mortgage Loan Servicing Group) since the Cut-Off
Date.
"Current Interest": With respect to any Payment Date, the sum of the
Class A-1 Current Interest, the Class A-2 Current Interest, the Class A-3
Current Interest, the Class A-4 Current Interest, the Class A-5 Current
Interest, the Class A-6 Current Interest, the Class A-7 Current Interest, the
Class M-1F Current Interest, the Class M-1A Current Interest, the Class M-2F
Current Interest, the Class M-2A Current Interest, the Class B-1F Current
Interest, the Class B-1A Current Interest, the Class C-AIO Current Interest, the
Class C-FIO Current Interest, and the Class S Distribution Amount for such
Payment Date.
"Custodial Agreement": The Custodial Agreement dated as of June 1, 1998
among the Custodian, the Trustee, the Depositor, the Seller, the Master Servicer
and the Servicers.
"Custodian": _______________ _______________, or any successor thereto.
"Cut-Off Date": As of the close of business on __________ __, 199_.
"DCR": Duff & Phelps Credit Rating Co., or any successor thereto.
"Delinquency Advance": As defined in Section 8.09(a) hereof.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment due
thereon is not made by the close of business on the corresponding day such
payment is scheduled to be due. A Mortgage Loan is "30 days Delinquent" if such
payment has not been received by the close of business on the corresponding day
of the month immediately succeeding the month in which such payment was due, or,
if there is no such corresponding day (e.g., as when a 30-day month follows a
31-day month in which a payment was due on the 31st day of such month) then on
the last day of such immediately succeeding month. Similarly for "60 days
Delinquent," "90 days Delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as Exhibit G
hereto and delivered by the Seller to the Trustee on the Startup Day pursuant to
Section 4.01 hereof.
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"Depositor": AMRESCO Residential Securities Corporation, a Delaware
corporation, or any successor thereto.
"Depository": The Depository Trust Company, 55 Water Street, New York,
New York 10004, and any successor Depository hereafter named.
"Designated Depository Institution": With respect to each Principal and
Interest Account, a trust account maintained by_______________ _______________,
as long as it remains the Trustee, or by the trust department of a federal or
state chartered depository institution acting in its fiduciary capacity, having
combined capital and surplus of at least $50,000,000; provided, however, that if
a Principal and Interest Account is not maintained with the Trustee, (i) such
institution shall have a long-term debt rating of at least "A2" by Moody's and,
if rated by Fitch or DCR at least "A" by Fitch or DCR and (ii) the Servicers
shall provide the Trustee and the Owners with an Officer's Certificate
identifying the location of the related Principal and Interest Account.
"Direct Participant" or "DTC Participant": Any broker-dealer, bank or
other financial institution for which the Depository holds Offered Certificates
from time to time as a securities depository.
"Disqualified Organization": The meaning set forth from time to time in
the definition thereof at Section 860E(e)(5) of the Code (or any successor
statute thereto) and applicable to the Trust.
"Due Date": The day of the month on which each Scheduled Payment is due
on a Mortgage Loan, exclusive of any grace period.
"Eligible Investments": Those investments so designated pursuant to
Section 7.07 hereof.
"Escrow Payment": The amounts constituting ground rents, taxes,
assessments, water rates, sewer rents, municipal charges, mortgage insurance
premiums, fire and hazard insurance premiums, condominium charges, and any other
payments required to be escrowed by the Mortgagor with the mortgagee pursuant to
the Mortgage or any other document.
"FannieMae": FannieMae, a federally-chartered and privately-owned
corporation existing under the Federal National Mortgage Association Charter
Act, as amended, or any successor thereof.
"FDIC": The Federal Deposit Insurance Corporation, a corporate
instrumentality of the United States, or any successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Custodian, on behalf of the
Trustee pursuant to Section 3.05(b) hereof pertaining to a particular Mortgage
Loan and any additional documents required to be added to the File pursuant to
this Agreement.
"Final Determination": As defined in Section 9.03(a) hereof.
"Final Scheduled Payment Date": For each Class of the Offered
Certificates is as set out in Section 2.08(a).
"First Mortgage": Mortgage Loans secured by a valid Mortgage which
represents a first lien.
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"Fitch": Fitch IBCA, Inc., or any successor thereto.
"Formula Certificates": With respect to any Payment Date, each Class of
Group II Certificates that has a Formula Rate less than the Group II Weighted
Average Coupon Rate.
"Formula Rate": With respect to any Payment Date and a Class of Group
II Certificates, the rate determined in accordance with clause (x) of the
definition of "Pass-Through Rate" for such Class.
"Funding Period": With respect to each of Group I and Group II, the
respective period commencing on the Startup Day and ending on the earliest to
occur of (i) the date on which the amount on deposit in the Pre-Funding Account
with respect to such Group (exclusive of any investment earnings) is less than
$100,000 and (ii) __________ __, 199_.
"Group I": The pool of Mortgage Loans identified in the related
Schedule of Mortgage Loans as having been assigned to Group I in Schedule I-A
hereto, including any Qualified Replacement Mortgages delivered in replacement
thereof and each Subsequent Mortgage Loan delivered to the Trust for inclusion
therein.
"Group I Applied Realized Loss Amount": As of any Payment Date, the
excess of (x) the aggregate Certificate Principal Balance of the Group I
Certificates on such Payment Date, after taking into account the distribution of
the Group I Principal Distribution Amount on such Payment Date but prior to the
application of the Group I Applied Realized Loss Amount, if any, on such Payment
Date over (y) the aggregate outstanding Loan Balance of the Mortgage Loans in
Group I as of the last day of the related Remittance Period.
"Group I Auction Sale Bid Date": The first Monthly Remittance Date on
which the aggregate outstanding Certificate Principal Balance of the Group I
Certificates has declined to less than $__________.
"Group I Capitalized Interest Requirement": With respect to the Payment
Date in __________ 199_, the excess, if any, of (x) the interest on the Group I
Certificates on such Payment Date calculated at the Group I Weighted Average
Pass-Through Rate over (y) the sum of (i) one-month's interest on the aggregate
Loan Balances of the Mortgage Loans in Group I as of the close of business on
the last day of the immediately preceding Remittance Period calculated at a rate
equal to 1/12 of the weighted average of the Coupon Rates of the Mortgage Loans
in Group I less the applicable Servicing Fee Rate as of such Payment Date and
(ii) any Group I Pre-Funding Account Earnings to be transferred to the
Capitalized Interest Account on such Payment Date pursuant to Section 7.04(d)
hereof.
"Group I Certificates": The Class A Certificates (other than the Class
A-7 Certificates and the Class A-8 Certificates), the Class M-1F Certificates,
the Class M-2F Certificates, the Class B-1F Certificates and the Class C-FIO
Certificates.
"Group I Class A Principal Distribution Amount": As of any Payment Date
(a) prior to the Group I Stepdown Date or on or after the Group I Stepdown Date
if a Group I Trigger Event is in effect, 100% of the Group I Principal
Distribution Amount or (b) on or after the Group I Stepdown Date and as to which
a Group I Trigger Event is not in effect, the excess of (x) the aggregate
Certificate Principal Balance of the Class A Certificates relating to Group I
immediately prior to such Payment Date over (y) the lesser of (A) the product of
(i) _______% and (ii) the outstanding Loan Balance of the Mortgage Loans in
Group I as of the last day of the related Remittance Period and (B) the
outstanding aggregate Loan Balance of the Mortgage Loans in Group I as of the
last day of the related Remittance Period minus $__________.
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"Group I Extra Principal Distribution Amount": As of any Payment Date,
the lesser of (x) the Group I Monthly Excess Interest Amount for such Payment
Date and (y) the Group I Overcollateralization Deficiency for such Payment Date.
"Group I Interest Amount Available": As of any Payment Date, the Group
I Interest Remittance Amount less the portion of the Trustee Fee and the Master
Servicer Fee related to Group I.
"Group I Interest Remittance Amount": As of any Monthly Remittance
Date, the sum, without duplication, of (i) all interest collected or required to
be advanced with respect to the related Remittance Period with respect to the
Mortgage Loans in Group I (less the Servicing Fee with respect to such Mortgage
Loans), (ii) all Compensating Interest paid by the Servicers on such Monthly
Remittance Date with respect to Mortgage Loans in Group I, (iii) the portion of
the Substitution Amount relating to interest on the Mortgage Loans in Group I,
(iv) any amounts related to Group I required to be transferred from the
Capitalized Interest Account to the Certificate Account pursuant to Section
7.04(e) hereof on the related Payment Date and (v) all Net Liquidation Proceeds
relating to interest not previously advanced with respect to the Mortgage Loans
in Group I.
"Group I Monthly Excess Cashflow Amount": For any Payment Date, the sum
of (x) the Group I Monthly Excess Interest Amount (plus any interest on the
Group I Overcollateralization Amount) and (y) the Group I Overcollateralization
Release Amount for such Payment Date.
"Group I Monthly Excess Interest Amount": With respect to any Payment
Date, the excess, if any, of (i) the Group I Interest Amount Available for the
related Remittance Period over (ii) the sum of (x) the Current Interest on the
Group I Certificates on such Payment Date and (y) the Interest Carry Forward
Amount with respect to the Class A Certificates related to Group I.
"Group I Net Weighted Average Coupon Rate": With respect to any Payment
Date, the weighted average of the Coupon Rates of the Mortgage Loans in Group I
(weighted by the Loan Balances of the Mortgage Loans in Group I), less _______%
per annum.
"Group I Overcollateralization Amount": As of any Payment Date, the
difference between (x) the sum of (i) the Loan Balance of the Mortgage Loans in
Group I as of the last day of the immediately preceding Remittance Period and
(ii) any amounts on deposit in the Pre-Funding Account relating to Group I and
(y) the aggregate Certificate Principal Balance of the Group I Certificates
(after taking into account all distributions of principal on such Group I
Certificates as of such Payment Date).
"Group I Overcollateralization Deficiency": As of any Payment Date, the
excess, if any, of (x) the Group I Targeted Overcollateralization Amount for
such Payment Date over (y) the Group I Overcollateralization Amount for such
Payment Date, calculated for this purpose after taking into account the
reduction on such Payment Date of the aggregate Certificate Principal Balance of
the Group I Certificates resulting from the distribution of the Group I
Principal Remittance Amount (but not the Group I Extra Principal Distribution
Amount) on such Payment Date, but prior to taking into account any Group I
Applied Realized Loss Amount on such Payment Date.
"Group I Overcollateralization Release Amount": As of any Payment Date,
the lesser of (x) the Group I Principal Remittance Amount for such Payment Date
and (y) the excess, if any, of (i) the Group I Overcollateralization Amount for
such Payment Date, assuming that 100% of the Group I Principal Remittance Amount
is applied on such Payment Date to the payment of principal on the Group I
Certificates and (ii) the Group I Targeted Overcollateralization Amount for such
Payment Date, provided that if a Group I Subordinated Trigger Event is in
effect, the Group I Overcollateralization Release Amount shall be zero.
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"Group I Pre-Funding Account Earnings": With respect to the __________
199_ Payment Date, the actual investment earnings earned during the period from
the Startup Day through __________ __, 199_ (inclusive) on the portion of the
Pre-Funded Amount remaining and allocable to Group I during such period as
calculated by the Trustee pursuant to Section 3.07(d) hereof.
"Group I Principal Distribution Amount": As of any Payment Date, the
sum of (i) the Group I Principal Remittance Amount (minus, for Payment Dates
occurring on and after the Group I Stepdown Date and with respect to which a
Trigger Event is not in effect, the Group I Overcollateralization Release
Amount, if any) and (ii) the Group I Extra Principal Distribution Amount, if
any.
"Group I Principal Remittance Amount": As of any Monthly Remittance
Date, the sum, without duplication, of (i) the scheduled principal collected or
required to be advanced by the Servicers with respect to Mortgage Loans in Group
I with respect to the related Remittance Period, (ii) all unscheduled principal
collected during the related Collection Period, (iii) the Loan Balance of each
Mortgage Loan in Group I that was purchased from the Trustee on or prior to such
Monthly Remittance Date, to the extent such Loan Balance was actually deposited
in the Principal and Interest Account, (iv) any Substitution Amounts relating to
principal delivered to the Trust in connection with a substitution of a Mortgage
Loan in Group I to the extent such Substitution Amounts were actually deposited
in the Principal and Interest Account on or prior to such Monthly Remittance
Date, (v) any amounts relating to Group I required to be transferred from the
Pre-Funding Account to the Certificate Account pursuant to Section 7.04(c) and
(vi) all Net Liquidation Proceeds actually collected by the Servicers with
respect to the Mortgage Loans in Group I during the related Remittance Period
(to the extent such Net Liquidation Proceeds related to principal).
"Group I Senior Enhancement Percentage": For any Payment Date, the
percentage obtained by dividing (x) the sum of (i) the aggregate Certificate
Principal Balance of the Subordinate Certificates relating to Group I and (ii)
the Group I Overcollateralization Amount, in each case after taking into account
the distribution of the Group I Principal Distribution Amount on such Payment
Date, by (y) the Loan Balance of the Mortgage Loans in Group I as of the last
day of the related Remittance Period.
"Group I Senior Specified Enhancement Percentage": On any date of
determination thereof means _______%.
"Group I Servicer Clean-Up Call Date": The first Monthly Remittance
Date on which the outstanding Certificate Principal Balance of the Group I
Certificates has declined to $__________.
"Group I Stepdown Date": The later to occur of (x) the Payment Date in
July 2001 and (y) the first Group I Payment Date on which the Group I Senior
Enhancement Percentage (after taking into account distributions of principal
with respect to Group I on such Payment Date) is equal to or greater than the
Group I Senior Specified Enhancement Percentage.
"Group I Step Up Date": provided that the auction sale described in
Section 9.02(a) hereof with respect to Group I has not occurred, the date that
is 90 days after the Group I Auction Sale Bid Date.
"Group I Subordinated Trigger Event": A Group I Subordinated Trigger
Event has occurred with respect to a Payment Date if both of the following tests
are failed on such Payment Date:
A Group I Cumulative Loss Test is failed with respect to a Payment Date
if the amount of the Cumulative Loss Percentage with respect to Group I equals
or exceeds the percentage set out for the corresponding Payment Date below:
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Payment Dates Cumulative Loss Percentage
A Group I Delinquency Test is failed with respect to a Payment Date if
the amount of 60+ Day Delinquent Loans, with respect to Group I as a percentage
of the aggregate outstanding Loan Balance of Group I equals or exceeds the
percentage set out for the corresponding Payment Date below:
Payment Dates 60+ Day Delinquent Percentage
"Group I Targeted Overcollateralization Amount": On any Payment Date
(x) prior to the Group I Stepdown Date, _______% of the aggregate Certificate
Principal Balance of the Group I Certificates as of the Startup Day and (y) on
or after the Group I Stepdown Date, the greater of (A) _______% of the aggregate
outstanding Loan Balance of the Mortgage Loans in Group I as of the last day of
the related Remittance Period and (B) $__________.
"Group I Trigger Event": A Group I Trigger Event has occurred with
respect to a Payment Date if the percentage obtained by dividing (x) the
principal amount of 60+ Day Delinquent Loans in Group I by (y) the aggregate
outstanding Loan Balance of the Mortgage Loans in Group I as of the last day of
the immediately preceding Remittance Period equals or exceeds 50% of the Group I
Senior Enhancement Percentage as of the last day of the immediately preceding
Remittance Period.
"Group I Weighted Average Pass-Through Rate": As to any Payment Date,
the weighted average of the Class A-1 Pass-Through Rate, the Class A-2
Pass-Through Rate, the Class A-3 Pass-Through Rate, the Class A-4 Pass-Through
Rate, the Class A-5 Pass-Through Rate, the Class A-6 Pass-Through Rate, the
Class M-1F Pass-Through Rate, the Class M-2F Pass-Through Rate and the Class
B-1F Pass-Through Rate (such rate calculated for this purpose on the basis of
360-day year assumed to consist of twelve 30 day months) weighted by the
respective Certificate Principal Balance of the related Class as of such Payment
Date before taking into account any distributions to be made on such Payment
Date.
"Group II": The pool of Mortgage Loans identified in the related
Schedule of Mortgage Loans as having been assigned to Group II in Schedule I-B
hereto, including any Qualified Replacement Mortgages delivered in replacement
thereof and each Subsequent Mortgage Loan delivered to the Trust for inclusion
therein.
"Group II Applied Realized Loss Amount": As of any Payment Date, the
excess of (x) the aggregate Certificate Principal Balance of the Group II
Certificates on such Payment Date, after taking into account the distribution of
the Group II Principal Distribution Amount on such Payment Date but prior to the
application of the Group II Applied Realized Loss Amount, if any, on such
Payment Date over (y) the aggregate outstanding Loan Balance of the Mortgage
Loans in Group II as of the last day of the related Remittance Period.
"Group II Auction Sale Bid Date": The first Monthly Remittance Date on
which the aggregate Certificate Principal Balance of the Group II Certificates
has declined to less than $__________.
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"Group II Available Escalation Amount": With respect to any Payment
Date, an amount (but not less than zero) equal to the sum of, with respect to
each Class of Formula Certificates, the product of (i) a rate equal to the Group
II Net Weighted Average Coupon Rate minus the Formula Rate for such Class and
(ii) the Certificate Principal Balance of such Class.
"Group II Available Funds Cap Rate": With respect to Group II, on any
Payment Date, a rate equal to the sum of (i) the Group II Net Weighted Average
Coupon Rate and (ii) the percentage equivalent of a fraction, the numerator of
which is the Group II Available Escalation Amount and the denominator of which
is the sum of the Certificate Principal Balances for each Class of the Group II
Capped Certificates.
"Group II Available Funds Cap Shortfall Amortization Amount": As of any
Payment Date, any amount distributed from the Group II Available Funds Cap
Shortfall Amount Account on such Payment Date.
"Group II Available Funds Cap Shortfall Amount": As of any Payment
Date, the excess, if any, of (x) the excess, if any, of (a) the aggregate amount
of interest due on the Group II Capped Certificates on all prior Payment Dates,
calculated at the related Formula Rate applicable to each such Payment Date over
(b) the aggregate amount of interest due on the Group II Capped Certificates on
all prior Payment Dates, calculated at the related Pass-Through Rates applicable
to each such Payment Date over (y) all Group II Available Funds Cap Shortfall
Amortization Amounts actually funded on all prior Payment Dates.
"Group II Capped Certificates": With respect to any Payment Date, each
Class of Group II Certificates that has a Formula Rate greater than the Group II
Net Weighted Average Coupon Rate.
"Group II Capitalized Interest Requirement": With respect to the
Payment Date in __________ 199_, the excess, if any, of (x) the interest on the
Group II Certificates on such Payment Date calculated at the Group II Weighted
Average Pass-Through Rate over (y) the sum of (i) one-month's interest on the
aggregate Loan Balances of the Mortgage Loans in Group II as of the close of
business on the last day of the immediately preceding Remittance Period
calculated at a rate equal to 1/12 of the weighted average of the Coupon Rates
of the Mortgage Loans in Group II less the applicable Servicing Fee Rate as of
such Payment Date and (ii) any Group II Pre-Funding Account Earnings to be
transferred to the Capitalized Interest Account on such Payment Date pursuant to
Section 7.04(d) hereof.
"Group II Certificates": The Class A-7 Certificates, the Class A-8
Certificates, the Class M-1A Certificates, the Class M-2A Certificates, the
Class B-1A Certificates and the Class C-AIO Certificates.
"Group II Class A Principal Distribution Amount": As of any Payment
Date (a) prior to the Group II Stepdown Date or on or after the Group II
Stepdown Date if a Group II Trigger Event is in effect, 100% of the Group II
Principal Distribution Amount or (b) on or after the Group II Stepdown Date and
as to which a Group II Trigger Event is not in effect, the excess of (x) the
aggregate Certificate Principal Balance of the Class A-7 Certificates
immediately prior to such Payment Date over (y) the lesser of (A) the product of
(i) _______% and (ii) the outstanding Loan Balance of the Mortgage Loans in
Group II as of the last day of the related Remittance Period and (B) the
outstanding aggregate Loan Balance of the Mortgage Loans in Group II as of the
last day of the related Remittance Period minus $__________.
"Group II Extra Principal Distribution Amount": As of any Payment Date,
the lesser of (x) the Group II Monthly Excess Interest Amount for such Payment
Date and (y) the Group II Overcollateralization Deficiency for such Payment
Date.
"Group II Interest Amount Available": As of any Payment Date, the Group
II Interest Remittance Amount less the portion of the Trustee Fee and the Master
Servicer Fee related to Group II.
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"Group II Interest Remittance Amount": As of any Monthly Remittance
Date, the sum, without duplication, of (i) all interest collected or required to
be advanced with respect to the related Remittance Period with respect to the
Mortgage Loans in Group II (less the Servicing Fee with respect to such Mortgage
Loans), (ii) all Compensating Interest paid by the Servicers on such Monthly
Remittance Date with respect to Mortgage Loans in Group II, (iii) the portion of
the Substitution Amount relating to interest on the Mortgage Loans in Group II,
(iv) any amounts related to Group II required to be transferred from the
Capitalized Interest Account to the Certificate Account pursuant to Section
7.04(e) hereof on the related Payment Date and (v) all Net Liquidation Proceeds
relating to interest not previously advanced with respect to the Mortgage Loans
in Group II.
"Group II Monthly Excess Cashflow Amount": For any Payment Date, the
sum of (x) the Group II Monthly Excess Interest Amount (plus any interest on the
Group II Overcollateralization Amount) and (y) the Group II
Overcollateralization Release Amount for such Payment Date.
"Group II Monthly Excess Interest Amount": With respect to any Payment
Date, the excess, if any, of (i) the Group II Interest Amount Available for the
related Remittance Period over (ii) the sum of (x) the Current Interest on the
Group II Certificates on such Payment Date and (y) the Class A-7 Interest Carry
Forward Amount.
"Group II Net Weighted Average Coupon Rate": With respect to any
Payment Date, the weighted average of the Coupon Rates of the Mortgage Loans in
Group II (weighted by the Loan Balances of the Mortgage Loans in Group II), less
_______% per annum.
"Group II Overcollateralization Amount": As of any Payment Date, the
difference between (x) the sum of (i) the Loan Balance of the Mortgage Loans in
Group II as of the last day of the immediately preceding Remittance Period and
(ii) any amounts on deposit in the Pre-Funding Account relating to Group II and
(y) the aggregate Certificate Principal Balance of the Group II Certificates
(after taking into account all distributions of principal on such Group II
Certificates as of such Payment Date).
"Group II Overcollateralization Deficiency": As of any Payment Date,
the excess, if any, of (x) the Group II Targeted Overcollateralization Amount
for such Payment Date over (y) the Group II Overcollateralization Amount for
such Payment Date, calculated for this purpose after taking into account the
reduction on such Payment Date of the aggregate Certificate Principal Balance of
the Group II Certificates resulting from the distribution of the Group II
Principal Remittance Amount (but not the Group II Extra Principal Distribution
Amount) on such Payment Date, but prior to taking into account any Group II
Applied Realized Loss Amount on such Payment Date.
"Group II Overcollateralization Release Amount": As of any Payment
Date, the lesser of (x) the Group II Principal Remittance Amount for such
Payment Date and (y) the excess, if any, of (i) the Group II
Overcollateralization Amount for such Payment Date, assuming that 100% of the
Group II Principal Remittance Amount is applied on such Payment Date to the
payment of principal on the Group II Certificates over (ii) the Group II
Targeted Overcollateralization Amount for such Payment Date; provided, that if a
Group II Subordinated Trigger Event is in effect, the Group II
Overcollateralization Release Amount shall be zero.
"Group II Post Stepdown Amount": The lesser of (x) the Group II
Principal Distribution Amount and (y) the Group II Class A Principal
Distribution Amount.
"Group II Pre-Funding Account Earnings": With respect to the __________
199_ Payment Date, the actual investment earnings earned during the period from
the Startup Day through __________ __, 199_ (inclusive) on the portion of the
Pre-Funded Amount remaining and allocable to Group II during such period as
calculated by the Trustee pursuant to Section 3.07(d) hereof.
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"Group II Principal Distribution Amount": As of any Payment Date, the
sum of (i) the Group II Principal Remittance Amount (minus, for Payment Dates
occurring on and after the Group II Stepdown Date and with respect to which a
Trigger Event is not in effect, the Group II Overcollateralization Release
Amount, if any) and (ii) the Group II Extra Principal Distribution Amount, if
any.
"Group II Principal Remittance Amount": As of any Monthly Remittance
Date, the sum, without duplication, of (i) the scheduled principal collected or
required to be advanced by the Servicers with respect to Mortgage Loans in Group
II with respect to the related Remittance Period, (ii) all unscheduled principal
collected during the related Collection Period, (iii) the Loan Balance of each
Mortgage Loan in Group II that was purchased from the Trustee on or prior to
such Monthly Remittance Date, to the extent such Loan Balance was actually
deposited in the Principal and Interest Account, (iv) any Substitution Amounts
relating to principal delivered to the Trust in connection with a substitution
of a Mortgage Loan in Group II to the extent such Substitution Amounts were
actually deposited in the Principal and Interest Account on or prior to such
Monthly Remittance Date, (v) any amounts relating to Group II required to be
transferred from the Pre-Funding Account to the Certificate Account pursuant to
Section 7.04(c) and (vi) all Net Liquidation Proceeds actually collected by the
Servicers with respect to the Mortgage Loans in Group II during the related
Remittance Period (to the extent such Net Liquidation Proceeds related to
principal).
"Group II Senior Enhancement Percentage": For any Payment Date, the
percentage obtained by dividing (x) the sum of (i) the aggregate Certificate
Principal Balance of the Subordinate Certificates relating to Group II and (ii)
the Group II Overcollateralization Amount, in each case after taking into
account the distribution of the Group II Principal Distribution Amount on such
Payment Date by (y) the Loan Balance of the Mortgage Loans in Group II as of the
last day of the related Remittance Period.
"Group II Senior Specified Enhancement Percentage": On any date of
determination thereof means _______%.
"Group II Servicer Clean-Up Call Date": The first Monthly Remittance
Date on which the outstanding Certificate Principal Balance of the Group II
Certificates has declined to $__________.
"Group II Stepdown Date": The later to occur of (x) the Payment Date in
__________, __, 200_ and (y) the first Group II Payment Date on which the Group
II Senior Enhancement Percentage (after taking into account distributions of
principal with respect to Group II on such Payment Date) is equal to or greater
than the Group II Senior Specified Enhancement Percentage.
"Group II Step Up Date": Provided that the auction sale described in
Section 9.02(a) hereof with respect to Group II has not occurred, the date that
is 90 days after the Group II Auction Sale Bid Date.
"Group II Subordinated Trigger Event": A Group II Subordinated Trigger
Event has occurred with respect to a Payment Date if both of the following tests
are failed on such Payment Date:
A Group II Cumulative Loss Test is failed with respect to a Payment
Date if the Cumulative Loss Percentage with respect to Group II equals or
exceeds the percentage set out for the corresponding Payment Date below:
Payment Dates Cumulative Loss Percentage
- ------------- --------------------------
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A Group II Delinquency Test is failed with respect to a Payment Date if
the amount of 60+ Day Delinquent Loans, with respect to Group II as a percentage
of the aggregate outstanding Loan Balance of Group II equals or exceeds the
percentage set out for the corresponding Payment Date below:
Payment Dates 60+ Day Delinquency Percentage
- ------------- ------------------------------
"Group II Targeted Overcollateralization Amount": On any Payment Date
(x) prior to the Group II Stepdown Date, _______% of the aggregate Certificate
Principal Balance of the Group II Certificates as of the Startup Day and (y) on
or after the Group II Stepdown Date, the greater of (A) _______% of the
aggregate outstanding Loan Balance of the Mortgage Loans in Group II as of the
last day of the related Remittance Period and (B) $____________.
"Group II Trigger Event": A Group II Trigger Event has occurred with
respect to a Payment Date if the percentage obtained by dividing (x) the
principal amount of 60+ Day Delinquent Loans in Group II by (y) the aggregate
outstanding Loan Balance of the Mortgage Loans in Group II as of the last day of
the immediately preceding Remittance Period equals or exceeds _______% of the
Group II Senior Enhancement Percentage.
"Group II Weighted Average Pass-Through Rate": As to any Payment Date,
the weighted average of the Class A-7 Pass-Through Rate, the Class A-8
Pass-Through Rate, the Class M-1A Pass-Through Rate, the Class M-2A Pass-Through
Rate, and the Class B-1A Pass-Through Rate weighted by the respective
Certificate Principal Balance of the related Class as of such Payment Date
before taking into account any distributions to be made on such Payment Date.
"Highest Lawful Rate": As defined in Section 11.13.
"Indirect Participant": Any financial institution for whom any Direct
Participant holds an interest in an Offered Certificate.
"Initial Mortgage Loans": The Mortgage Loans to be conveyed to the
Trust by the Depositor on the Startup Day.
"Insurance Policy": Any hazard, flood, title or primary mortgage
insurance policy relating to a Mortgage Loan, provided that any amount remitted
under Section 8.11 hereof shall be considered a payment under an Insurance
Policy.
"Interest Rate Adjustment Date": With respect to an adjustable rate
Mortgage Loan, the date on which the Coupon Rate is adjusted with respect to
such Mortgage Loan. The first Interest Rate Adjustment Date for each adjustable
rate Mortgage Loan is the date set forth on the Schedule of Mortgage Loans.
"Interest Remittance Amount": The sum of the Group I Interest
Remittance Amount and the Group II Interest Remittance Amount.
"Liquidated Loan": As defined in Section 8.13(b) hereof.
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"Liquidation Expenses": Expenses, not to exceed Liquidation Proceeds,
which are incurred by a Servicer in connection with the liquidation of any
defaulted Mortgage Loan, such expenses, including, without limitation, legal
fees and expenses and accrued but unpaid Servicing Fees, and any unreimbursed
Servicing Advances expended by that Servicer pursuant to Section 8.09(b) with
respect to the related Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated Loan, any
amounts (including the proceeds of any Insurance Policy) recovered by a Servicer
in connection with such Liquidated Loan, whether through trustee's sale,
foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan and as of any date
of determination, the outstanding principal balance thereof, on the Cut-Off Date
with respect to the Initial Mortgage Loans or relevant Subsequent Cut-Off Date
with respect to the Subsequent Mortgage Loans, less the sum of (i) any principal
payments relating to such Mortgage Loan (whether received from the related
Mortgagor or advanced by the related Servicer) included in previous Monthly
Remittance Amounts, and (ii) any Cram Down Losses relating to such Mortgage
Loan; provided, however, that the Loan Balance for any Mortgage Loan that has
become a Liquidated Loan shall be zero as of the first day of the Remittance
Period following the Remittance Period in which such Mortgage Loan becomes a
Liquidated Loan, and at all times thereafter.
"Loan Purchase Price": With respect to any Mortgage Loan purchased from
the Trust on a Monthly Remittance Date pursuant to Section 3.03, 3.04, 3.05,
3.06(b), 8.10(b) or 8.13(a) hereof, an amount equal to the Loan Balance of such
Mortgage Loan as of the date of purchase (assuming that the related Delinquency
Advance has already been remitted), plus one month's interest on the Loan
Balance thereof as of the beginning of the related Remittance Period computed at
the then applicable Coupon Rate, together with (without duplication) the
aggregate amounts of (i) all unreimbursed Delinquency Advances and Servicing
Advances theretofore made with respect to such Mortgage Loan, (ii) the interest
portion of any Delinquency Advances which the related Servicer has theretofore
failed to remit with respect to such Mortgage Loan as required by this Agreement
and (iii) all reimbursed Delinquency Advances to the extent that reimbursement
is not made from the Mortgagor or from Liquidation Proceeds from the respective
Mortgage Loan.
"Loan-to-Value Ratio": As of any particular date, the percentage
obtained by dividing the Appraised Value into the original principal balance of
the Note.
"London Business Day": Any day on which banks are open for dealing in
foreign currency and exchange in London and New York City.
"Lower-Tier A-1 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-1 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-1 Pass-Through Rate.
"Lower-Tier A-1 Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier A-2 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-2 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-2 Pass-Through Rate.
"Lower-Tier A-2 Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
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"Lower-Tier A-3 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-3 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-3 Pass-Through Rate.
"Lower-Tier A-3 Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier A-4 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-4 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-4 Pass-Through Rate.
"Lower-Tier A-4 Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier A-5 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-5 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-5 Pass-Through Rate.
"Lower-Tier A-5 Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier A-6 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-6 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-6 Pass-Through Rate.
"Lower-Tier A-6 Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier A-7 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-7 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-7 Pass-Through Rate.
"Lower-Tier A-7 Pass-Through Rate": For any Payment Date, the Group II
Net Weighted Average Coupon Rate.
"Lower-Tier A-8 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest A-8 immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier A-8 Pass-Through Rate.
"Lower-Tier A-8 Pass-Through Rate": For any Payment Date, the Group II
Net Weighted Average Coupon Rate.
"Lower-Tier B-1A Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest B-1A immediately prior to such Payment Date during the related Accrual
Period of the Lower-Tier B-1A Pass-Through Rate.
"Lower-Tier B-1A Pass-Through Rate": For any Payment Date, the Group II
Net Weighted Average Coupon Rate.
"Lower-Tier B-1F Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest B-1F immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier B-1F Pass-Through Rate.
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"Lower-Tier B-1F Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier Balance": As to each Class of Lower-Tier Interests and any
Payment Date, the Initial Lower-Tier Balance as set forth in Section 2.08(a)
minus an amount equal to the aggregate amount distributed as principal to the
corresponding Classes of the Offered Certificates on previous Payment Dates
pursuant to Section 7.03(f) and (g).
"Lower-Tier Group I Distribution Amount": With respect to any Payment
Date, the sum of the Lower-Tier A-1 Monthly Interest, the Lower-Tier A-2 Monthly
Interest, the Lower-Tier A-3 Monthly Interest, the Lower-Tier A-4 Monthly
Interest, the Lower-Tier A-5 Monthly Interest, the Lower-Tier A-6 Monthly
Interest, the Lower-Tier B-1F Monthly Interest, the Lower-Tier M-1F Monthly
Interest, the Lower-Tier M-2F Monthly Interest, the Class A Group I Principal
Distribution Amount, the Class M-1F Principal Distribution Amount, the Class
M-2F Principal Distribution Amount and the Class B-1F Principal Distribution
Amount. Such Group I Class A Principal Distribution Amount is allocated as
follows: (a) to the Lower-Tier Interest A-6 an amount equal to the Class A-6
Lockout Distribution Amount and (b) as a distribution on the Lower-Tier Interest
A-1 until the Lower-Tier Interest A-1 Termination Date, the Class A-1 Principal
Distribution Amount; as a distribution on the Lower-Tier Interest A-2 until the
Lower-Tier Interest A-2 Termination Date, the Class A-2 Distribution Amount; as
a distribution on the Lower-Tier Interest A-3 until the Lower-Tier Interest A-3
Termination Date, the Class A-3 Distribution Amount; as a distribution on the
Lower-Tier Interest A-4 until the Lower-Tier Interest A-4 Termination Date, the
Class A-4 Distribution Amount; as a distribution on the Lower-Tier Interest A-5
until the Lower-Tier Interest A-5 Termination Date, the Class A-5 Distribution
Amount; and as a distribution on the Lower-Tier Interest A-6 until the
Lower-Tier Interest A-6 Termination Date, the Class A-6 Distribution Amount.
"Lower-Tier Group II Distribution Amount": With respect to any Payment
Date, the sum of the Lower-Tier A-7 Monthly Interest, the Lower-Tier A-8 Monthly
Interest, the Lower-Tier M-1A Monthly Interest, the Lower-Tier M-2A Monthly
Interest, the Lower-Tier B-1A Monthly Interest, the Class A Group II Principal
Distribution Amount, the Lower-Tier M-1A Principal Distribution Amount, the
Class M-2A Principal Distribution Amount and the Class B-1A Principal
Distribution Amount.
"Lower-Tier Interest A-1": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-2": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-3": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-4": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-5": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-6": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-7": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-8": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest B-1A": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest B-1F": The interest of that name established
pursuant to Section 2.08(a) hereof.
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"Lower-Tier Interest M-1A": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest M-1F": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest M-2A": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest M-2F": The interest of that name established
pursuant to Section 2.08(a) hereof.
"Lower-Tier Interest A-1 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-1 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-1 on such Payment Date.
"Lower-Tier Interest A-2 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-2 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-2 on such Payment Date.
"Lower-Tier Interest A-3 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-3 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-3 on such Payment Date.
"Lower-Tier Interest A-4 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-4 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-4 on such Payment Date.
"Lower-Tier Interest A-5 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-5 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-5 on such Payment Date.
"Lower-Tier Interest A-6 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-6 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-6 on such Payment Date.
"Lower-Tier Interest A-7 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-7 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-7 on such Payment Date.
"Lower-Tier Interest A-8 Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest A-8 is reduced to zero through the
distribution made in respect of Lower-Tier Interest A-8 on such Payment Date.
"Lower-Tier Interest B-1A Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest B-1A is reduced to zero through
the distribution made in respect of Lower-Tier Interest B-1A on such Payment
Date.
"Lower-Tier Interest B-1F Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest B-1F is reduced to zero through
the distribution made in respect of Lower-Tier Interest B-1F on such Payment
Date.
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"Lower-Tier Interest M-1A Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest M-1A is reduced to zero through
the distribution made in respect of Lower-Tier Interest M-1A on such Payment
Date.
"Lower-Tier Interest M-1F Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest M-1F is reduced to zero through
the distribution made in respect of Lower-Tier Interest M-1F on such Payment
Date.
"Lower-Tier Interest M-2A Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest M-2A is reduced to zero through
the distribution made in respect of Lower-Tier Interest M-2A on such Payment
Date.
"Lower-Tier Interest M-2F Termination Date": The Payment Date on which
the Lower-Tier Balance of Lower-Tier Interest M-2F is reduced to zero through
the distribution made in respect of Lower-Tier Interest M-2F on such Payment
Date.
"Lower-Tier M-1A Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest M-1A immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier M-1A Pass-Through Rate.
"Lower-Tier M-1A Pass-Through Rate": For any Payment Date, the Group II
Net Weighted Average Coupon Rate.
"Lower-Tier M-1F Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest M-1F immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier M-1F Pass-Through Rate.
"Lower-Tier M-1F Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier M-2A Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest M-2A immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier M-2A Pass-Through Rate.
"Lower-Tier M-2A Pass-Through Rate": For any Payment Date, the Group II
Net Weighted Average Coupon Rate.
"Lower-Tier M-2F Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Lower-Tier
Interest M-2F immediately prior to such Payment Date during the related Accrual
Period at the Lower-Tier M-2F Pass-Through Rate.
"Lower-Tier M-2F Pass-Through Rate": For any Payment Date, the Group I
Net Weighted Average Coupon Rate.
"Lower-Tier Pass-Through Rate": As to each of the respective Lower-Tier
Interests, the applicable "Lower-Tier Pass-Through Rate" set forth in Section
2.08 hereof.
"Lower-Tier REMIC": The segregated pool of assets referred to as the
Trust Estate, other than the Upper-Tier Group I Distribution Account and the
Upper-Tier Group II Distribution Account which are assets of the Upper-Tier
REMIC.
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"Lower-Tier REMIC Residual Class": With respect to the Lower-Tier
REMIC, the interest therein designated as the "residual interest" therein for
purposes of the REMIC Provisions. The Lower-Tier REMIC Residual Class shall be
uncertificated, and shall be issuable only in Percentage Interests of 99.999% to
the Seller and 0.001% to, _______________ _______________ as Tax Matters Person.
Such interests shall be non-transferrable, except that __________________
_______________ may assign such interest to another person who accepts such
assignment and the designation as Tax Matters Person pursuant to Section 11.18
hereof. The Lower-Tier REMIC Residual Class is entitled only to any amounts at
any time held in the Certificate Account and not required to be paid to the
Upper-Tier REMIC, which is expected to be zero at all times during the term of
this Agreement.
"Master Servicer": AMRESCO Residential Capital Markets, Inc., a
Delaware corporation and any successor thereto.
"Master Servicer Fee": An amount equal to the product of (x) the
aggregate outstanding Loan Balance as of the last day of the related Collection
Period and (y) the Master Servicer Fee Rate.
"Master Servicer Fee Rate": _______% per annum.
"Maximum Collateral Amount": As to Group I, $______________; and as to
Group II, $_______________; provided that for purposes of calculating the
Servicer Loss Test with respect to each Servicer and each Mortgage Loan Group,
the Seller will provide the related Maximum Collateral Amounts per Servicer and
Mortgage Loan Group to the Trustee, each Servicer, the Master Servicer and the
Depositor within 10 days after the end of the Funding Period for such Mortgage
Loan Group.
"Mezzanine Certificates": Collectively, the Class M-1 Certificates and
the Class M-2 Certificates.
"Monthly Remittance Amount": The sum of the Interest Remittance Amount
and the Principal Remittance Amount.
"Monthly Remittance Date": The 20th day of each month or if such day is
not a Business Day, the Business Day succeeding such day, commencing in
__________ 199_.
"Moody's": Moody's Investors Service Inc., or any successor thereto.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple interest in real property securing a Note.
"Mortgage Loan Group" or "Group": Group I or Group II, as the case may
be. References herein to the related Class of Offered Certificates, when used
with respect to a Mortgage Loan Group, shall mean (A) in the case of Group I,
the Group I Certificates and (B) in the case of Group II, the Group II
Certificates.
"Mortgage Loans": Such of the mortgage loans (including Initial
Mortgage Loans and Subsequent Mortgage Loans) transferred and assigned to the
Trust pursuant to Section 3.05(a) and 3.07(a) hereof, together with any
Qualified Replacement Mortgages substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the
Mortgage Loans originally so held being identified in the Schedules of Mortgage
Loans. The term "Mortgage Loan" includes any Mortgage Loan which is Delinquent,
which relates to a foreclosure or which relates to a Property which is REO
Property prior to such Property's disposition by the Trust. Any mortgage loan
which, although intended by the parties hereto to have been, and which
purportedly was, transferred and assigned to the Trust by the Depositor, in fact
was not transferred and assigned to the Trust for any reason whatsoever,
including, without limitation, the incorrectness of the statement in Section
3.04(a)(i) with respect to such mortgage loan, shall nevertheless be considered
a "Mortgage Loan" for all purposes of this Agreement.
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"Mortgagor": The obligor on a Note.
"Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation
Proceeds net of Liquidation Expenses, unreimbursed Delinquency Advances,
unreimbursed Servicing Advances and accrued Servicing Fees relating to such
Mortgage Loan. In no event shall Net Liquidation Proceeds with respect to any
Liquidated Loan be less than zero.
"90+ Day Delinquent Loan": With respect to any date of determination
thereof, all REO Properties and each Mortgage Loan, with respect to which any
portion of a Scheduled Payment is, as of the last day of the related Collection
Period, 90 days or more Delinquent (including any Mortgage Loans which have gone
into foreclosure or have been discharged by reason of bankruptcy).
"90+ Delinquency Percentage (Rolling Three Month)": With respect to
each Mortgage Loan Servicing Group and any date of determination thereof, the
average of the percentage equivalents of the fractions determined for each of
the three immediately preceding Collection Periods the numerator of each of
which is equal to the aggregate Loan Balance of 90+ Day Delinquent Loans in the
related Mortgage Loan Servicing Group as of the last day of the preceding
Collection Period and the denominator of which is the aggregate Loan Balance of
all of the Mortgage Loans in the related Mortgage Loan Servicing Group as of the
last day of the preceding Collection Period.
"Note": The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Mortgage Loan.
"Notional Principal Amount": With respect to a Class of the Class C-IO
Certificates, the related Class C-FIO Notional Principal Amount or the Class
C-AIO Notional Principal Amount.
"Offered Certificates": Collectively, the Class A Certificates, the
Mezzanine Certificates and the Class B-1 Certificates.
"Officer's Certificate": A certificate signed by any Authorized Officer
of any Person delivering such certificate and delivered to the Trustee.
"One-Month LIBOR": With respect to any Accrual Period for the Group II
Certificates, the rate determined by the Trustee on the related One-Month LIBOR
Determination Date on the basis of the offered rate for one-month U.S. dollar
deposits as such rate appears on Telerate Page 3750 as of 11:00 a.m. (London
time) on such date; provided that if such rate does not appear on Telerate Page
3750, the rate for such date will be determined on the basis of the rates at
which one-month U.S. dollar deposits are offered by the Reference Banks at
approximately 11:00 a.m. (London time) on such date to prime banks in the London
interbank market. In such event, 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 such quotations are provided, the rate for that date will be the
arithmetic mean of the quotations (rounded upwards if necessary to the nearest
whole multiple of 1/16%). If fewer than two quotations are provided as
requested, the rate for that date will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Trustee, at
approximately 11:00 a.m. (New York City time) on such date for one-month U.S.
dollar loans to leading European banks.
"One-Month LIBOR Determination Date": For the initial Accrual Period
for the Group II Certificates, the second London Business Day prior to the
Closing Date. With respect to any Accrual Period thereafter for the Group II
Certificates, the second London Business Day preceding the commencement of such
Accrual Period.
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"Operative Documents": Collectively, this Agreement, the Subsequent
Transfer Agreements and the Certificates.
"Opinion of Counsel": A written opinion of counsel, who may be counsel
to the Depositor, Seller, any Servicer, the Master Servicer or the Trustee,
which counsel shall be reasonably acceptable to the Trustee.
"Original Aggregate Loan Balance": The aggregate Loan Balance of all
Initial Mortgage Loans as of the Cut-Off Date, i.e., $____________.
"Original Capitalized Interest Amount": $____________.
"Original Group I Pre-Funding Amount": $____________.
"Original Group II Pre-Funding Amount": $____________.
"Original Pre-Funded Amount": The amount deposited in the Pre-Funding
Account on the Startup Day from the proceeds of the sale of the Certificates,
which amount is $____________.
"Originator": Each of the companies from whom the Seller purchased the
Mortgage Loans.
"Outstanding": With respect to all Certificates of a Class, as of any
date of determination, all such Certificates theretofore executed and delivered
hereunder except:
(i) Certificates theretofore canceled by the Registrar or
delivered to the Registrar for cancellation;
(ii) Certificates or portions thereof for which full and final
payment of money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent in trust for the Owners of such
Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this
Agreement, unless proof satisfactory to the Trustee is presented that
any such Certificates are held by a bona fide purchaser;
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided
for in Section 5.05 hereof; and
(v) Certificates as to which the Trustee has made the final
distribution thereon, whether or not such Certificate is ever returned
to the Trustee.
"Overcollateralization Release Amount": For any Payment Date, the sum
of the Group I Overcollateralization Release Amount and the Group II
Overcollateralization Release Amount.
"Overfunded Interest Amount": With respect to each Subsequent Transfer
Date, the sum, if any, of (x) with respect to the Group I Certificates, the
excess of (i) interest that would accrue from the related Subsequent Cut-Off
Date through __________ __, 199_ on the aggregate Loan Balances of the
Subsequent Mortgage Loans acquired by the Trust on such Subsequent Transfer
Date, calculated at a rate equal to the sum of (I) the Group I Weighted Average
Pass-Through Rate and (II) the Trustee Fee Rate and the Master Servicer Fee Rate
allocable to Group I (such fees calculated as an annual rate based on the
aggregate Loan Balances of the Mortgage Loans in Group I), over (ii) interest
that would accrue from the Subsequent CutOff Date through __________ __, 199_ on
the aggregate Loan Balances of the Subsequent Mortgage Loans related to Group I
acquired by the Trust on such Subsequent Transfer Date, calculated at the rate
at which
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Pre-Funding Account moneys are invested as of such Subsequent Transfer Date and
(y) with respect to the Group II Certificates the excess of (i) interest that
would accrue from the related Subsequent Cut-Off Date through __________ __,
199_ on the aggregate Loan Balances of the Subsequent Mortgage Loans acquired by
the Trust on such Subsequent Transfer Date, calculated at a rate equal to the
sum of (I) the Group II Weighted Average Pass-Through Rate and (II) the Trustee
Fee Rate and the Master Servicer Fee Rate allocable to Group II (such fees
calculated as an annual rate based on the aggregate Loan Balances of the
Mortgage Loans in Group II), over (ii) interest that would accrue from the
Subsequent Cut-Off Date through __________ __, 199_ on the aggregate Loan
Balances of the Subsequent Mortgage Loans related to Group II acquired by the
Trust on such Subsequent Transfer Date, calculated at the rate at which
Pre-Funding Account moneys are invested as of such Subsequent Transfer Date.
"Owner": The Person in whose name a Certificate is registered in the
Register, to the extent described in Section 5.06 hereof; provided that solely
for the purposes of determining the exercise of any voting rights hereunder, if
any Offered Certificates are beneficially owned by the Seller or any affiliate
thereof, the Seller or such affiliate shall not be considered an Owner.
"PAG": The Seller's "Performance Assumption Groupings" as described in
the Prospectus Supplement.
"Paying Agent": Initially, the Trustee, and thereafter, the Trustee or
any other Person that meets the eligibility standards for the Paying Agent
specified in Section 11.15 hereof and is authorized by the Trustee and the
Depositor to make payments on the Certificates on behalf of the Trustee.
"Payment Date": Any date on which the Trustee is required to make
distributions to the Owners, which shall be the 25th day of each month or if
such day is not a Business Day, the next Business Day thereafter, commencing in
the month following the month in which the Startup Day occurs and the Pre-
Funding Payment Date.
"Percentage Interest": With respect to an Offered Certificate or a
Class C-IO Certificate, a fraction, expressed as a decimal, the numerator of
which is the initial Certificate Principal Balance (or, in the case of the Class
C-IO Certificates, the related Notional Principal Amount) represented by such
Certificate and the denominator of which is the aggregate initial Certificate
Principal Balance (or, in the case of the Class C-IO Certificates, the related
Notional Principal Amount) represented by all the Certificates of the same
Class. With respect to a Class S Certificate, a Class D Certificate or a Class R
Certificate, the portion of the Class evidenced thereby, expressed as a
percentage, as stated on the face of such Certificate, all of which shall total
100% with respect to the related Class.
"Permitted Exceptions": The following: (a) the lien of current real
property taxes and assessments not yet due and payable; (b) covenants,
conditions and restrictions, rights of way, easements and other matters of the
public record as of the date of recording acceptable to prudent mortgage lending
institutions generally and specifically referred to in the lender's title
insurance policy delivered to the related Originator of the Mortgage Loan and
referred to or otherwise considered in the appraisal made for the related
Originator of the Mortgage Loan; (c) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Property; and (d) a valid and current first lien
for Second Mortgages.
"Person": Any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
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"Preference Amount": With respect to the Offered Certificates and the
Class S Certificates, as the case may be, means, any amounts of Current Interest
and principal included in previous distributions to the Owners of such
Certificates which are recovered from such Owners as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having competent
jurisdiction and which have not theretofore been repaid to such Owners.
"Pre-Funded Amount": As of any date of determination thereof, the
amount remaining on deposit in the Pre-Funding Account.
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 7.02(b) hereof and maintained by the Trustee.
"Pre-Funding Determination Date": ________________ __, 199_
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and interest thereon received by the related
Servicer prior to the scheduled due date for such installment, intended by the
Mortgagor as an early payment thereof and not as a Prepayment with respect to
such Mortgage Loan.
"Prepayment": Any payment of principal of a Mortgage Loan which is
received by a Servicer in advance of the scheduled due date for the payment of
such principal (other than the principal portion of any Prepaid Installment).
Substitution Amounts, the portion of the purchase price of any Mortgage Loan
purchased from the Trust pursuant to Section 3.03, 3.04, 3.05, 3.06(b) or
8.10(b) hereof representing principal and the proceeds of any Insurance Policy
which are to be applied as a payment of principal on the related Mortgage Loan
shall be deemed to be Prepayments for all purposes of this Agreement.
"Preservation Expenses": Expenditures made by a Servicer in connection
with a foreclosed Mortgage Loan prior to the liquidation thereof, including,
without limitation, expenditures for real estate property taxes, hazard
insurance premiums, property restoration or preservation.
"Principal and Interest Account": Each principal and interest account
established by a Servicer pursuant to Section 8.08(a) hereof.
"Principal Remittance Amount": As of any Monthly Remittance Date, the
sum of the Group I Principal Remittance Amount and the Group II Principal
Remittance Amount.
"Prohibited Transaction": The meaning set forth from time to time in
the definition thereof at Section 860F(a)(2) of the Code (or any successor
statute thereto) and applicable to the Trust.
"Property": The underlying property securing a Mortgage Loan.
"Prospectus": The Prospectus dated ________________ __, 199_
constituting part of the Registration Statement.
"Prospectus Supplement": The AMRESCO Residential Securities Corporation
Mortgage Loan Trust 199_-_ Prospectus Supplement dated ________________ __, 199_
to the Prospectus.
"Purchase Option Period": As defined in Section 9.03(a) hereof.
"Qualified Liquidation": The meaning set forth from time to time in the
definition thereof at Section 860F(a)(4) of the Code (or any successor statute
thereto) and applicable to the Trust.
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"Qualified Mortgage": The meaning set forth from time to time in the
definition thereof at Section 860G(a)(3) of the Code (or any successor statute
thereto) and applicable to the Trust.
"Qualified Replacement Mortgage": A Mortgage Loan substituted for
another pursuant to Section 3.03, 3.04, 3.05 or 3.06(b) hereof, which (i) has a
Coupon Rate not less than and not more than 1% greater than the Coupon Rate of
the Mortgage Loan being replaced, (ii) is of the same property type (i.e.,
single family, condominium, PUD unit, etc.) or is a single family dwelling and
the same occupancy status as the replaced Mortgage Loan or is a primary
residence, (iii) shall mature no later than ________________ __, 199_, (iv) has
a Loan-to-Value Ratio as of the Subsequent Cut-Off Date no higher than the
Loan-to-Value Ratio of the replaced Mortgage Loan at such time, (v) shall be of
the same or higher credit quality classification (determined in accordance with
the PAGs) as the Mortgage Loan which such Qualified Subsequent Mortgage
replaces, (vi) has a Loan Balance as of the related Subsequent Cut-Off Date not
greater than and not substantially less than the Loan Balance of the replaced
Mortgage Loan as of such Subsequent Cut-Off Date, (vii) shall not provide for a
Balloon Payment if the related Mortgage Loan did not provide for a Balloon
Payment (and if such related Mortgage Loan provided for a Balloon Payment, such
Qualified Replacement Mortgage shall have an original maturity of not less than
the original maturity of such related Mortgage Loan), (viii) shall be a fixed
rate Mortgage Loan if the Mortgage Loan being replaced is a fixed rate Mortgage
Loan or an adjustable rate Mortgage Loan if the Mortgage Loan being replaced is
an adjustable rate Mortgage Loan, (ix) if such Mortgage Loan being replaced is
in Group II, (a) has the index of the replaced Mortgage Loan, (b) has the same
amount of time between rate adjustment dates as the replaced Mortgage Loan and
(c) has a margin no less than the replaced Mortgage Loan and (x) satisfies the
criteria set forth from time to time in the definition thereof at Section
860G(a)(4) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Rating Agencies": Collectively, Moody's, Fitch and DCR or any
successors thereto.
"Realized Loss": As to any Liquidated Loan, the amount, if any, by
which (x) the Loan Balance thereof plus any accrued and unpaid interest thereon
as of the date of liquidation exceeds (y) Net Liquidation Proceeds realized
thereon applied in reduction of such Loan Balance and accrued and unpaid
interest. As to any Mortgage Loan as to which there has been a Cram Down Loss,
the amount of such Cram Down Loss.
"Record Date": With respect to the Group I Certificates and each
Payment Date, the last day of the calendar month immediately preceding the
calendar month in which such Payment Date occurs and with respect to the Group
II Certificates and each Payment Date, the day immediately preceding such
Payment Date.
"Reference Banks": _________________________, _________________________
and National Westminster Bank PLC, provided that if any of the foregoing banks
are not suitable to serve as a Reference Bank, then any leading banks selected
by the Trustee which are engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) not controlling, under the control of or under common control with
the Seller or any affiliate thereof, (iii) whose quotations appear on Telerate
Page 3750 on the relevant One-Month LIBOR Determination Date and (iv) which have
been designated as such by the Trustee.
"Register": The register maintained by the Registrar in accordance with
Section 5.04 hereof, in which the names of the Owners are set forth.
"Registrar": The Trustee, acting in its capacity as Registrar appointed
pursuant to Section 5.04 hereof, or any duly appointed and eligible successor
thereto.
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"Registration Statement": The Registration Statement filed by the
Depositor with the Securities and Exchange Commission (Registration Number
_____________), including all amendments thereto and including the Prospectus
Supplement relating to the Offered Certificates constituting a part thereof.
"REMIC": A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.
"REMIC Opinion": As defined in Section 3.03 hereof.
"REMIC Provisions": Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related provisions,
and regulations and revenue rulings promulgated thereunder, as the foregoing may
be in effect from time to time.
"Remittance Period": The period from and including the second day of
the calendar month preceding the month in which a Monthly Remittance Date occurs
to and including the first day of the calendar month in which a Monthly
Remittance Date occurs.
"REO Property": A Property acquired by a Servicer on behalf of the
Trust through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"Reporting Date": The date on which the Master Servicer will provide
the Aggregate Monthly Servicing Report to the Trustee, which day shall be the
20th day of each calendar month (or if such day is not a Business Day, the next
succeeding Business Day).
"Representation Letter": Letters to, or agreements with, the Depository
to effectuate a book entry system with respect to the Offered Certificates
registered in the Register under the nominee name of the Depository.
"Retained Certificates": Collectively, the Class D Certificates and the
Class R Certificates.
"Schedule of Mortgage Loans": Each of the schedules of Mortgage Loans,
segregated by Mortgage Loan Group, with respect to the Initial Mortgage Loans
listing each Initial Mortgage Loan in the related Group to be conveyed on the
Startup Day and with respect to Subsequent Mortgage Loans listing each
Subsequent Mortgage Loan conveyed to the Trust for inclusion in the related
Group as of each Subsequent Transfer Date and the name of the related Servicer.
Such Schedules of Mortgage Loans shall identify each Mortgage Loan by (1) the
Servicer's loan number, (2) the related Servicing Fee, (3) borrower's name, (4)
address (including the state) of the Property, (5) the lien status thereof, (6)
the Loan-to-Value Ratio, (7) the Loan Balance as of the Cut-Off Date, (8) the
Coupon Rate thereof and (9) the paid-through date for such Mortgage Loan.
"Scheduled Payment": As of any date of calculation, with respect to a
Mortgage Loan, the then stated scheduled monthly installment of principal and
interest payable as it may have been reduced thereunder which, if timely paid,
would result in the full amortization of principal over the term thereof (or, in
the case of a "balloon" Note, the term to the nominal maturity date for
amortization purposes, without regard to the actual maturity date).
"Second Mortgage": Mortgage Loans secured by a valid mortgage which
represents a second lien.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": AMRESCO Residential Capital Markets, Inc., a Delaware
corporation.
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"Servicers" or "Servicer": _________________________ and
_________________________ and their permitted successors and assigns. Any
reference to Servicers or Servicer shall mean the related Servicer with respect
to any Mortgage Loan or Mortgage Loan Servicing Group.
"Servicer Affiliate": A Person (i) controlling, controlled by or under
common control with the Servicer and (ii) which is qualified to service
residential mortgage loans.
"Servicer Loss Test": The Servicer Loss Test for each Servicer and with
respect to its related Mortgage Loan Servicing Group for any period set out
below is satisfied if the Cumulative Loss Percentage as it relates to such
Mortgage Loan Servicing Group and such period does not exceed the percentage set
out for such period below (provided, that for purposes of the calculation of the
Servicer Loss Test, Realized Losses attributable solely to Cram Down Losses
shall be excluded from the calculation of Cumulative Loss Percentage):
Cumulative Loss
Period Percentage
------ ---------------
"Servicer Termination Event": As defined in Section 8.20(a) hereof.
"Servicer Termination Test": The Servicer Termination Test for each
Servicer and with respect to the related Mortgage Loan Servicing Group is
satisfied for any date of determination thereof, if either (x) the 90+
Delinquency Percentage (Rolling Three Month) with respect to the related
Mortgage Loan Servicing Group is less than the greater of (i) 50% of the
weighted average of the Group I Senior Enhancement Percentage and the Group II
Senior Enhancement Percentage (weighted based on the outstanding Loan Balance
relating to Group I and Group II as of such date of determination) and (ii)
_______% or (y) the Servicer Loss Test is satisfied.
"Servicer's Monthly Servicing Report": Any report provided by a
Servicer pursuant to Section 8.29(a) hereof.
"Servicer's Trust Receipt": The Servicer's Trust Receipt, in the form
set out as Exhibit H hereto.
"Servicing Advance": As defined in Section 8.09(b) and Section 8.13(a)
hereof.
"Servicing Fee": With respect to any Mortgage Loan, an amount retained
by the related Servicer as compensation for servicing and administration duties
relating to such Mortgage Loan pursuant to Section 8.15.
"Servicing Fee Letter": Each of the servicing fee letters between the
Seller and the related Servicer, setting forth the Servicing Fee Rate and other
servicing compensation applicable to such Servicer.
"Servicing Fee Rate": The rate per annum set forth in the related
Servicing Fee Letter.
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"Servicing Report Delivery Date": The date on which each Servicer will
provide its Servicer's Monthly Servicing Report to the Master Servicer and the
Seller, which day shall be the 10th day of each calendar month (or if such day
is not a Business Day, the next succeeding Business Day).
"60+ Day Delinquent Loan": With respect to any date of determination
thereof, all REO Properties and each Mortgage Loan, with respect to which any
portion of a Scheduled Payment is, as of the last day of the related Collection
Period, 60 days or more Delinquent (without giving effect to any grace period).
"60+ Day Delinquency Percentage": As of any date of determination
thereof, and as to the related Mortgage Loan Group, a fraction, expressed as a
percentage, the numerator of which is the outstanding aggregate Loan Balance of
60+ Day Delinquent Loans with respect to such Mortgage Loan Group and the
denominator of which is the outstanding aggregate Loan Balance of the Mortgage
Loans in such Mortgage Loan Group.
"Startup Day": ________________ __, 199_
"Subordinate Certificates": With respect to either Group, collectively,
the Mezzanine Certificates, the Class B Certificates and the Class C-IO
Certificates related to such Group.
"Subordinated Trigger Event": A Group I Subordinated Trigger Event or a
Group II Subordinated Trigger Event, as the case may be.
"Subsequent Cut-Off Date": The close of business on the first day of
the month in which a Qualified Replacement Mortgage or a Subsequent Mortgage
Loan is transferred and assigned to the Trust.
"Subsequent Mortgage Loans": The Mortgage Loans sold to the Trust after
the Startup Day pursuant to a fixed price contract for inclusion in Group I or
Group II pursuant to Section 3.07 hereof, which shall be listed on the Schedule
of Mortgage Loans attached to a Subsequent Transfer Agreement.
"Subsequent Transfer Agreement": Each Subsequent Transfer Agreement
dated as of a Subsequent Transfer Date executed by the Trustee, the Depositor
and the Seller substantially in the form of Exhibit C hereto, by which
Subsequent Mortgage Loans are sold and assigned to the Trust.
"Subsequent Transfer Date": With respect to Subsequent Mortgage Loans,
the date specified in each Subsequent Transfer Agreement, and with respect to a
Qualified Replacement Mortgage, the date upon which a conveyance of such
Qualified Replacement Mortgage to the Trust is effective.
"Subservicer": Any Person with whom a Servicer has entered into a
subservicing agreement and who satisfies all requirements set forth in Section
8.03 hereof in respect of the qualification of a subservicer.
"Subservicing Agreement": The written contract between a Servicer and
any Subservicer relating to servicing and/or administration of certain Mortgage
Loans as permitted by Section 8.03.
"Substitution Amount": As defined in Section 3.03 hereof.
"Tape": The meaning provided in Section 8.29(d) hereof.
"Tax Matters Certificate": The Class R Certificate, representing a
0.001% Percentage Interest of such Class of Certificates, initially issued
to_______________ _______________ as the initial Tax Matters Person.
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"Tax Matters Person": The Person appointed for the Trust pursuant to
Section 11.18 hereof to act as the Tax Matters Person under the Code.
"Tax Matters Person Residual Interest": The 0.001% interest in the
Class R Certificates, which shall be issued to and held by _______________
_______________ throughout the term hereof unless another Person shall accept an
assignment of such interest and the designation of Tax Matters Person pursuant
to Section 11.18 hereof.
"Telerate Page 3750": The display designated as page "3750" on the Dow
Jones Telerate Capital Markets Report (or such other page as may replace page
3750 on that report for the purpose of displaying London interbank offered rates
of major banks).
"Termination Date Pass-Through Rate": A rate equal to the sum of (a)(i)
the Group I Weighted Average Pass-Through Rate in the case of Mortgage Loans in
Group I or (ii) the Group II Weighted Average Pass-Through Rate in the case of
Mortgage Loans in Group II, plus (b) the sum of (x) the Trustee Fee and (y) the
Master Servicer Fee (calculated as an annual rate based on the outstanding
principal amount of the related Certificates) then accrued and outstanding.
"Termination Notice": As defined in Section 9.03(a) hereof.
"Termination Price": As defined in Section 9.02(b) hereof.
"Trust": AMRESCO Residential Securities Corporation Mortgage Loan Trust
1998-2, the trust created under this Agreement.
"Trust Estate": As defined in the conveyance clause under this
Agreement.
"Trustee": Norwest Bank Minnesota, National Association, a national
banking association, not in its individual capacity but solely as Trustee under
this Agreement, and any successor hereunder.
"Trustee Fee": An amount equal to the product of (x) the aggregate
outstanding Loan Balance as of the last day of the related Collection Period and
(y) the Trustee Fee Rate.
"Trustee Fee Rate": _______% per annum.
"Underwriters": ______________________________ and
______________________________.
"Unpaid Realized Loss Amount": For any Class of the Subordinate
Certificates and as to any Payment Date, the excess of (x) the aggregate
cumulative amount of related Applied Realized Loss Amounts with respect to such
Class for all prior Payment Dates over (y) the aggregate, cumulative amount of
related Realized Loss Amortization Amounts with respect to such Class for all
prior Payment Dates.
"Upper-Tier Group I Distribution Account": The Upper-Tier Group I
Distribution Account established pursuant to Section 7.02(c) hereof.
"Upper-Tier Group II Distribution Account": The Upper-Tier Group II
Distribution Account established pursuant to Section 7.02(c) hereof.
"Upper-Tier REMIC": The REMIC established pursuant to Section 2.08
hereof with respect to the Certificates. The assets of the Upper-Tier REMIC
shall include the Upper-Tier Group I Distribution Account and the Upper-Tier
Group II Distribution Account, and the right to receive the distributions
deposited therein with respect to each Lower-Tier Interest.
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<PAGE>
Section 1.02 Use of Words and Phrases.
"Herein", "hereby", "hereunder", "hereof", "hereinbefore",
"hereinafter" and other equivalent words refer to this Agreement as a whole and
not solely to the particular section of this Agreement in which any such word is
used. The definitions set forth in Section 1.01 hereof include both the singular
and the plural. Whenever used in this Agreement, any pronoun shall be deemed to
include both singular and plural and to cover all genders.
Section 1.03 Captions; Table of Contents.
The captions or headings in this Agreement and the Table of Contents
are for convenience only and in no way define, limit or describe the scope and
intent of any provisions of this Agreement.
Section 1.04 Opinions.
Each opinion with respect to the validity, binding nature and
enforceability of documents or Certificates may be qualified to the extent that
the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether considered in a
proceeding or action in equity or at law) and may state that no opinion is
expressed on the availability of the remedy of specific enforcement, injunctive
relief or any other equitable remedy. Any opinion required to be furnished by
any Person hereunder must be delivered by counsel upon whose opinion the
addressee of such opinion may reasonably rely, and such opinion may state that
it is given in reasonable reliance upon an opinion of another, a copy of which
must be attached, concerning the laws of a foreign jurisdiction.
END OF ARTICLE I
44
<PAGE>
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01 Establishment of the Trust.
The parties hereto (excluding the Servicers) do hereby create and
establish, pursuant to the laws of the State of New York and this Agreement, the
Trust, which, for convenience, shall be known as "AMRESCO Residential Securities
Corporation Mortgage Loan Trust 199_-_".
Section 2.02 Office.
The office of the Trust shall be in care of the Trustee, addressed to
the Corporate Trust Office or at such other address as the Trustee may designate
by notice to the Depositor, the Seller, the Servicers and the Owners.
Section 2.03 Purposes and Powers.
The purpose of the Trust is to engage in the following activities and
only such activities: (i) the issuance of the Certificates and the acquiring,
owning, holding and disposing of the Mortgage Loans and the Trust Estate in
connection therewith; (ii) activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith,
including the investment of moneys in accordance with this Agreement; and (iii)
such other activities as may be required in connection with conservation of the
Trust Estate and distributions to the Owners; provided, however, that nothing
contained herein shall permit the Trustee to take any action which would
adversely affect the status of either the Lower-Tier REMIC or the Upper-Tier
REMIC as a REMIC.
Section 2.04 Appointment of the Trustee; Declaration of Trust.
The Depositor hereby appoints the Trustee as trustee of the Trust
effective as of the Startup Day, to have all the rights, powers and duties set
forth herein. The Trustee hereby acknowledges and accepts such appointment,
represents and warrants its eligibility as of the Startup Day to serve as
Trustee pursuant to Section 10.08 hereof and declares that it will hold the
Trust Estate in trust upon and subject to the conditions set forth herein for
the benefit of the Owners.
Section 2.05 Expenses of the Trust.
The expenses of the Trust, including (i) the Trustee Fee, if any, (ii)
the Master Servicer Fee, and (iii) any reasonable expenses of the Trustee that
are "unanticipated expenses of the REMIC" within the meaning of Treasury
Regulations Section 1.860G-1(b)(3), shall be paid pursuant to Section 7.03(c)(i)
and (d)(i). The Seller shall pay directly the reasonable fees and expenses of
counsel to the Trustee pursuant to a fee letter between the Seller and the
Trustee. The reasonable fees and expenses of the Trustee's counsel in connection
with the review and delivery of this Agreement and related documentation shall
be paid by the Seller on the Startup Day.
Section 2.06 Ownership of the Trust.
On the Startup Day the ownership interests in the Trust shall be
transferred as set forth in Section 4.02 hereof, such transfer to be evidenced
by sale of the Certificates as described therein. Thereafter, transfer of any
ownership interest shall be governed by Sections 5.04 and 5.08 hereof.
Section 2.07 Reserved.
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<PAGE>
Section 2.08 Miscellaneous REMIC Provisions.
(a) The beneficial ownership interest in the Lower-Tier REMIC shall be
evidenced by the interests having the characteristics and terms as follows,
including for federal income tax purposes the month in which the Final Scheduled
Payment Dates occur:
<TABLE>
<CAPTION>
Lower-Tier Initial Month and Year
Pass-Through Lower-Tier of Final Scheduled
Class Designation Rate Balance Payment Dates
- ----------------- ---- ------- -------------
<S> <C> <C> <C>
Lower-Tier Interest A-1 (1)
Lower-Tier Interest A-2 (1)
Lower-Tier Interest A-3 (1)
Lower-Tier Interest A-4 (1)
Lower-Tier Interest A-5 (1)
Lower-Tier Interest A-6 (1)
Lower-Tier Interest A-7 (2)
Lower-Tier Interest A-8 (2)
Lower-Tier Interest M-1F (1)
Lower-Tier Interest M-1A (2)
Lower-Tier Interest M-2F (1)
Lower-Tier Interest M-2A (2)
Lower-Tier Interest B-1F (1)
Lower-Tier Interest B-1A (2)
Lower-Tier REMIC Residual Class (3)
</TABLE>
- --------------------
(1) On any Payment Date, the Group I Net Weighted Average Coupon Rate.
(2) On any Payment Date, the Group II Net Weighted Average Coupon Rate.
(3) The Lower-Tier REMIC Residual Class is not issued with a Lower-Tier
Balance or a Lower-Tier Pass-Through Rate.
(b) The Lower-Tier Interests A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8,
M-1F, M-1A, M-2F, M- 2A, B-1F and B-1A Certificates shall be issued as
non-certificated interests. The Lower-Tier REMIC Residual Class shall be issued
from the Lower-Tier REMIC as a non-certificated interest.
(c) The Depositor hereby designates Lower-Tier Interest A-1, Lower-Tier
Interest A-2, Lower-Tier Interest A-3, Lower-Tier Interest A-4, Lower-Tier
Interest A-5, Lower-Tier Interest A-6, Lower-Tier Interest A-7, Lower-Tier
Interest A-8, Lower-Tier Interest M-1F, Lower-Tier Interest M-1A, Lower-Tier
Interest M-2F, Lower-Tier Interest M-2A, Lower-Tier Interest B-1F and Lower-Tier
Interest B-2A as "regular interests" and the Lower-Tier REMIC Residual Class as
the single class of "residual interests" in the Lower-Tier REMIC for purposes of
the REMIC Provisions.
(d) The Depositor hereby designates the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8, Class M-1F, Class
M-1A, Class M-2F, Class M-2A, Class B-1F, Class B- 1A, Class C-FIO, Class C-AIO,
Class D and Class S as "regular interests," and the Class R Certificates as the
single class of "residual interests" in the Upper-Tier REMIC for purposes of the
REMIC Provisions. The Depositor hereby designates the Lower-Tier Interest A-1,
the Lower-Tier Interest A-2, the Lower-Tier Interest A-3, the Lower-Tier
Interest A-4, the Lower-Tier Interest A-5, the Lower-Tier Interest A-6, the
Lower-Tier Interest A-7, Lower-Tier Interest A-8, Lower-Tier Interest M-1F,
Lower-Tier Interest M-1A, Lower-Tier Interest M-2F, Lower-Tier Interest M-2A,
Lower-Tier Interest B-1F, Lower-Tier Interest B-1A, the Upper-Tier Group I
Distribution Account and the Upper-Tier Group II Distribution Account as the
only assets of the Upper-Tier REMIC.
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<PAGE>
(e) The Startup Day is hereby designated as the "startup day" of the
Upper-Tier REMIC and the Lower-Tier REMIC within the meaning of Section
860G(a)(9) of the Code.
(f) The Owner of the Tax Matters Person Residual Interest in the
Upper-Tier REMIC and the Lower-Tier REMIC is hereby designated as "tax matters
person" as defined in the REMIC Provisions with respect to each such REMIC.
(g) The Trust and each REMIC included therein shall, for federal income
tax purposes, maintain books on a calendar year basis and report income on an
accrual basis.
(h) The Trustee shall cause the Upper-Tier REMIC and the Lower-Tier
REMIC each to elect to be treated as a REMIC under Section 860D of the Code. Any
inconsistencies or ambiguities in this Agreement or in the administration of the
Trust shall be resolved in a manner that preserves the validity of such election
to be treated as a REMIC. The Trustee shall report all expenses of the Trust
Estate to the Lower-Tier REMIC.
(i) For all Federal tax law purposes amounts transferred by the Trustee
to the Owners of the Class R Certificates shall be treated as distributions by
the Upper-Tier REMIC and amounts, if any, distributed on the Lower-Tier REMIC
Residual Class shall be treated as distributions by the Lower-Tier REMIC. It is
expected that there shall not be any distributions to the Lower-Tier REMIC
Residual Class.
(j) The Trustee shall provide to the Internal Revenue Service and to
the person described in Section 860(E)(e)(3) and (6) of the Code the information
described in Treasury Regulation Section 1.860D-1(b)(5)(ii), or any successor
regulation thereto with respect to both the Lower-Tier REMIC and the Upper-Tier
REMIC. Such information will be provided in the manner described in Treasury
Regulation Section 1.860E-2(a)(5), or any successor regulation thereto.
(k) For federal income tax purposes, the month in which Final Scheduled
Payment Date for each Class of the Offered Certificates is hereby set to be the
Payment Date indicated below:
Month and Year of
Final Scheduled
Class Payment Date
----- -----------------
Class A-1 Certificates
Class A-2 Certificates
Class A-3 Certificates
Class A-4 Certificates
Class A-5 Certificates
Class A-6 Certificates
Class A-7 Certificates
Class A-8 Certificates
Class M-1F Certificates
Class M-1A Certificates
Class M-2F Certificates
Class M-2A Certificates
Class B-1F Certificates
Class B-1A Certificates
Class C-FIO Certificates
Class C-AIO Certificates
Class D Certificates
Class R Certificates
Class S Certificates
47
<PAGE>
END OF ARTICLE II
48
<PAGE>
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE SERVICERS, THE MASTER SERVICER
AND THE SELLER; COVENANT OF SELLER TO CONVEY MORTGAGE LOANS
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants to the Trustee,
the Seller, the Servicers, the Master Servicer and the Owners that as of the
Startup Day:
(a) The Depositor is a corporation duly organized, validly existing and
in good standing under the laws governing its creation and existence and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of its business, or the properties owned or leased by it make such qualification
necessary. The Depositor has all requisite corporate power and authority to own
and operate its properties, to carry out its business as presently conducted and
as proposed to be conducted and to enter into and discharge its obligations
under the Operative Documents to which it is a party.
(b) The execution and delivery by the Depositor and its performance and
compliance with the terms of the Operative Documents to which it is a party have
been duly authorized by all necessary corporate action on the part of the
Depositor and will not violate the Depositor's certificate of incorporation or
bylaws or constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or result in a breach of, any
material contract, agreement or other instrument to which the Depositor is a
party or by which the Depositor is bound or violate any statute or any order,
rule or regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Depositor or any of its properties.
(c) Each Operative Document to which the Depositor is a party, assuming
due authorization, execution and delivery by the other parties hereto and
thereto, constitutes a valid, legal and binding obligation of the Depositor,
enforceable against it in accordance with the terms hereof and thereof, except
as the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (whether considered in a
proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which default would materially and adversely affect the
condition (financial or other) or operations of the Depositor or its properties
or the consequences of which would materially and adversely affect its
performance hereunder and under the Operative Documents to which the Depositor
is a party.
(e) No litigation is pending with respect to which the Depositor has
received service of process or, to the best of the Depositor's knowledge,
threatened against the Depositor, which litigation might have consequences that
would prohibit its entering into this Agreement or any other Operative Documents
to which it is a party or that would materially and adversely affect the
condition (financial or otherwise) or operations of the Depositor or its
properties or might have consequences that would materially and adversely affect
its performance hereunder and under the other Operative Documents to which the
Depositor is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered, or to be delivered, pursuant to the terms hereof by the
Depositor contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the certificate,
statement or report not misleading.
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<PAGE>
(g) The statements contained in the Registration Statement which
describe the Depositor or matters or activities for which the Depositor is
responsible in accordance with the Operative Documents or which are attributable
to the Depositor therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading. The Registration Statement does not contain any
untrue statement of a material fact required to be stated therein or omit to
state any material fact necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. There is
no fact known to the Depositor that materially adversely affects or in the
future may (so far as the Depositor can now reasonably foresee) materially
adversely affect the Depositor or the Mortgage Loans or the ownership interests
therein represented by the Certificates that has not been set forth in the
Registration Statement.
(h) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Depositor makes no such representation or warranty),
that are necessary or advisable in connection with the acquisition by the
Depositor of the Mortgage Loans, the conveyance by the Depositor of the Mortgage
Loans, the purchase and sale of the Certificates and the execution, delivery and
performance by the Depositor of the Operative Documents to which it is a party,
have been duly taken, given or obtained, as the case may be, are in full force
and effect on the date hereof, are not subject to any pending proceedings or
appeals (administrative, judicial or otherwise) and either the time within which
any appeal therefrom may be taken or review thereof may be obtained has expired
or no review thereof may be obtained or appeal therefrom taken, and are adequate
to authorize the consummation of the transactions contemplated by the Operative
Documents on the part of the Depositor and the performance by the Depositor of
its obligations under this Agreement and such of the other Operative Documents
to which it is a party.
(i) The transactions contemplated by the Operative Documents are in the
ordinary course of business of the Depositor.
(j) The Depositor is not insolvent, nor will it be made insolvent by
the transfer of the Mortgage Loans, nor is the Depositor aware of any pending
insolvency.
(k) The transfer, assignment and conveyance of the Notes and the
Mortgages by the Depositor hereunder are not subject to the bulk transfer laws
or any similar statutory provisions in effect in any applicable jurisdiction.
It is understood and agreed that the representations and warranties set
forth in this Section 3.01 shall survive delivery of the respective Mortgage
Loans to the Trustee.
Section 3.02 Representations and Warranties of the Servicers and the
Master Servicer.
(a) Each Servicer hereby represents and warrants to the Trustee, the
Depositor, the Seller, the Servicers, the Master Servicer and the Owners, as to
itself and its Mortgage Loan Servicing Group only, that as of the Startup Day:
(i) It is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation, is in compliance
with the laws of each state in which any Property is located to the extent
necessary to enable it to perform its obligations hereunder and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business, or the properties owned or leased by it make such qualification
necessary. Such Servicer has all requisite corporate power and authority to own
and operate its properties, to carry out its business as presently conducted and
as proposed to be
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conducted and to enter into and discharge its obligations under the Operative
Documents to which it is a party.
(ii) The execution and delivery of the Operative Documents to
which such Servicer is a party by such Servicer and its performance and
compliance with the terms thereof have been duly authorized by all necessary
corporate action on the part of such Servicer and will not violate such
Servicer's articles or certificate of incorporation or bylaws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any material contract,
agreement or other instrument to which such Servicer is a party or by which such
Servicer is bound or violate any statute or any order, rule or regulation of any
court, governmental agency or body or other tribunal having jurisdiction over
such Servicer or any of its properties.
(iii) Each Operative Document to which such Servicer is a
party, assuming due authorization, execution and delivery by the other parties
thereto, constitutes a valid, legal and binding obligation of such Servicer,
enforceable against it in accordance with the terms thereof, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (whether considered in a
proceeding or action in equity or at law).
(iv) Such Servicer is not in default with respect to any order
or decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which would materially and adversely affect
the condition (financial or otherwise) or operations of such Servicer or its
properties or would materially and adversely affect its performance hereunder.
(v) No litigation is pending with respect to which such
Servicer has received service of process or, to the best of such Servicer's
knowledge, threatened against such Servicer which litigation would prohibit its
entering into the Operative Documents to which such Servicer is a party or would
materially and adversely affect the condition (financial or otherwise) or
operations of such Servicer or its properties or would materially and adversely
affect its performance hereunder and under the other Operative Documents to
which such Servicer is a party.
(vi) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by such Servicer
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the certificate, statement or report not misleading.
(vii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which such Servicer makes no such
representation or warranty), that are necessary or advisable in connection with
the execution, delivery and performance by such Servicer of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by such Operative Documents on the part of such
Servicer and the performance by such Servicer of its obligations under such
Operative Documents to which it is a party.
(viii) The collection practices used by such Servicer with
respect to the Mortgage Loans serviced by it have been, in all material
respects, legal, proper, prudent and customary in the mortgage servicing
business.
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(ix) The transactions contemplated by this Agreement are in
the ordinary course of business of such Servicer.
(x) The Servicer is working toward, and anticipates being year
2000 compliant by December 31, 1999.
(b) The Master Servicer hereby represents and warrants to the Trustee,
the Depositor, the Seller, the Servicers and the Owners that as of the Startup
Day:
(i) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, is in compliance with the laws of each state in which any
Property is located to the extent necessary to enable it to perform its
obligations hereunder and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business, or the properties owned or
leased by it make such qualification necessary. The Master Servicer has all
requisite corporate power and authority to own and operate its properties, to
carry out its business as presently conducted and as proposed to be conducted
and to enter into and discharge its obligations under the Operative Documents to
which it is a party.
(ii) The execution and delivery of the Operative Documents to
which the Master Servicer is a party by the Master Servicer and its performance
and compliance with the terms thereof have been duly authorized by all necessary
corporate action on the part of the Master Servicer and will not violate the
Master Servicer's articles or certificate of incorporation or bylaws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Master Servicer is a party
or by which the Master Servicer is bound or violate any statute or any order,
rule or regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Master Servicer or any of its properties.
(iii) Each Operative Document to which the Master Servicer is
a party, assuming due authorization, execution and delivery by the other parties
thereto, constitutes a valid, legal and binding obligation of the Master
Servicer, enforceable against it in accordance with the terms thereof, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (whether considered in a
proceeding or action in equity or at law).
(iv) The Master Servicer is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which would materially and adversely
affect the condition (financial or otherwise) or operations of the Master
Servicer or its properties or would materially and adversely affect its
performance hereunder.
(v) No litigation is pending with respect to which the Master
Servicer has received service of process or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which litigation
would prohibit its entering into the Operative Documents to which the Master
Servicer is a party or would materially and adversely affect the condition
(financial or otherwise) or operations of the Master Servicer or its properties
or would materially and adversely affect its performance hereunder and under the
other Operative Documents to which the Master Servicer is a party.
(vi) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Master Servicer
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the certificate, statement or report not misleading.
(vii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals,
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etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Master Servicer makes no such representation or
warranty), that are necessary or advisable in connection with the execution,
delivery and performance by the Master Servicer of the Operative Documents to
which it is a party, have been duly taken, given or obtained, as the case may
be, are in full force and effect on the date hereof, are not subject to any
pending proceedings or appeals (administrative, judicial or otherwise) and
either the time within which any appeal therefrom may be taken or review thereof
may be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by such Operative Documents on the part of the Master
Servicer and the performance by the Master Servicer of its obligations under
such Operative Documents to which it is a party.
(viii) The transactions contemplated by this Agreement are in
the ordinary course of business of the Master Servicer.
(c) It is understood and agreed that the representations and warranties
set forth in this Section 3.02 shall survive delivery of the Mortgage Loans to
the Trustee.
(d) Upon discovery by any of the Seller, a Servicer, the Master
Servicer, the Depositor or the Trustee (each, for purposes of this paragraph, a
"party") of a breach of any of the representations and warranties set forth in
this Section 3.02 which materially and adversely affects the interests of the
Owners, the party discovering such breach shall give prompt written notice to
the other parties (provided that one Servicer need not give such notice to the
other Servicers). With respect to a breach by a Servicer, within 60 days of its
discovery or its receipt of notice of such breach, the related Servicer shall
cure such breach in all material respects, and (B) to the extent that such
breach is not cured in accordance with clause (A) above, the related Servicer
may thereafter be removed pursuant to Section 8.20(a)(iv) hereof; provided,
however, that if such Servicer can establish to the reasonable satisfaction of
the Seller that it is diligently pursuing remedial action, then the cure period
may be extended with the written approval of the Seller, which such written
approval shall not be unreasonably withheld.
Section 3.03 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants to the Trustee,
the Depositor, the Servicers, the Master Servicer and the Owners as of the
Startup Day as follows:
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws governing its creation and existence and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business, or the properties owned or leased by it make such qualification
necessary. The Seller has all requisite corporate power and authority to own and
operate its properties, to carry out its business as presently conducted and as
proposed to be conducted and to enter into and discharge its obligations under
the Operative Documents to which it is a party.
(b) The execution and delivery by the Seller and its performance and
compliance with the terms of the Operative Documents to which it is a party have
been duly authorized by all necessary corporate action on the part of the Seller
and will not violate the Seller's certificate of incorporation or bylaws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in a breach of, any material
contract, agreement or other instrument to which the Seller is a party or by
which the Seller is bound or violate any statute or any order, rule or
regulation of any court, governmental agency or body or other tribunal having
jurisdiction over the Seller or any of its properties.
(c) Each Operative Document to which the Seller is a party, assuming
due authorization, execution and delivery by the other parties hereto and
thereto, constitutes a valid, legal and binding obligation of the Seller,
enforceable against it in accordance with the terms hereof and thereof, except
as the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or
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other similar laws affecting creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law).
(d) The Seller is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default would materially and adversely affect the
condition (financial or other) or operations of the Seller or its properties or
the consequences of which would materially and adversely affect its performance
under the Operative Documents to which the Seller is a party.
(e) No litigation is pending with respect to which the Seller has
received service of process or, to the best of the Seller's knowledge,
threatened against the Seller, which litigation might have consequences that
would prohibit its entering into this Agreement or any other Operative Documents
to which it is a party or that would materially and adversely affect the
condition (financial or otherwise) or operations of the Seller or its properties
or might have consequences that would materially and adversely affect its
performance under the Operative Documents to which the Seller is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered or to be delivered pursuant to the terms hereof by the Seller
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make the certificate,
statement or report not misleading.
(g) The statements contained in the Registration Statement which
describe the Seller or matters or activities for which the Seller is responsible
in accordance with the Operative Documents or which are attributable to the
Seller therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Seller required to be stated therein or necessary to make
the statements contained therein with respect to the Seller, in light of the
circumstances under which they were made, not misleading. There is no fact known
to the Seller that materially adversely affects or in the future may (so far as
the Seller can now reasonably foresee) materially adversely affect the Seller or
the Mortgage Loans or the ownership interests therein represented by the
Certificates that has not been set forth in the Registration Statement.
(h) Upon the receipt of each Mortgage Loan (including the related Note)
and other items of the Trust Estate by the Trustee under this Agreement, the
Trust will have good title to such Mortgage Loan (including the related Note)
and such other items of the Trust Estate free and clear of any lien, charge,
mortgage, encumbrance or rights of others.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Seller makes no such representation or warranty), that
are necessary or advisable in connection with the purchase and sale of the
Certificates and the execution, delivery and performance by the Seller of the
Operative Documents to which it is a party, have been duly taken, given or
obtained, as the case may be, are in full force and effect on the date hereof,
are not subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may be taken
or review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by the other Operative Documents
on the part of the Seller and the performance by the Seller of its obligations
under this Agreement and such of the other Operative Documents to which it is a
party.
(j) The transactions contemplated by the Operative Documents are in the
ordinary course of business of the Seller.
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(k) The Seller is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is it aware of any insolvency pending.
(l) The transfer, assignment and conveyance of the Notes and the
Mortgages by the Seller hereunder are not subject to the bulk transfer laws or
any similar statutory provisions in effect in any applicable jurisdiction.
(m) The Seller is not aware that any Mortgage Loan breaches any
representation or warranty hereof that as of the Startup Date is not subject to
cure.
It is understood and agreed that the representations and warranties set
forth in this Section 3.03 shall survive delivery of the respective Mortgage
Loans to the Trustee.
Upon discovery by any of the Servicers, the Master Servicer, the
Depositor, the Seller or the Trustee (each, for purposes of this paragraph, a
"party") of a breach of any of the representations and warranties set forth in
this Section 3.03 which materially and adversely affects the interests of the
Owners, the party discovering such breach shall give prompt written notice to
the other parties. The Seller hereby covenants and agrees that within 60 days of
its discovery or its receipt of notice of breach, it shall cure such breach in
all material respects or, with respect to a breach of clause (h) above, it shall
on the Monthly Remittance Date next succeeding such discovery or receipt of
notice (i) within two years of the Startup Day, substitute in lieu of any
Mortgage Loan not in compliance with clause (h) a Qualified Replacement Mortgage
and, if the outstanding principal amount of such Qualified Replacement Mortgage
as of the applicable Subsequent Cut-Off Date is less than the Loan Balance of
such Mortgage Loan as of such Subsequent Cut-Off Date, deliver an amount equal
to such difference together with the aggregate amount of (A) all unreimbursed
Delinquency Advances and Servicing Advances theretofore made with respect to
such Mortgage Loan and (B) the interest portion of any Delinquency Advances
which the related Servicer has theretofore failed to remit with respect to such
Mortgage Loan (a "Substitution Amount") to the related Servicer for deposit in
the related Principal and Interest Account or (ii) purchase such Mortgage Loan
from the Trust at the Loan Purchase Price, which purchase price shall be
delivered to the related Servicer for deposit in the Principal and Interest
Account. Notwithstanding any provision of this Agreement to the contrary, with
respect to any Mortgage Loan which is not in default or as to which no default
is imminent, no repurchase or substitution pursuant hereto shall be made unless
the Seller obtains for the Trustee an opinion of counsel experienced in federal
income tax matters to the effect that such a repurchase or substitution would
not constitute a Prohibited Transaction for the Trust or any REMIC therein or
otherwise subject the Trust or any REMIC therein to tax and would not jeopardize
the status of either the Lower-Tier REMIC or the Upper-Tier REMIC as a REMIC (a
"REMIC Opinion") addressed to the Servicers, the Master Servicer and the Trustee
and acceptable to the Servicers, the Master Servicer and the Trustee. Any
Mortgage Loan as to which repurchase or substitution was delayed pursuant to
this Section because of the inability to deliver a REMIC Opinion shall be
repurchased or substituted for (subject to compliance with Sections 3.03, 3.04
or 3.06, as the case may be) upon the earlier of (a) the occurrence of a default
or imminent default with respect to such Mortgage Loan and (b) receipt by the
Trustee of a REMIC Opinion.
Section 3.04 Representations and Warranties Relating to the
Mortgage Loans; Covenants of Seller to Take Certain
Actions with Respect to the Mortgage Loans In Certain
Situations.
(a) With respect to each Mortgage Loan, the Seller represents and
warrants to, and covenants to the Trustee, the Depositor, the Master Servicer,
the Servicers and the Owners that, as of the Startup Date (with respect to the
Initial Mortgage Loans) and as of the Subsequent Transfer Date (with respect to
the Subsequent Mortgage Loans):
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(i) Title to the Mortgage Loans. Immediately prior to the
transfer and assignment of the Mortgage Loans by the Seller to the
Depositor and by the Depositor to the Trust contemplated herein, the
Seller held good title to and was the sole owner of record and holder
of the Mortgage Loan and the indebtedness evidenced by each Note. There
has been no sale or hypothecation by Seller of the Mortgage Loan. The
Mortgage Loan has not been assigned or pledged, and the Seller has
good, indefeasible and marketable title thereto, and has full right to
transfer and sell the Mortgage Loan free and clear of any encumbrance,
equity interest, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no
interest or participation of, or agreement with, any other party, to
sell and assign each Mortgage Loan pursuant to this Agreement, and
following the sale of each Mortgage Loan, the Trustee will own such
Mortgage Loan free and clear of any encumbrance, equity interest,
participation interest, lien, pledge, charge, claim or security
interest.
(ii) Accuracy of the Schedule of Mortgage Loans. Each Initial
Mortgage Loan or Subsequent Mortgage Loan is as described in the
related Schedule of Mortgage Loans, and the information contained in
each Schedule of Mortgage Loans is true and correct as of the Cut-Off
Date (or in the case of the Subsequent Mortgage Loans, as of the
Subsequent Cut-Off Date) .
(iii) Payments. As of the Cut-Off Date, no Initial Mortgage
Loan is thirty (30) or more days Delinquent except that there are 94
and 61 Initial Mortgage Loans in Group I and Group II, respectively,
with an outstanding aggregate Loan Balance of $____________ and
$____________ in Group I and Group II, respectively, that are 30 or
more days Delinquent but not more than 59 days Delinquent.
(iv) No Outstanding Charges. There are no defaults in
complying with the terms of the Mortgage, nor, with respect to any
Second Mortgage, the terms of any senior mortgage. All taxes,
governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously
became due and owing have been paid, or an escrow of funds has been
established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and
payable. The Seller has not advanced funds, or induced or solicited or
knowingly received any advance of funds by a party other than the
Mortgagor, directly or indirectly, for the payment of any amount
required under the Mortgage Loan, except for interest accruing from the
date of the Note or date of disbursement of the Mortgage Loan proceeds,
whichever occurred later, to the day which precedes by one month the
Due Date of the first Scheduled Payment.
(v) Original Terms Unmodified. The terms of the Note and the
Mortgage have not been impaired, waived, altered or modified in any
respect, except by a written instrument which has been recorded, if
necessary to protect the interests of the Trust. The substance of any
such waiver, alteration or modification has been approved by the title
insurer, to the extent required by the policy, and its terms are
reflected on the related Schedule of Mortgage Loans. No Mortgagor has
been released, in whole or in part, except in connection with an
assumption agreement approved by the title insurer, to the extent
required by the policy, and which assumption agreement is part of the
File.
(vi) Absence of Defenses. The Mortgage and the Note are not
subject to any right of rescission, set-off, counterclaim, or defense
(including the defense of usury), based on the invalidity or
unenforceability of the Note and/or Mortgage or on any conduct of the
Seller, the Depositor or any of their officers, employees,
representatives, affiliates or assignors in originating or servicing
the Initial Mortgage Loan prior to the Cut-Off Date (or, in the case of
a Subsequent Mortgage Loan, the Subsequent Cut-Off Date), nor will the
operation of any of the terms of the Mortgage or the Note, or the
exercise of any right thereunder, render the Mortgage or the Note
unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim, or defense (including
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the defense of usury) based on any such invalidity, unenforceability or
conduct. No right of rescission, set-off, counterclaim, or defense with
respect thereto has been asserted to the Seller or, to Seller's
knowledge, has been asserted to any other person and no Mortgagor was a
debtor in any state or Federal bankruptcy or insolvency proceeding at
the time the Mortgage Loan was originated.
(vii) Hazard Insurance. Pursuant to the terms of the Mortgage,
all improvements upon the Mortgaged Property are insured by an insurer
acceptable to FannieMae against loss by fire and such other risks as
are usually insured against in the broad form of extended coverage
hazard insurance available from time to time, including flood hazards
if upon origination of the Mortgage Loan, the Property was in an area
identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and if flood insurance was
required by federal regulation and such flood insurance has been made
available). All such insurance policies (collectively, the "hazard
insurance policy") meet the requirements of the current guidelines of
the Federal Insurance Administration, conform to the requirements of
the FannieMae Seller's Guide and the FannieMae Servicers' Guide and are
a standard policy of insurance for the locale where the Property is
located. The amount of the insurance is at least in the amount of the
full insurable value of the Property on a replacement cost basis or the
unpaid balance of the Mortgage Loan, whichever is less. The hazard
insurance policy names (and will name) the Mortgagor as the insured and
contains a standard mortgagee loss payable clause in favor of the
related Originator and its successors and assigns. The Mortgage
obligates the Mortgagor thereunder to maintain the hazard insurance
policy at the Mortgagor's cost and expense, and on the Mortgagor's
failure to do so, authorizes the holder of the Mortgage to obtain and
maintain such insurance at such Mortgagor's cost and expense, and to
seek reimbursement therefor from the Mortgagor. Where required by state
law or regulation, the Mortgagor has been given an opportunity to
choose the carrier of the required hazard insurance policy, provided
the policy is not a "master" or "blanket" hazard insurance policy
covering a condominium, or any hazard insurance policy covering the
common facilities of a planned unit development. The hazard insurance
policy is the valid and binding obligation of the insurer, is in full
force and effect, and will be in full force and effect and inure to the
benefit of Trust upon the consummation of the transactions contemplated
by this Agreement. The Seller has not engaged in, and has no knowledge
of the Mortgagor's or any other party's having engaged in, any act or
omission which would impair the coverage of any such policy, the
benefits of the endorsement provided for therein, or the validity and
binding effect of either.
(viii) Compliance with Applicable Laws. Any and all
requirements of any federal, state or local law including, without
limitation, usury, truth-in-lending, real estate settlement procedures,
consumer credit protection, equal credit opportunity or disclosure laws
applicable to the Mortgage Loan have been complied with. The
consummation of the transactions contemplated hereby will not involve
the violation of any such laws or regulations.
(ix) No Satisfaction of Mortgage or Note. Neither the Mortgage
nor the Note has been satisfied, canceled, subordinated or rescinded,
in whole or in part, and the Property has not been released from the
lien of the Mortgage, in whole or in part, nor has any instrument been
executed that would effect any such release, cancellation,
subordination or rescission.
(x) Location and Type of Property. The Property consists of a
parcel of real property with a residential dwelling erected thereon.
The Property is either a fee simple estate or a long-term residential
lease. If the Mortgage Loan is secured by a long-term residential
lease, (A) the terms of such lease expressly permit the mortgaging of
the leasehold estate, the assignment of the lease without the lessor's
consent (or the lessor's consent has been obtained and such consent is
in the File) and the acquisition by the holder of the Mortgage of the
rights of the lessee upon foreclosure or assignment in lieu of
foreclosure to provide the holder of the Mortgage with substantially
similar protection; (B) the terms of such lease do not (i) allow the
termination thereof upon the lessee's
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default without the holder of the Mortgage being entitled to receive
written notice of, and opportunity to cure, such default, (ii) allow
the termination of the lease in the event of damage or destruction as
long as the Mortgage is in existence or (iii) prohibit the holder of
the Mortgage from being insured under the hazard insurance policy
relating to the Property; (C) the original term of such lease is not
less than fifteen (15) years; (D) the term of such lease does not
terminate earlier than five (5) years after the maturity date of the
Note; and (E) the Property is located in a jurisdiction in which the
use of leasehold estates for residential properties is a widely
accepted practice.
(xi) Valid Lien. The Mortgage for any First Mortgage creates a
valid, subsisting, enforceable and perfected first lien on the
Property, and the Mortgage for any Second Mortgage creates a valid,
subsisting, enforceable and perfected second lien on the Property, and
in each case includes all buildings on the Property and all
installations and mechanical, electrical, plumbing, heating and air
conditioning systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with respect
to the foregoing. The lien of the Mortgage is subject only to Permitted
Exceptions. Any security agreement, chattel mortgage or equivalent
document related to and delivered in connection with a First Mortgage
established and created a valid, subsisting, enforceable and perfected
first lien and first priority security interest on the property
described therein, and with respect to a Second Mortgage, a second lien
and second priority security interest, and the Seller has full right to
sell and assign the same to the Trust.
(xii) Validity of Mortgage Documents. The Note and the
Mortgage and every other agreement, if any, executed and delivered by
the Mortgagor in connection with the Mortgage Loan are genuine, and
each is the legal, valid and binding obligation of the maker thereof
enforceable in accordance with its terms. All parties to the Note, the
Mortgage and each other such related agreement had legal capacity to
enter into the Mortgage Loan and to execute and deliver the Note, the
Mortgage and each other such related agreement, and the Note, the
Mortgage and each other such related agreement have been duly and
properly executed by the respective Mortgagors. The Seller has reviewed
all of the documents constituting the File and has made such inquiries
as it deems necessary to make and confirm the accuracy of the
representations set forth herein.
(xiii) Full Disbursement of Proceeds. The Mortgage Loan has
been closed and the proceeds of the Mortgage Loan have been fully
disbursed and there is no requirement for future advances thereunder,
and any and all requirements as to completion of any on-site or
off-site improvement and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred
in making or closing the Mortgage Loan and the recording of the
Mortgage were paid, and the Mortgagor is not entitled to any refund of
any amounts paid or due under the Note or Mortgage.
(xiv) Doing Business. All parties which have had any interest
in the Mortgage Loan, whether as mortgagee, assignee, pledgee or
otherwise, are (or, during the period in which they held and disposed
of such interest, were) (1) in compliance with any and all applicable
licensing requirements of the laws of the state where the Property is
located, and (2)(a) organized under the laws of such state, or (b)
qualified to do business in such state, or (c) federal savings and loan
associations, savings banks, or national banks having principal offices
in such state, or (d) not doing business in such state.
(xv) Loan-to-Value Ratio. The Loan-to-Value Ratio for each
First Mortgage was no greater than 90%, and the Combined Loan-to-Value
Ratio for each Second Mortgage was no greater than 90%.
(xvi) Title Insurance. The Mortgage Loan is covered by either
(a) an attorney's opinion of title and abstract of title the form and
substance of which is acceptable to FannieMae, or (b) an
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ALTA lender's title insurance policy or other generally acceptable form
of policy of insurance issued by a title insurer qualified to do
business in the jurisdiction where the Property is located, insuring
the related Originator, its successors and assigns, as to the first
priority lien of the Mortgage in the original principal amount of the
First Mortgage, and as to the second priority lien of the Mortgage in
the original principal amount of the Second Mortgage, subject only to
the Permitted Exceptions, and against any loss by reason of the
invalidity or unenforceability of the lien resulting from the
provisions of the Mortgage providing for adjustment in the Coupon Rate
and Scheduled Payment. Additionally, such lender's title insurance
policy affirmatively insures ingress and egress, and against
encroachments by or upon the Property or any interest therein. Where
required by state law or regulation, the Mortgagor has been given the
opportunity to choose the carrier of such lender's title insurance
policy. The related Originator, its successors and assigns, are the
sole insureds (except in the case of a joint protection policy, in
which case the related Originator's interest is insured) of such
lender's title insurance policy, and such lender's title insurance
policy is valid and remains in full force and effect and will be in
full force and effect upon the sale of the Mortgage Loan to the Trust.
No claims have been made under such lender's title insurance policy,
and no prior holder of the Mortgage, including the Seller, has done
anything which would impair the coverage of such lender's title
insurance policy.
(xvii) No Defaults. Except for payment delinquencies noted on
the related Mortgage Loan Schedule, there is no default, breach,
violation or event of acceleration existing under the Mortgage or the
Note or related documents and no event which, with the passage of time
or with notice and the expiration of any applicable grace or cure
period, would constitute a default, breach, violation or event of
acceleration, and neither the Seller nor any of its predecessors have
waived any default, breach, violation or event of acceleration.
(xviii) No Mechanics' Liens. There are no mechanics' or
similar liens or claims which have been filed for work, labor or
material (and no rights are outstanding that under the law could give
rise to such liens) affecting the related Property which are or may be
liens prior to, or equal or coordinate with, the lien of the related
Mortgage.
(xix) Location of Improvements; No Encroachments. All
improvements which were considered in determining the Appraised Value
of the Property lay wholly within the boundaries and building
restriction lines of the Property and no improvements on adjoining
properties encroach upon the Property. No improvement located on or
being part of the Property is in violation of any applicable zoning law
or regulation; provided, that in no event shall a legal non-conforming
use of the Property be considered a violation of any such zoning law or
regulation.
(xx) Payment Terms. For fixed rate Mortgage Loans, the Note is
payable on the same (or corresponding) day of each month in equal
monthly installments (other than the last payment) of principal and
interest sufficient to amortize the Mortgage Loan fully by the stated
maturity date, over an original term of not more than thirty years from
inception of the Mortgage Loan. For adjustable rate Mortgage Loans, the
Coupon Rate is adjusted in accordance with the terms of the Note and
the Note is payable on the same (or corresponding) day of each month
and, during an adjustment period or initial period, in equal monthly
installments of principal and interest. Installments of interest are
subject to change due to the adjustments to the Coupon Rate on each
Interest Rate Adjustment Date, with interest calculated and payable in
arrears, sufficient to amortize the Mortgage Loan fully by the stated
maturity date, over an original term of not more than thirty years from
inception of the Mortgage Loan.
(xxi) Interest Rate Adjustments. All required notices of
interest rate and payment amount adjustments have been sent to the
Mortgagor on a timely basis and the computations of such adjustments
were properly calculated. All interest rate adjustments applicable to
the Mortgage
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Loans have been made in strict compliance with state and federal law
and the terms of the related Note. Any interest required to be paid
pursuant to state and local law has been properly paid and credited.
(xxii) Customary Provisions. The Mortgage contains customary
and enforceable provisions such as to render the rights and remedies of
the holder thereof adequate for the realization against the Property of
the benefits of the security provided thereby, including, (i) in the
case of a Mortgage designated as a deed of trust, by trustee's sale,
and (ii) otherwise by judicial or nonjudicial foreclosure. Upon default
by an Mortgagor on a Mortgage Loan and foreclosure on, or trustee's
sale of, the Property pursuant to the proper procedures, the holder of
the Mortgage Loan will be able to deliver good and merchantable title
to the Property. There is no homestead or other exemption available to
the Mortgagor which would interfere with the right to sell the Property
at a trustee's sale or the right to foreclose the Mortgage subject to
applicable federal and state laws and judicial precedent with respect
to bankruptcy and right of redemption.
(xxiii) Occupancy of the Property. All inspections, licenses
and certificates required to be made or issued with respect to all
occupied portions of the Property and with respect to the use and
occupancy of the same, including, but not limited to, certificates of
occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities.
(xxiv) No Additional Collateral. The Note is not and has not
been secured by any collateral except the lien of the corresponding
Mortgage and the security interest of any applicable security agreement
or chattel mortgage referred to in subsection 3.04(a)(xi) above.
(xxv) Deeds of Trust. In the event the Mortgage constitutes a
deed of trust, a trustee, authorized and duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named in the Mortgage, and no fees or
expenses are or will become payable by Trust to such trustee under the
deed of trust, except in connection with a trustee's sale after default
by the Mortgagor.
(xxvi) Due on Sale. Each Mortgage, together with any such
documents as may be required under applicable law, contains a provision
for the acceleration of the payment of the unpaid Loan Balance of the
Mortgage Loan in the event that the Property is sold or transferred
without the prior written consent of the mortgagee thereunder, at the
option of the mortgagee. This provision provides that the mortgagee
cannot exercise its option if either (a) the exercise of such option is
prohibited by federal law or (b)(i) the Mortgagor causes to be
submitted to the mortgagee information required by the mortgagee to
evaluate the intended transferee as if a new loan were being made to
such transferee and (ii) the mortgagee reasonably determines that the
mortgagee's security will not be impaired by the assumption of such
Mortgage Loan by the transferee and that the risk of breach of any
covenant or agreement in the documents evidencing such Mortgage Loan is
acceptable to the mortgagee. To the best of the Seller's knowledge,
such provision is enforceable.
(xxvii) Transfer of Loans. Each of the Mortgages is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Property is located, and each Mortgage has
been delivered to the appropriate recorder's office for recording.
(xxviii) No Buydown Provisions; No Graduated Payments or
Contingent Interests. The Mortgage Loan does not contain provisions
pursuant to which Monthly Payments are paid or partially paid with
funds deposited in any separate account established by the Seller, the
Mortgagor or anyone on behalf of the Mortgagor, or paid by any source
other than the Mortgagor, nor does it contain any other similar
provisions currently in effect which may constitute a "buydown"
provision.
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The Mortgage Loan is not a graduated payment mortgage loan and the
Mortgage Loan does not have a shared appreciation or other contingent
interest feature.
(xxix) Consolidation of Future Advances. Any future advances
made to the Mortgagor prior to the Startup Day have been consolidated
with the outstanding principal amount secured by the Mortgage, and the
secured principal amount, as consolidated, bears a single interest
readjustment feature or rate and single repayment term. For First
Mortgages, the lien of the Mortgage securing the consolidated principal
amount is expressly insured as having first lien priority by a title
insurance policy, an endorsement to the policy insuring the mortgagee's
consolidated interest or by other title evidence acceptable to the
Trustee. For Second Mortgages, the lien of the Mortgage securing the
consolidated principal amount is expressly insured as having second
lien priority by a title insurance policy, an endorsement to the policy
insuring the mortgagee's consolidated interest or by other title
evidence acceptable to Trustee. The consolidated principal amount does
not exceed the original principal amount of the Mortgage Loan. With
respect to Second Mortgages, no future advances are permitted under the
senior mortgage.
(xxx) Property Undamaged; No Condemnation Proceedings. There
is no proceeding pending or, threatened for the total or partial
condemnation of the Property. The Property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, water, tornado or other
casualty so as to adversely affect the value of the Property as
security for the Mortgage Loan or the use for which the premises were
intended and each Property is in good repair. There have not been any
condemnation proceedings with respect to the Property and the Seller
and the Depositor have no knowledge of any such proceedings in the
future.
(xxxi) Appraisals. The related Originator has delivered to the
Seller an appraisal of the Property signed by a qualified appraiser,
who (i) is licensed in the state where the Property is located, (ii)
has no interest, direct or indirect, in the Property or in any Mortgage
Loan or the security therefor, and (iii) does not receive compensation
that is affected by the approval or disapproval of the Mortgage Loan.
The appraisal shall have been made within ninety (90) days of the
origination of the Mortgage Loan, be completed in compliance with the
Uniform Standards of Professional Appraisal Practice, and all
applicable Federal and state laws and regulations.
(xxxii) Soldier's and Sailors' Relief Act. The Mortgagor has
not notified the Seller and the Seller has no knowledge of any relief
requested or allowed to the Mortgagor under the Solider's and Sailors'
Civil Relief Act of 1940.
(xxxiii) Environmental Matters. There exists no violation of
any local, state or federal environmental law, rule or regulation in
respect of the Property which violation has or could have a material
adverse effect on the market value of such Property. The Seller has no
knowledge of any pending action or proceeding directly or indirectly
involving the related Property in which compliance with any
environmental law, rule or regulation is in issue; and, to the best of
the Seller's knowledge, nothing further remains to be done to satisfy
in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and enjoyment of such Property.
(xxxiv) Mortgagor Acknowledgment. The Mortgagor has executed a
statement to the effect that the Mortgagor has received all disclosure
materials required by applicable law with respect to the making of
adjustable rate mortgage loans. The Seller shall deliver such statement
to the Trustee in the related File.
(xxxv) No Construction Loans. The Mortgage Loan was not made
in connection with (a) the construction or rehabilitation of a Property
or (b) facilitating the trade-in or exchange of a Property.
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(xxxvi) Circumstances Affecting Value, Marketability or
Prepayment. Except as otherwise disclosed to Trustee, the Seller has no
knowledge of any circumstances or conditions with respect to the
Mortgage, the Property, or the Mortgagor, that could reasonably be
expected to adversely affect the value or the marketability of any
Property or Mortgage Loan, subject to the economic and geological
conditions generally and specifically to the area in which the
Mortgaged Property is located, or cause the Mortgage Loan to become
delinquent.
(b) Upon the earliest to occur of the Seller's discovery, its receipt
of notice of breach of a representation or warranty set out in subsection (a)
above from any one of the other parties hereto or such time as a breach of any
representation and warranty materially and adversely affects the interests of
the Owners, the Seller hereby covenants and warrants that it shall promptly cure
such breach in all material respects or, if such breach is not cured, the Seller
shall, subject to the further requirements of this paragraph (but in any case
for a Mortgage Loan that is not a "qualified mortgage", within 90 days of
discovery thereof) (i) within two years of the Startup Day, substitute in lieu
of each Mortgage Loan which has given rise to the requirement for action a
Qualified Replacement Mortgage and deliver the Substitution Amount applicable
thereto, to the related Servicer for deposit in the related Principal and
Interest Account or (ii) purchase such Mortgage Loan from the Trust at a
purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the related Servicer for deposit in the related Principal
and Interest Account by the Seller. In connection with any such proposed
purchase or substitution, the Seller may deliver to the related Servicer, the
Master Servicer and the Trustee an opinion of counsel experienced in federal
income tax matters stating whether or not such a proposed purchase or
substitution would constitute a Prohibited Transaction for the Trust or would
jeopardize the status of the Trust as a REMIC, and the Seller shall only be
required to take either such action to the extent such action would not
constitute a Prohibited Transaction for the Trust or would not jeopardize the
status of the Trust as a REMIC. Any required purchase or substitution, if
delayed by the absence of such opinion, shall nonetheless occur upon the earlier
of (i) the occurrence of a default or imminent default with respect to the
Mortgage Loan or (ii) the delivery of such opinion by the Seller. Any repurchase
or substitution shall occur prior to the related Monthly Remittance Date and the
Seller shall provide the related Servicer with written notice no less than five
Business Days in advance of such repurchase or substitution. It is understood
and agreed that the obligation of the Seller to cure the defect, or substitute
for or purchase any Mortgage Loan as to which a representation or warranty is
untrue in any material respect and has not been remedied shall constitute the
sole remedy available to the Owners, the Depositor and the Trustee.
(c) [RESERVED]
(d) In the event that any Qualified Replacement Mortgage is delivered
by the Seller or Ameriquest to the Trust pursuant to this Section 3.04 or
Section 3.06 hereof, the Seller shall take the actions described in Section
3.04(b) with respect to such Qualified Replacement Mortgage upon the discovery
by any of the Owners, the Seller, a Servicer, the Master Servicer or the Trustee
that the representations and warranties set forth in Section 3.04(a) above, are
untrue in any material respect on the date such Qualified Replacement Mortgage
is conveyed to the Trust such that the interests of the Owners in the related
Qualified Replacement Mortgage are materially and adversely affected; provided,
however, that for the purposes of this subsection (d) the representations and
warranties as set forth in Section 3.04(a) above or in the Ameriquest Transfer
Agreement referring to items "as of the Cut-Off Date" or "as of the Startup Day"
shall be deemed to refer to such items as of the related Subsequent Cut-Off
Date.
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(e) It is understood and agreed that the covenants set forth in this
Section 3.04 shall survive delivery of the respective Mortgage Loans (including
Qualified Replacement Mortgages) to the Trustee.
(f) The Trustee, the Master Servicer and the Servicers shall have no
duty to conduct any affirmative investigation other than as specifically set
forth in this Agreement as to the occurrence of any condition requiring the
repurchase or substitution of any Mortgage Loan pursuant to this Section or the
eligibility of any Mortgage Loan for purposes of this Agreement.
Section 3.05 Conveyance of the Mortgage Loans, Subsequent Mortgage
Loans and Qualified Replacement Mortgages.
(a) On the Startup Day the Seller, concurrently with the execution and
delivery hereof, hereby transfers, assigns, sets over and otherwise conveys
without recourse to the Depositor and the Depositor, concurrently with the
execution and delivery hereof, transfers, assigns, sets over and otherwise
conveys without recourse, to the Trustee for the benefit of the Owners, all
their respective right, title and interest in and to the Trust Estate; provided,
however, that the Seller reserves and retains all its right, title and interest
in and to principal (including Prepayments collected) and interest due on each
Initial Mortgage Loan on or prior to the Cut-Off Date. The transfer by the
Depositor of the Initial Mortgage Loans set forth on the Schedule of Mortgage
Loans to the Trustee is absolute and is intended by the Owners and all parties
hereto to be treated as a sale by the Depositor.
It is intended that the sale, transfer, assignment and conveyance
herein contemplated constitute a sale of the Initial Mortgage Loans conveying
good title thereto free and clear of any liens and encumbrances from the Seller
to the Depositor and from the Depositor to the Trust and that the Initial
Mortgage Loans not be part of the Depositor's or the Seller's estate in the
event of insolvency. In the event that either such conveyance or a conveyance of
a Qualified Replacement Mortgage or a conveyance pursuant to Section 3.07 and
any Subsequent Transfer Agreement is deemed to be a loan, the parties intend
that the Seller shall be deemed to have granted to the Depositor and the
Depositor shall be deemed to have granted to the Trustee a security interest in
the Trust Estate, and that this Agreement shall constitute a security agreement
under applicable law.
In connection with such sale, transfer, assignment, and conveyance from
the Seller to the Depositor, the Seller has filed, in the appropriate office or
offices in the States of Texas and Delaware, a UCC-1 financing statement
executed by the Seller as debtor, naming the Depositor as secured party and
listing the Initial Mortgage Loans, any Subsequent Mortgage Loans to be
delivered to the Depositor and the other property (including any Qualified
Replacement Mortgage) described above as collateral. The characterization of the
Seller as a debtor and the Depositor as the secured party on such financing
statements is solely for protective purposes and shall in no way be construed as
being contrary to the intent of the parties that this transaction be treated as
a sale of the Seller's entire right, title and interest in the Trust Estate. In
connection with such filing, the Seller agrees that it shall cause to be filed
all necessary continuation statements thereof and to take or cause to be taken
such actions and execute such documents as are necessary to perfect and protect
the Trustee's and the Owners' interest in the Trust Estate.
In connection with such sale, transfer, assignment, and conveyance,
from the Depositor to the Trustee, the Depositor has filed, in the appropriate
office or offices in the States of Texas and Delaware, a UCC-1 financing
statement executed by the Depositor as debtor, naming the Trustee as secured
party and listing the Initial Mortgage Loans, any Subsequent Mortgage Loans to
be delivered to the Trust and the other property (including any Qualified
Replacement Mortgage) described above as collateral. The characterization of the
Depositor as a debtor and the Trustee as the secured party in such financing
statements is solely for protective purposes and shall in no way be construed as
being contrary to the intent of the parties that this transaction be treated as
a sale of the Depositor's entire right, title and interest in the Trust Estate.
In connection with such filing, the Depositor agrees that it shall cause to be
filed all necessary
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continuation statements thereof and to take or cause to be taken such actions
and execute such documents as are necessary to perfect and protect the Trustee's
and the Owners' interest in the Trust Estate.
(b) In connection with the transfer and assignment of the Initial
Mortgage Loans and prior to each Subsequent Transfer Date with respect to any
Qualified Replacement Mortgage or Subsequent Mortgage Loan, the Depositor agrees
to:
(i) deliver without recourse to the Custodian, on behalf of
the Trustee, on the Startup Day with respect to each Initial Mortgage
Loan or on each Subsequent Transfer Date with respect to any Qualified
Replacement Mortgage or Subsequent Mortgage Loans, (A) the original
Notes endorsed in blank or to the order of the Trustee, (B) the
original title insurance policy or any one of an original title binder,
an original preliminary title report or an original title commitment or
a copy of any of the foregoing certified by the issuer of the title
insurance policy, or the attorney's opinion of title, (C) originals or
certified copies of all intervening recorded assignments, showing a
complete chain of title from origination to the Trustee, if any, with
evidence of recording thereon, (D) originals of all assumption,
modification, written assurance or substitution agreements, if any and
(E) either: (1) the original Mortgage, with evidence of recording
thereon, (2) a certified copy if such original Mortgage has not been
returned by the applicable recording office, or (3) a copy of the
Mortgage certified by the public recording office in those instances
where the original recorded Mortgage has been lost;
(ii) cause the Custodian, on behalf of the Trustee, within 60
days following the Startup Day with respect to the Initial Mortgage
Loans or each Subsequent Transfer Date with respect to the Qualified
Replacement Mortgages or Subsequent Mortgage Loans to complete the
assignments of the Mortgages to "______________________________, as
Trustee of AMRESCO Residential Securities Corporation Mortgage Loan
Trust 199_-_ under the Pooling and Servicing Agreement dated as of
________________ __, 199_ to be submitted to the Seller for recording
in the appropriate jurisdictions; provided, however, that the Depositor
shall not be required to cause the Seller to record an assignment for
any Mortgage with respect to a Property located in California or with
respect to which the original recording information is lacking;
(iii) if not delivered on the Startup Day, deliver the title
insurance policy or title searches, the original Mortgages and such
recorded assignments, together with originals or duly certified copies
of any and all prior assignments, to the Custodian, on behalf of the
Trustee within 15 days of receipt thereof by the Depositor (but in any
event, with respect to any Mortgage as to which original recording
information has been made available to the Depositor, within two years
after the Startup Day with respect to the Initial Mortgage Loans or
each Subsequent Transfer Date with respect to the Qualified Replacement
Mortgages or Subsequent Mortgage Loans); and
(iv) with respect to each Subsequent Transfer Date only,
furnish to the Trustee at the Depositor's expense, opinions of counsel
with respect to the true sale of the Subsequent Mortgage Loans
delivered to the Trust, corporate and enforceability matters and tax
consequences to the Trust, if any, resulting from the conveyance to the
Trust of the Subsequent Mortgage Loans, each in form and substance
satisfactory to the Trustee.
Notwithstanding anything to the contrary contained in this Section
3.05, in those instances where the public recording office retains the original
Mortgage, the assignment of a Mortgage or the intervening assignments of the
Mortgage after it has been recorded, the Depositor shall be deemed to have
satisfied its obligations hereunder upon delivery to the Custodian, on behalf of
the Trustee, of a copy of such Mortgage, such assignment or assignments of
Mortgage certified by the public recording office to be a true copy of the
recorded original thereof.
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Copies of all Mortgage assignments received by the Custodian, on behalf
of the Trustee, shall be retained in the related File.
All recording required pursuant to this Section 3.05 shall be
accomplished at the expense of the Seller.
(c) In the case of Initial Mortgage Loans which have been prepaid in
full after the Cut-Off Date and prior to the Startup Day, the Depositor, in lieu
of the foregoing, will deliver within six (6) days after the Startup Day to the
Trustee a certification of an Authorized Officer in the form set forth in
Exhibit D.
(d) The Seller shall transfer, assign, set over and otherwise convey
without recourse, to the Trustee all right, title and interest of such party in
and to any Qualified Replacement Mortgage delivered to the Trustee on behalf of
the Trust by such party pursuant to Section 3.03, 3.04 or 3.06 hereof and all
such party's right, title and interest to principal and interest due on such
Qualified Replacement Mortgage after the applicable Subsequent Cut-Off Date;
provided, however, that such party shall reserve and retain all right, title and
interest in and to payments of principal and interest due on such Qualified
Replacement Mortgage on or prior to the applicable Subsequent Cut-Off Date.
(e) As to each Mortgage Loan released from the Trust in connection with
the conveyance of a Qualified Replacement Mortgage therefor, the Trustee will
transfer, assign, set over and otherwise convey without recourse or
representation, to the party providing such Qualified Replacement Mortgage, all
of its right, title and interest in and to such released Mortgage Loan and all
the Trust's right, title and interest to principal and interest due on such
released Mortgage Loan after the applicable Subsequent Cut-Off Date; provided,
however, that the Trust shall reserve and retain all right, title and interest
in and to payments of principal and interest due on such released Mortgage Loan
on or prior to the applicable Subsequent Cut-Off Date.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Depositor and then to the Trustee on behalf of the
Trust, the Seller agrees to (i) deliver without recourse to the Custodian, on
behalf of the Trustee on the date of delivery of such Qualified Replacement
Mortgage the original Note relating thereto, endorsed in blank or to the order
of the Trustee, (ii) cause promptly to be recorded an assignment in the
appropriate jurisdictions, (iii) deliver the original Qualified Replacement
Mortgage and such recorded assignment, together with original or duly certified
copies of any and all prior assignments, to the Custodian, on behalf of the
Trustee within 15 days of receipt thereof by the Seller (but in any event within
120 days after the date of conveyance of such Qualified Replacement Mortgage),
(iv) deliver the title insurance policy, or where no such policy is required to
be provided under Section 3.05(b)(i)(B), the other evidence of title in same
required in Section 3.05(b)(i)(B) and (v) deliver originals of all assumption,
modification, written assurance or substitution agreements, if any.
(g) As to each Mortgage Loan released from the Trust in connection with
the conveyance of a Qualified Replacement Mortgage the Trustee shall cause the
Custodian, on behalf of the Trustee to deliver on the date of conveyance of such
Qualified Replacement Mortgage to the party providing such Qualified Replacement
Mortgage (i) the original Note relating thereto, endorsed without recourse or
representation, to such party, (ii) the original Mortgage so released and all
assignments relating thereto and (iii) such other documents as constituted the
File with respect thereto.
(h) If a Mortgage assignment is lost during the process of recording,
or is returned from the recorder's office unrecorded due to a defect therein,
the Seller shall prepare a substitute assignment or cure such defect, as the
case may be, and thereafter cause each such assignment to be duly recorded.
(i) The Seller shall reflect on its records that the Mortgage Loans
have been sold to the Depositor and the Depositor shall reflect on its records
that the Mortgage Loans have been sold to the Trust.
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Section 3.06 Acceptance by Trustee; Certain Substitutions of
Mortgage Loans; Certification by Trustee.
(a) The Trustee agrees to cause the Custodian to execute and deliver on
the Trustee's behalf on the Startup Day an acknowledgment of receipt of the
items delivered by the Seller or the Depositor in the form attached as Exhibit E
hereto, and declares that it will hold such documents and any amendments,
replacement or supplements thereto, as well as any other assets included in the
definition of Trust Estate and delivered to the Custodian, on behalf of the
Trustee, as Trustee in trust upon and subject to the conditions set forth herein
for the benefit of the Owners. The Trustee agrees to cause the Custodian to
review on the Trustee's behalf, for the benefit of the Owners, such items within
45 days after the Startup Day (or, with respect to any document delivered after
the Startup Day, within 45 days of receipt and with respect to any Subsequent
Mortgage Loan or Qualified Replacement Mortgage, within 45 days after the
Subsequent Transfer Date) and to deliver to the Depositor, the Master Servicer,
the Seller and the related Servicer a certification in the form attached hereto
as Exhibit F (a "Pool Certification") to the effect that, as to each Mortgage
Loan listed in the Schedule of Mortgage Loans (other than any Mortgage Loan paid
in full or any Mortgage Loan specifically identified in such Pool Certification
as not covered by such Pool Certification), (i) all documents required to be
delivered to it pursuant to Section 3.05(b)(i) of this Agreement are in its
possession, (ii) such documents have been reviewed by it and have not been
mutilated, damaged or torn and relate to such Mortgage Loan and (iii) based on
its examination and only as to the foregoing documents, the information set
forth on items (1), (3) and (4) of the Schedule of Mortgage Loans accurately
reflects the information set forth in the File. Neither the Trustee nor the
Custodian shall have any responsibility for reviewing any File except as
expressly provided in this subsection 3.06(a). Without limiting the effect of
the preceding sentence, in reviewing any File, neither the Trustee nor the
Custodian shall have any responsibility for determining whether any document is
valid and binding, whether the text of any assignment is in proper form (except
to determine if the Trustee is the assignee), whether any document (other than
the assignments) has been recorded in accordance with the requirements of any
applicable jurisdiction or whether a blanket assignment is permitted in any
applicable jurisdiction, but shall only be required to determine whether a
document has been executed, that it appears to be what it purports to be, and,
where applicable, that it purports to be recorded. Neither the Trustee nor the
Custodian shall be under any duty or obligation to inspect, review or examine
any such documents, instruments, certificates or other papers to determine that
they are genuine, enforceable, or appropriate for the represented purpose or
that they are other than what they purport to be on their face, nor shall either
the Trustee or the Custodian be under any duty to determine independently
whether there are any intervening assignments or assumption or modification
agreements with respect to any Mortgage Loan.
(b) If the Trustee or the Custodian, on behalf of the Trustee during
such 45-day period finds any document constituting a part of a File which is not
executed, has not been received, or is unrelated to the Mortgage Loans
identified in the Schedule of Mortgage Loans, or that any Mortgage Loan does not
conform to the description thereof as set forth in the Schedule of Mortgage
Loans, the Trustee or the Custodian, on behalf of the Trustee shall promptly so
notify the Depositor, the Seller, the Master Servicer and the related Servicer.
In performing any such review, the Trustee or the Custodian, on behalf of the
Trustee may conclusively rely on the Seller as to the purported genuineness of
any such document and any signature thereon. It is understood that the scope of
the Trustee's and the Custodian's review of the items delivered by the Depositor
pursuant to Section 3.05(b)(i) or the Seller pursuant to Section 3.05(f) is
limited solely to confirming that the documents listed in Section 3.05(b)(i) or
Section 3.05(f), respectively, have been executed and received, relate to the
Files identified in the Schedule of Mortgage Loans and conform to the
description thereof in the Schedule of Mortgage Loans. The Seller agrees to use
reasonable efforts to remedy a material defect in a document constituting part
of a File of which it is so notified by the Trustee. If, however, within 60 days
after the Trustee's notice to the Seller respecting such defect the Seller has
not remedied the defect and the defect materially and adversely affects the
interest in the related Mortgage Loan of the Owners, the Seller will (i)
substitute in lieu of such Mortgage Loan a Qualified Replacement Mortgage and
deliver the Substitution Amount to the applicable Servicer for deposit in the
Principal and Interest
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Account or (ii) purchase such Mortgage Loan at a purchase price equal to the
Loan Purchase Price thereof, which purchase price shall be delivered to the
applicable Servicer for deposit in the related Principal and Interest Account.
(c) In addition to the foregoing, the Trustee also agrees to cause the
Custodian to provide an updated report during the 12th month after the Startup
Day indicating the current status of the exceptions previously indicated on the
Pool Certification (the "Final Certification"). After delivery of the Final
Certification, the Trustee shall provide to the Servicers and the Master
Servicer no less frequently than monthly updated certifications indicating the
then current status of exceptions, until all such exceptions have been
eliminated.
Section 3.07 Conveyance of the Subsequent Mortgage Loans.
(a) Subject to the satisfaction of the conditions set forth in Section
3.05 and paragraphs (b) and (c) below in consideration of the Trustee's delivery
on the relevant Subsequent Transfer Dates to or upon the order of the Depositor
of all or a portion of the balance of funds in the Pre-Funding Account, the
Depositor shall on each Subsequent Transfer Date sell, transfer, assign, set
over and otherwise convey without recourse, to the Trustee, all of the
Depositor's right, title and interest in and to any and all benefits accruing to
the Depositor from the Subsequent Mortgage Loans (other than any principal and
interest payments due thereon on or prior to the relevant Subsequent Cut-Off
Date) which the Depositor will cause to be delivered to the Trustee therewith
(and all substitutions therefor as provided by Sections 3.03, 3.04 and 3.06),
together with the related Subsequent Mortgage Loan documents and the Depositor's
interest in any Property and all payments thereon and proceeds of the
conversion, voluntary or involuntary, of the foregoing and proceeds of all the
foregoing (including, but not by way of limitation, all proceeds of any mortgage
insurance, hazard insurance and title insurance policy relating to the
Subsequent Mortgage Loans, cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, rights to payment
of any and every kind, and other forms of obligations and receivables which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing). There shall be no more than three Subsequent Transfer Dates.
The transfer of the Subsequent Mortgage Loans set forth on the Schedule
of Mortgage Loans by the Seller to the Depositor and by the Depositor to the
Trust shall be absolute and shall be intended by the Owners and all parties
hereto to be treated as a sale by the Seller to the Depositor and by the
Depositor to the Trust. Any Subsequent Mortgage Loan so transferred will be
included in the related Mortgage Loan Group. The amount released from the
Pre-Funding Account shall be one-hundred percent (100%) of the aggregate
principal balances of the Subsequent Mortgage Loans so transferred. Upon the
transfer by the Depositor of the Subsequent Mortgage Loans hereunder, such
Subsequent Mortgage Loans (and all principal (including Prepayments collected)
and interest due thereon subsequent to the Subsequent Cut-Off Date) and all
other rights and interests with respect to such Subsequent Mortgage Loans
transferred pursuant to a Subsequent Transfer Agreement shall be deemed for all
purposes hereunder to be part of the Trust Estate. The Seller hereby covenants
and agrees to use its best efforts to ensure that a sufficient amount of
Subsequent Mortgage Loans will be transferred to the Depositor and by the
Depositor to the Trust during the Funding Period to enable the Pre-Funded Amount
with respect to each Group to be reduced to less than $100,000.
(b) The obligation of the Trustee to accept the transfer of the
Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Depositor shall have provided the Trustee with an
Addition Notice not less than ten (10) calendar days prior to the
proposed Subsequent Transfer Date (unless the
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Trustee agrees to a shorter time period) and shall have provided any
information reasonably requested by any of the foregoing with respect
to the Subsequent Mortgage Loans;
(ii) the Depositor shall have delivered to the Trustee a duly
executed written assignment (including an acceptance by the Trustee) in
substantially the form of Exhibit C, which shall include a Schedule of
Mortgage Loans, listing the Subsequent Mortgage Loans and any other
exhibits listed thereon;
(iii) the Depositor shall have deposited in the applicable
Principal and Interest Account all principal collected and interest
accruing in respect of such Subsequent Mortgage Loans on or after the
related Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, neither the
Depositor nor the Seller was insolvent, nor will either of them be made
insolvent by such transfer, nor is either of them aware of any pending
insolvency;
(v) the Funding Period for the related Group shall not have
ended;
(vi) the Depositor shall have delivered to the Trustee an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (b) and in the related Subsequent
Transfer Agreement; and
(vii) such sale will not result in a materially adverse tax
consequence to the Trust as evidenced by an Opinion of Counsel
delivered to the Trustee by the Depositor at its own expense.
(c) The obligation of the Trust to purchase Subsequent Mortgage Loans
on a Subsequent Transfer Date is subject to the following requirements, among
others: (i) the ratings on the Offered Certificates shall not have been
downgraded by any Rating Agency; (ii) such Subsequent Mortgage Loan may not be
30 or more days contractually delinquent as of the related Subsequent Cut-Off
Date; (iii) the remaining term to maturity of such Subsequent Mortgage Loan may
not exceed 360 months; and (iv) following the purchase of all of the Subsequent
Mortgage Loans by the Trust, the Subsequent Mortgage Loans, as a whole, (a) will
have a weighted average Combined Loan-to-Value Ratio of not more than _______%
for Group I and a weighted average Loan-to-Value Ratio of not more than _______%
for Group II; (b) will have a weighted average gross margin for Group II that is
not more than ____ basis points less than the weighted average gross margin for
Group II as of the Cut-Off Date; (c) will have no more than _______% in the case
of Group I of such Subsequent Mortgage Loans with Combined Loan-to-Value Ratios
and _______% in the case of Group II of such Subsequent Mortgage Loans with
Loan-to-Value Ratios in excess of _______% (d) will have no more than _______%
in the case of Group I and _______% in the case of Group II with cash out
refinancings; (e) in the case of Group II only, will not be comprised of more
than _______% in the aggregate of 2/28 Loans and 3/27 Loans; (f) will have
weighted average PAG codes of less than __________ in the case of the Group I
and less than __________ in the case of Group II; (g) will include Subsequent
Mortgage Loans classified as PAG IV or PAG V comprising not more than _______%
of Group I and _______% of Group II; and (h) will have not more than _______% of
Group I and _______% of Group II that are secured by non-owner occupied
properties.
(d) In connection with each Subsequent Transfer Date and on the Payment
Date occurring in ________________ __, 199_, the Trustee shall determine: (i)
the amount and correct dispositions of each of the Group I and Group II
Capitalized Interest Requirements, the Overfunded Interest Amounts, the Pre-
Funding Account Earnings and the Pre-Funded Amount and (ii) any other necessary
matters in connection with the administration of the Pre-Funding Account and of
the Capitalized Interest Account. In the event that any amounts are released as
a result of an error in calculation to the Owners or Depositor from the Pre-
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Funding Account or from the Capitalized Interest Account, such Owners or the
Depositor shall immediately repay such amounts to the Trustee.
END OF ARTICLE III
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ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01 Issuance of Certificates
On the Startup Day, upon the Trustee's receipt from the Depositor of an
executed Delivery Order in the form set forth as Exhibit G hereto, the Trustee
shall authenticate and deliver the Certificates on behalf of the Trust.
Section 4.02 Sale of Certificates.
At 8 a.m., Pacific time on the Startup Day (the "Closing"), at the
offices of _______________ _______________ (or at such other location acceptable
to the Seller), the Seller will sell and convey the Initial Mortgage Loans and
the money, instruments and other property related thereto to the Depositor and
the Depositor will sell and convey the Initial Mortgage Loans and the money,
instruments and other property related thereto to the Trustee, and the Trustee
will deliver (i) to the Underwriters, the Offered Certificates with an aggregate
Percentage Interest in each Class equal to 100%, registered in the name of Cede
& Co., or in such other names as the Underwriters shall direct, against payment
of the purchase price thereof by wire transfer of immediately available funds to
the Trustee, (ii) to the initial purchasers thereof, Class S Certificates with a
cumulative Percentage Interest equal to 100%, (iii) to the initial purchasers
thereof, Class C-IO Certificates with an aggregate Percentage Interest in each
Class of 100%, (iv) to the respective registered owners thereof, a Class D
Certificate with a Percentage Interest equal to 100% and a Class R Certificate
with a Percentage Interest equal to 99.999%, registered in the names designated
by the Depositor and (v) to the Trustee, the Tax Matters Person Residual
Interest.
Upon the Trustee's receipt of the entire net proceeds of the sale of
the Certificates the Depositor shall instruct the Trustee to deposit (a) an
amount equal to the Original Pre-Funded Amount in the Pre-Funding Account and
(b) an amount equal to the Original Capitalized Interest Amount to the
Capitalized Interest Account contributed by the Depositor out of such proceeds
or otherwise. The Trustee shall then remit the entire balance of such net
proceeds to the Depositor in accordance with instructions delivered by the
Depositor.
END OF ARTICLE IV
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ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01 Terms.
(a) The Certificates are pass-through securities having the rights
described therein and herein. Notwithstanding references herein or therein with
respect to the Certificates as to "principal" and "interest" no debt of any
Person is represented thereby, nor are the Certificates or the underlying Notes
guaranteed by any Person (except that the Notes may be recourse to the
Mortgagors thereof to the extent permitted by law). The Certificates are payable
solely from payments received on or with respect to the Mortgage Loans (other
than the Servicing Fees), money in the Principal and Interest Account, except as
otherwise provided herein, money in the Pre-Funding Account and the Capitalized
Interest Account, earnings and the proceeds of property held as a part of the
Trust Estate. Each Certificate entitles the Owner thereof to receive monthly on
each Payment Date, in order of priority of distributions with respect to such
Class of Certificates as set forth in Section 7.03, a specified portion of such
payments with respect to the Mortgage Loans, pro rata in accordance with such
Owner's Percentage Interest.
(b) Each Owner is required, and hereby agrees, to return to the Trustee
any Certificate prior to receiving the final distribution due thereon. Any such
Certificate as to which the Trustee has made the final distribution thereon
shall be deemed cancelled and shall no longer be Outstanding for any purpose of
this Agreement, whether or not such Certificate is ever returned to the Trustee.
Section 5.02 Forms.
Each Class of the Offered Certificates shall be in substantially the
form set forth as Exhibit A hereto and the Class C-IO Certificates, the Class D
Certificates, the Class R Certificates and the Class S Certificates shall be in
substantially the forms set forth in Exhibits B-1, B-2, B-3 and B-4 hereof,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Agreement or as may in the
Depositor's judgment be necessary, appropriate or convenient to comply, or
facilitate compliance, with applicable laws, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any applicable securities laws or
as may, consistently herewith, be determined by the Authorized Officer of the
Depositor executing such Certificates, as evidenced by his execution thereof.
Section 5.03 Execution, Authentication and Delivery.
Each Certificate shall be executed and authenticated on behalf of the
Trust, by the manual or facsimile signature of one of the Trustee's Authorized
Officers.
Certificates bearing the manual signature of individuals who were at
any time the proper officers of the Depositor shall, upon proper authentication
by the Trustee, bind the Trust, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the execution and delivery of
such Certificates or did not hold such offices at the date of authentication of
such Certificates.
The initial Certificates shall be dated as of the Startup Day and
delivered at the Closing to the parties specified in Section 4.02 hereof.
Subsequently issued Certificates will be dated as of the issuance of the
Certificate.
No Certificate shall be valid until executed and authenticated as set
forth above.
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Section 5.04 Registration and Transfer of Certificates.
(a) The Trustee shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby initially appointed Registrar
for the purpose of registering Certificates and transfers of Certificates as
herein provided. The Owners and the Trustee shall have the right to inspect the
Register during the Registrar's normal hours and to obtain copies thereof, and
the Trustee shall have the right to rely upon a certificate executed on behalf
of the Registrar by an Authorized Officer thereof as to the names and addresses
of the Owners of the Certificates and the principal amounts and numbers of such
Certificates.
If a Person other than the Trustee is appointed as Registrar by the
Owners of a majority of the aggregate Percentage Interests represented by the
Offered Certificates then Outstanding or, if there are no longer any Offered
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates, the Trustee will give the Owners prompt
written notice of the appointment of such Registrar and of the location, and any
change in the location, of the Register.
(b) Subject to the provisions of Section 5.08 hereof, upon surrender
for registration of transfer of any Certificate at the office designated as the
location of the Register, upon the direction of the Registrar the Depositor
shall execute and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of a like
Class and in the aggregate principal amount or Percentage Interest of the
Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class owned by such
Owner may be exchanged for other Certificates authorized of like Class and tenor
and a like aggregate original principal amount or percentage interest and
bearing numbers not contemporaneously Outstanding, upon surrender of the
Certificates to be exchanged at the office designated as the location of the
Register. Whenever any Certificate is so surrendered for exchange, upon the
direction of the Registrar, the Depositor and the Trustee shall execute,
authenticate and deliver the Certificate or Certificates which the Owner making
the exchange is entitled to receive.
(d) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by
the Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any registration of
transfer or exchange of Certificates, but the Registrar or Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
(g) It is intended that the Offered Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. Each Class of Offered Certificates shall, except as otherwise provided
in Subsection (h), be initially issued in the form of a single fully registered
Offered Certificate of such Class. Upon initial issuance, the ownership of each
such Offered Certificate shall be registered in the Register in the name of Cede
& Co., or any successor thereto, as nominee for the Depository.
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On the Startup Day, no Offered Certificates shall be issued in
denominations of less than $1,000 except that one certificate in each class may
be in an amount less than $1,000. No Class C-IO Certificates shall be issued in
denominations of less than $1,000 (based on the original Notional Principal
Amount thereof). The Class D Certificates, the Class R Certificates and the
Class S Certificates (other than the Tax Matters Person Residual Interest) shall
be issued in minimum percentage interests of 10%.
The Depositor and the Trustee are hereby authorized to execute and
deliver the Representation Letter with the Depository.
With respect to the Offered Certificates registered in the Register in
the name of Cede & Co., as nominee of the Depository, the Depositor, the
Servicers, the Master Servicer, the Seller and the Trustee shall have no
responsibility or obligation to Direct or Indirect Participants or beneficial
owners for which the Depository holds Offered Certificates from time to time as
a Depository. Without limiting the immediately preceding sentence, the
Depositor, the Servicers, the Master Servicer, the Seller and the Trustee shall
have no responsibility or obligation with respect to (i) the accuracy of the
records of the Depository, Cede & Co., or any Direct or Indirect Participant
with respect to the ownership interest in the Offered Certificates, (ii) the
delivery to any Direct or Indirect Participant or any other Person, other than a
registered Owner of a Offered Certificate as shown in the Register, of any
notice with respect to the Offered Certificates or (iii) the payment to any
Direct or Indirect Participant or any other Person, other than a registered
Owner of a Offered Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Offered
Certificates. No Person other than a registered Owner of a Offered Certificate
as shown in the Register shall receive a certificate evidencing such Offered
Certificate.
Upon delivery by the Depository to the Trustee of written notice to the
effect that the Depository has determined to substitute a new nominee in place
of Cede & Co., and subject to the provisions hereof with respect to the payment
of interest by the mailing of checks or drafts to the registered Owners of
Offered Certificates appearing as registered Owners in the registration books
maintained by the Trustee at the close of business on a Record Date, the name
"Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
(h) In the event that the Depository or the Depositor advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Offered Certificates and the Depositor or the Trustee is unable to locate a
qualified successor, the Offered Certificates shall no longer be restricted to
being registered in the Register in the name of Cede & Co. (or a successor
nominee) as nominee of the Depository. At that time, the Depositor may determine
that the Offered Certificates shall be registered in the name of and deposited
with a successor depository operating a global book-entry system, as may be
acceptable to the Depositor and at the Depositor's expense, or such depository's
agent or designee but, if the Depositor does not select such alternative global
book-entry system, then the Offered Certificates may be registered in whatever
name or names registered Owners of Offered Certificates transferring Offered
Certificates shall designate, in accordance with the provisions hereof.
(i) Notwithstanding any other provision of this Agreement to the
contrary, so long as any Offered Certificate is registered in the name of Cede &
Co., as nominee of the Depository, all distributions of principal or interest on
such Offered Certificates and all notices with respect to such Offered
Certificates shall be made and given, respectively, in the manner provided in
the Representation Letter.
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) in the case of any mutilated Certificate, such
mutilated Certificate shall first be surrendered to the Trustee, and in the case
of any destroyed, lost or
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stolen Certificate, there shall be first delivered to the Trustee such security
or indemnity as may be reasonably required by it to hold the Trustee harmless,
then, in the absence of notice to the Trustee or the Registrar that such
Certificate has been acquired by a bona fide purchaser, the Depositor shall
execute and the Trustee shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like Class, tenor and aggregate principal amount, bearing a
number not contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section, the
Registrar or Trustee may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto; any
other expenses in connection with such issuance shall be an expense of the
Trust.
Every new Certificate issued pursuant to this Section in exchange for
or in lieu of any mutilated, destroyed, lost or stolen Certificate shall
constitute evidence of a substitute interest in the Trust, and shall be entitled
to all the benefits of this Agreement equally and proportionately with any and
all other Certificates of the same Class duly issued hereunder and such
mutilated, destroyed, lost or stolen Certificate shall not be valid for any
purpose.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates.
Section 5.06 Persons Deemed Owners.
The Trustee and any agent of the Trustee may treat the Person in whose
name any Certificate is registered as the Owner of such Certificate for the
purpose of receiving distributions with respect to such Certificate and for all
other purposes whatsoever, and neither the Trustee nor any agent of the Trustee
shall be affected by notice to the contrary.
Section 5.07 Cancellation.
All Certificates surrendered for registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it. No Certificate shall be
authenticated in lieu of or in exchange for any Certificate cancelled as
provided in this Section, except as expressly permitted by this Agreement. All
cancelled Certificates may be held by the Trustee in accordance with its
standard retention policy.
Section 5.08 Limitation on Transfer of Ownership Rights.
(a) No sale or other transfer of record or beneficial ownership or
assignment of an interest in a Class R Certificate or assignment of an interest
in the Lower-Tier REMIC Residual Class (whether pursuant to a purchase, a
transfer resulting from a default under a secured lending agreement or
otherwise) shall be made to a Disqualified Organization or an agent of a
Disqualified Organization. The transfer, sale or other disposition of a Class R
Certificate or assignment of an interest in the Lower-Tier REMIC Residual Class
(whether pursuant to a purchase, a transfer resulting from a default under a
secured lending agreement or otherwise) to a Disqualified Organization shall be
deemed to be of no legal force or effect whatsoever and such transferee shall
not be deemed to be an Owner for any purpose hereunder, including, but not
limited to, the receipt of distributions on such Class R Certificate or
Lower-Tier REMIC Residual Class. Furthermore, in no event shall the Trustee
accept surrender for transfer, registration of transfer, or register the
transfer, of any Class R Certificate nor authenticate and make available any new
Class R Certificate unless the Trustee has received an affidavit from the
proposed transferee in the form attached hereto as Exhibit I. Each holder of a
Class R Certificate by his acceptance thereof, shall be deemed for all purposes
to have consented to the provisions of this Section 5.08(a). The Lower-Tier
REMIC Residual Class is not transferable except that the Owner of the Tax
Matters Person Residual Interest in the Lower-Tier REMIC
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may assign its interest to another Person who accepts such assignment and the
designation as Tax Matters Person pursuant to Section 11.18 hereof.
(b) No other sale or other transfer of record or beneficial ownership
of a Class C-IO Certificate, a Class D Certificate, a Class R Certificate, or a
Class S Certificate (collectively, the "Exempt Certificates") shall be made
unless such transfer is exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
state securities laws or is made in accordance with said Securities Act and
laws. In the event such a transfer is to be made within three years from the
Startup Day, (i) the Trustee or the Depositor shall require a written Opinion of
Counsel acceptable to and in form and substance satisfactory to the Depositor in
the event that such transfer may be made pursuant to an exemption, describing
the applicable exemption and the basis therefor, from said Securities Act and
laws or is being made pursuant to said Securities Act and laws, which Opinion of
Counsel shall not be an expense of the Trustee, the Trust Estate, the Master
Servicer or the Servicers and (ii) the Trustee shall require the transferee to
execute an investment letter in substantially the form of Exhibit J hereto
acceptable to and in form and substance satisfactory to the Seller certifying to
the Trustee and the Seller the facts surrounding such transfer, which investment
letter shall not be an expense of the Trustee, the Trust Estate or the Seller.
The Owner of an Exempt Certificate desiring to effect such transfer shall, and
does hereby agree to, indemnify the Trustee, the Servicers, the Master Servicer,
the Depositor and the Seller against any liability that may result if the
transfer is not so exempt or is not made in accordance with such federal and
state laws.
(c) No transfer of a Class D Certificate or Class R Certificate shall
be made unless the Trustee shall have received a representation letter in
substantially the form of Exhibit J hereto from the transferee of such Class D
Certificate or Class R 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 Title I of the Employee Retirement Income
Security Act ("ERISA") nor a plan or other arrangement subject to Section 4975
of the Code (collectively, a "Plan"), nor is acting on behalf of any Plan nor
using the assets of any Plan to effect such transfer. Notwithstanding anything
else to the contrary herein, any purported transfer of a Class D Certificate or
Class R Certificate to or on behalf of any Plan shall be null and void and of no
effect. Each transferee of a Mezzanine Certificate or a Class B-1 Certificate
shall be deemed to have represented either that it is not a Plan or that it is
an insurance company general account and that Prohibited Transaction Exemption
95-60 covers its acquisition and holding of such Certificates.
(d) No sale or other transfer of any Offered Certificate may be made to
the Depositor or the Seller or any Originator. No sale or other transfer of any
Offered Certificate may be made to a Seller affiliate unless the Trustee shall
have been furnished with an Opinion of Counsel acceptable to the Trustee
experienced in federal bankruptcy matters to the effect that such sale or
transfer would not adversely affect the character of the conveyance of the
Mortgage Loans to the Trust as a sale. No sale or other transfer of the Class R
Certificate issued to the Tax Matters Person appointed on the Startup Day may be
transferred or sold to any Person, except to a person who accepts the
appointment of Tax Matters Person pursuant to Section 11.18 hereof.
Section 5.09 Assignment of Rights.
An Owner may pledge, encumber, hypothecate or assign all or any part of
its right to receive distributions hereunder, but such pledge, encumbrance,
hypothecation or assignment shall not constitute a transfer of an ownership
interest sufficient to render the transferee an Owner of the Trust without
compliance with the provisions of Section 5.04 and Section 5.08 hereof.
END OF ARTICLE V
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ARTICLE VI
COVENANTS
Section 6.01 Distributions.
On each Payment Date, the Trustee will withdraw amounts from the
related Account(s) and make the distributions with respect to the Certificates
in accordance with the terms of the Certificates and this Agreement. Such
distributions shall be made (i) by check or draft mailed on each Payment Date or
(ii) if requested by any Owner of (A) an Offered Certificate having an original
principal balance of not less than $1,000,000, (B) a Class C-IO Certificate
having an original Notional Principal Amount of not less than $1,000,000, or (C)
a Class D, a Class R or Class S Certificate having a Percentage Interest of not
less than 10% in writing not later than five Business Days prior to the
applicable Record Date (which request does not have to be repeated unless it has
been withdrawn), to such Owner by wire transfer to an account within the United
States designated no later than five Business Days prior to the related Record
Date, made on each Payment Date, in each case to each Owner of record on the
immediately preceding Record Date.
Section 6.02 Money for Distributions to be Held in Trust;
Withholding.
(a) All payments of amounts due and payable with respect to any
Certificate that are to be made from amounts withdrawn from the Certificate
Account shall be made by and on behalf of the Trustee, and no amounts may be so
withdrawn from the Certificate Account for payments of Certificates except as
provided in this Section.
(b) Whenever the Depositor has appointed one or more Paying Agents
pursuant to Section 11.15 hereof, the Trustee will, on the Business Day
immediately preceding each Payment Date, deposit with such Paying Agents in
immediately available funds an aggregate sum sufficient to pay the amounts then
becoming due (to the extent funds are then available for such purpose in the
Certificate Account for the Class to which such amounts are due) such sum to be
held in trust for the benefit of the Owners entitled thereto.
(c) The Depositor may at any time direct any Paying Agent to pay to the
Trustee all sums held in trust by such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
(d) The Depositor shall require each Paying Agent, including the
Trustee on behalf of the Trust, to comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any
distributions made by it to any Owner of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith.
(e) Any money held by the Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Offered Certificate and Class S
Certificate and remaining unclaimed by the Owner of such Certificate for the
period then specified in the escheat laws of the State of New York after such
amount has become due and payable shall be discharged from such trust and be
paid to the Owners of the Class R Certificates; and the Owner of such Offered
Certificate and Class S Certificate shall thereafter, as an unsecured general
creditor, look only to the Owners of the Class R Certificates for payment
thereof (but only to the extent of the amounts so paid to the Owners of the
Class R Certificates) and all liability of the Trustee or such Paying Agent with
respect to such trust money shall thereupon cease; provided, however, that the
Trustee or such Paying Agent before being required to make any such payment, may
at the expense of the Trust cause to be published once, in the eastern edition
of The Wall Street Journal, notice that such money remains unclaimed and that,
after a date specified therein, which shall be not fewer than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be paid to the Owners of the Class R Certificates. The Trustee shall, at
the direction of the Depositor, also adopt and
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employ, at the expense of the Trust, any other reasonable means of notification
of such payment (including but not limited to mailing notice of such payment to
Owners whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Registrar, the Trustee or any Paying Agent,
at the last address of record for each such Owner).
Section 6.03 Protection of Trust Estate.
(a) The Trustee will hold the Trust Estate in trust for the benefit of
the Owners and, at the request of the Depositor, will from time to time execute
and deliver all such supplements and amendments hereto pursuant to Section 11.14
hereof and all instruments of further assurance and other instruments, and will
take such other action upon such request from the Depositor, to:
(i) more effectively hold in trust all or any portion of the
Trust Estate;
(ii) perfect, publish notice of, or protect the validity of
any grant made or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee, and the interests of the Owners represented
thereby, in such Trust Estate against the contrary claims of all
Persons and parties.
The Trustee shall send copies of any request received from the
Depositor to take any action pursuant to this Section 6.03 to the other parties
hereto.
(b) The Trustee shall have the power to enforce, and shall enforce the
obligations and rights of the other parties to this Agreement or the Owners, by
action, suit or proceeding at law or equity; provided, however, that nothing in
this Section shall require any action by the Trustee unless the Trustee shall
first (i) have been furnished indemnity satisfactory to it and (ii) when
required by this Agreement, have been requested to take such action by the
Owners of a majority of the Percentage Interests represented by the Offered
Certificates then Outstanding or, if there are no longer any Offered
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates.
(c) The Trustee shall execute any instrument required pursuant to this
Section so long as such instrument does not conflict with this Agreement or with
the Trustee's fiduciary duties, or adversely affect its rights and immunities
hereunder.
Section 6.04 Performance of Obligations.
The Trustee will not take any action that would release any Person from
any of such Person's covenants or obligations under any instrument or document
relating to the Certificates or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or document, except as
expressly provided in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in performing
its duties hereunder pursuant to Section 10.03(g).
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Section 6.05 Negative Covenants.
The Trustee will not permit the Trust to:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on or make any deduction from the
distributions payable in respect of, the Certificates (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Owner by reason of the payment
of any taxes levied or assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty any indebtedness of any Person
except pursuant to this Agreement;
(iv) dissolve or liquidate in whole or in part, except
pursuant to Article IX hereof; or
(v) (A) permit the validity or effectiveness of this Agreement
to be impaired, or permit any Person to be released from any covenants
or obligations with respect to the Trust or to the Certificates under
this Agreement, except as may be expressly permitted hereby or (B)
permit any lien, charge, adverse claim, security interest, mortgage or
other encumbrance to be created on or extend to or otherwise arise upon
or burden the Trust Estate or any part thereof or any interest therein
or the proceeds thereof.
Section 6.06 No Other Powers.
The Trustee will not permit the Trust to engage in any business
activity or transaction other than those activities permitted by Section 2.03
hereof.
Section 6.07 Limitation of Suits.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement or for the appointment of a receiver
or trustee of the Trust, or for any other remedy with respect to an event of
default hereunder, unless:
(1) such Owner has previously given written notice to the
Depositor and the Trustee of such Owner's intention to
institute such proceeding;
(2) the Owners of not less than 25% of the Percentage Interests
represented by the Offered Certificates then Outstanding or,
if there are no Offered Certificates then Outstanding, by such
percentage of the Percentage Interests represented by the
Class D Certificates and the Class R Certificates, shall have
made written request to the Trustee to institute such
proceeding in its own name as Trustee establishing the Trust;
(3) such Owner or Owners have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such
proceeding;
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Owners
of a majority of the Percentage Interests represented by the
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Offered Certificates or, if there are no Offered Certificates
then Outstanding, by such majority of the Percentage Interests
represented by the Class D Certificates and the Class R
Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
Section 6.08 Unconditional Rights of Owners to Receive
Distributions.
Notwithstanding any other provision in this Agreement, the Owner of any
Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
Section 6.09 Rights and Remedies Cumulative.
Except as otherwise provided herein, no right or remedy herein
conferred upon or reserved to the Trustee or to the Owners is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. Except as otherwise provided herein, the assertion or employment of
any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.10 Delay or Omission Not Waiver.
No delay of the Trustee, the Seller or any Owner of any Certificate to
exercise any right or remedy under this Agreement with respect to any event
described in Section 8.20(a) or (b) shall impair any such right or remedy or
constitute a waiver of any such event or an acquiescence therein. Every right
and remedy given by this Article VI or by law to the Trustee or to the Owners
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the Owners, as the case may be.
Section 6.11 Control by Owners.
The Owners of a majority of the Percentage Interests represented by the
Offered Certificates then Outstanding or, if there are no longer any Offered
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates then Outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate,
including, but not limited to, those powers set forth in Section 6.03 and
Section 8.20 hereof, provided that:
(1) such direction shall not be in conflict with any rule of law
or with this Agreement;
(2) the Trustee shall have been provided with indemnity
satisfactory to it; and
(3) the Trustee may take any other action deemed proper by the
Trustee, as the case may be, which is not inconsistent with
such direction; provided, however, that the Seller or the
Trustee, as the case may be, need not take any action which it
determines might involve it in liability or may be unjustly
prejudicial to the Owners not so directing.
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Section 6.12 Access to Owners of Certificates' Names and Addresses. (a)
If any Owner (for purposes of this Section 6.12, an "Applicant") applies in
writing to the Trustee, and such application states that the Applicant desires
to communicate with other Owners with respect to their rights under this
Agreement or under the Certificates and is accompanied by a copy of the
communication which such Applicant proposes to transmit, then the Trustee shall,
at the expense of such Applicant, within ten (10) Business Days after the
receipt of such application, furnish or cause to be furnished to such Applicant
a list of the names and addresses of the Owners of record as of the most recent
Payment Date.
(b) Every Owner, by receiving and holding such list, agrees with the
Trustee that the Trustee shall not be held accountable in any way by reason of
the disclosure of any information as to the names and addresses of the Owners
hereunder, regardless of the source from which such information was derived.
END OF ARTICLE VI
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ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01 Collection of Money.
Except as otherwise expressly provided herein, the Trustee shall demand
payment or delivery of all money and other property payable to or receivable by
the Trustee pursuant to this Agreement, including all payments due on the
Mortgage Loans in accordance with the respective terms and conditions of such
Mortgage Loans and required to be paid over to the Trustee by the related
Servicer or by any Subservicer. The Trustee shall hold all such money and
property received by it, other than pursuant to or as contemplated by Section
6.02(e) hereof, as part of the Trust Estate and shall apply it as provided in
this Agreement.
Section 7.02 Establishment of Accounts.
(a) The Depositor shall cause to be established on the Startup Day, and
the Trustee shall maintain at the Corporate Trust Office as a segregated
account, the Certificate Account, to be held by the Trustee on behalf of the
Owners of the Certificates and the Trustee.
(b) The Depositor shall cause to be established, and the Trustee shall
maintain, at the Corporate Trust Office two segregated accounts, referred to
herein as the "Pre-Funding Account" and the "Capitalized Interest Account" to be
held by the Trustee in the name of the Trust for the benefit of the Owners. For
federal income tax purposes, the Depositor shall be the owner of such accounts.
(c) The Depositor shall cause to be established, and the Trustee shall
maintain, at the Corporate Trust Office, as two segregated accounts, the
Upper-Tier Group I Distribution Account and the Upper-Tier Group II Distribution
Account to be held by the Trustee in the name of the Upper-Tier REMIC for the
benefit of the Owners.
Section 7.03 Flow of Funds.
(a) (i) With respect to Group I, the Servicers shall, no later
than the related Monthly Remittance Date, remit and the Trustee shall deposit to
the Certificate Account, without duplication, (x) any proceeds received upon
liquidation of the Trust insofar as such proceeds relate to Group I, (y) all
remittances made to the Trustee pursuant to Section 8.09 insofar as such
remittances relate to Group I and (z) each portion of the Monthly Remittance
Amount relating to Group I remitted by the related Servicer.
(ii) On each Payment Date, the Trustee shall transfer the
Lower-Tier Group I Distribution Amount from the Certificate Account to the
Upper-Tier Group I Distribution Account.
(iii) On each Payment Date, the Trustee shall distribute from
the Certificate Account to the Owners of the Class S Certificates, the Class S
Distribution Amount relating to Group I.
(b) (i) With respect to Group II, the Servicers shall, no later
than the related Monthly Remittance Date, remit and the Trustee shall deposit to
the Certificate Account without duplication, (x) any proceeds received upon
liquidation of the Trust insofar as such proceeds relate to Group II, (y) all
remittances made to the Trustee pursuant to Section 8.09 insofar as such
remittances relate to Group II and (z) each portion of the Monthly Remittance
Amount relating to Group II remitted by the related Servicer.
(ii) On each Payment Date, the Trustee shall transfer the
Lower-Tier Group II Distribution Amount from the Certificate Account to the
Upper-Tier Group II Distribution Account.
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(iii) On each Payment Date, the Trustee shall distribute from
the Certificate Account to the Owners of the Class S Certificates, the Class S
Distribution Amount relating to Group II.
(c) With respect to the Upper-Tier Group I Distribution Account, on
each Payment Date, the Trustee shall make the following disbursements from the
Group I Interest Remittance Amount transferred thereto pursuant to subsection
(a)(ii), in the following order of priority, and each such disbursement shall be
treated as having occurred only after all preceding disbursements have occurred:
(i) First, to the Trustee, the portion of the Trustee Fee
and reasonable expenses, if any, incurred by the
Trustee relating to Group I and to the Master
Servicer, the portion of the Master Servicer Fee
relating to Group I;
(ii) Second, to the Owners of the Class A Certificates
related to Group I, the related Class A Current
Interest plus the related Class A Interest Carry
Forward Amount with respect to each such Class of
Class A Certificates without any priority among such
Class A Certificates; provided, that if the Group I
Interest Amount Available is not sufficient to make a
full distribution of interest with respect to all
Classes of the Class A Certificates related to Group
I, the Group I Interest Amount Available will be
distributed among the outstanding Classes of Class A
Certificates related to Group I pro rata based on the
aggregate amount of interest due on each such Class,
and the amount of the shortfall will be carried
forward with accrued interest at the related Class A
Pass-Through Rate;
(iii) Third, to the extent of the Group I Interest Amount
Available then remaining, to the Owners of the Class
M-1F Certificates, the Class M-1F Current Interest;
(iv) Fourth, to the extent of the Group I Interest Amount
Available then remaining, to the Owners of the Class
M-2F Certificates, the Class M-2F Current Interest;
(v) Fifth, to the extent of the Group I Interest Amount
Available then remaining, to the Owners of the Class
B-1F Certificates, the Class B-1F Current Interest;
(vi) Sixth, to the extent of the Group I Interest Amount
Available then remaining, to the Owners of the Class
C-FIO Certificates, the Class C-FIO Current Interest;
and
(vii) Seventh, the Group I Monthly Excess Interest Amount
shall be applied or distributed as provided in
subsection (h) of this Section 7.03.
(d) With respect to the Upper-Tier Group II Distribution Account on
each Payment Date, the Trustee shall make the following disbursements from the
Group II Interest Remittance Amount transferred thereto pursuant to subsection
(b)(ii), in the following order of priority, and each such disbursement shall be
treated as having occurred only after all preceding disbursements have occurred:
(i) First, to the Trustee, the portion of the Trustee Fee
and reasonable expenses, if any, incurred by the
Trustee relating to Group II and to the Master
Servicer, the portion of the Master Servicer Fee
relating to Group II;
(ii) Second, to the Owners of the Class A Certificates
related to Group II, the related Class A Current
Interest plus the related Class A Interest Carry
Forward Amount with respect to each such Class of
Class A Certificates without any priority among such
Class A Certificates; provided, that if the Group II
Interest Amount Available is not sufficient to make a
full distribution of interest with respect to all
Classes of
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the Class A Certificates related to Group II, the
Group II Interest Amount Available will be
distributed among the outstanding Classes of Class A
Certificates related to Group II pro rata based on
the aggregate amount of interest due on each such
Class, and the amount of the shortfall will be
carried forward with accrued interest at the related
Class A Pass-Through Rate;
(iii) Third, to the extent of the Group II Interest Amount
Available then remaining, to the Owners of the Class
M-1A Certificates, the Class M-1A Current Interest;
(iv) Fourth, to the extent of the Group II Interest Amount
Available then remaining, to the Owners of the Class
M-2A Certificates, the Class M-2A Current Interest;
(v) Fifth, to the extent of the Group II Interest Amount
Available then remaining, to the Owners of the Class
B-1A Certificates, the Class B-1A Current Interest;
(vi) Sixth, to the extent of the Group II Interest Amount
Available then remaining, to the Owners of the Class
C-AIO Certificates, the Class C-AIO Current Interest;
and
(vii) Seventh, the Group II Monthly Excess Interest Amount
shall be applied or distributed as provided in
subsection (i) of this Section 7.03.
(e) Reserved.
(f) With respect to the Upper-Tier Group I Distribution Account on each
Payment Date, the Trustee shall make the following disbursements from amounts
relating to principal transferred thereto, in the following order of priority
and each such disbursement shall be treated as having occurred only after all
preceding disbursements have occurred:
(i) On each Payment Date (a) before the Group I
Stepdown Date or (b) on or after the Group I Stepdown
Date if a Group I Trigger Event is in effect, the
Owners of the Class A Certificates related to Group I
will be entitled to receive payment of 100% of the
Group I Principal Distribution Amount as follows: (I)
to the Owners of the Class A-6 Certificates, the
Class A-6 Lockout Distribution Amount and (II) to the
Owners of the Class A Certificates related to Group
I, as follows: first, to the Owners of the Class A-1
Certificates, until the Class A-1 Certificate
Principal Balance is reduced to zero; second, to the
Owners of the Class A-2 Certificates, until the Class
A-2 Certificate Principal Balance is reduced to zero;
third, to the Owners of the Class A-3 Certificates,
until the Class A-3 Certificate Principal Balance is
reduced to zero; fourth, to the Owners of the Class
A-4 Certificates, until the Class A-4 Certificate
Principal Balance is reduced to zero; fifth, to the
Owners of the Class A-5 Certificates, until the Class
A-5 Certificate Principal Balance is reduced to zero;
and, sixth, to the Owners of the Class A-6
Certificates, until the Class A-6 Certificate
Principal Balance is reduced to zero; provided,
however, that on any Payment Date on which the sum of
the Certificate Principal Balance of the Subordinate
Certificates related to Group I and the Group I
Overcollateralization Amount is zero, any amounts of
principal payable to the Owners of the Class A
Certificates related to Group I on such Payment Date
shall be distributed pro rata and not sequentially.
(ii) Notwithstanding the provisions of Section 7.03(g)(i),
if the Certificate Principal Balance of the Class A
Certificates related to Group I is reduced to zero
and it is prior to the Group I Stepdown Date or
during the continuation of a Group I Trigger
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Event, the Owners of the Subordinate Certificates
relating to Group I will be entitled to receive
payment of 100% of the Group I Principal Distribution
Amount as follows:
(a) to the Class M-1F Certificates until the
Class M-1F Certificate Termination Date;
(b) to the Class M-2F Certificates until the
Class M-2F Certificate Termination Date; and
(c) to the Class B-1F Certificates, until the
Class B-1F Certificate Termination Date.
(iii) On each Payment Date on or after the Group I Stepdown
Date and as long as a Group I Trigger Event is not in
effect, the Owners of the Group I Certificates will
be entitled to receive payments of principal, in the
order of priority, in the amounts set forth below and
to the extent of the Group I Principal Distribution
Amount as follows:
(A) First, the lesser of (x) the Group I
Principal Distribution Amount and (y) the
Group I Class A Principal Distribution
Amount shall be distributed (I) to the
Owners of the Class A-6 Certificates, in an
amount equal to the Class A-6 Lockout
Distribution Amount and (II) the remainder
paid to the Owners of the Class A
Certificates related to Group I as follows:
first, to the Owners of the Class A-1
Certificates, until the Class A-1
Certificate Principal Balance is reduced to
zero; second, to the Owners of the Class A-2
Certificates, until the Class A-2
Certificate Principal Balance is reduced to
zero; third, to the Owners of the Class A-3
Certificates, until the Class A-3
Certificate Principal Balance is reduced to
zero; fourth, to the Owners of the Class A-4
Certificates, until the Class A-4
Certificate Principal Balance is reduced to
zero; fifth, to the Owners of the Class A-5
Certificates, until the Class A-5
Certificate Principal Balance is reduced to
zero; and, sixth, to the Owners of the Class
A-6 Certificates, until the Class A-6
Certificate Principal Balance is reduced to
zero; provided, however, that on any Payment
Date on which the sum of the Certificate
Principal Balance of the Subordinate
Certificates related to Group I and the
Group I Overcollateralization Amount is
zero, any amounts of principal payable to
the Owners of the Class A Certificates
related to Group I on such Payment Date
shall be distributed pro rata and not
sequentially;
(B) Second, the lesser of (x) the excess of (i)
the Group I Principal Distribution Amount
over (ii) the amount distributed to the
Owners of the Class A Certificates related
to Group I in clause (A) above and (y) the
Class M-1F Principal Distribution Amount
shall be distributed to the Owners of the
Class M-1F Certificates, until the Class
M-1F Certificate Principal Balance has been
reduced to zero;
(C) Third, the lesser of (x) the excess of (i)
the Group I Principal Distribution Amount
over (ii) the sum of the amount distributed
to the Owners of the Class A Certificates
related to Group I in clause (A) above and
the amount distributed to the Owners of the
Class M-1F Certificates in clause (B) above
and (y) the Class M-2F Principal
Distribution Amount shall be
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distributed to the Owners of the Class M-2F
Certificates, until the Class M- 2F
Certificate Principal Balance has been
reduced to zero;
(D) Fourth, the lesser of (x) the excess of (i)
the Group I Principal Distribution Amount
over (ii) the sum of the amount distributed
to the Owners of the Class A Certificates
related to Group I pursuant to clause (A)
above, the amount distributed to the Owners
of the Class M-1F Certificates pursuant to
clause (B) above and the amount distributed
to the Owners of the Class M-2F Certificates
pursuant to clause (C) above and (y) the
Class B-1F Principal Distribution Amount
shall be delivered to the Owners of the
Class B-1F Certificates, until the Class
B-1F Certificate Principal Balance has been
reduced to zero; and,
(E) Fifth, any portion of the Group I Principal
Remittance Amount remaining after making all
of the distributions in clauses (A), (B),
(C) and (D) above shall be distributed as
provided in subsection (h) of this Section
7.03.
(g) With respect to the Upper-Tier Group II Distribution Account on
each Payment Date, the Trustee shall make the following disbursements from
amounts relating to principal transferred thereto, in the following order of
priority and each such disbursement shall be treated as having occurred only
after all preceding disbursements have occurred:
(i) On each Payment Date (a) before the Group II Stepdown
Date or (b) on or after the Group II Stepdown Date if
a Group II Trigger Event is in effect, the Owners of
the Class A-7 Certificates will be entitled to
receive payment of 50% of the Group II Principal
Distribution Amount and the Owners of the Class A-8
Certificates will be entitled to receive payment of
50% of the Group II Principal Distribution Amount,
until the Class A-7 Certificate Principal Balance has
been reduced to zero and thereafter the Owners of the
Class A-8 Certificates will be entitled to receive
payment of 100% of the Group II Principal
Distribution Amount, until the Class A-8 Certificate
Termination Date.
(ii) Notwithstanding the provisions of Section 7.03(g)(i)
if the Class A-8 Certificate Principal Balance is
reduced to zero and it is prior to the Group II
Stepdown Date or during the continuation of a Group
II Trigger Event, the Owners of the Subordinate
Certificates relating to Group II will be entitled to
receive payment of 100% of the Group II Principal
Distribution Amount as follows:
(a) to the Class M-1A Certificates until
the Class M-1A Certificate
Termination Date;
(b) to the Class M-2A Certificates until
the Class M-2A Certificate
Termination Date; and
(c) to the Class B-1A Certificate; until
the Class B-1A Certificate
Termination Date.
(iii) On each Payment Date (a) on or after the Group II
Stepdown Date and (b) as long as a Group II Trigger
Event is not in effect, the Owners of the Group II
Certificates will be entitled to receive payments of
principal, in the order of priority, in the amounts
set forth below and to the extent of the Group II
Principal Distribution Amount as follows:
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(A) First, (1) until the Class A-7 Certificate
Termination Date, 50% of the Group II Post
Stepdown Amount shall be distributed of the
Class A-7 Certificates and 50% of the Group
II Post Stepdown Amount shall be distributed
to the Owners of the Class A-8 Certificates
and (2) during the period from the Class A-7
Certificate Termination Date until the Class
A-8 Certificate Termination Date, 100% of
the Group II Post Stepdown Amount shall be
distributed to the Owners of the Class A-8
Certificates;
(B) Second, the lesser of (x) the excess of (i)
the Group II Principal Distribution Amount
over (ii) the amount distributed to the
Owners of the Class A-7 Certificates and
Class A-8 Certificates in clause (A) above
and (y) the Class M-1A Principal
Distribution Amount shall be distributed to
the Owners of the Class M-1A Certificates,
until the Class M-1A Certificate Principal
Balance has been reduced to zero;
(C) Third, the lesser of (x) the excess of (i)
the Group II Principal Distribution Amount
over (ii) the sum of the amount distributed
to the Owners of the Class A-7 Certificates
and Class A-8 Certificates in clause (A)
above and the amount distributed to the
Owners of the Class M-1A Certificates in
clause (B) above and (y) the Class M-2A
Principal Distribution Amount shall be
distributed to the Owners of the Class M-2A
Certificates, until the Class M-2A
Certificate Principal Balance has been
reduced to zero;
(D) Fourth, the lesser of (x) the excess of (i)
the Group II Principal Distribution Amount
over (ii) the sum of the amount distributed
to the Owners of the Class A-7 Certificates
and Class A-8 Certificates pursuant to
clause (A) above, the amount distributed to
the Owners of the Class M-1A Certificates
pursuant to clause (B) above and the amount
distributed to the Owners of the Class M-2A
Certificates pursuant to clause (C) above
and (y) the Class B-1A Principal
Distribution Amount shall be delivered to
the Owners of the Class B-1A Certificates,
until the Class B-1A Certificate Principal
Balance has been reduced to zero; and
(E) Fifth, any portion of the Group II Principal
Remittance Amount remaining after making all
of the distributions in clauses (A), (B),
(C) and (D) above shall be distributed as
provided in subsection (i) of this Section
7.03.
(h) On any Payment Date, the Group I Monthly Excess Cashflow Amount is
required to be applied in the following order of priority on such Payment Date:
(1) to fund any remaining Class A Interest Carry Forward
Amount with respect to Group I;
(2) to fund the Group I Extra Principal Distribution
Amount for such Payment Date;
(3) to fund the Class M-1F Interest Carry Forward Amount,
if any;
(4) to fund the Class M-1F Realized Loss Amortization
Amount for such Payment Date;
(5) to fund the Class M-2F Interest Carry Forward Amount,
if any;
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(6) to fund the Class M-2F Realized Loss Amortization
Amount for such Payment Date;
(7) to fund the Class B-1F Interest Carry Forward Amount,
if any;
(8) to fund the Class B-1F Realized Loss Amortization
Amount for such Payment Date;
(9) to fund the Class C-FIO Interest Carry Forward
Amount, if any;
(10) to fund any amounts listed in clauses (1) through (9)
of Section 7.03(i) to the extent such amounts have
not been funded in full through the application of
Group II Monthly Excess Cashflow Amounts; and,
(11) as provided in Section 7.03(j) hereof.
(i) On any Payment Date, the Group II Monthly Excess Cashflow Amount is
required to be applied in the following order of priority on such Payment Date:
(1) to fund any remaining Class A Interest Carry Forward
Amount with respect to Group II;
(2) to fund the Group II Extra Principal Distribution
Amount for such Payment Date;
(3) to fund the Class M-1A Interest Carry Forward Amount,
if any;
(4) to fund the Class M-1A Realized Loss Amortization
Amount for such Payment Date;
(5) to fund the Class M-2A Interest Carry Forward Amount,
if any;
(6) to fund the Class M-2A Realized Loss Amortization
Amount for such Payment Date;
(7) to fund the Class B-1A Interest Carry Forward Amount,
if any;
(8) to fund the Class B-1A Realized Loss Amortization
Amount for such Payment Date;
(9) to fund the Class C-AIO Interest Carry Forward
Amount, if any;
(10) to fund any amounts listed in clauses (1) through (9)
of Section 7.03(h) to the extent such amounts have
not been funded in full through the application of
Group I Monthly Excess Cashflow Amounts; and,
(11) as provided in Section 7.03(j) hereof.
(j) On any Payment Date, any Group I Monthly Excess Cashflow Amount
remaining after the application of Section 7.03(h)(1)(10) and any Group II
Monthly Excess Cashflow Amount remaining after the application of Section
7.03(i)(1)-(10) shall be distributed as follows:
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(1) to the Servicer to the extent of any unreimbursed
Delinquency Advances or Servicing Advances, including
such Delinquency Advances and Servicing Advances
deemed by the related Servicer to be nonrecoverable;
(2) An amount equal to the lesser of (x) the amount
remaining after the distribution described in clause
(1) above and (y) the Group II Available Funds Cap
Shortfall Amount for such Payment Date distributed to
the Owners of the related Class or Classes of the
Group II Certificates;
(3) to fund a distribution to Owners of the Class D
Certificates, the lesser of (x) the amount of the sum
of the Group I Monthly Excess Cashflow Amount and the
Group II Monthly Excess Cashflow Amount then
remaining and (y) the sum of (i) the Class D
Distribution Amount and (ii) the
Overcollateralization Release Amount; provided,
however, that if the Overcollateralization Release
Amount is zero solely due to the existence of a
Subordinated Trigger Event for the related Group,
then the amount which otherwise would constitute the
related Overcollateralization Release Amount shall be
distributed as a reduction of the Certificate
Principal Balance of the Subordinate Certificates as
follows: first, to the Owners of the related Class
B-1 Certificates until the related Class B-1
Certificate Termination Date; second, to the Owners
of the related Class M-2 Certificates, until the
related Class M-2 Certificate Termination Date;
third, to the Owners of the related Class M-1
Certificates until the related Class M-1 Certificate
Termination Date; and fourth, to the Owners of the
Class D Certificates;
(4) to fund a distribution to the Owners of the Class R
Certificates, the remainder.
(k) On each Payment Date, the Trustee shall allocate the Group I
Applied Realized Loss Amount to reduce the Certificate Principal Balances of the
Subordinate Certificates related to Group I in the following order of priority:
(i) to the Class B-1F Certificates until the Class B-1F
Certificate Principal Balance is reduced to zero;
(ii) to the Class M-2F Certificates until the Class M-2F
Certificate Principal Balance is reduced to zero; and
(iii) to the Class M-1F Certificates until the Class M-1F
Certificate Principal Balance is reduced to zero.
(l) On each Payment Date, the Trustee shall allocate the Group II
Applied Realized Loss Amount to reduce the Certificate Principal Balances of the
Subordinate Certificates related to Group II in the following order of priority:
(i) to the Class B-1A Certificates until the Class B-1A
Certificate Principal Balance is reduced to zero;
(ii) to the Class M-2A Certificates until the Class M-2A
Certificate Principal Balance is reduced to zero; and
(iii) to the Class M-1A Certificates until the Class M-1A
Certificate Principal Balance is reduced to zero.
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(m) Notwithstanding the foregoing, in the event that the Certificate
Principal Balances of all of the Class A Certificates relating to a Group have
been reduced to zero, all amounts of principal that would have been distributed
to such Class A Certificates will be distributed to the related Subordinate
Certificates of such Group sequentially in the following order: Class M-1, Class
M-2 and Class B-1 Certificates, in that order. Similarly, if the Certificate
Principal Balance of the Class M-1 Certificates has been reduced to zero, all
amounts of principal that would have been distributed to such Class M-1
Certificates will be distributed to the related Class M-2 and Class B-1
Certificates, in that order. Finally, if the Certificate Principal Balance of
the Class M-2 Certificates has been reduced to zero, all amounts of principal
that would have been distributed on such Class M-2 Certificates will be
distributed to the related Class B-1 Certificates.
(n) Notwithstanding anything above, the aggregate amounts distributed
on all Payment Dates to the Owners of the Certificates on account of principal
pursuant to clauses (f) and (g) shall not exceed the original Certificate
Principal Balance of the related Certificates.
(o) The rights of the Owners to receive distributions from the proceeds
of the Trust Estate, and all ownership interests of the Owners in such
distributions, shall be as set forth in this Agreement. In this regard, all
rights of the Owners of the Class D Certificates and the Class R Certificates to
receive distributions in respect of the Class D Certificates and the Class R
Certificates, and all ownership interests of the Owners of the Class D
Certificates and the Class R Certificates, in and to such distributions, shall
be subject and subordinate to the preferential rights of the Owners of the
Offered Certificates and Class S Certificates to receive distributions thereon
and the ownership interests of such Owners in such distributions, as described
herein. In accordance with the foregoing, the ownership interests of the Owners
of the Class D Certificates and the Class R Certificates in amounts deposited in
the Accounts from time to time shall not vest unless and until such amounts are
distributed in respect of the Class D Certificates and the Class R Certificates
in accordance with the terms of this Agreement. Notwithstanding anything
contained in this Agreement to the contrary, the Owners of the Class D
Certificates and the Class R Certificates shall not be required to refund any
amount properly distributed on the Class D Certificates and the Class R
Certificates pursuant to this Section 7.03.
Section 7.04 Pre-Funding Account and Capitalized Interest Account.
(a) On the Startup Day, the Depositor will deposit in the Pre-Funding
Account, on behalf of the Owners of the Offered Certificates, from the proceeds
of the sale of the Offered Certificates, the Original Pre-Funded Amount.
(b) On any Subsequent Transfer Date, the Seller shall instruct the
Trustee to withdraw from the Pre-Funding Account an amount equal to 100% of the
aggregate Loan Balances of the Subsequent Mortgage Loans sold to the Trust on
such Subsequent Transfer Date and pay such amount to or upon the order of the
Depositor upon satisfaction of the conditions set forth in Sections 3.05 and
3.07 hereof with respect to such transfer; in connection with such instruction
the Depositor shall additionally inform the Trustee whether such Subsequent
Mortgage Loans are being transferred to Group I or Group II. In no event shall
the Depositor be permitted to instruct the Trustee to release from the
Pre-Funding Account to the Certificate Account with respect to Subsequent
Mortgage Loans to be transferred to a Group an amount in excess of the Original
Pre- Funded Amount with respect to such Group.
(c) If the Pre-Funded Amount with respect to a Mortgage Loan Group has
been reduced to $100,000 or less on or before ________________ __, 1998, the
Depositor shall instruct the Trustee to withdraw from the Pre-Funding Account
the amount (exclusive of any related Pre-Funding Account Earnings still on
deposit therein) remaining in the Pre-Funding Account with respect to such Group
of Mortgage Loans and deposit such amount to the Certificate Account, on the
Monthly Remittance Date in _____________ , 1998. If the Pre-Funded Amount in
respect to a Mortgage Loan Group has not been reduced to $100,000
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or less by ________________ __, 1998, then the Trustee shall withdraw on the
Pre-Funding Determination Date from the Pre-Funding Account the amount
(exclusive of any related Pre-Funding Account Earnings still on deposit therein)
remaining in the Pre-Funding Account and deposit on such date such amount to the
Certificate Account, which will be distributed on the Payment Date in
__________, 1998.
(d) On the Payment Date in __________ 1998, the Trustee shall transfer
from the Pre-Funding Account to the Capitalized Interest Account, (i) with
respect to Group I, the Group I Pre-Funding Account Earnings and (ii) with
respect to Group II, the Group II Pre-Funding Account Earnings, if any,
applicable to such Payment Date.
(e) On the Payment Date in __________ 1998, the Trustee shall transfer
from the Capitalized Interest Account to the Certificate Account, for the
benefit of the Owners of the related Certificates, the Group I or Group II
Capitalized Interest Requirement for such Payment Date.
(f) On each Subsequent Transfer Date the Trustee shall distribute the
Overfunded Interest Amount (calculated by the Trustee on the day prior to such
Subsequent Transfer Date) from the Capitalized Interest Account to the Seller
and on Payment Date immediately following the end of the Funding Period (but no
later than the day prior to such Subsequent Transfer Date) from the Capitalized
Interest Account to the Seller), the Trustee shall distribute to the Seller any
amounts remaining in the Capitalized Interest Account after taking into account
the transfers on such Payment Date described above. The Capitalized Interest
Account shall be closed at the end of the Funding Period. All amounts, if any,
remaining in the Capitalized Interest Account on such day shall be transferred
to the Seller.
(g) Any amounts transferred to the Certificate Account from the
Capitalized Interest Account on the Payment Date in __________ 1998 shall be
transferred to the related Upper-Tier Distribution Account and distributed to
the Owners of the related Class or Classes of Class A Certificates entitled to
such amount pursuant to Section 7.03(f) and (g) on such Payment Date.
(h) The Pre-Funding Account and the Capitalized Interest Account are
not an asset of either the Lower-Tier REMIC or the Upper-Tier REMIC.
Section 7.05 Investment of Accounts.
(a) Except as provided below, consistent with any requirements of the
Code, all or a portion of any Account held by the Trustee for the benefit of the
Owners shall be invested and reinvested by the Trustee in the name of the
Trustee for the benefit of the Owners, as directed in writing by the party who
benefits from such investment, which shall be the Depositor in the case of the
Pre-Funding Account and the Capitalized Interest Account and the related
Servicer in the case of the related Principal and Interest Account, in one or
more Eligible Investments bearing interest or sold at a discount. The earnings
on each Principal and Interest Account are payable to the related Servicer.
Earnings on the Certificate Account are payable to the Trustee. The bank serving
as Trustee or any affiliate thereof may be the obligor, manager or advisor on
any investment which otherwise qualifies as an Eligible Investment. No
investment in any Account shall mature later than the Business Day immediately
preceding the next Payment Date unless such investment is an obligation of the
Trustee or is a fund for which the Trustee or any affiliate of the Trustee is a
manager or advisor, in which case such investment may mature not later than the
next Payment Date.
If the Depositor shall have failed to give investment directions to the
Trustee then the Trustee shall invest the funds in such Accounts in money market
funds described in Section 7.07(k) to be redeemable without penalty no later
than the Business Day immediately preceding the next Payment Date.
(b) Subject to Section 10.01 hereof, the Trustee shall not in any way
be held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any loss on any Eligible Investment
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included therein (except to the extent that the bank serving as Trustee is the
obligor in its corporate capacity thereon).
(c) All income or other gain from investments in any Account held by
the Trustee shall be deposited in such Account immediately on receipt (other
than the Principal and Interest Accounts, which income or other gains shall be
retained by the related Servicer and the Certificate Account, which income or
other gains shall be retained by the Trustee), and any loss resulting from such
investments shall be charged to such Account, provided that the related Servicer
and the Trustee shall each contribute funds in an amount equal to such loss in
the case of the Principal and Interest Account and the Certificate Account,
respectively.
Section 7.06 Reserved.
Section 7.07 Eligible Investments.
The following are Eligible Investments:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and interest
by, the United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United States,
Federal Housing Administration debentures, FHLMC senior debt obligations, and
FannieMae senior debt obligations, but excluding any of such securities whose
terms do not provide for payment of a fixed dollar amount upon maturity or call
for redemption;
(b) Federal Housing Administration debentures; provided, that any such
investment shall be rated in one of the two highest ratings categories by each
Rating Agency;
(c) FHLMC participation certificates which guaranty timely payment of
principal and interest and senior debt obligations;
(d) Consolidated senior debt obligations of any Federal Home Loan
Banks;
(e) FannieMae mortgage-backed securities (other than stripped mortgage
securities which are valued greater than par on the portion of unpaid principal)
and senior debt obligations;
(f) Federal funds, certificates of deposit, time deposits, and bankers'
acceptances (having original maturities of not more than 365 days) of any
domestic bank, the short-term debt obligations of which have been rated F-1+ or
better by Fitch and P-1 by Moody's;
(g) Deposits of any bank or savings and loan association (the long-term
deposit rating of which is Baa3 or better by Moody's and BBB by Fitch) which has
combined capital, surplus and undivided profits of at least $50,000,000 which
deposits are insured by the FDIC and held up to the limits insured by the FDIC;
(h) Investment agreements provided:
1. The agreement is with a bank or insurance company which has
unsecured, uninsured and unguaranteed senior debt obligations rated Aa2
or better by Moody's and AA or better by Fitch, or is the lead bank of
a parent bank holding company with an uninsured, unsecured and
unguaranteed senior debt obligation meeting such rating requirements,
and
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2. Moneys invested thereunder may be withdrawn without any
penalty, premium or charge upon not more than one day's notice
(provided such notice may be amended or canceled at any time prior to
the withdrawal date), and
3. The agreement is not subordinated to any other obligations
of such insurance company or bank, and
4. The same guaranteed interest rate will be paid on any
future deposits made pursuant to such agreement, and
5. The Trustee receives an opinion of counsel (at the expense
of the party requesting the investment) that such agreement is an
enforceable obligation of such insurance company or bank;
(i) Repurchase agreements collateralized by securities described in
(a), (c), or (e) above with any registered broker/dealer subject to the
Securities Investors Protection Corporation's jurisdiction and subject to
applicable limits therein promulgated by Securities Investors Protection
Corporation or any commercial bank, if such broker/dealer or bank has an
uninsured, unsecured and unguaranteed short-term or long-term obligation rated
P-1 or Aa2, respectively, or better by Moody's, A-1+ or AA, respectively or
better by Fitch, provided:
a. A master repurchase agreement or specific written
repurchase agreement governs the transaction, and
b. The securities are held free and clear of any lien by the
Trustee or an independent third party acting solely as agent for the
Trustee, and such third party is (a) a Federal Reserve Bank or (b) a
bank which is a member of the FDIC and which has combined capital,
surplus and undivided profits of not less than $125 million, and the
Trustee shall have received written confirmation from such third party
that it holds such securities, free and clear of any lien, as agent for
the Trustee, and
c. A perfected first security interest under the Uniform
Commercial Code, or book entry procedures prescribed at 31 CFR 306.1 et
seq. or 31 CFR 350.0 et seq., in such securities is created for the
benefit of the Trustee, and
d. The repurchase agreement has a term of thirty days or less
and the Trustee will value the collateral securities no less frequently
than monthly and will liquidate the collateral securities if any
deficiency in the required collateral percentage is not restored within
two business days of such valuation, and
e. The fair market value of the collateral securities in
relation to the amount of the repurchase obligation, including
principal and interest, is equal to at least 106%.
(j) Commercial paper (having original maturities of not more than 270
days) rated in the highest short-term rating categories of each Rating Agency;
and
(k) Investments in no load money market funds registered under the
Investment Company Act of 1940, whose shares are registered under the Securities
Act and rated Aaa by Moody's and AAA, if rated by Fitch, including any such
funds for which the Trustee or any affiliate of the Trustee acts as manager or
advisor;
provided that no instrument described above shall evidence either the right to
receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such
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instrument provided a yield to maturity at par greater than 120% of the yield to
maturity at par of the underlying obligations; and provided, further, that all
instruments described hereunder shall mature at par on or prior to the next
succeeding Payment Date unless otherwise provided in this Agreement and that no
instrument described hereunder may be purchased at a price greater than par if
such instrument may be prepaid or called at a price less than its purchase price
prior to stated maturity.
Section 7.08 Accounting and Directions by Trustee.
(a) On or before the Business Day preceding each Payment Date, the
Trustee shall notify (subject to the terms of Section 10.03(j) hereof) the
Depositor and the Seller of the following information with respect to such
Payment Date (which notification may be given by facsimile, or by telephone
promptly confirmed in writing):
(1) The aggregate amount then on deposit in the Certificate
Account;
(2) The Class A Distribution Amount, with respect to each
Class individually, and all Classes of the Class A Certificates in the
aggregate, on the next Payment Date, the related Class M-1 Distribution
Amount, the related Class M-2 Distribution Amount, the related Class
B-1 Distribution Amount, the Class C-IO Distribution Amount and the
Class S Distribution Amount;
(3) The application of the amounts described in clause (1)
above to the allocation and distribution of the related Class A
Distribution Amount, the related Class M-1 Distribution Amount, the
related Class M-2 Distribution Amount, the related Class B-1
Distribution Amount and the Class C-IO Distribution Amount, on such
Payment Date in accordance with Section 7.03 hereof;
(4) The Certificate Principal Balance of each Class of the
Offered Certificates, the Notional Principal Amount for each Class of
Class C-IO Certificates the aggregate amount of the principal of each
Class of the Offered Certificates to be paid on such Payment Date and
the remaining Certificate Principal Balance of each Class of the
Offered Certificates (or the Notional Principal Amount for each Class
of C-IO Certificates) following any such payment;
(5) The amount, if any, of Realized Losses relating to each
Group for the related Collection Period and the amount of Cumulative
Realized Losses relating to each Group as of the last day of the
related Collection Period;
(6) For the Payment Date in __________ 1998, and as to each
Group and in the aggregate (A) the related Pre-Funded Amount previously
used to purchase Subsequent Mortgage Loans, (B) the related Pre-Funded
Amount distributed as part of the related Principal Distribution
Amount, (C) the related Pre-Funding Account Earnings transferred to the
Capitalized Interest Account, (D) the amounts transferred from the
Capitalized Interest Account to the Certificate Account and (E) the
Overfunded Interest Amount transferred to the Seller, if any;
(7) The amount of the Class D Distribution Amount; and
(8) the amount of 60+ Day Delinquent Loans relating to each
Group.
Section 7.09 Reports by Trustee.
(a) On each Payment Date the Trustee shall report in writing to the
Depositor (which report shall be made available in electronic format), each
Owner, the Master Servicer, the Underwriters and their designees (designated in
writing to the Trustee) and the Rating Agencies:
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(i) the amount of the distribution with respect to the related
Class of the Certificates (based on a Certificate in the original
principal amount of $1,000);
(ii) (a) the amount of such distribution allocable to
scheduled principal on the Mortgage Loans in each Mortgage Loan Group,
separately identifying the aggregate amount of any Prepayments,
repurchases or Liquidation Proceeds and (b) with respect to each
Mortgage Loan Group, any Pre-Funded Amounts distributed as a Prepayment
at the end of the Funding Period (based on a Certificate in the
original principal amount of $1,000);
(iii) the amount of such distribution allocable to interest on
the Mortgage Loans in each Mortgage Loan Group (based on a Certificate
in the original principal amount of $1,000);
(iv) the Interest Carry-Forward Amount for each Class;
(v) the principal amount (or notional principal amount) of
each Class of Certificates (based on a Certificate in the original
principal amount of $1,000) which will be Outstanding and the aggregate
Loan Balance of each Mortgage Loan Group and in the aggregate, in each
case after giving effect to any payment of principal on such Payment
Date;
(vi) the aggregate Loan Balance of the Mortgage Loans in each
Mortgage Loan Group and in total, in each case, after giving effect to
any payment of principal on such Payment Date;
(vii) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution with respect to
each Mortgage Loan Group and in the aggregate;
(viii) the weighted average Coupon Rate and the weighted
average remaining term to maturity of the Mortgage Loans with respect
to each Mortgage Loan Group and in the aggregate, calculated both as of
the first and last day of the related Collection Period;
(ix) the Servicing Fees, the Master Servicing Fees and Trustee
Fees allocable to each Mortgage Loan Group, and in the aggregate;
(x) the amount of any Group I Extra Principal Distribution
Amount or any Group II Extra Principal Distribution Amount;
(xi) the Group I Senior Enhancement Percentage and the Group
II Senior Enhancement Percentage and whether a Group I Trigger Event or
Group II Trigger Event has occurred as shown by the percentage of 60+
Day Delinquent Loans;
(xii) the Group I Overcollateralization Amount, the Group II
Overcollateralization Amount, and the Certificate Principal Balance of
each Class of the Offered Certificates then outstanding after giving
effect to any payment of principal on such Payment Date; and
(xiii) the amount of any Group I or Group II Applied Realized
Loss Amount and the Unpaid Realized Loss Amount for each Class of
Subordinated Certificates as of the close of such Payment Date.
The Master Servicer shall provide to the Trustee the information
required by Section 8.29(g) with respect to the Mortgage Loans to enable the
Trustee to perform its reporting obligations under this Section, and the
obligations of the Trustee under this Section are conditioned upon such
information being received and the information provided in clauses (ii)(a),
(vi), (viii), (x), (xi), (xii) and (xiii) above shall be based solely
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upon information contained in the Aggregate Monthly Servicing Report provided by
the Master Servicer to the Trustee.
(b) In addition, on each Payment Date the Trustee will distribute to
the Depositor, each Owner, the Master Servicer, the Underwriters and the Rating
Agencies, together with the information described in Section 7.09(a), the
following information with respect to each Mortgage Loan Group which information
shall be in hard copy or tape format prepared by the Master Servicer (other than
the information in clause (i)) and furnished to the Trustee to the extent
provided for in Section 8.29(g) for such purpose on the Reporting Date:
(i) the number and aggregate principal balances of Mortgage
Loans in each Mortgage Loan Group (a) 30-59 days Delinquent, (b) 60-89
days Delinquent, and (c) 90 or more days Delinquent (exclusive of
foreclosures), as of the close of business on the last Business Day of
the related Collection Period;
(ii) the number and aggregate Loan Balances of all Mortgage
Loans in each Mortgage Loan Group as of the last day of the related
Collection Period;
(iii) the number and dollar amounts of all Mortgage Loans in
each Mortgage Loan Group in foreclosure proceedings as of the close of
business on the last day of the prior Collection Period;
(iv) the number of Mortgagors and the Loan Balances of the
related Mortgage Loans in each Mortgage Loan Group of the related
Mortgages involved in bankruptcy proceedings as of the close of
business on the last day of the prior Collection Period;
(v) the number and aggregate principal balance of Mortgage
Loans related to REO Properties and, to the extent reported by the
Servicers, the aggregate book value of the Mortgage Loans related to
REO Properties (as of the last day such value was determined);
(vi) the total of any Substitution Amounts and any Loan
Purchase Price amounts with respect to each Mortgage Loan Group and in
the aggregate;
(vii) the amount of Cumulative Realized Losses for each
Mortgage Loan Group and in the aggregate, the current period Realized
Losses and the Cumulative Loss Percentage for such Mortgage Loan Group,
in each case as of the last day of the prior Collection Period; and
(viii) the aggregate Loan Balance of 60+ Day Delinquent Loans
with respect to each Mortgage Loan Group as of the last day of the
prior Collection Period.
Within a reasonable time after the end of each calendar year, the
Trustee shall furnish to each person who at any time during the calendar year
was an Owner of a Certificate, if requested in writing by such person, a
statement containing the information described in clauses (ii) and (iii) above,
aggregated for such calendar year or applicable portion thereof during which
such person was an Owner. Such obligation of the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information has been
prepared and furnished by the Trustee to Owners pursuant to any requirements of
the Code as in effect from time to time.
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(c) Each Servicer shall furnish to the Master Servicer and the Trustee,
during the term of this Agreement, such periodic, special, or other reports or
information not specifically provided for herein, with respect to Mortgage Loans
serviced by it, as may be necessary, reasonable, or appropriate with respect to
the purposes of this Agreement, all such reports or information to be provided
by and in accordance with such applicable instructions and directions as the
Master Servicer and the Trustee may reasonably require; provided, that the
related Servicer shall be entitled to be reimbursed by the requesting party, for
the fees and actual expenses associated with providing such reports, if such
reports are not generally produced in the ordinary course of business.
Section 7.10 Additional Reports by Trustee.
The Trustee shall provide monthly bank statements to the Depositor, the
Seller, the Underwriters and each Owner, with respect to the amount on deposit
in the Certificate Account and the identity of the investments included therein,
as the Depositor or the Seller may from time to time request. Without limiting
the generality of the foregoing, the Trustee shall, at the request of the
Depositor or the Seller, transmit promptly to the Depositor and the Seller
copies of all accountings of receipts in respect of the Mortgage Loans furnished
to it by the related Servicer or the Master Servicer and shall notify the
Seller, the Master Servicer and the applicable Servicer if any Monthly
Remittance Amount has not been received by the Trustee when due.
END OF ARTICLE VII
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ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 8.01 Servicers and Subservicers. (a) Acting directly or through
one or more subservicers as provided in Section 8.03, each Servicer, as
servicer, shall service and administer the Mortgage Loans identified on the
Schedule of Mortgage Loans as being serviced by it as described below and with
reasonable care, and using that degree of skill and attention that such Servicer
exercises with respect to comparable mortgage loans that it services for itself
or others, and shall have full power and authority, acting alone, to do or cause
to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable. In performing such
servicing functions such Servicer shall (i) take into account the mortgagor
non-conforming credit quality of the Mortgage Loans, (ii) follow the policies
and procedures that it would apply to similar loans held for its own account,
unless such policies and procedures are not generally in accordance with
standard industry practices, in which case the Servicer shall service the loans
generally in accordance with standard industry practices applicable to servicing
similar loans, (iii) comply with all applicable laws and follow collection
practices with respect to the related Mortgage Loans that are in all material
respects legal, proper and prudent, and (iv) subject to its obligation to comply
with clauses (i), (ii) and (iii) will not materially change its collection and
servicing practices that are in existence as of the Startup Day without the
consent of the Seller (such consent not to be unreasonably withheld).
(b) The duties of each Servicer shall include the collecting and
posting of all payments, responding to inquiries of Mortgagors or by federal,
state or local government authorities with respect to the Mortgage Loans,
investigating delinquencies, reporting tax information to Mortgagors in
accordance with its customary practices and accounting for collections,
furnishing monthly statements to the Trustee, the Master Servicer and the Seller
with respect to remittances on the Mortgage Loans, advising the Trustee, the
Master Servicer and the Seller of the amount of Compensating Interest and
Delinquency Advances due as of any Monthly Remittance Date with respect to the
Mortgage Loans serviced by it and funding such Compensating Interest and
Delinquency Advances, to the extent set forth in this Agreement. Each Servicer
shall reasonably cooperate with the Trustee and the Master Servicer. Each
Servicer and the Master Servicer shall furnish upon reasonable request to the
Trustee with reasonable promptness information in its possession as may be
necessary or appropriate to enable the Trustee to perform its tax reporting
duties hereunder.
(c) The Seller and the Depositor intend that the Upper-Tier REMIC and
the Lower-Tier REMIC shall each constitute and that the affairs of Upper-Tier
REMIC and the Lower-Tier REMIC shall each be conducted so as to qualify it as a
REMIC. In furtherance of such intention, each Servicer covenants and agrees that
it shall not knowingly or intentionally take any action or omit to take any
action that would cause the termination of the REMIC status of either the
Upper-Tier REMIC or the Lower-Tier REMIC or that would subject either the
Upper-Tier REMIC or the Lower-Tier REMIC to tax.
(d) Each Servicer may, and is hereby authorized to, perform any of its
servicing responsibilities with respect to all or certain of the Mortgage Loans
through a subservicer as it may from time to time designate in accordance with
Section 8.03 but no such designation of a subservicer shall serve to release
such Servicer from any of its obligations under this Agreement. Such subservicer
shall have all the rights and powers of the relevant Servicer with respect to
such Mortgage Loans under this Agreement.
(e) Without limiting the generality of the foregoing, but subject to
Sections 8.13 and 8.14, each Servicer in its own name or in the name of a
subservicer is hereby authorized and empowered and this subsection shall
constitute a power of attorney to carry out its servicing and administrative
duties hereunder, on behalf of itself, the Owners and the Trust or any of them;
to institute foreclosure proceedings or obtain a deed in lieu of foreclosure so
as to effect ownership of any Property on behalf of the Trust and to hold title
to any Property upon such foreclosure or deed in lieu of foreclosure on behalf
of the Trust; provided,
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however, that Section 8.14(a) and (c) shall constitute a power of attorney from
the Trustee to each Servicer with respect to the matters described therein and
in accordance with the terms thereof. Subject to Sections 8.13 and 8.14, the
Trustee shall furnish any Servicer or any Subservicer with any additional powers
of attorney and other documents as such Servicer shall reasonably request to
enable such Servicer or any Subservicer to carry out its respective servicing
and administrative duties hereunder.
(f) Each Servicer shall give prompt notice to the Trustee and the
Seller of any action, of which a responsible officer of such Servicer has actual
knowledge, seeking to (i) assert a claim against the Trust or (ii) assert
control over the Trust or any portion of the Trust Estate.
(g) Servicing Advances incurred by any Servicer in connection with the
servicing of the Mortgage Loans (including any penalties in connection with the
payment of any taxes and assessments or other charges) on any Property shall be
recoverable by such Servicer to the extent described in Section 8.09 and in
Section 7.03(j) hereof.
Section 8.02 Collection of Certain Mortgage Loan Payments. (a) Each
Servicer shall, to the extent such procedures shall be consistent with this
Agreement and the terms and provisions of any applicable Insurance Policies,
follow such collection procedures as it follows from time to time with respect
to mortgage loans in its servicing portfolio that are comparable to the Mortgage
Loans; provided that such Servicer shall always at least follow collection
procedures that are consistent with Section 8.01(a) hereof. Consistent with the
foregoing, each Servicer may in its discretion (i) waive any assumption fees,
late payment charges, charges for checks returned for insufficient funds or
other fees which may be collected in the ordinary course of servicing the
Mortgage Loans, (ii) if a Mortgagor is in default or about to be in default
because of a Mortgagor's financial condition, arrange with the Mortgagor a
schedule for the payment of delinquent payments due on the related Mortgage Loan
or (iii) modify payments of monthly principal and interest on any Mortgage Loan
becoming subject to the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended, in accordance with such Servicer's general policies with
respect to comparable mortgage loans subject to such Act. No Servicer shall be
required to institute or join in litigation with respect to collection of any
payment (whether under a Mortgage, Note or otherwise or against any public or
governmental authority with respect to a taking or condemnation) if it
reasonably believes that enforcing the provision of the Mortgage or other
instrument pursuant to which such payment is required is prohibited by
applicable law. Consistent with the terms of this Agreement, a Servicer may
waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor; provided, however, that (unless the Mortgagor is in
default with respect to the Mortgage Loan, or such default is, in the judgment
of such Servicer, imminent and such Servicer has the consent of the Seller) such
Servicer may not permit any modification with respect to any Mortgage Loan that
would change the Coupon Rate (except for any change made pursuant to the
adjustment provisions of a Note evidencing an adjustable rate Mortgage Loan),
forgive the payment of any principal or interest or prepayment penalties (unless
the Servicer with the written consent of the Seller believes that forgiving such
prepayment penalties will result in a financial benefit to the Trust), change
the outstanding principal amount, require any future advances, provide for the
substitution or release of any material portion of the collateral or extend the
final maturity date on such Mortgage Loan; provided further that no such
indulgence shall affect the Servicer's obligation to make Delinquency Advances
pursuant to Section 8.09.
(b) Each Servicer shall deposit into the related Principal and Interest
Account in accordance with Section 8.08(a) all Prepaid Installments received by
it, and shall apply such Prepaid Installments as directed by such Mortgagor and
as set forth in the related Note.
Section 8.03 Subservicing Agreements Between Servicer and Subservicer.
Each Servicer may enter into subservicing agreements for any servicing and
administration of Mortgage Loans with any institution which is acceptable to the
Owners of a majority of the Percentage Interests of the Class R Certificates, as
indicated in writing, and which represents and warrants that it is in compliance
with the laws
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of each state necessary to enable it to perform its obligations under such
Subservicing Agreement. For this purpose, subservicing shall not be deemed to
include the use of a tax service, or services for reconveyance, insurance or
brokering REO Property. Each Servicer shall give prior notice to the Seller, the
Master Servicer and the Trustee of the appointment of any Subservicer and shall
furnish to the Seller a copy of such Subservicing Agreement. For purposes of
this Agreement, the relevant Servicer shall be deemed to have received payments
on Mortgage Loans when any Subservicer has received such payments. Any such
Subservicing Agreement shall be consistent with and not violate the provisions
of this Agreement. Each Subservicing Agreement shall provide that a successor
Servicer shall have the option to terminate such agreement without payment of
any fees if the predecessor Servicer is terminated or resigns.
Section 8.04 Successor Subservicer. Each Servicer may terminate any
Subservicing Agreement in accordance with the terms and conditions of such
Subservicing Agreement and either itself directly service the related Mortgage
Loans or enter into a Subservicing Agreement with a successor Subservicer that
qualifies under Section 8.03.
Section 8.05 Liability of Servicer. The Servicers shall not be relieved
of their respective obligations under this Agreement notwithstanding any
Subservicing Agreement or any of the provisions of this Agreement relating to
agreements or arrangements between such Servicer and a Subservicer or otherwise,
and such Servicer shall be obligated to the same extent and under the same terms
and conditions as if it alone were servicing and administering the Mortgage
Loans as such terms and conditions may be limited pursuant to the terms of this
Agreement. Each Servicer shall be entitled to enter into any agreement with a
Subservicer for indemnification of such Servicer by such Subservicer and nothing
contained in such Subservicing Agreement shall be deemed to limit or modify this
Agreement. The Trust shall not indemnify any Servicer for any losses due to any
Subservicer's negligence.
Section 8.06 No Contractual Relationship Between Subservicer and the
Trustee or the Owners. Any Subservicing Agreement and any other transactions or
services relating to the Mortgage Loans involving a Subservicer shall be deemed
to be between the Subservicer and the related Servicer alone and the Trustee and
the Owners shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to any Subservicer except as set
forth in Section 8.07 hereof or in the related Subservicing Agreement.
Section 8.07 Assumption or Termination of Subservicing Agreement by
Trustee. In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of each Servicer hereunder by
the Trustee pursuant to Section 8.20, it is understood and agreed that such
Servicer's rights and obligations under any Subservicing Agreement then in force
between such Servicer and a Subservicer may be assumed or terminated by the
Trustee at its option. Each Servicer shall, upon request of the Trustee, but at
the expense of such Servicer, deliver to the assuming party documents and
records relating to each Subservicing Agreement and an accounting of amounts
collected and held by such Servicer and otherwise use its best reasonable
efforts to effect the orderly and efficient transfer of the Subservicing
Agreement to the assuming party.
Section 8.08 Principal and Interest Accounts; Escrow Accounts. (a) Each
Servicer shall establish in its name on behalf of the Trustee for the benefit of
the Owners of the Certificates and maintain or cause to be maintained at a
Designated Depository Institution a Principal and Interest Account to be held as
a trust account. The Principal and Interest Accounts shall be identified on the
records of the Designated Depository Institution as follows: [Name of Servicer]
on behalf of ______________________________, as Trustee under the Pooling and
Servicing Agreement relating to the AMRESCO Residential Securities Corporation
Mortgage Loan Trust 199_-_ dated as of ____________ __, 1998. If the institution
at any time holding a Principal and Interest Account ceases to be eligible as a
Designated Depository Institution hereunder, then the related Servicer shall,
within 30 days, be required to name a successor institution meeting the
requirements for a Designated Depository Institution hereunder. If such party
fails to name such a successor
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institution, then the Trustee shall cause such Account to be held as a trust
account with a qualifying Designated Depository Institution. The related
Servicer shall notify the Trustee, the Seller and the Depositor if there is a
change in the name, account number or institution holding a Principal and
Interest Account. Subject to Subsection (c) below, each Servicer shall deposit
all receipts related to the Mortgage Loans into the related Principal and
Interest Accounts on a daily basis (but no later than the second Business Day
after receipt).
(b) All funds in the Principal and Interest Accounts may only be held
(i) uninvested, up to the limits insured by the FDIC or (ii) invested in
Eligible Investments as selected by the related Servicer. The Principal and
Interest Accounts shall be held in trust in the name of the Trustee for the
benefit of the Owners of the Certificates (other than the earnings thereon which
shall be retained by the related Servicer). Any investments of funds in the
Principal and Interest Account shall mature or be withdrawable at par on or
prior to the immediately succeeding Monthly Remittance Date. Any investment
earnings on funds held in a Principal and Interest Account shall be for the
account of the related Servicer and may only be withdrawn from the Principal and
Interest Account by such Servicer immediately following the remittance of the
Monthly Remittance Amount (and the Monthly Excess Interest Amount included
therein) by such Servicer. Any investment losses on funds held in the Principal
and Interest Account shall be for the account of such Servicer and promptly upon
the realization of such loss shall be contributed by such Servicer to the
related Principal and Interest Account. Any references herein to amounts on
deposit in the related Principal and Interest Account shall refer to amounts net
of such investment earnings.
(c) Subject to Section 8.09, each Servicer shall deposit on a daily
basis (except as described below), and in any case not later than two Business
Days following receipt, to the related Principal and Interest Account all
scheduled principal and interest payments on the Mortgage Loans serviced by it
due after the Cut-Off Date or Subsequent Cut-Off Date, as the case may be, and
all unscheduled principal and interest collections received after the Cut-Off
Date or Subsequent Cut-Off Date, as the case may be, including any Prepayments
and Net Liquidation Proceeds, all Loan Purchase Prices and Substitution Amounts
received by such Servicer with respect to the Mortgage Loans, other recoveries
or amounts related to the Mortgage Loans received by such Servicer after the
Cut-Off Date or Subsequent Cut-Off Date, as the case may be, Compensating
Interest (which shall be deposited into the Certificate Account on or prior to
each Monthly Remittance Date) and Delinquency Advances (which shall be deposited
no later than the related Monthly Remittance Date) but net of (i) the related
Servicing Fee with respect to each Mortgage Loan and other servicing
compensation to such Servicer as permitted by Section 8.15 hereof, (ii)
principal retained by the Depositor (including Prepayments) and due on the
related Mortgage Loans on or prior to the Cut-Off Date or Subsequent Cut-Off
Date, as the case may be, (iii) interest retained by the Depositor and accruing
on the related Mortgage Loans on or prior to the Cut-Off Date or Subsequent
Cut-Off Date, as the case may be, and (iv) reimbursements for unreimbursed and
nonrecoverable Delinquency Advances and Servicing Advances pursuant to Section
8.09.
(d) Each Servicer may each make withdrawals from the related Principal
and Interest Account only for the following purposes:
(A) to effect the timely remittance to the Trustee of the
Monthly Remittance Amount due on each Monthly
Remittance Date and to effect the timely remittance
to the Trustee on each Monthly Remittance Date of any
Compensating Interest;
(B) to reimburse itself pursuant to Section 8.09 hereof
for unreimbursed Delinquency Advances and Servicing
Advances and unrecovered Delinquency Advances and
Servicing Advances determined by it to be
nonrecoverable;
(C) to withdraw investment earnings on amounts on deposit
in its Principal and Interest Account;
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(D) to withdraw amounts that have been deposited to the
related Principal and Interest Account in error;
(E) to reimburse itself pursuant to Section 8.25 and
Section 8.29(f); and
(F) to clear and terminate the related Principal and
Interest Accounts following the termination of the
Trust Estate pursuant to Article IX hereof.
(e) On each Monthly Remittance Date, each Servicer shall remit to the
Trustee by wire transfer in immediately available funds from the related
Principal and Interest Account for deposit to the Certificate Account, the
portion of the Monthly Remittance Amount calculated by the Master Servicer
pursuant to Section 8.29(f) hereof remaining after the withdrawals permitted by
clauses (B)-(E) of Section 8.08(d) related to the Mortgage Loans serviced by
such Servicer for such Monthly Remittance Date.
(f) Each Servicer shall establish and maintain one or more custodial
accounts (each, an "Escrow Account") and deposit and retain therein all
collections from the Mortgagors, if any, received with respect to the Mortgage
Loans, or advances by such Servicer, for the payment of taxes, assessments,
hazard insurance premiums and primary mortgage insurance policy premiums or
comparable items for the account of the Mortgagors. Nothing herein shall require
any Servicer to compel a Mortgagor to establish an Escrow Account in violation
of applicable law.
Withdrawals of amounts so collected from the Escrow Accounts may be
made only to effect timely payment of taxes, assessments, hazard insurance
premiums or primary mortgage insurance policy premiums, condominium or PUD
association dues, or comparable items, to reimburse such Servicer, to refund to
any Mortgagors any sums as may be determined to be overages, to pay interest, if
required, to Mortgagors on balances in the Escrow Account or to clear and
terminate the Escrow Account at the termination of this Agreement. As part of
its servicing duties, such Servicer shall be required to pay to the Mortgagors
interest on funds in the Escrow Account, to the extent required by law.
Each Servicer shall advance the payments (to be treated as Servicing
Advances) referred to in the preceding paragraph that are not timely paid by the
Mortgagors, including tax penalties, if any; provided, however, that such
Servicer shall be required to so advance only to the extent that such advances,
in the good faith business judgment of such Servicer, will be recoverable by
such Servicer out of Insurance Proceeds, Liquidation Proceeds or otherwise from
the related Mortgage Loan. Notwithstanding the previous sentence, a Servicer
shall be entitled to be reimbursed as provided in Section 8.09(b) hereof with
respect to any Servicing Advances deemed to be nonrecoverable.
Section 8.09 Delinquency Advances and Servicing Advances.
(a) Each Servicer is required, not later than each Monthly Remittance
Date, to deposit into the related Principal and Interest Account an amount equal
to the sum of the interest (net of the Servicing Fee) and scheduled principal
due (except any Balloon Payment), but not collected during the related
Remittance Period, with respect to those Delinquent Mortgage Loans that it
serviced during such Remittance Period but only if, in its good faith business
judgment, such Servicer reasonably believes that such amount will ultimately be
recovered from the related Mortgage Loan. With respect to each Balloon Loan, the
related Servicer shall be required to advance an amount of principal and
interest on an assumed schedule based on the original principal amortization for
the related Balloon Loan (but only if, in its good faith business judgment, such
Servicer reasonably believes that such amount will ultimately be recovered from
the related Mortgage Loan). Any determination of nonrecoverability shall be
explained in a notice provided by such Servicer to the Trustee, the Master
Servicer and the Seller. Such amounts are "Delinquency Advances". Each Servicer
shall be permitted to fund its payment of Delinquency Advances from its own
funds or from funds on deposit in the related Principal and Interest Account
that are not required to be distributed on the
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related Payment Date. To the extent a Servicer uses funds not required for
distribution on a Payment Date to make Delinquency Advances with respect to such
Payment Date, it shall deposit into the related Principal and Interest Account
such amount prior to the next succeeding Monthly Remittance Date. Each Servicer
shall be entitled to reimbursement for Delinquency Advances from late
collections, Liquidation Proceeds or otherwise with respect to collections on
the Mortgage Loan (including Balloon Loans) with respect to which such
Delinquency Advance was made.
Notwithstanding the foregoing, in the event that a Servicer determines
that the aggregate unreimbursed Delinquency Advances exceed the expected
Liquidation Proceeds on a Mortgage Loan, such Servicer shall not be required to
make any future Delinquency Advances with respect to that Mortgage Loan, and
shall be entitled to reimbursement for such aggregate unreimbursed Delinquency
Advances from amounts in the related Principal and Interest Account. Such
Servicer shall give written notice of such determination of nonrecoverability to
the Trustee, the Master Servicer and the Seller, and the Trustee shall promptly
furnish a copy of such notice to the Owner of a majority of the Percentage
Interests of the Class R Certificates; provided, that such Servicer shall be
entitled to recover any unreimbursed Delinquency Advances from the aforesaid
Liquidation Proceeds prior to the payment of the Liquidation Proceeds to any
other party to this Agreement.
(b) Each Servicer will pay all customary, reasonable and necessary
"out-of-pocket" costs and expenses incurred in the performance of its servicing
obligations, including, but not limited to, the cost of (i) Preservation
Expenses, (ii) any enforcement or judicial proceedings, including foreclosures,
(iii) the management and liquidation of REO Property, (iv) the escrow
expenditures required pursuant to Section 8.08(f) hereof (but such Servicer is
only required to pay such costs and expenses to the extent such Servicer
reasonably believes that such amounts will ultimately be recovered from the
related Mortgage Loan) and (v) fees and expenses for opinions of counsel
pursuant to Section 8.13. Each such amount so paid will constitute a "Servicing
Advance". Each Servicer may recover Servicing Advances (x) from the Mortgagors
to the extent permitted by the Mortgage Loans, (y) from Liquidation Proceeds
realized upon the liquidation of the related Mortgage Loan, and (z) as provided
in Section 7.03(j) hereof. Except as provided in the previous sentence, and in
Sections 7.03(j) and 8.13, in no case may a Servicer recover Servicing Advances
from principal and interest payments on any Mortgage Loan or from any amounts
relating to any other Mortgage Loan.
Section 8.10 Compensating Interest; Purchase of Mortgage Loans. (a) On
or prior to each Monthly Remittance Date and with respect to Mortgage Loans
serviced by it, each Servicer shall deposit into the related Principal and
Interest Account with respect to any full Prepayment made by the Mortgagor
during the preceding Remittance Period, an amount equal to the excess, if any,
of (x) 30 days' interest at the Mortgage Loan's Coupon Rate (less the Servicing
Fee) on the Loan Balance of such Mortgage Loan as of the first day of the
related Remittance Period over (y) to the extent not previously advanced, the
interest paid by the Mortgagor with respect to the Mortgage Loan for the related
Remittance Period (any such amount, "Compensating Interest"), which amount shall
be included in the Monthly Remittance Amount to be made available to the Trustee
on each Monthly Remittance Date. In respect of any Payment Date, each Servicer's
obligation to deposit Compensating Interest into the Principal and Interest
Account shall not exceed the amount of the Servicing Fee payable to such
Servicer on such Payment Date in respect of all Mortgage Loans serviced by such
Servicer.
(b) Each Servicer with respect to Mortgage Loans serviced by it, may,
but is not obligated to, purchase for its own account (or, during the two year
period beginning on the Startup Day, substitute a Qualified Replacement Mortgage
for) any 90+ Day Delinquent Loan or any Mortgage Loan as to which enforcement
proceedings have been brought by the related Servicer pursuant to Section 8.13.
Any such Mortgage Loan so purchased shall be purchased by such Servicer on a
Monthly Remittance Date at a purchase price equal to the Loan Purchase Price
thereof, which purchase price shall be deposited in the related Principal and
Interest Account.
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Section 8.11 Maintenance of Insurance. (a) Each Servicer shall cause to
be maintained with respect to each Mortgage Loan serviced by it a hazard
insurance policy with a generally acceptable carrier that provides for fire and
extended coverage, and which provides for a recovery by such Servicer on behalf
of the Trust of insurance proceeds relating to such Mortgage Loan in an amount
not less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis and (iii) the full insurable value of the premises.
(b) If the Mortgage Loan relates to a Property which is located in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards, as identified to the related Servicer by
the Originator in the related Mortgage Loan Schedule, and flood insurance has
been made available, the related Servicer will cause to be maintained with
respect thereto a flood insurance policy in a form meeting the requirements of
the current guidelines of the Federal Insurance Administration with a generally
acceptable carrier in an amount representing coverage, and which provides for a
recovery by such Servicer on behalf of the Trust of insurance proceeds relating
to such Mortgage Loan of not less than the least of (i) the outstanding
principal balance of the Mortgage Loan, (ii) the minimum amount required to
compensate for damage or loss on a replacement cost basis and (iii) the maximum
amount of insurance that is available under the Flood Disaster Protection Act of
1973.
(c) In the event that a Servicer shall obtain and maintain a blanket
policy insuring against fire, flood and hazards of extended coverage on all the
Mortgage Loans, then, to the extent such policy names such Servicer as loss
payee and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance and otherwise complies with
the requirements of this Section 8.11, such Servicer shall be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage under this Section 8.11, it being understood and agreed that
such blanket policy may contain a deductible clause, in which case such Servicer
shall, in the event that there shall not have been maintained on the related
Property a policy complying with the preceding paragraphs of this Section 8.11,
and there shall have been a loss which would have been covered by such policy,
deposit in the related Principal and Interest Account from such Servicer's own
funds the difference, if any, between the amount that would have been payable
under a policy complying with the preceding paragraphs of this Section 8.11 and
the amount paid under such blanket policy. Upon the request of the Trustee or
the Master Servicer, such Servicer shall cause to be delivered an Officer's
Certificate to the Trustee and the Master Servicer to the effect that the
Servicer maintains such policy.
(d) Each Servicer also shall maintain on related REO Property, fire and
hazard insurance with extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements which are a
part of such property and (ii) the outstanding principal balance of the related
Mortgage Loan at the time it became an REO Property, liability insurance and, to
the extent required and available under the National Flood Insurance Act of 1968
and the Flood Disaster Protection Act of 1973, as amended, flood insurance in an
amount as provided above.
(e) If a Servicer shall fail to maintain or cause to be maintained any
insurance required by this Section 8.11, and there shall have been a loss which
would have been covered by such policy, the Servicer shall deposit in the
related Principal and Interest Account from the Servicer's own funds the amount,
if any, that would have been payable under a policy complying with the preceding
paragraphs of this Section 8.11.
Section 8.12 Due-on-Sale Clauses; Assumption and Substitution
Agreements. When a Property has been or is about to be conveyed by the
Mortgagor, the related Servicer shall, to the extent a responsible officer
thereof has actual knowledge of such conveyance or prospective conveyance,
exercise the rights of the Trust to accelerate the maturity of the related
Mortgage Loan under any "due-on-sale" clause contained in the related Mortgage
or Note; provided, however, that such Servicer shall not exercise any such right
if the "due-on-sale" clause, in the reasonable belief of such Servicer, is not
enforceable under applicable law or if such Servicer reasonably believes in good
faith it is not in the best interests of the Trust. In such event,
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such Servicer is authorized to enter 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 under the Note and,
unless prohibited by applicable law or the Mortgage Documents, the Mortgagor
remains liable thereon. If the foregoing is not permitted under applicable law,
such Servicer is authorized to enter into a substitution of liability agreement
with such person, pursuant to which the original Mortgagor is released from
liability and such Person is substituted as Mortgagor and becomes liable under
the Note; provided, however, that to the extent that any such substitution of
liability agreement would not otherwise have been delivered by such Servicer in
its usual procedures for mortgage loans held in its own portfolio, such Servicer
shall prior to executing and delivering such agreement, obtain the prior written
consent of the Seller. The Trustee shall execute any agreements required to
effectuate the foregoing. The Mortgage Loan, as assumed, shall conform in all
respects to the requirements, representations and warranties of this Agreement.
The related Servicer of such Mortgage Loan shall notify the Trustee and the
Master Servicer that any such assumption or substitution agreement has been
completed by forwarding to the Trustee and the Master Servicer the original copy
of such assumption or substitution agreement, which copy shall be added by the
Trustee to the related File and which shall, for all purposes, be considered a
part of such File to the same extent as all other documents and instruments
constituting a part thereof. Each Servicer shall be responsible for recording
any such assumption or substitution agreements relating to Mortgage Loans
serviced by it at the expense of the related Servicer. In connection with any
such assumption or substitution agreement, no material term of the Mortgage
Loan, including the required monthly payment on the related Mortgage Loan shall
be changed but all terms thereof shall remain as in effect as immediately prior
to the assumption or substitution, the stated maturity or outstanding principal
amount of such Mortgage Loan shall not be changed nor shall any required monthly
payments of principal or interest be deferred or forgiven. Any fee collected by
any Servicer for consenting to any such conveyance or entering into an
assumption or substitution agreement shall be retained by or paid to such
Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, no Servicer shall be deemed to be in default, breach or any other
violation of its obligations hereunder by reason of any assumption of a Mortgage
Loan by operation of law or any assumption which such Servicer may be restricted
by law from preventing, for any reason whatsoever.
Section 8.13 Realization Upon Defaulted Mortgage Loans. (a) Each
Servicer, with respect to Mortgage Loans serviced by it, shall foreclose upon or
otherwise comparably convert the ownership on behalf of the Trust of Properties
relating to defaulted Mortgage Loans as to which no satisfactory arrangements
can be made for collection of Delinquent payments and which the related Servicer
has not purchased pursuant to Section 8.10(b). In connection with such
foreclosure or other conversion, the Servicer of such defaulted Mortgage Loans
shall exercise such of the rights and powers vested in it hereunder, and use the
same degree of care and skill in its exercise or use as prudent mortgage lenders
would exercise or use under the circumstances in the conduct of their own
affairs, including, but not limited to, advancing funds deemed by such Servicer
in its good faith business judgment to be recoverable from the related Mortgage
Loan for the payment of taxes, amounts due with respect to senior liens and
insurance premiums. Any amounts so advanced shall constitute "Servicing
Advances" within the meaning of Section 8.09(b) hereof. Each Servicer shall sell
any REO Property managed by it within 35 months of its acquisition by the Trust,
unless such Servicer obtains for the Trustee an Opinion of Counsel (the cost of
which shall be advanced by the related Servicer as a Servicing Advance)
experienced in federal income tax matters and reasonably acceptable to the
Depositor, the Master Servicer and the Trustee, addressed to the Trustee and
such Servicer, to the effect that the holding by the Trust of such REO Property
for any greater period will not result in the imposition of taxes on "Prohibited
Transactions" of the Trust as defined in Section 860F of the Code or cause the
Trust or any REMIC therein to fail to qualify as a REMIC under the REMIC
Provisions at any time that any Certificates are outstanding, or the related
Servicer produces evidence that it has properly requested from the applicable
tax authorities at least 60 days before the day on which the three year grace
period would otherwise expire, an extension of the three year grace period, in
which case such
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Servicer shall sell any REO Property by the end of any extended period specified
in any such opinion or extension.
Notwithstanding the generality of the foregoing provisions, each
Servicer shall manage, conserve, protect and operate each REO Property managed
by it solely for the purpose of its prompt disposition and sale in a manner
which does not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code or result in the
receipt by the Trust of any "income from non- permitted assets" within the
meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure
property" which is subject to taxation under the REMIC Provisions. Pursuant to
its efforts to sell such REO Property, the related Servicer shall either itself
or through an agent selected by such Servicer protect and conserve such REO
Property in the same manner and to such extent as is customary in the locality
where such REO Property is located and may, incident to its conservation and
protection of the interests of the Owners and after consultation with the holder
of a majority in interest of the Class R Certificates, rent the same, or any
part thereof, as such Servicer deems to be in the best interest of the Owners
for the period prior to the sale of such REO Property.
Notwithstanding anything to the contrary contained herein, in
connection with a foreclosure or acceptance of a deed in lieu of foreclosure, or
exercising control over the Mortgaged Property so that the Trust would be
considered a mortgagee-in-possession, owner or operator of the Mortgaged
Property under the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended (42 U.S.C. ss.9601 et seq.) or a comparable
law, in the event any responsible officer of a Servicer has actual knowledge
that a Property is in any way affected by hazardous or toxic substances or
wastes and determines that it may be reasonable to convert such Property
ownership to the Trust, or the holder of a majority in interest of the Class R
Certificates otherwise requests in writing an environmental inspection to be
conducted, such Servicer shall cause an environmental inspection or review of
such Property to be conducted by a qualified inspector and shall be reimbursed
for the amount of such environmental inspection in the manner described herein
for reimbursement of Servicing Advances in the same manner as set forth in the
immediately following paragraph. Upon completion of the inspection, such
Servicer shall promptly provide the Owner of the majority of the Class R
Certificates, the Master Servicer and the Trustee with a written report of the
environmental inspection. In the absence of such determination or a written
request from the Owner of the majority of the Class R Certificates for an
environmental inspection, neither the related Servicer nor the Trustee shall be
liable for any liability, cost or expense incurred by the Trust due to the
decision of such Servicer not to cause an environmental inspection of a
Property.
After reviewing the environmental inspection report, the Owner of the
majority of the Class R Certificates shall determine how the related Servicer
shall proceed with respect to the Property and shall notify such Servicer within
15 Business Days of receipt of the inspection report. In the event the
environmental inspection report indicates that the Property is in any way
affected by hazardous or toxic substances or wastes such Servicer shall only
foreclose or comparably convert such Property if the Owner of the majority of
the Class R Certificates directs such Servicer to proceed with foreclosure or
acceptance of a deed-in-lieu of foreclosure. In the event the Owner of the
majority of the Class R Certificates requires such Servicer to foreclose or
accept a deed-in-lieu of foreclosure pursuant to this Section 8.13(a),(i) such
Servicer (or the Trustee and any other successor Servicer) shall be reimbursed
for any related environmental clean up costs, as applicable, from the related
Liquidation Proceeds, or if the Liquidation Proceeds are insufficient to fully
reimburse such Servicer (or the Trustee and any other successor Servicer), such
Servicer (or the Trustee and any other successor Servicer) shall be entitled to
be reimbursed from amounts in the related Principal and Interest Account, and
(ii) such Class R Owner hereby indemnifies the Trust, the Trustee, the Master
Servicer and such Servicer with respect to any costs, liabilities and expenses
incurred by any such party in connection with any such hazardous or toxic
substances or wastes with respect to such foreclosure or comparable conversion.
In the event the Owner of the majority of the Class R Certificates directs such
Servicer not to proceed with foreclosure or acceptance of a deed-in-lieu of
foreclosure, such Servicer (or the Trustee and any other successor Servicer)
shall be reimbursed for all Servicing Advances
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made with respect to the related Property from such Principal and Interest
Account pursuant to Section 8.08(d)(B) hereof.
(b) Each Servicer shall determine, with respect to each defaulted
Mortgage Loan serviced by it, when it has recovered, whether through trustee's
sale, foreclosure sale or otherwise, all amounts it expects to recover from or
on account of such defaulted Mortgage Loan (exclusive of any possibility of a
deficiency judgment), whereupon such Mortgage Loan shall become a "Liquidated
Loan".
Upon such a determination, the related Servicer shall prepare and
submit to the Seller, the Master Servicer and the Trustee a Liquidation Report
in substantially the form of Exhibit K hereto.
Section 8.14 Trustee and Custodian to Cooperate; Release of Files.
(a)(i) Upon the payment in full of any Mortgage Loan (including the repurchase
of any Mortgage Loan or any liquidation of such Mortgage Loan through
foreclosure or otherwise) or the receipt by the related Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, such Servicer shall deliver to the Custodian, on behalf of the
Trustee, a Servicer's Trust Receipt in the form of Exhibit H hereto. Upon
receipt of such Servicer's Trust Receipt, the Custodian, on behalf of the
Trustee shall promptly release the related File, in trust to (i) such Servicer,
(ii) an escrow agent or (iii) any employee, agent or attorney of the Trustee, in
each case pending its release by such Servicer, such escrow agent or such
employee, agent or attorney of the Trustee, as the case may be. Upon any such
payment in full or the receipt of such notification that such funds have been
placed in escrow, such Servicer is authorized to give, as attorney-in-fact for
the Trustee and the mortgagee under the Mortgage which secured the Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the related Principal and Interest Account. In lieu of executing
any such satisfaction or assignment, as the case may be, such Servicer may
prepare and submit to the Trustee a satisfaction (or assignment without
recourse, if requested by the Person or Persons entitled thereto) in form for
execution by the Trustee with all requisite information completed by such
Servicer; in such event, the Trustee shall execute and acknowledge such
satisfaction or assignment, as the case may be, and deliver the same with the
related File, as aforesaid.
(ii) Each Servicer's Trust Receipt may be delivered to the
Custodian, on behalf of the Trustee, (A) via mail or courier, (B) via facsimile
or (C) by such other means, including, without limitation, electronic or
computer readable medium, as the Servicer and the Custodian, on behalf of the
Trustee, shall mutually agree. The Custodian, on behalf of the Trustee, shall
promptly release the related File(s) within five (5) Business Days of receipt of
a properly completed Servicer's Trust Receipt pursuant to clause (A), (B) or (C)
above, which shall be authorization to the Custodian, on behalf of the Trustee,
to release such Files, provided the Custodian, on behalf of the Trustee, has
determined that such Servicer's Trust Receipt has been executed, with respect to
clause (A) or (B) above, or approved, with respect to clause (C) above, by an
authorized Servicing Officer of the Servicer, and so long as the Trustee
complies with its duties and obligations under this Agreement. If the Custodian,
on behalf of the Trustee, is unable to release the Files within the time frames
previously specified, the Custodian, on behalf of the Trustee, shall immediately
notify the Servicer indicating the reason for such delay, but in no event shall
such notification be later than five Business Days after receipt of a Servicer's
Trust Receipt.
On each day that the Servicer remits to the Custodian, on behalf of the
Trustee, Servicer's Trust Receipts pursuant to clauses (B) or (C) above, the
Servicer shall also submit to the Custodian, on behalf of the Trustee, a summary
of the total amount of such Servicer's Trust Receipts requested on such day by
the same method as described in such clauses (B) and (C) above.
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(b) From time to time and as appropriate in the servicing of any
Mortgage Loan, including, without limitation, foreclosure or other comparable
conversion of a Mortgage Loan or collection under any applicable Insurance
Policy, the Custodian, on behalf of the Trustee shall (except in the case of the
payment or liquidation pursuant to which the related File is released to an
escrow agent or an employee, agent or attorney of the Trustee), upon request of
such Servicer and delivery to the Custodian, on behalf of the Trustee, of a
Servicer's Trust Receipt substantially in the form of Exhibit H hereto, release
the related File to such Servicer and shall execute such documents as shall be
necessary to the prosecution of any such proceedings, including, without
limitation, an assignment without recourse of the related Mortgage to such
Servicer. The Custodian, on behalf of the Trustee, shall complete in the name of
the Trustee any endorsement in blank on any Note prior to releasing such Note to
such Servicer. Such receipt shall obligate such Servicer to return the File to
the Custodian, on behalf of the Trustee, when the need therefor by such Servicer
no longer exists unless the Mortgage Loan shall be liquidated in which case,
upon receipt of the liquidation information, in physical or electronic form,
such Servicer's Trust Receipt shall be released by the Custodian, on behalf of
the Trustee, to such Servicer.
(c) Each Servicer shall have the right to approve applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations
and (iii) removal, demolition or division of properties subject to Mortgages. No
application for approval shall be considered by any Servicer unless: (x) the
provisions of the related Note and Mortgage have been complied with; (y) the
Originator certifies to such Servicer that the Loan-to-Value Ratio and the
Mortgagor's debt-to-income ratio after any release does not exceed the maximum
Loan-to-Value Ratio and debt-to-income ratio specified as the then-current
maximum levels under the related Originator's underwriting guidelines for a
similar credit grade borrower; and (z) the lien priority of the related Mortgage
is not adversely affected. Upon receipt by the Trustee and the Master Servicer
of an Officer's Certificate executed on behalf of a Servicer setting forth the
action proposed to be taken in respect of a particular Mortgage Loan and
certifying that the criteria set forth in the immediately preceding sentence
have been satisfied, the Trustee shall execute and deliver to such Servicer the
consent or partial release so requested by such Servicer. A proposed form of
consent or partial release, as the case may be, shall accompany any Officer's
Certificate delivered by such Servicer pursuant to this paragraph.
(d) Costs associated with preparing assignments, satisfactions and
releases described in this Section 8.14 shall not be an expense of the Trust or
the Trustee, but rather shall be borne directly by the related Servicer;
provided, however, that the Custodian shall be liable for the cost associated
with the shipping of documents from the Custodian to the related Servicer
pursuant to this Section 8.14 and for any penalty solely associated with late
reconveyance that results from the Custodian's failure to perform its duties
hereunder.
Section 8.15 Servicing Compensation. As compensation for their
activities hereunder, each Servicer shall be entitled to the Servicing Fee for
each Mortgage Loan that it services. Such Servicing Fee shall be payable on a
monthly basis out of interest payments on the related Mortgage Loans and shall
equal one-twelfth of the related Servicing Fee Rate multiplied by the
outstanding principal amount of such Mortgage Loan as of the prior Monthly
Remittance Date. Subject to the related Servicing Fee Letter, additional
servicing compensation in the form of release or satisfaction fees, bad check
charges, assumption fees, late payment charges, any other servicing-related
fees, and similar items may, to the extent collected from Mortgagors, be
retained by the related Servicer.
Section 8.16 Annual Statement as to Compliance. (a) Each Servicer, at
its own expense, will deliver to the Trustee, the Master Servicer, the Seller,
the Depositor and the Rating Agencies on or before April 15 of each year,
commencing in _____, an Officer's Certificate stating, as to each signer
thereof, that (i) a review of the activities of such Servicer during such
preceding calendar year and of performance under this Agreement has been made
under such officer's supervision and (ii) to the best of such officer's
knowledge, based on such review, such Servicer has fulfilled all its obligations
under this Agreement for such year, or, if there has been a default in the
fulfillment of all such obligations, specifying each such
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default known to such officer and the nature and status thereof including the
steps being taken by such Servicer to remedy such defaults.
(b) Each Servicer shall deliver to the Trustee, the Master Servicer,
the Seller, the Depositor and the Rating Agencies promptly after a responsible
officer of the Servicer obtains actual knowledge thereof but in no event later
than five Business Days thereafter, written notice by means of an Officer's
Certificate of any event which with the giving of notice or lapse of time, or
both, such officer knows would become an Event of Servicing Termination.
Section 8.17 Annual Independent Certified Public Accountants' Reports.
(a) On or before April 15 of each year, commencing in _____, each Servicer shall
cause to be delivered to the Trustee, the Master Servicer and the Rating
Agencies a letter or letters of a firm of independent, nationally- recognized
certified public accountants stating that such firm has, with respect to such
Servicer's overall servicing operations examined such operations in accordance
with the requirements of the Uniform Single Attestation Program for Mortgage
Bankers, and stating such firm's conclusions relating thereto.
(b) Each Servicer will deliver to the Seller as soon as available and
in any event within 45 days after the end of each of the first three fiscal
quarterly periods of each fiscal year of such Servicer, an unaudited
consolidated statement of operations and retained earnings and consolidated
statements of changes in financial position of such Servicer for such period and
each Servicer will deliver to the Seller as soon as available and in any event
within 90 days after the end of each fiscal year of such Servicer, audited
consolidated statements of income, retained earnings and changes in financial
position of such Servicer for the preceding fiscal year.
Section 8.18 Access to Certain Documentation and Information Regarding
the Mortgage Loans. Each Servicer shall provide to the Trustee, the Master
Servicer, the Seller, the FDIC and the supervisory agents and examiners of each
of the foregoing access to the documentation and electronic data regarding the
Mortgage Loans not in the possession of the Trustee, such access being afforded
without charge but only upon prior written reasonable request and during normal
business hours at the offices of such Servicer designated by it.
Upon any change in the format of the computer tape by any Servicer in
respect of the Mortgage Loans, such Servicer shall deliver a copy of such
computer tape to the Trustee and Master Servicer. In addition, each Servicer
shall provide a copy of such computer tape to the Trustee or the Master Servicer
at such other times as the Trustee or the Master Servicer may reasonably request
upon reasonable notice to such Servicer and upon payment of all reasonable
expenses associated with such request by the Trustee or the Master Servicer.
Nothing contained herein shall limit the obligation of the Servicer to observe
any applicable law prohibiting disclosure of information relating to the
Mortgage Loans or Mortgagors.
Section 8.19 Assignment of Agreement. No Servicer may assign its
obligations under this Agreement (except pursuant to Section 8.27 hereof), in
whole or in part, unless it shall have first obtained the prior written consent
of the Seller, the Master Servicer and the Trustee, which such consent shall not
be unreasonably withheld; provided, however, that any assignee must meet the
eligibility requirements set forth in Section 8.21(f) hereof for a successor
Servicer. Notice of any such assignment shall be given by such Servicer to the
Trustee and the Rating Agencies.
Section 8.20 Events of Servicing Termination. (a) The Trustee (acting
upon the request of the Owners of the majority of the Percentage Interests of
the Offered Certificates then Outstanding as a whole and not on a Class by Class
basis) or the Seller may immediately remove the related Servicer (including any
successor entity serving as the Servicer) upon the occurrence of any of the
following events and the expiration of the related cure period (provided, that
the occurrence of any such events with respect to one Servicer shall be cause to
remove only such Servicer):
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(i) Such Servicer shall fail to deliver to the Trustee any
proceeds or required payment (including any Delinquency Advance or
Compensating Interest payment), which failure continues unremedied for
two Business Days following written notice to an Authorized Officer of
such Servicer from the Trustee or from any Owner;
(ii) Such Servicer shall (I) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (II) admit in writing
its inability to pay its debts generally as they become due, (III) make
a general assignment for the benefit of creditors, (IV) be adjudicated
a bankrupt or insolvent, (V) commence a voluntary case under the
federal bankruptcy laws of the United States of America or file a
voluntary petition or answer seeking reorganization, an arrangement
with creditors or an order for relief or seeking to take advantage of
any insolvency law or file an answer admitting the material allegations
of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding or (VI) take corporate action for the purpose of
effecting any of the foregoing;
(iii) If without the application, approval or consent of such
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of such
Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of
a trustee, receiver, liquidator, custodian or similar entity with
respect to such Servicer or of all or any substantial part of its
assets, or other like relief in respect thereof under any bankruptcy or
insolvency law, and, if such proceeding is being contested by such
Servicer in good faith, the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B)
continue undismissed or pending and unstayed for any period of sixty
(60) consecutive days;
(iv) Such Servicer shall fail to perform any one or more of
its obligations hereunder (other than those specified in item (i)
above) and shall continue in default thereof for a period of forty-five
(45) days after the earlier of (x) notice by the Trustee of said
failure or (y) actual knowledge of a responsible officer of such
Servicer;
(v) The failure of such Servicer to satisfy the Servicer
Termination Test.
The Trustee shall determine on each Payment Date whether the Servicer
Termination Test is satisfied for the Collection Period. Upon the Trustee's
determination that the Servicer Termination Test is not satisfied, or that a
payment of Compensating Interest, a Monthly Remittance Amount for the related
Group, or a required Delinquency Advance has not been made by the relevant
Servicer, the Trustee shall so notify in writing an Authorized Officer of such
Servicer, the Master Servicer and the Seller as soon as is reasonably practical.
(b) Any party exercising any termination rights under subsection (a)
above shall give notice in writing to the relevant Servicer (and a copy to the
Trustee and the Master Servicer) of the termination of all the rights and
obligations of such Servicer under this Agreement. The Trustee shall mail a copy
of any notice given by it hereunder to the Depositor, the Seller, the Owners and
Rating Agencies. On or after the receipt by such Servicer of such written
notice, all authority and power of such Servicer under this Agreement, whether
with respect to the Certificates or the Mortgage Loans or otherwise, shall
without further action pass to and be vested in the Trustee or such successor
Servicer as may be appointed hereunder, and, without limitation, the Trustee is
hereby authorized and empowered (which authority and power are coupled with an
interest and are irrevocable) to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments and to do or accomplish all other acts or things necessary
or appropriate to effect the purposes of such notice or termination, whether to
complete the transfer and endorsement of the Mortgage Loans and related
documents or otherwise. The predecessor
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Servicer shall cooperate with the successor Servicer or the Trustee in effecting
the termination of the responsibilities and rights of the predecessor Servicer
under this Agreement including the transfer to the successor Servicer or to the
Trustee for administration by it of all cash accounts that shall at the time be
held by the predecessor Servicer for deposit or shall thereafter be received
with respect to a Mortgage Loan. All reasonable costs and expenses incurred in
connection with delivering the Files to the successor Servicer or the Trustee
shall be paid by the predecessor Servicer.
(c) If any event described in subsection (a)(vi) above occurs and is
continuing, during a 30 day period following receipt of notice, the Trustee, the
Master Servicer, the affected Servicer and the Seller shall cooperate with each
other to determine if the occurrence of such event is likely to have a material
adverse effect on such Servicer's ability to perform its obligations under this
Agreement. If the Seller, in its reasonable discretion, concludes that the event
is not likely to have a material adverse effect on such Servicer's ability to
perform hereunder, then such Servicer shall be given a period of 90 days from
the date of such determination by Seller to cure such default. If the Seller, in
its reasonable discretion, concludes that the event is likely to have a material
adverse effect on such Servicer's ability to perform hereunder, then such
Servicer shall be given a period of 15 days from the date of such determination
by Seller to cure such default. The date of determination by Seller referenced
in the preceding two sentences of this Section 8.20(c) shall be deemed to be the
date upon which a written notice is mailed to the affected Servicer, first class
postage prepaid, at the address of the affected Servicer set forth in Section
11.20 hereof. If the event is not cured by the end of the applicable period, no
further extension of the cure period is required, and such Servicer may be
terminated as provided in this Section 8.20.
(d) The Seller, the Master Servicer and the Trustee agree to use their
best efforts to inform each other of any materially adverse information
regarding each Servicer's servicing activities that comes to the attention of
such party from time to time.
Section 8.21 Resignation of a Servicer and Appointment of Successor.
(a) Upon any Servicer's receipt of notice of termination pursuant to Section
8.20 or such Servicer's resignation in accordance with the terms of this Section
8.21, the predecessor Servicer shall continue to perform its functions as
Servicer under this Agreement, in the case of termination, only until the date
specified in such termination notice or in accordance with Section 8.20(c), if
applicable, or, if no such date is specified in a notice of termination, until
receipt of such notice and, in the case of resignation, until the earlier of (x)
the date 45 days from the delivery to the Seller, the Master Servicer and the
Trustee of written notice of such resignation (or written confirmation of such
notice) in accordance with the terms of this Agreement and (y) the date upon
which the predecessor Servicer shall become unable to act as Servicer, as
specified in the notice of resignation and accompanying opinion of counsel. All
collections then being held by the predecessor Servicer prior to its removal and
any collections received by such Servicer after removal or resignation shall be
endorsed by it to the Trustee or the successor Servicer and remitted directly
and immediately to the Trustee or the successor Servicer. In the event of any
Servicer's resignation or termination hereunder, upon the appointment of a
successor Servicer pursuant to Section 8.21(f), the successor Servicer shall
accept its appointment by execution of a written assumption in form acceptable
to the Trustee, the Master Servicer and the Seller, with copies of such
assumption to the Trustee and the Rating Agencies, provided that as a condition
precedent to the appointment of a successor Servicer and the execution of the
related written assumption, such successor Servicer shall, if applicable, also
execute either (i) a written assumption or termination of any of the
Subservicing Agreements or (ii) appropriate amendments to each of any
Subservicing Agreements.
(b) No Servicer shall resign from the obligations and duties hereby
imposed on it, except (i) upon determination that its duties hereunder are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it, the other activities
of such Servicer so causing such a conflict being of a type and nature carried
on by such Servicer at the date of this Agreement or (ii) upon prior written
consent of the Seller, the Master Servicer and the Trustee and confirmation from
the Rating Agencies that the Offered Certificates are not reduced. Any such
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determination referred to in clause (i) permitting the resignation of any
Servicer shall be evidenced by an Opinion of Counsel to such effect which shall
be delivered to the Trustee, the Master Servicer and the Seller.
(c) No removal or resignation of any Servicer shall become effective
until the Trustee or a successor Servicer shall have assumed such Servicer's
responsibilities and obligations in accordance with this Section. The removal or
resignation of one Servicer hereunder, shall have no effect on the status of any
other Servicer hereunder.
(d) Upon removal or resignation of any Servicer, such Servicer also
shall, at such Servicer's cost, promptly deliver or cause to be delivered to the
successor Servicer or the Trustee all the books and records (including, without
limitation, records kept in electronic form) that such Servicer has maintained
for the Mortgage Loans, including all tax bills, assessment notices, insurance
premium notices and all other documents as well as all original documents then
in such Servicer's possession.
(e) Any collections received by any Servicer after removal or
resignation thereof shall be endorsed by it to the Trustee and remitted directly
and immediately to the Trustee or the successor Servicer.
(f) Upon removal or resignation of any Servicer, the Trustee, with the
cooperation of the Seller, (x) shall solicit bids for a successor Servicer as
described below and (y) pending the appointment of a successor Servicer as a
result of soliciting such bids, shall serve as Servicer of the Mortgage Loans
serviced by such predecessor Servicer. The Trustee shall, if it is unable to
obtain a qualifying bid and is prevented by law from acting as Servicer, (I)
appoint, or petition a court of competent jurisdiction to appoint, any housing
and home finance institution, bank or mortgage servicing institution which has
been designated as an approved servicer by FannieMae or FHLMC for first and
second mortgage loans and having equity of not less than $5,000,000 (or such
lower level as may be acceptable to the Owners of a majority of the Class R
Certificates) and is reasonably acceptable to the Seller and the Owners of the
Class R Certificates, as indicated in writing as the successor to such Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of such Servicer hereunder and (II) give notice thereof to the
Seller, the Master Servicer, the Owners and the Rating Agencies. The
compensation of any successor Servicer (including, without limitation, the
Trustee) so appointed shall be the amount agreed by such successor Servicer and
the Seller, such compensation not to exceed the Aggregate Servicing Fee Rate.
Any existing Servicer may bid to be a successor to any other Servicer. Any
reasonable out of pocket set-up costs or expenses incurred by the Trustee as
interim successor Servicer as specified in subclause (y) of this Section 8.21(f)
shall be at the expense of the Trust and shall be payable pursuant to Section
7.03(j).
(g) In the event that the Trustee is able to solicit bids as provided
above, the Trustee shall solicit, by public announcement, bids from housing and
home finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above (including the Trustee or any affiliate thereof).
Such public announcement shall specify that the successor Servicer shall be
entitled to the servicing compensation agreed upon between the Trustee, the
successor Servicer and the Seller; provided, however, that no such fee shall
exceed the related Servicing Fee. Within thirty days after any such public
announcement, the Trustee, with the cooperation of the Seller, shall negotiate
in good faith and effect the sale, transfer and assignment of the servicing
rights and responsibilities hereunder to the qualified party submitting the
highest satisfactory bid as to the price they will pay to obtain such servicing.
The Trustee upon receipt of the purchase price shall pay such purchase price to
the Servicer being so removed (except in the case of subsection (h) below, in
which case the Trustee shall pay such purchase price to the Seller), after
deducting from any sum received by the Trustee from the successor to such
Servicer in respect of such sale, transfer and assignment all costs and expenses
of any public announcement and of any sale, transfer and assignment of the
servicing rights and responsibilities reasonably incurred hereunder. After such
deductions, the remainder of such sum shall be paid by the Trustee to such
Servicer at the time of such sale.
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(h) The Trustee and the successor Servicer shall take such action
consistent with this Agreement as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing if such notification is not done by such predecessor Servicer as
required by subsection (j) below. Each predecessor Servicer agrees to cooperate
with the Trustee and any successor Servicer in effecting the termination of such
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Trustee or such successor Servicer, as applicable, all documents and
records reasonably requested by it to enable it to assume such Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor Servicer, as applicable, all amounts which then have been or should
have been deposited in the related Principal and Interest Account by such
Servicer, or which are thereafter received with respect to the Mortgage Loans.
Neither the Trustee nor any other successor Servicer shall be held liable by
reason of any failure to make, or any delay in making, any distribution
hereunder or any portion thereof caused by (i) the failure of the predecessor
Servicer to deliver, or any delay in delivery, cash, documents or records to it
or (ii) restrictions imposed by any regulatory authority having jurisdiction
over such Servicer.
(i) The Trustee or any other successor Servicer, upon assuming the
duties of Servicer hereunder, shall as soon as reasonably practicable pay all
Compensating Interest and, if applicable, Delinquency Advances which have
theretofore not been remitted to the extent required by this Agreement with
respect to the Mortgage Loans; provided, however, that if the Trustee is acting
as successor Servicer, the Trustee shall only be required to make such
Delinquency Advances if, in the Trustee's reasonable good faith judgment, such
Delinquency Advances will ultimately be recoverable from the related Mortgage
Loans. Any Delinquency Advances and Servicing Advances previously made by the
predecessor Servicer and accrued and unpaid Servicing Fees shall be recoverable
by it and paid to it by the successor Servicer to the extent such Delinquency
Advances, Servicing Advances and accrued and unpaid Servicing Fees would
otherwise have been recoverable had the predecessor Servicer not been
terminated.
(j) Any Servicer which is being removed or is resigning shall (x) give
notice to the Rating Agencies of the transfer of the servicing to the successor
Servicer and (y) provide a "goodbye" notice to each of the Mortgagors in its
Mortgage Loan Servicing Group.
(k) Upon appointment, the successor Servicer shall be the successor in
all respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities of the predecessor Servicer including,
but not limited to, the maintenance of the hazard insurance policy(ies), the
fidelity bond and an errors and omissions policy pursuant to Section 8.26 and
shall be entitled to such fees as may be agreed upon between the Seller and such
successor Servicer (such amount not to exceed the Aggregate Servicing Fee Rate),
and all of the rights granted to the predecessor Servicer by the terms and
provisions of this Agreement; provided, that, unless otherwise agreed upon by
the Trustee and the Seller, if the Trustee shall be the successor Servicer, the
Trustee shall be entitled to fees calculated on the basis of the Aggregate
Servicing Fee Rate. The appointment of a successor Servicer (including the
Trustee) shall not affect any liability of the predecessor Servicer which may
have arisen under this Agreement prior to its termination as Servicer
(including, without limitation, any deductible under an insurance policy) nor
shall any successor Servicer (including the Trustee) be liable for any acts or
omissions of the predecessor Servicer or for any breach by such Servicer of any
of its representations or warranties contained herein or in any related document
or agreement.
(l) The Trustee and the Seller shall each give notice to the Rating
Agencies and the Owners or the Seller of the occurrence of any event specified
in Section 8.20 of which a Responsible Officer of the Trustee has actual
knowledge.
Section 8.22 Waiver of Past Events of Servicing Termination. Subject to
the rights of the Trustee (acting upon the request of the Owners of the majority
of the Percentage Interests of the Offered Certificates then Outstanding as a
whole and not on a Class by Class basis) and the Seller pursuant to Section 8.20
to
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terminate all of the rights and obligations of any Servicer under this Agreement
or the Owners of a majority of the Percentage Interests of the Class R
Certificates may, on behalf of all Owners of Certificates, waive any default by
such Servicer in the performance of its obligations hereunder and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Servicing Termination arising therefrom shall be
deemed to have been remedied for every purpose of this Agreement. No such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.
Section 8.23 Assumption or Termination of Subservicing Agreement By the
Trustee. In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of any Servicer hereunder by
the Trustee pursuant to Section 8.21, it is understood and agreed that such
Servicer's rights and obligations under any Subservicing Agreement then in force
between such Servicer and a Subservicer shall be assumed simultaneously by the
Trustee without act or deed on part of the Trustee; provided, however, the
Trustee in its sole discretion may terminate any Subservicer notwithstanding the
provisions of the related Subservicing Agreement.
Each Servicer shall, upon the reasonable request of the Trustee, but at
the expense of such Servicer, deliver to the assuming party documents and
records relating to each Subservicing Agreement and an accounting of amounts
collected and held by it and otherwise use its best reasonable efforts (through
the execution of any documents or otherwise) to effect the orderly and efficient
transfer of the Subservicing Agreements to the assuming party and shall
cooperate with the Trustee in any other manner reasonably requested by the
Trustee.
Section 8.24 Powers and Duties of the Trustee as Successor Servicer.
Following the termination of any Servicer hereunder and pending the appointment
of any other Person as successor Servicer, the Trustee is hereby empowered to
perform the duties of such Servicer hereunder; it being expressly understood,
however, by all parties hereto, and the Owners, that prior to any termination of
such Servicer pursuant to Section 8.21, such Servicer shall perform such duties.
Specifically, and not in limitation of the foregoing, the Trustee shall upon
termination or resignation of any Servicer, and pending the appointment of any
other Person as successor Servicer, have the power:
(i) to collect Mortgage payments;
(ii) to foreclose on Delinquent Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into
assumption and substitution agreements as permitted by Section 8.12
hereof;
(iv) to deliver instruments of satisfaction pursuant to
Section 8.14 hereof;
(v) to enforce the Mortgage Loans; and
(vi) to make Servicing Advances and Delinquency Advances and
to pay Compensating Interest (and to be reimbursed therefor as provided
herein).
Section 8.25 Liability of the Servicers. None of the Servicers nor any
of their directors, officers, employees or agents shall be under any liability
on any Certificate or otherwise to the Seller, the Master Servicer, any other
Servicer, the Trustee or any Owner for any action taken or for refraining from
the taking of any action in good faith pursuant to this Agreement or for errors
in judgment except as required hereunder; provided, however, that this provision
shall not protect any Servicer, its directors, officers, employees or agents or
any such Person against any liability which would otherwise be imposed by reason
of negligent action, negligent failure to act, willful misconduct in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. Each of the Servicers and any director, officer,
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employee or agent of the respective Servicers may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. None of the Servicers shall be under
any obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties hereunder and which in its opinion may involve it in
any expense or liability; provided, however, that each Servicer may in its
discretion undertake any such action that it may deem necessary or desirable in
respect of this Agreement and the rights and duties of the parties hereto and
interests of the Trustee and the Owners hereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust, and such Servicer shall be
entitled to be reimbursed therefor out of the Principal and Interest Account.
The Servicers and any director, officer, employee or agent of the respective
Servicers shall be indemnified by the Trust and held harmless against any loss,
liability or expense incurred in connection with any audit, controversy or
judicial proceeding relating to a governmental taxing authority or any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense related to any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of negligent action, negligent failure to act, willful misconduct in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder.
Section 8.26 Inspections by Trustee and Seller; Errors and Omissions
Insurance. (a) At any reasonable time and from time to time (but unless there is
a valid reason to do so, not more than once every six months) upon prior written
and reasonable notice, the Trustee, the Master Servicer, the Seller or any
agents or thereof may inspect any Servicer's servicing operations and discuss
the servicing operations of such Servicer with a responsible officer designated
by the related Servicer. The reasonable costs and expenses incurred by such
Servicer or its agents or representatives in connection with any such
examinations or discussions shall be paid by such Servicer.
(b) Each Servicer shall maintain, at its own expense, a blanket
fidelity bond and an errors and omissions insurance policy, with broad coverage
with responsible companies that meet the requirements of FannieMae or FHLMC on
all officers, employees or other persons acting in any capacity with regard to
the Mortgage Loan to handle funds, money, documents and papers relating to the
Mortgage Loans it services. The fidelity bond and errors and omissions insurance
shall be in the form of Mortgage Banker's Blanket bond and shall protect and
insure such Servicer against losses, including forgery, theft, embezzlement,
fraud, errors and omissions and negligent acts of such persons. Such fidelity
bond shall also protect and insure such Servicer against losses in connection
with the failure to maintain any insurance policies required pursuant to this
Agreement and the release or satisfaction of a Mortgage Loan without having
obtained payment in full of the indebtedness secured thereby. No provision of
this Section 8.26 requiring the fidelity bond and errors and omissions insurance
shall diminish or relieve the Servicer from its duties and obligations as set
forth in this Agreement. The minimum coverage under any such bond and insurance
policy shall be at least equal to the corresponding amounts required by
FannieMae in the FannieMae Servicing Guide or by FHLMC in the FHLMC Sellers' and
Servicers' Guide. Upon the written request of the Owners of a majority of the
Percentage Interests of the Class R Certificates to the Trustee and request by
the Trustee to the Servicer, a Servicer shall cause to be delivered to the
Trustee, who shall deliver to the Owners of the Class R Certificates an
Officer's Certificate as to the maintenance of the fidelity bond and insurance
policy that such fidelity bond and insurance policy are in full force and
effect.
Section 8.27 Merger, Conversion, Consolidation or Succession to
Business of Servicer. Any corporation into which any Servicer may be merged or
converted or with which it may be consolidated, or corporation resulting from
any merger, conversion or consolidation to which such Servicer shall be a party
or any corporation succeeding to all or substantially all of the business of
such Servicer shall be the successor of such Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto provided that such corporation meets the qualifications set forth
in Section 8.21(f).
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Section 8.28 Notices of Material Events. Upon any responsible officer
of the Servicer's actual knowledge thereof, such Servicer shall give prompt
notice to the Trustee, the Master Servicer, the Seller, and the Rating Agencies
of the occurrence of any of the following events:
(a) Any default or any fact or event which such officer knows results,
or which with notice or the passage of time, or both, would result in the
occurrence of a default by such Servicer under any Operative Document or would
constitute a material breach of a representation, warranty or covenant under any
Operative Document;
(b) The submission of any claim or the initiation of any legal process,
litigation or administrative or judicial investigation against such Servicer of
which it has knowledge, in any federal, state or local court or before any
governmental body or agency or before any arbitration board or any such
proceedings threatened by any governmental agency, which, if adversely
determined, would have a material adverse effect upon any such Servicer's
ability to perform its obligations under any Operative Document;
(c) The commencement of any proceedings of which it has knowledge or
has received service of process by or against such Servicer under any applicable
bankruptcy, reorganization, liquidation, insolvency or other similar law now or
hereafter in effect or of any proceeding in which a receiver, liquidator,
trustee or other similar official shall have been, or may be, appointed or
requested for such Servicer; and
(d) The receipt of notice from any agency or governmental body having
authority over the conduct of such Servicer's business that such Servicer is to
cease and desist, or to undertake any practice, program, procedure or policy
employed by such Servicer in the conduct of the business of any of them, and
such cessation or undertaking will materially and adversely affect the conduct
of such Servicer's business or its ability to perform under the Operative
Documents or materially and adversely affect the financial affairs of such
Servicer.
Section 8.29 Servicer's Monthly Servicing Report; Aggregate Monthly
Servicing Report; Reconciliation; Cooperation Procedures. (a) Each Servicer with
respect to the Mortgage Loans serviced by it shall deliver to the Master
Servicer, and, upon request, to the Seller not later than the Servicing Report
Delivery Date, a Servicer's Monthly Servicing Report (in an electronic format
and hard copy format reasonably agreeable to both such Servicer and the Master
Servicer) containing all information necessary for the Master Servicer to make
such calculations and provide such reports as may be required under this
Agreement, including all loan level information necessary to determine the
following:
(i) (A) scheduled interest due (net of the Servicing Fee); (B)
Compensating Interest paid; (C) scheduled principal due; (D)
Prepayments; (E) Loan Balance of Mortgage Loans repurchased; (F)
Substitution Amounts; and (G) Net Liquidation Proceeds (related to
principal);
(ii) The Servicing Fee withheld by the related Servicer;
(iii) The principal and interest payments remitted by such
Servicer to its Principal and Interest Account(s);
(iv) The scheduled principal and interest payments on the
Mortgage Loans that were not made by the related Mortgagors as of the
last day of the related Remittance Period;
(v) The number and aggregate Loan Balances (computed in
accordance with the terms of the Mortgage Loans) and the percentage of
the total number of Mortgage Loans and of the Loan Balance which they
represent of Delinquent Mortgage Loans, if any, (1) 30 to 59 days, (2)
60 to 89 days and (3) 90 days or more, respectively, as of the last day
of the prior Collection Period;
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(vi) The number and aggregate Loan Balances of Mortgage Loans,
if any, in foreclosure and the number and unpaid principal balance of
any REO Properties as of the last day of the related Collection Period;
(vii) The loan numbers and Loan Balances (immediately prior to
being classified as Liquidated Mortgage Loans) of Liquidated Mortgage
Loans as of the last day of the related Collection Period;
(viii) Liquidation Proceeds received during the related
Remittance Period;
(ix) The amount of any Liquidation Expenses being deducted
from Liquidation Proceeds or otherwise being charged to the Principal
and Interest Account(s) with respect to such Monthly Remittance Date;
(x) Liquidation Expenses incurred during the related
Remittance Period which are not being deducted from Liquidation
Proceeds or otherwise being charged to the Principal and Interest
Account with respect to such Monthly Remittance Date;
(xi) Net Liquidation Proceeds as of the last day of the
related Remittance Period;
(xii) The scheduled principal balance of each Mortgage Loan as
of the first day of the related Remittance Period and the date through
which interest has been paid as of the last day of the related
Remittance Period;
(xiii) The number and aggregate Loan Balances and Loan
Purchase Prices of Mortgage Loans required to be repurchased by each
Originator as of the related Subsequent Cut-Off Date;
(xiv) The amount of any Delinquency Advances made by such
Servicer during the related Remittance Period and any unreimbursed
Delinquency Advances as of such Monthly Remittance Date;
(xv) The weighted average Coupon Rates of the Mortgage Loans;
(xvi) Any additional information reasonably requested by the
Trustee;
(xvii) The number and aggregate Loan Balances of Mortgage
Loans, if any, currently in bankruptcy proceedings as of the last day
of the related Remittance Period and any Preference Amounts to the
extent the related Servicer has knowledge thereof; and
(xviii) The amount of unreimbursed Servicing Advances.
In addition to the report described in this Section 8.29(a) to be provided by
such Servicer, information as the Master Servicer and such Servicer may agree
upon shall be provided by such Servicer to the Master Servicer or such other
party as may be requested by the Master Servicer or the Trustee by electronic
transmission or hard copy.
(b) Reserved.
(c) Each Servicer with respect to the Mortgage Loans in Group II agrees
that, in addition to the report described in Section 8.29(a) hereof, it shall
upon the reasonable request of the Master Servicer, prepare reports detailing
the Mortgage Loans serviced by it by index and in the aggregate.
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(d) The Depositor shall deliver or cause to be delivered to the Master
Servicer and the Trustee on the Startup Day in hard copy and on electronic tape
in a form acceptable to the Master Servicer and the Trustee (the "Tape")
detailing the information required to be set forth on the Schedules of Mortgage
Loans as of the close of business on the Cut-Off Date.
(e) The Master Servicer shall review the Servicer's Monthly Servicing
Reports against the information, as updated by the Master Servicer on the basis
of the current and all previous Servicer's Monthly Servicing Reports received by
the Master Servicer, and shall notify the related Servicer and the Seller of any
material inconsistencies between the Servicer's Monthly Servicing Report and
such information. The related Servicers shall cooperate with the Master Servicer
to rectify such inconsistencies.
(f) In addition to notifying the Servicers of inconsistencies between
the Servicer's Monthly Servicing Report and the Tape, at least three Business
Days prior to each Monthly Remittance Date, the Master Servicer shall notify the
Servicers of such Servicer's portion of the Monthly Remittance Amount to be
remitted on each Monthly Remittance Date broken out by interest and principal.
To the extent the Master Servicer and the Servicer have not rectified
inconsistencies prior to a Monthly Remittance Date and disagree as to the amount
to be remitted by such Servicer, the Servicer shall defer to the Master
Servicer's judgment; provided, however, if the Master Servicer's calculations
prove to be incorrect and the Servicer has overadvanced, the Servicer may
withdraw any such overadvanced amount from the Principal and Interest Account
pursuant to Section 8.08(d)(E).
(g) Not later than the Reporting Date, the Master Servicer, based on
the reconciled Servicer's Monthly Servicing Reports, shall provide to the
Trustee the Aggregate Monthly Servicing Report (which report shall be in a
format reasonably agreeable to the Master Servicer and the Trustee). The
Aggregate Monthly Servicing Report shall contain the information set out in
Section 8.29(a)(i)-(xviii), both individually for each Servicer and on an
aggregate basis.
(h) Within 45 days after each Remittance Period, each Servicer agrees
to provide the Master Servicer with a reconciliation of such Servicer's
Principal and Interest Account for such Remittance Period including a test of
the expected principal and interest balance.
(i) Subject to Section 7.09(c), the Master Servicer, the Seller, the
Servicers and the Trustee covenant to provide each other with all data and
information required to be provided by them hereunder at the times required
hereunder, and additionally covenant reasonably to cooperate with each other in
providing any additional information required to be obtained by any of them in
connection with their respective duties hereunder.
Section 8.30 Indemnification by the Servicer. Each Servicer agrees to
indemnify and hold the Trustee, the Master Servicer, the Seller and the
Depositor and their employees, officers, directors and agents harmless against
any and all claims, losses, penalties, fines, forfeitures, legal fees and
related costs, judgments, and any other costs, fees and expenses that the
Seller, the Master Servicer, the Depositor and the Trustee and their employees,
officers, directors and agents may sustain in any way caused by or arising
directly out of the negligent failure of such Servicer, or any Subservicer
appointed by it, to perform its duties and service the Mortgage Loans in
compliance with the terms of this Agreement and which, in the case of the
Seller, the Master Servicer or the Depositor, materially and adversely affects
such party. Each Servicer shall immediately notify the Trustee, the Master
Servicer, the Seller, the Depositor and the Rating Agencies if a claim is made
by a third party with respect to this Agreement, and the relevant Servicer may
assume (with the consent of the Trustee) the defense of any such claim and pay
all expenses in connection therewith, including reasonable counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against the Seller, the Master Servicer, the Trustee and the Depositor and their
employees, officers, directors and agents. The Trustee shall reimburse such
Servicer from amounts in the related Principal and Interest Account for all
amounts advanced by it pursuant to the preceding sentence except
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when the claim relates directly to the failure of such Servicer to service and
administer the Mortgage Loans in compliance with the terms of this Agreement.
Section 8.31 Servicing Standard. Each Servicer and the Master Servicer
shall perform its servicing functions with respect to the Mortgage Loans in the
best interests of and for the benefit of the Owners subject to the terms hereof.
Section 8.32 No Solicitation. Each Servicer agrees that it will not
take any action or permit or cause any action to be taken by any of its agents
and Affiliates, or by any independent contractors or independent mortgage
brokerage companies on such Servicer's behalf, to personally, by telephone or
mail, solicit the borrower or Mortgagor under any Mortgage Loan for any purpose
whatsoever, including to refinance a Mortgage Loan. Notwithstanding the
foregoing, it is understood and agreed that promotions undertaken by a Servicer
or any Affiliate thereof which are directed to the general public at large,
including, without limitation, mass mailing based on commercially acquired
mailing lists, newspaper, radio and television advertisements shall not
constitute solicitation under this paragraph, nor is a Servicer prohibited from
responding to unsolicited requests or inquiries made by a Mortgagor or an agent
of a Mortgagor; provided further, that the Servicer may solicit any Mortgagor
(i) for whom the Servicer has received a request for verification of mortgage
from an originator of mortgage loan products similar to the Mortgage Loans that
indicates that such Mortgagor intends to refinance his or her Mortgage Loan and
(ii) otherwise in accordance with the Seller's policy, if such policy is
delivered to the related Servicer in writing. It is understood and agreed that
all rights and benefits relating to the solicitation of any Mortgagors and the
attendant rights, title and interest in and to the list of Mortgagors and data
relating to their Mortgages shall be retained by Seller.
Section 8.33 Powers and Duties of the Master Servicer. (a) The Master
Servicer undertakes to perform such duties and only such duties as are
specifically set forth in this agreement.
(b) The Master Servicer shall have no duty to conduct any affirmative
investigation other than as specifically set forth in this Agreement as to the
occurrence of any condition requiring the repurchase or substitution of any
Mortgage Loan pursuant to this Agreement or the eligibility of any Mortgage Loan
for purposes of this Agreement.
(c) No provision of this Agreement shall be construed to relieve the
Master Servicer from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct; provided, however, that:
(i) The duties and obligations of the Master Servicer shall be
determined solely by the express provisions of this Agreement, the
Master Servicer shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Agreement,
no implied covenants or obligations shall be read into this Agreement
against the Master Servicer and, in absence of bad faith on the part of
the Master Servicer, the Master Servicer may conclusively rely, as to
the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the
Master Servicer and conforming to the requirements of this Agreement;
(ii) The Master Servicer shall not be liable for an error of
judgment made in good faith by an Authorized Officer or other officers
of the Master Servicer, unless it shall be proved that the Master
Servicer was negligent in ascertaining the pertinent facts; and
(iii) Subject to the other provisions of this Agreement and
without limiting the generality of this Section 8.33, the Master
Servicer shall have no duty (A) to see to any recording, filing or
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depositing of this Agreement or any agreement referred to herein or any
financing statement or continuation statement evidencing a security
interest or to see to the maintenance of any such recording or filing
or depositing or to any rerecording, refiling or redepositing of any
thereof, (B) to see to any insurance or (C) to see to the payment or
discharge of any tax, assessment, or other governmental charge or any
lien or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Trust Estate.
(d) The right of the Master Servicer to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the Master
Servicer shall not be answerable for other than its negligence or willful
misconduct in the performance of such act, and the delivery hereunder to the
Master Servicer of any notice, document or report shall not give rise to an
affirmative obligation on the part of the Master Servicer to take any action
with respect thereto, except as otherwise expressly provided herein.
(e) The Master Servicer makes no representations as to the validity or
sufficiency of this Agreement or of the Certificates or of any Mortgage Loan or
related document. The Master Servicer shall not be accountable for the use or
application by the Seller or the Depositor of any of the Certificates or of the
proceeds of such Certificates, or for the use or application of any funds paid
to the Servicers in respect of the Mortgage Loans or deposited in or withdrawn
from the Principal and Interest Account by the Servicer.
Section 8.34 Liability of the Master Servicer. The Master Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Master Servicer herein. Neither
the Master Servicer nor any of the directors, officers, employees or agents of
the Master Servicer shall be under any liability to the Seller, the Depositor,
the Servicers or any Owner for any action taken or for refraining from the
taking of any action in good faith pursuant to this Agreement or for errors in
judgment except as required hereunder; provided, however, that this provision
shall not protect the Master Servicer, its directors, officers, employees or
agents or any such Person against any liability which would otherwise be imposed
by reason of negligent action, negligent failure to act, willful misconduct in
the performance of duties or by reason of reckless disregard of obligations and
duties hereunder. Except as expressly provided herein, the Master Servicer shall
not be liable for the performance of the Servicers. The Master Servicer and any
director, officer, employee or agent of the Master Servicer may rely and shall
be protected in acting or refraining from acting in good faith on any
certificate, notice or other document of any kind prima facie properly executed
and submitted by the Authorized Officer of any Person respecting any matters
arising hereunder.
Section 8.35 Master Servicer Not to Resign. (a) The Master Servicer
shall not resign from the obligations and duties hereby imposed on it under this
Agreement except upon a determination that the performance of its duties under
this Agreement shall no longer be permissible under applicable law.
(b) Notice of any such determination permitting the resignation of the
Master Servicer shall be communicated to the Trustee and the Servicers promptly
(and, if such communication is not in writing, shall be promptly confirmed in
writing), and any such determination shall be evidenced by an Opinion of Counsel
to such effect delivered to the Trustee.
(c) In the event that the Master Servicer is permitted to resign
pursuant to Section 8.35(b) hereof (or if the Master Servicer is otherwise
unable to continue as Master Servicer), the Trustee shall automatically become
Master Servicer hereunder.
Section 8.36 Indemnification by Master Servicer. The Master Servicer
hereby agrees to, and does hereby indemnify and hold harmless each Servicer and
the Trustee and each of its respective directors, officers, employees and
agents, and their respective successors and assigns, as applicable, from and
against any and all losses, liabilities, claims, charges, damages, fines,
penalties, judgments, actions, suits, costs and expenses of any kind or nature
(including reasonable attorneys' fees and expenses and reasonable fees and
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expenses of experts) imposed on, incurred by, or asserted against such Servicer
or the Trustee or any of its directors, officers, employees, agents, or any of
their respective successors or assigns, in any way related to or arising out of
the performance of the Master Servicer of its obligations under this Agreement.
END OF ARTICLE VIII
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ARTICLE IX
TERMINATION OF TRUST
Section 9.01 Termination of Trust.
The Trust created hereunder and all obligations created by this
Agreement will terminate upon the payment to the Owners of all Certificates of
all amounts held by the Trustee and required to be paid to such Owners pursuant
to this Agreement upon the later to occur of (a) the final payment or other
liquidation (or any advance made with respect thereto) of the last Mortgage Loan
in the Trust Estate, (b) the disposition of all property acquired in respect of
any Mortgage Loan remaining in the Trust Estate and (c) at any time when a
Qualified Liquidation of both Mortgage Loan Groups included within the REMIC
Estate is effected as described below. To effect a termination of this Agreement
pursuant to clause (c), the Owners of all Certificates then Outstanding shall
(i) unanimously direct the Trustee on behalf of the Upper-Tier REMIC and the
Lower-Tier REMIC to adopt a plan of complete liquidation for each of the
Mortgage Loan Groups, as contemplated by Section 860F(a)(4) of the Code and (ii)
provide to the Trustee an opinion of counsel experienced in federal income tax
matters acceptable to the Trustee to the effect that each such liquidation
constitutes a Qualified Liquidation, and the Trustee either shall sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust
Estate, or shall distribute equitably in kind all of the assets of the Trust
Estate to the remaining Owners of the Certificates each in accordance with such
plan, so that the liquidation or distribution of the Trust Estate, the
distribution of any proceeds of the liquidation and the termination of this
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation. In no event, however, will the Trust created by this
Agreement continue beyond the expiration of twenty-one (21) years from the death
of the last survivor of the descendants of Joseph P. Kennedy, the late
Ambassador of the United States to the Court of Saint James's, living on the
date hereof. The Trustee shall give written notice of termination of the
Agreement to each Owner in the manner set forth in Section 11.05.
Section 9.02 Auction Termination; Servicer Termination.
(a) Within 90 days of the Group I Auction Sale Bid Date and within 90
days of the Group II Auction Sale Bid Date, the Trustee will notify the
investment banking or whole-loan trading firm selected by the Owners of the
majority of the Class R Certificates (such investment bank or trading firm, the
"Advisor") who will solicit on behalf of the Trustee competitive bids for the
purchase of the Mortgage Loans then remaining in such Mortgage Loan Group for
fair market value (such bidders may include the Owners of the Class R
Certificates). Such solicitation shall be conducted substantially in the manner
described in Exhibit M hereto. In the event that satisfactory bids are received
as described below, the proceeds of the sale of such assets shall be deposited
into the Certificate Account. The Trustee will ask the Advisor to solicit, on
behalf of the Trustee, good-faith bids from no fewer than two prospective
purchasers that are considered at the time to be competitive participants in the
home equity market. The Advisor will consult with any securities brokerage
houses as then making a market in the Offered Certificates to obtain a
determination as to whether the fair market value of such assets has been
offered.
If the highest good-faith bid received by the Advisor from a
qualified bidder is, in the judgment of the Advisor, not less than the fair
market value of the Mortgage Loans in such Mortgage Loan Group and if such bid
would equal or exceed the amount set forth in the following sentence, the
Trustee, following consultation with and written direction from the Advisor,
will sell and assign the Mortgage Loans in such Mortgage Loan Group without
representation, warranty or recourse to such highest bidder and will redeem the
Offered Certificates related to such Mortgage Loan Group. For the Trustee to
consummate the sale, the bid must be at least equal to the Termination Price set
forth in Section 9.02(b) hereof. In addition, the bid must be in an amount
sufficient to pay the fees and expenses of the Trustee owing hereunder. If such
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conditions are not met, the Trustee will, following consultation with the
Advisor, decline to consummate such sale. In addition, the Trustee will decline
to consummate such sale unless it receives from the Advisor an opinion of
counsel addressed to it that such sale will not give rise either to any
"prohibited transaction" tax under Section 860F(a)(1) of the Code or to any tax
on contribution to either the Upper-Tier REMIC or the Lower-Tier REMIC after the
Startup Day under Section 860G(d)(1) of the Code. In the event such sale is not
consummated in accordance with the foregoing, the Trustee will not be under any
obligation to solicit any further bids or otherwise to negotiate any further
sale of the Mortgage Loans in such Mortgage Loan Group. In such event, however,
if requested by the Owners of the Class R Certificates the Trustee may solicit
bids from time to time in the future for the purchase of the Mortgage Loans in
such Mortgage Loan Group upon the same terms described above. The Trustee may
consult with the Advisor and the advice of the Advisor shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder.
(b) On any Monthly Remittance Date on or after the Group I Servicer
Clean-Up Call Date and on any Monthly Remittance Date on or after the Group II
Servicer Clean-Up Call Date, the Servicers servicing Mortgage Loans relating to
such Mortgage Loan Group simultaneously may determine to purchase and may cause
the purchase from the Trust of all (but not fewer than all) Mortgage Loans
serviced by the related Servicer with respect to such Mortgage Loan Group and
all property theretofore acquired in respect of any Mortgage Loan by
foreclosure, deed in lieu of foreclosure, or otherwise then remaining in such
Mortgage Loan Group, at a price (such price the "Termination Price") equal to
100% of the aggregate Loan Balances of the related Mortgage Loans (including any
REO Property) as of the day of purchase minus amounts remitted from the
Principal and Interest Account to the Certificate Account representing
collections of principal on the related Mortgage Loans during the current
Remittance Period, plus one month's interest on such amount computed at the
Termination Date Pass-Through Rate, plus in all cases all accrued and unpaid
Servicing Fees plus the aggregate amount of any unreimbursed Delinquency
Advances and Servicing Advances and Delinquency Advances which the Servicer has
theretofore failed to remit. In connection with such purchase, the related
Servicer shall remit to the Trustee all amounts then on deposit in the Principal
and Interest Account for deposit to the Certificate Account, which deposit shall
be deemed to have occurred immediately preceding such purchase.
If on any such Monthly Remittance Date a Servicer does not elect to
purchase the Mortgage Loans it is servicing and one or more of the other
Servicers have so elected, the Servicer(s) having so elected may give the other
Servicer(s) notice (not less than ten days prior to the next succeeding Monthly
Remittance Date) that the electing Servicer(s) will purchase the other
Servicers' Mortgage Loans with respect to such Mortgage Loan Group on such
Monthly Remittance Date at the Termination Price. If the other Servicer(s) do
not agree in writing to purchase the Mortgage Loans they are servicing prior to
the fifth day preceding such Monthly Remittance Date, the electing Servicer(s)
may purchase all Mortgage Loans in such Mortgage Loan Group on such Monthly
Remittance Date.
(c) In the event that an auction sale has not occurred with respect to
both Mortgage Loan Groups and the Servicers fail to exercise their respective
options to purchase all of the Mortgage Loans in both Mortgage Loan Groups, the
Owners of the Class R Certificates are required to purchase all of the Mortgage
Loans in both Mortgage Loan Groups on the Monthly Remittance Date in __________
202_.
(d) In connection with any such purchase, such Owners of the Class R
Certificates or Servicers, as applicable, shall unanimously direct the Trustee
to adopt and the Trustee shall adopt, as to the Upper-Tier REMIC and Lower-Tier
REMIC, a plan of complete liquidation for all of the Mortgage Loan Groups as
contemplated by Section 860F(a)(4) of the Code and shall provide to the Trustee
an Opinion of Counsel experienced in federal income tax matters acceptable to
the Trustee to the effect that such purchase and liquidation constitutes, as to
either the Upper-Tier REMIC or the Lower-Tier REMIC, a Qualified Liquidation. In
addition, such Owners of the Class R Certificates or such Servicer shall provide
to the
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Trustee an Opinion of Counsel acceptable to the Trustee to the effect that such
purchase and liquidation does not constitute a preference payment pursuant to
the United States Bankruptcy Code.
(e) Promptly following any purchase or sale described in this Section
9.02, the Trustee will release the Files to the Owners of the Class R
Certificates or otherwise upon their order or to the related Servicer, if
applicable, in accordance with Section 8.14 hereof. Upon such release, the
servicing of the Mortgage Loans shall remain with the related Servicer, subject
to the servicing provisions provided for herein.
Section 9.03 Termination Upon Loss of REMIC Status.
(a) Following a final determination by the Internal Revenue Service or
by a court of competent jurisdiction, in either case from which no appeal is
taken within the permitted time for such appeal, or if any appeal is taken,
following a final determination of such appeal from which no further appeal can
be taken, to the effect that either the Lower-Tier REMIC or the Upper-Tier REMIC
Estate does not and will no longer qualify as a REMIC pursuant to Section 860D
of the Code (the "Final Determination"), at any time on or after the date which
is 30 calendar days following such Final Determination the Owners of a majority
in Percentage Interests represented by the Offered Certificates then Outstanding
may direct the Trustee on behalf of the Trust to adopt a plan of complete
liquidation, as contemplated by Section 860F(a)(4) of the Code.
The Trustee shall notify the Servicers and the Owners of the Class R
Certificates of such election to liquidate or such determination to purchase, as
the case may be (the "Termination Notice"). The Owners of a majority of the
Class R Certificates may, within 60 days from the date of receipt of the
Termination Notice (the "Purchase Option Period"), at their option, purchase
from the Trust all (but not fewer than all) Mortgage Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Mortgage Loan then remaining in the Trust Estate at a purchase
price equal to the Termination Price. If the Owners of a majority of the Class R
Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period the
Trustee shall sell the Mortgage Loans and reimburse the Servicer for
unreimbursed (including nonrecoverable) Delinquency Advances, Servicing Advances
and Servicing Fees and distribute the remaining proceeds of the liquidation of
the Trust Estate, each in accordance with the plan of complete liquidation, such
that, if so directed, the liquidation of the Trust Estate, the distribution of
the proceeds of the liquidation and the termination of this Agreement occur no
later than the close of the 60th day, or such later day as the Owners of the
Offered Certificates shall permit or direct in writing, after the expiration of
the Purchase Option Period. In connection with such purchase, the Servicer shall
remit to the Trustee all amounts then on deposit in the Principal and Interest
Account for deposit to the Certificate Account, which deposit shall be deemed to
have occurred immediately preceding such purchase.
(b) Following a Final Determination, the Owners of a majority of the
Class R Certificates then Outstanding may, at their option and upon delivery to
the Trustee of an Opinion of Counsel experienced in federal income tax matters
acceptable to the Trustee selected by such Owners of the Class R Certificates
which opinion shall be reasonably satisfactory in form and substance to the
Trustee and the Seller to the effect that the effect of the Final Determination
is to increase substantially the probability that the gross income of the Trust
will be subject to federal taxation, purchase from the Trust all (but not fewer
than all) Mortgage Loans and REO Properties at a purchase price equal to the
Termination Price.
(c) In connection with any purchase pursuant to this Section 9.03, the
Trustee shall adopt a plan of complete liquidation as contemplated by Section
860F(a)(4) of the Code and shall provide to the Trustee an Opinion of Counsel
experienced in federal income tax matters to the effect that such purchase
constitutes a Qualified Liquidation.
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Section 9.04 Disposition of Proceeds.
The Trustee shall, upon receipt thereof, deposit the proceeds of any
liquidation of the Trust Estate pursuant to this Article IX to the Certificate
Account for application as provided in Section 7.03 hereof; provided, however,
that any amounts representing unrecovered Delinquency Advances and Servicing
Advances which a Servicer determined to be nonrecoverable and unreimbursed
Delinquency Advances and Servicing Advances and Servicing Fees theretofore
funded by a Servicer from the Servicer's own funds shall be paid by the Trustee
to the Servicer from the proceeds of the Trust Estate.
END OF ARTICLE IX
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ARTICLE X
THE TRUSTEE
Section 10.01 Certain Duties and Responsibilities.
(a) The Trustee (i) (A) undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Trustee and (B)
shall serve as the Trustee at all times under this Agreement, and (ii) in the
absence of bad faith on its part, may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be furnished
to the Trustee, shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
(b) Notwithstanding the appointment of the Servicers hereunder, the
Trustee is hereby empowered to perform the duties of the Servicers it being
expressly understood, however, that the foregoing describes a power and not an
obligation of the Trustee, and that all parties hereto agree that, prior to any
termination of the Servicers, the Servicers and, thereafter, the Trustee or any
other successor servicer shall perform such duties. Specifically, and not in
limitation of the foregoing, the Trustee shall upon termination or resignation
of the Servicers, and pending the appointment of any other Person as successor
Servicer have the power and duty during its performance as successor Servicer:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into assumption
and substitution agreements as permitted by Section 8.12
hereof;
(iv) to deliver instruments of satisfaction pursuant to Section
8.14;
(v) to enforce the Mortgage Loans; and
(vi) to make Delinquency Advances and Servicing Advances and to
pay Compensating Interest (and to be reimbursed therefor as
provided herein).
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(ii) the Trustee shall not be personally liable for any error of
judgment made in good faith by an Authorized Officer, unless
it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance
with the direction of the Owners of a majority in Percentage
Interest of the Certificates of the affected Class or Classes
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement relating to such Certificates.
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(d) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
(e) No provision of this Agreement shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it. None of the provisions contained in this Agreement
shall in any event require the Trustee to perform, or be responsible for the
manner of performance of, any of the obligations of the Servicers under this
Agreement, except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges of,
the Servicers in accordance with the terms of this Agreement.
(f) The permissive right of the Trustee to take actions enumerated in
this Agreement shall not be construed as a duty and the Trustee shall not be
answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any suit, or
to take any remedial proceeding under this Agreement, or to take any steps in
the execution of the trusts hereby created or in the enforcement of any rights
and powers hereunder until it shall be indemnified to its satisfaction against
any and all costs and expenses, outlays and counsel fees and other reasonable
disbursements and against all liability, except liability which is adjudicated
to have resulted from its negligence or willful misconduct, in connection with
any action so taken.
(h) None of the Servicers, the Master Servicer, the Seller and the
Trustee knowingly shall take any action (other than any action expressly
required by this Agreement) that would cause the Class A-7 Certificates, the
Class A-8 Certificates or the Class M-1A Certificates to fail to qualify as
"mortgage related securities" within the meaning of the Securities Exchange Act
of 1934, as amended.
Section 10.02 Removal of Trustee for Cause.
(a) The Trustee may be removed pursuant to paragraph (b) hereof upon
the occurrence of any of the following events (whatever the reason for such
event and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners
entitled hereto on any Payment Date amounts available for distribution
in accordance with the terms hereof (provided, however, that any such
failure which is due to circumstances beyond the control of the Trustee
shall not be a cause for removal hereunder); or
(2) the Trustee shall fail in the performance of, or breach,
any material covenant or agreement of the Trustee in this Agreement, or
if any representation or warranty of the Trustee made in this Agreement
or in any certificate or other writing delivered pursuant hereto or in
connection herewith shall prove to be incorrect in any material respect
as of the time when the same shall have been made, and such failure or
breach shall continue or not be cured for a period of 30 days after
there shall have been given, by registered or certified mail, to the
Trustee by the Seller or by the Owners of at least 25% of the aggregate
Percentage Interests in the Trust Estate represented by the Offered
Certificates then Outstanding, or, if there are no Offered Certificates
then Outstanding, by such Percentage Interests represented by the Class
R Certificates, a written notice specifying such failure or breach and
requiring it to be remedied; or
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(3) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Trustee, and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings of or relating to the Trustee or relating to all
or substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors, voluntarily suspend payment of its
obligations, or take corporate action for the purpose of any of the
foregoing; or
(6) the Trustee shall fail to meet the eligibility
requirements set forth in Section 10.08 herein.
The Depositor shall give to the Rating Agencies notice of the
occurrence of any such event of which the Depositor is aware.
(b) If any event described in Paragraph (a) occurs and is continuing,
then and in every such case the Depositor and the Owners of a majority of the
Percentage Interests represented by the Offered Certificates then Outstanding or
if there are no Offered Certificates then Outstanding by a majority of the Class
R Certificates, may, whether or not the Trustee resigns pursuant to Section
10.09(b), immediately, concurrently with the giving of notice to the Trustee,
and without delaying the 30 days required for notice therein, appoint a
successor Trustee pursuant to the terms of Section 10.09.
(c) The Servicers shall not be liable for any costs relating to the
removal of the Trustee or the appointment of a new Trustee.
Section 10.03 Certain Rights of the Trustee.
Except as otherwise provided in Section 10.01 hereof:
(a) the Trustee may request and rely upon and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
note or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Depositor, the Seller, the
Servicers, the Master Servicer or the Owners of any Class of Certificates
mentioned herein shall, at the request of the Trustee, be in writing;
(c) whenever in the administration of this Agreement the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting to take any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon an Officer's Certificate;
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(d) the Trustee may consult with counsel, and the written advice of
such counsel (selected in good faith by the Trustee) shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request or direction of
any of the Owners pursuant to this Agreement, unless such Owners shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document, but the Trustee in its discretion may make such further
inquiry or investigation into such facts or matters as it may see fit;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys
or custodian;
(h) the Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized or within the
discretion or the rights or powers conferred upon it under this Agreement other
than as to validity and sufficiency of its authentication of the Certificates;
(i) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the Trustee
shall not be answerable for other than its negligence or willful misconduct in
the performance of such act;
(j) pursuant to the terms of this Agreement, each Servicer and the
Master Servicer is required to furnish to the Trustee from time to time certain
information and make various calculations which are relevant to the performance
of the Trustee's duties under the Agreement. The Trustee shall be entitled to
rely in good faith on any such information and calculations in the performance
of its duties hereunder, (i) unless and until an Authorized Officer of the
Trustee has actual knowledge, or is advised by any Owner of a Certificate or any
other party hereto (either in writing or orally with prompt written or
telecopies confirmation), that such information or calculations is or are
incorrect, or (ii) unless there is a manifest error in any such information; and
(k) the Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust Estate created hereby or the powers
granted hereunder.
(l) the Trustee shall not be charged with knowledge of any failure by
the Depositor, the Seller, the Master Servicer or any Servicer to comply with
any of its obligations hereunder or any breach of any representation or warranty
hereunder unless an Authorized Officer of the Trustee obtains actual knowledge
of such failure or breach or the Trustee receives written notice of such failure
or breach.
Section 10.04 Not Responsible for Recitals or Issuance of
Certificates.
The recitals and representations contained herein and in the
Certificates, except any such recitals and representations relating to the
Trustee, shall be taken as the statements of the Depositor and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representation as to the validity or sufficiency of this Agreement, of the
Certificates, or any Mortgage Loan or document related thereto other than as to
validity and sufficiency of its authentication of the Certificates. The Trustee
shall not be accountable for the use or application by the Depositor of any of
the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Depositor, the Seller, the Master Servicer
or the Servicer in respect of the Mortgage Loans or deposited into or withdrawn
from the Principal and
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Interest Account or the Certificate Account by the Depositor, the related
Servicer, the Master Servicer or the Seller, and shall have no responsibility
for filing any financing or continuation statement in any public office at any
time or otherwise to perfect or maintain the perfection of any security interest
or lien or to prepare or file any tax returns (except as provided in Section
11.16) or Securities and Exchange Commission filings for the Trust or to record
this Agreement. The Trustee shall not be required to take notice or be deemed to
have notice or knowledge of any default unless an Authorized Officer of the
Trustee shall have received written notice thereof or an Authorized Officer has
actual knowledge thereof. In the absence of receipt of such notice, the Trustee
may conclusively assume that no default has occurred.
Section 10.05 May Hold Certificates.
The Trustee, any Paying Agent, Registrar or any other agent of the
Trust, in its individual or any other capacity, may become an Owner or pledgee
of Certificates and may otherwise deal with the Trust with the same rights it
would have if it were not Trustee, any Paying Agent, Registrar or such other
agent.
Section 10.06 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other trust funds except to the extent required herein or required by law.
The Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Seller and except to the extent of
income or other gain on investments which are deposits in or certificates of
deposit of the Trustee in its commercial capacity.
Section 10.07 Compensation and Reimbursement; No Lien for Fees.
The Trustee shall receive compensation for fees and reimbursement for
expenses pursuant to Section 2.05, Section 7.03(c)(i) and (d)(i) and Section
7.05 hereof. The Trustee shall have no lien on the Trust Estate for the payment
of such fees and expenses.
Section 10.08 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation or association organized and doing business under the laws of the
United States of America or of any State authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 subject to supervision or examination by the United States of
America and having a deposit rating of at least A2 by Moody's and, if rated by
Fitch, having a rating of at least A- from Fitch (or such lower rating as may be
acceptable to Fitch). If such Trustee publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation or association shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall, upon the request of
the Seller resign immediately in the manner and with the effect hereinafter
specified in this Article X.
Section 10.09 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until the
acceptance of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
resign at any time by giving written notice of resignation to the Depositor and
by mailing notice of resignation by first-class mail, postage prepaid, to the
Owners at their addresses appearing on the Register; provided, that the Trustee
may not resign
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solely for the failure to receive the Trustee Fee. A copy of such notice shall
be sent by the resigning Trustee to the Rating Agencies. Upon receiving notice
of resignation, the Depositor shall promptly appoint a successor trustee or
trustees by written instrument, in duplicate, executed on behalf of the Trust by
an Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so resigning and one copy to the successor trustee or
trustees. If no successor trustee shall have been appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Owner may, on behalf of himself and
all others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and appropriate, appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible under Section
10.08 hereof and shall fail to resign after written request therefor by the
Depositor, the Depositor may remove the Trustee and appoint a successor trustee
by written instrument, in duplicate, executed on behalf of the Trust by an
Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(d) The Owners of a majority of the Percentage Interests represented by
the Offered Certificates or, if there are no Offered Certificates then
Outstanding, by a majority of the Class R Certificates, may at any time remove
the Trustee and appoint a successor trustee by delivering to the Trustee to be
removed, to the successor trustee so appointed, to the Depositor and to the
Servicer, copies of the record of the act taken by the Owners, as provided for
in Section 11.03.
(e) If the Trustee fails to perform its duties in accordance with the
terms of this Agreement, or becomes ineligible pursuant to Section 10.08 to
serve as Trustee, the Seller may remove the Trustee and appoint a successor
trustee by written instrument, in triplicate, signed by the Seller duly
authorized, one complete set of which instruments shall be delivered to the
Depositor, one complete set to the Trustee so removed and one complete set to
the successor Trustee so appointed.
(f) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
the Seller shall promptly appoint a successor trustee. If within one year after
such resignation, removal or incapability or the occurrence of such vacancy, a
successor trustee shall be appointed by act of the Seller or the Owners of a
majority of the Percentage Interests represented by the Offered Certificates
then Outstanding, the successor trustee so appointed shall forthwith upon its
acceptance of such appointment become the successor trustee and supersede the
successor trustee appointed by the Depositor. If no successor trustee shall have
been so appointed by the Depositor or the Owners and shall have accepted
appointment in the manner hereinafter provided, any Owner may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
(g) The Depositor shall give notice of any removal of the Trustee by
mailing notice of such event by first-class mail, postage prepaid, to the Rating
Agencies, the Master Servicer and the Servicers and to the Owners as their names
and addresses appear in the Register. Each notice shall include the name of the
successor Trustee and the address of its corporate trust office.
Section 10.10 Acceptance of Appointment by Successor Trustee.
Every successor trustee appointed hereunder shall execute, acknowledge
and deliver to the Depositor on behalf of the Trust and to its predecessor
Trustee an instrument accepting such appointment hereunder and stating its
eligibility to serve as Trustee hereunder, and thereupon the resignation or
removal of the predecessor Trustee shall become effective and such successor
trustee, without any further act, deed or
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conveyance, shall become vested with all the rights, powers, trusts, duties and
obligations of its predecessor hereunder; but, on request of the Depositor or
the successor Trustee, such predecessor Trustee shall, upon payment of its
charges then unpaid, execute and deliver an instrument transferring to such
successor trustee all of the rights, powers and trusts of the Trustee so ceasing
to act, and shall duly assign, transfer and deliver to such successor trustee
all property and money held by such Trustee so ceasing to act hereunder. Upon
request of any such successor trustee, the Depositor on behalf of the Trust
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor trustee all such rights, powers and trusts.
Upon acceptance of appointment by a successor Trustee as provided in
this Section, the Depositor shall mail notice thereof by first-class mail,
postage prepaid, to the Owners at their last addresses appearing upon the
Register. The Depositor shall send a copy of such notice to the Rating Agencies.
If the Depositor fails to mail such notice within ten days after acceptance of
appointment by the successor Trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Trust.
No successor trustee shall accept its appointment unless at the time of
such acceptance such successor shall be qualified and eligible under this
Article X.
Section 10.11 Merger, Conversion, Consolidation or Succession to
Business of the Trustee.
Any corporation or association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to all or
substantially all the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto; provided, however,
that such corporation or association shall be otherwise qualified and eligible
under this Article X. In case any Certificates have been executed, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such Trustee may adopt such execution and deliver the
Certificates so executed with the same effect as if such successor Trustee had
itself executed such Certificates.
Section 10.12 Reporting; Withholding.
(a) The Trustee shall timely provide to the Owners the Internal Revenue
Service's Form 1099 and any other statement required by applicable Treasury
regulations as determined by the Tax Matters Person, and shall withhold, as
required by applicable law, federal, state or local taxes, if any, applicable to
distributions to the Owners, including but not limited to backup withholding
under Section 3406 of the Code and the withholding tax on distributions to
foreign investors under Sections 1441 and 1442 of the Code.
(b) As required by law or upon request of the Tax Matters Person and
except as otherwise specifically set forth in subsection (a) above, the Tax
Matters Person shall timely file all reports required to be filed by the Trust
with any federal, state or local governmental authority having jurisdiction over
the Trust, including other reports that must be filed with the Owners. The
Trustee shall, upon request of the Tax Matters Person, collect any forms or
reports from the Owners determined by the Tax Matters Person to be required
under applicable federal, state and local tax laws.
(c) The Depositor covenants and agrees that it shall provide to the
Trustee any information necessary to enable the Trustee to meet its obligations
under subsections (a) and (b) above.
(d) Except as otherwise provided, the Tax Matters Person shall have the
responsibility for preparation of all returns, forms, reports and other
documents referred to in this Section and the Tax Matters Person's
responsibility shall be to execute such documents.
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Section 10.13 Liability of the Trustee.
The Trustee shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by the Trustee
herein. Neither the Trustee nor any of the directors, officers, employees or
agents of the Trustee shall be under any liability on any Certificate or
otherwise to the Certificate Account, the Depositor, the Seller, the Master
Servicer, the Servicers or any Owner for any action taken or for refraining from
the taking of any action in good faith pursuant to this Agreement or for errors
in judgment; provided, however, that this provision shall not protect the
Trustee, its directors, officers, employees or agents or any such Person against
any liability which would otherwise be imposed by reason of negligent action,
negligent failure to act or willful misconduct in the performance of duties or
by reason of reckless disregard of obligations and duties hereunder. In
addition, the Depositor, the Master Servicer and the Seller covenant and agree
to indemnify the Trustee and its employees, officers, directors and agents in
its capacity as Trustee and not as successor Servicer (unless resulting from
failure of the related predecessor Servicer to perform in accordance with this
Agreement), from, and hold it harmless against, any and all losses, liabilities,
damages, claims or expenses (including legal fees and expenses) of whatsoever
kind arising out of or in connection with the performance of the Trustee's
duties hereunder other than those resulting from the negligence or bad faith of
the Trustee, and the Depositor shall pay all amounts not otherwise paid pursuant
to Sections 2.05 and 7.05 hereof. The Trustee and any director, officer,
employee or agent of the Trustee may rely and shall be protected in acting or
refraining from acting in good faith on any certificate, notice or other
document of any kind prima facie properly executed and submitted by the
Authorized Officer of any Person respecting any matters arising hereunder. The
provisions of this Section 10.13 shall survive the termination of this
Agreement, the resignation or removal of the Trustee hereunder and the payment
of the outstanding Certificates.
Section 10.14 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Estate or Property may at the time be located, the
Depositor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-Trustee or co-Trustees, jointly with the Trustee, of all or
any part of the Trust Estate or separate Trustee or separate Trustees of any
part of the Trust Estate, and to vest in such Person or Persons, in such
capacity and for the benefit of the Owners, such title to the Trust Estate, or
any part thereof, and, subject to the other provisions of this Section 10.14,
such powers, duties, obligations, rights and trusts as the Depositor and the
Trustee may consider necessary or desirable. If the Depositor shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, the Trustee alone shall have the power to make such appointment. No
co- Trustee or separate Trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 10.08 and no notice to Owner of
the appointment of any co-Trustee or separate Trustee shall be required under
Section 10.09.
Every separate Trustee and co-Trustee shall, to the extent permitted,
be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate Trustee or
co-Trustee jointly (it being understood that such separate Trustee or
co-Trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to a Servicer hereunder),
the Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate or any portion
thereof in any such jurisdiction) shall
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be exercised and performed singly by such separate Trustee or
co-Trustee, but solely at the direction of the Trustee;
(ii) No co-Trustee hereunder shall be held personally liable
by reason of any act or omission of any other co-Trustee hereunder; and
(iii) The Seller and the Trustee acting jointly may at any
time accept the resignation of or remove any separate Trustee or
co-Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate Trustees and co-Trustees,
as effectively as if given to each of them. Every instrument appointing any
separate Trustee or co-Trustee shall refer to this Agreement and the conditions
of this Section 10.14. Each separate Trustee and co-Trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicers.
Any separate Trustee or co-Trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate Trustee or co-Trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
Section 10.15 Appointment of Custodians.
The Trustee may appoint one or more Custodians to hold all or a portion
of the Trustee's Files as agent for the Trustee, by entering into a Custodial
Agreement in the form of Exhibit L. Subject to this Article X, the Trustee
agrees to comply with the terms of each Custodial Agreement and to enforce the
terms and provisions thereof against the Custodian for the benefit of the Owners
of the Certificates.
Section 10.16 No Solicitation. The Trustee agrees that it will not take
any action or permit or cause any action to be taken by any of its agents and
Affiliates, or by any independent contractors or independent mortgage brokerage
companies on the Trustee's behalf, to personally, by telephone or mail, solicit
the borrower or Mortgagor under any Mortgage Loan for any purpose whatsoever,
including to refinance a Mortgage Loan. Notwithstanding the foregoing, it is
understood and agreed that promotions undertaken by the Trustee or any Affiliate
thereof which are directed to the general public at large, including, without
limitation, mass mailing based on commercially acquired mailing lists,
newspaper, radio and television advertisements shall not constitute solicitation
under this paragraph, nor is the Trustee prohibited from responding to
unsolicited requests or inquiries made by a Mortgagor or an agent of a
Mortgagor.
END OF ARTICLE X
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ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates and Opinions.
Upon any application or request by the Depositor, the Seller or the
Owners to the Trustee to take any action under any provision of this Agreement,
the Depositor, the Seller or the Owners, as the case may be, shall furnish to
the Trustee a certificate stating that all conditions precedent, if any,
provided for in this Agreement relating to the proposed action have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Agreement relating to such particular application or request, no
additional certificate need be furnished.
Except as otherwise specifically provided herein, each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Agreement (including one furnished pursuant to specific requirements of
this Agreement relating to a particular application or request) shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 11.02 Form of Documents Delivered to the Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Trustee may
be based, insofar as it relates to legal matters, upon an Opinion of Counsel,
unless such Authorized Officer knows, or in the exercise of reasonable care
should know, that the opinion with respect to the matters upon which his
certificate or opinion is based is erroneous. Any such certificate or opinion of
an Authorized Officer of the Trustee or any Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, one or more Authorized Officers of the Depositor, the Seller
or the Servicers, stating that the information with respect to such factual
matters is in the possession of the Depositor, the Seller or such Servicer,
unless such Authorized Officer or counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous. Any Opinion of Counsel may also be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an Authorized Officer of the Trustee, stating that
the information with respect to such matters is in the possession of the
Trustee, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous. Any Opinion of Counsel may be based on the written
opinion of other counsel, in which event such Opinion of Counsel shall be
accompanied by a copy of such other counsel's opinion and shall include a
statement to the effect that such counsel believes that such counsel and the
Trustee may reasonably rely upon the opinion of such other counsel.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 11.03 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by the
Owners may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Owners in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee, and, where it is hereby expressly required, to the Seller. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "act" of the Owners signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Agreement and conclusive in favor of the Trustee and the Trust, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Certificates shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Certificate shall bind the Owner of
every Certificate issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Trust in reliance thereon, whether or
not notation of such action is made upon such Certificates.
Section 11.04 Notices, etc. to Trustee.
Any request, demand, authorization, direction, notice, consent, waiver
or act of the Owners or other documents provided or permitted by this Agreement
to be made upon, given or furnished to, or filed with the Trustee by any Owner,
the Depositor, the Seller, the Master Servicer and the Servicers shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with and received by the Trustee at the Corporate Trust Office.
Section 11.05 Notices and Reports to Owners; Waiver of Notices.
Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided. Notwithstanding the foregoing, if a Servicer
has been removed or resigned or the Trust is terminated, notice
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of any such events shall be made by overnight courier, registered mail or
telecopy followed by a telephone call.
Where this Agreement provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Owners shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Owners when such notice is required to be given
pursuant to any provision of this Agreement, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Agreement provides for notice to any rating agency that
rated any Certificates, failure to give such notice shall not affect any other
rights or obligations created hereunder.
Section 11.06 Rules by Trustee.
The Trustee may make reasonable rules for any meeting of Owners.
Section 11.07 Successors and Assigns.
All covenants and agreements in this Agreement by any party hereto
shall bind its successors and assigns, whether so expressed or not.
Section 11.08 Severability.
In case any provision in this Agreement or in the Certificates shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.09 Benefits of Agreement.
Nothing in this Agreement or in the Certificates, expressed or implied,
shall give to any Person, other than the Owners and the parties hereto and their
successors hereunder, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
Section 11.10 Legal Holidays.
In any case where the date of any Monthly Remittance Date, any Payment
Date, any other date on which any distribution to any Owner is proposed to be
paid, or any date on which a notice is required to be sent to any Person
pursuant to the terms of this Agreement shall not be a Business Day, then
(notwithstanding any other provision of the Certificates or this Agreement)
payment or mailing need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made or mailed on
the nominal date of any such Monthly Remittance Date, such Payment Date, or such
other date for the payment of any distribution to any Owner or the mailing of
such notice, as the case may be, and no interest shall accrue for the period
from and after any such nominal date, provided such payment is made in full on
such next succeeding Business Day.
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Section 11.11 Governing Law; Submission to Jurisdiction.
(a) In view of the fact that Owners are expected to reside in many
states and outside the United States and the desire to establish with certainty
that this Agreement will be governed by and construed and interpreted in
accordance with the law of a state having a well-developed body of commercial
and financial law relevant to transactions of the type contemplated herein, this
Agreement and each Certificate shall be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed therein, without giving effect to the conflicts of law
principles thereof.
(b) The parties hereto hereby irrevocably submit to the jurisdiction of
the United States District Court for the Southern District of New York and any
court in the State of New York located in the City and County of New York, and
any appellate court from any thereof, in any action, suit or proceeding brought
against it or in connection with this Agreement or any of the related documents
or the transactions contemplated hereunder or for recognition or enforcement of
any judgment, and the parties hereto hereby irrevocably and unconditionally
agree that all claims in respect of any such action or proceeding may be heard
or determined in such New York State court or, to the extent permitted by law,
in such federal court. The parties hereto agree that a final judgment in any
such action, suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. To
the extent permitted by applicable law, the parties hereto hereby waive and
agree not to assert by way of motion, as a defense or otherwise in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such courts, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that the related documents or the subject matter thereof may not be
litigated in or by such courts.
(c) Nothing contained in this Agreement shall limit or affect the right
of the Depositor, the Seller, the Master Servicer or the Servicers or other
third-party beneficiary hereunder, as the case may be, to serve process in any
other manner permitted by law or to start legal proceedings relating to any of
the Mortgage Loans against any Mortgagor in the courts of any jurisdiction.
Section 11.12 Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 11.13 Usury.
The amount of interest payable or paid on any Certificate under the
terms of this Agreement shall be limited to an amount which shall not exceed the
maximum nonusurious rate of interest allowed by the applicable laws of the State
of New York or any applicable law of the United States permitting a higher
maximum nonusurious rate that preempts such applicable New York laws, which
could lawfully be contracted for, charged or received (the "Highest Lawful
Rate"). In the event any payment of interest on any Certificate exceeds the
Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed
to have been paid to the Owner of such Certificate as a result of an error on
the part of the Trustee acting on behalf of the Trust and the Owner receiving
such excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Trustee on behalf of the Trust, refund the amount of such
excess or, at the option of such Owner, apply the excess to the payment of
principal of such Certificate, if any, remaining unpaid. In addition, all sums
paid or agreed to be paid to the Trustee for the benefit of Owners of
Certificates for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Certificates.
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Section 11.14 Amendment.
(a) The Trustee, the Depositor, the Seller, the Master Servicer and the
Servicers may at any time and from time to time, and without notice to or the
consent of the Owners, amend this Agreement, subject to the provisions of
Section 11.16 and 11.17 and the consent of the Trustee to such amendment shall
not be unreasonably withheld, for the purpose of (i) curing any ambiguity,
typographical error, or mistake, correcting or supplementing any provision
hereof which may be inconsistent with any other provision hereof, or to add
provisions hereto which are not inconsistent with the provisions hereof; or (ii)
upon receipt of an Opinion of Counsel experienced in federal income tax matters
to the effect that no entity-level tax will be imposed on the Trust, any REMIC
therein or upon the transferor of a Class R Certificate as a result of the
ownership of any Class R Certificate by a Disqualified Organization, removing
the restriction on transfer set forth in Section 5.08(b) hereof; or (iii)
complying with the requirements of the Code and the regulations proposed or
promulgated thereunder including any amendments necessary to maintain REMIC
status for either the Upper-Tier REMIC or the Lower-Tier REMIC or (iv) for any
other purpose, provided that in the case of this clause (iv) such amendment will
not adversely affect in any material respect any Owners. Any such amendment
shall be deemed not to adversely affect in any material respect any Owner if
there is delivered to the Trustee written notification from each Rating Agency
that such amendment will not cause such Rating Agency to reduce its then current
rating assigned to any Class of the Certificates. This Agreement may also be
amended by the Trustee, the Depositor, the Seller, the Master Servicer and the
Servicers at any time and from time to time, with the prior written approval of
a majority of the Percentage Interest represented by each affected Class of
Certificates then Outstanding, for the purpose of adding any provisions or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Owners hereunder. Notwithstanding
anything to the contrary herein, no such amendment shall (a) change in any
manner the amount of, or change the timing of, payments which are required to be
distributed to any Owner without the consent of the Owner of such Certificate,
(b) reduce the aforesaid percentages of Percentage Interests which are required
to consent to any such amendments, without the consent of the Owners of all
Certificates of the Class or Classes affected then Outstanding, (c) adversely
affect the qualification of either the Upper-Tier REMIC or the Lower-Tier REMIC
or subject either the Upper-Tier REMIC or the Lower-Tier REMIC to tax, as
evidenced by an Opinion of Counsel satisfactory to the Trustee at the expense of
the party requesting such amendment.
(b) Promptly after the execution of any such amendment, the Trustee
shall furnish written notification of the substance of such amendment to each
Owner in the manner set forth in Section 11.05, and to the Rating Agencies.
(c) The Rating Agencies shall be provided with copies of any amendments
to this Agreement, together with copies of any opinions or other documents or
instruments executed in connection therewith.
Section 11.15 Paying Agent; Appointment and Acceptance of Duties.
The Trustee is hereby appointed Paying Agent. The Depositor may,
subject to the eligibility requirements for the Trustee set forth in Section
10.08 hereof, appoint one or more other Paying Agents or successor Paying
Agents.
Each Paying Agent, immediately upon such appointment, shall signify its
acceptance of the duties and obligations imposed upon it by this Agreement by
written instrument of acceptance deposited with the Trustee.
Each such Paying Agent other than the Trustee shall execute and deliver
to the Trustee an instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of Section 6.02, that such Paying Agent will:
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(a) allocate all sums received for distribution to the Owners
of Certificates of each Class for which it is acting as Paying Agent on
each Payment Date among such Owners in the proportion specified by the
Trustee; and
(b) hold all sums held by it for the distribution of amounts
due with respect to the Certificates in trust for the benefit of the
Owners entitled thereto until such sums shall be paid to such Owners or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided.
Any Paying Agent other than the Trustee may at any time resign and be
discharged of the duties and obligations created by this Agreement by giving at
least sixty (60) days written notice to the Trustee. Any such Paying Agent may
be removed at any time by an instrument filed with such Paying Agent and signed
by the Trustee.
In the event of the resignation or removal of any Paying Agent other
than the Trustee such Paying Agent shall pay over, assign and deliver any moneys
held by it as Paying Agent to its successor, or if there be no successor, to the
Trustee.
Upon the appointment, removal or notice of resignation of any Paying
Agent, the Trustee shall notify the Servicers and the Owners by mailing notice
thereof at their addresses appearing on the Register.
Section 11.16 REMIC Status.
(a) The parties hereto intend that the Lower-Tier REMIC and the
Upper-Tier REMIC shall constitute, and that the affairs of the Lower-Tier REMIC
and the Upper-Tier REMIC shall be conducted so as to qualify each as a REMIC in
accordance with the REMIC Provisions. In furtherance of such intention,
______________________________ or such other person designated pursuant to
Section 11.18 hereof shall act as agent for the Trust and as Tax Matters Person
for the Trust and that in such capacity it shall: (i) prepare or cause to be
prepared and filed, in a timely manner, annual tax returns and any other tax
return required to be filed by the Upper-Tier REMIC and the Upper-Tier REMIC
established hereunder using a calendar year as the taxable year for the
Lower-Tier REMIC and the Upper-Tier REMIC established hereunder; (ii) in the
related first such tax return, make (or cause to be made) an election satisfying
the requirements of the REMIC Provisions, on behalf of the Lower-Tier REMIC and
the Upper-Tier REMIC for it to be treated as a REMIC; (iii) prepare and forward,
or cause to be prepared and forwarded, to the Owners all information, reports or
tax returns required with respect to the Lower-Tier REMIC and the Upper-Tier
REMIC as, when and in the form required to be provided to the Owners, and to the
Internal Revenue Service and any other relevant governmental taxing authority in
accordance with the REMIC Provisions and any other applicable federal, state or
local laws, including without limitation information reports relating to
"original issue discount" as defined in the Code based upon the prepayment
assumption and calculated by using the "Issue Price" (within the meaning of
Section 1273 of the Code) of the Certificates of the related Class; (iv) not
take any action or omit to take any action that would cause the termination of
the REMIC status of the Lower-Tier REMIC and the Upper-Tier REMIC, except as
provided under this Agreement; (v) represent the Trust, the Lower-Tier REMIC or
the Upper-Tier REMIC in any administrative or judicial proceedings relating to
an examination or audit by any governmental taxing authority, request an
administrative adjustment as to a taxable year of the Trust, the Lower-Tier
REMIC or the Upper-Tier REMIC, enter into settlement agreements with any
governmental taxing agency, extend any statute of limitations relating to any
tax item of the Trust, the Lower-Tier REMIC or the Upper-Tier REMIC, and
otherwise act on behalf of the Trust, the Lower-Tier REMIC or the Upper-Tier
REMIC therein in relation to any tax matter involving the Trust or any REMIC
therein; (vi) comply with all statutory or regulatory requirements with regard
to its conduct of activities pursuant to the foregoing clauses of this Section
11.16, including, without limitation, providing all notices and other
information to the Internal Revenue Service and Owners of Class R Certificates
required of a "tax matters person" pursuant to subtitle F of the Code and
139
<PAGE>
the Treasury Regulations thereunder; (vii) upon receipt of reasonable
compensation, make available information necessary for the computation of any
tax imposed (A) on transferor of residual interests to certain Disqualified
Organizations or (B) on pass-through entities, any interest in which is held by
a Disqualified Organization; and (viii) acquire and hold the Tax Matters Person
Residual Interest. The obligations of ______________________________ or such
other designated Tax Matters Person pursuant to this Section 11.16 shall survive
the termination or discharge of this Agreement.
(b) The Seller, the Depositor, the Trustee, the Master Servicer and
each Servicer covenant and agree for the benefit of the Owners (i) to take no
action which would result in the termination of "REMIC" status for the
Lower-Tier REMIC or the Upper-Tier REMIC, (ii) not to engage in any "prohibited
transaction", as such term is defined in Section 860F(a)(2) of the Code, and
(iii) not to engage in any other action which may result in the imposition on
the Trust of any other taxes under the Code and the Seller in addition covenants
to cause each Servicer not to take or engage in any such action, to the extent
the Seller is aware of any such proposed action by the Servicer.
(c) Each of the Lower-Tier REMIC and the Upper-Tier REMIC shall, for
federal income tax purposes, maintain books on a calendar year basis and report
income on an accrual basis.
(d) Except as otherwise permitted by Section 7.05(b), no Eligible
Investment shall be sold prior to its stated maturity (unless sold pursuant to a
plan of liquidation in accordance with Article IX hereof).
(e) Neither the Depositor, the Seller nor the Trustee shall enter into
any arrangement by which the Trustee will receive a fee or other compensation
for services rendered pursuant to this Agreement, other than as expressly
contemplated by this Agreement.
(f) Notwithstanding the foregoing clauses (d) and (e), the Trustee or
the Seller may engage in any of the transactions prohibited by such clauses,
provided that the Trustee shall have received an Opinion of Counsel experienced
in federal income tax matters acceptable to Trustee and the Seller to the effect
that such transaction does not result in a tax imposed on the Trust or cause a
termination of REMIC status for the Lower-Tier REMIC or the Upper-Tier REMIC;
provided, however, that such transaction is otherwise permitted under this
Agreement.
(g) The Trustee, each of the Servicers and Tax Matters Person each
agree to indemnify the Trust for any tax imposed on the Trust, the Lower-Tier or
the Upper-Tier REMIC as a result of their own negligence.
Section 11.17 Additional Limitation on Action and Imposition of
Tax.
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained for itself an Opinion of Counsel
experienced in federal income tax matters acceptable to the Trustee to the
effect that such transaction does not result in a tax imposed on the Trust, the
Lower-Tier REMIC or the Upper-Tier REMIC or cause a termination of REMIC status
for the Lower-Tier REMIC or the Upper-Tier REMIC, (i) sell any assets in the
Trust Estate (except as specifically provided in this Agreement), (ii) accept
any contribution of assets after the Startup Day in violation of the REMIC
Provisions or (iii) agree to any modification of this Agreement. To the extent
that sufficient amounts cannot be so retained to pay or provide for the payment
of such tax, the Trustee is hereby authorized to and shall segregate, into a
separate non-interest bearing account, the net income from any such Prohibited
Transactions of the Lower-Tier REMIC and the Upper-Tier REMIC and use such
income, to the extent necessary, to pay such tax; provided that, to the extent
that any such income is paid to the Internal Revenue Service, the Trustee shall
retain an equal amount from future amounts otherwise distributable to the Owners
of Class R Certificates and shall distribute such retained amounts to the Owners
of Offered Certificates to the extent they are fully reimbursed and then to the
Owners of the Class R Certificates. If any tax, including interest
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penalties or assessments, additional amounts or additions to tax, is imposed on
the Trust, such tax shall be charged against amounts otherwise distributable to
the owners of the Class R Certificates on a pro rata basis. The Trustee is
hereby authorized to and shall retain from amounts otherwise distributable to
the Owners of the Class R Certificates sufficient funds to pay or provide for
the payment of, and to actually pay, such tax as is legally owed by the Trust
(but such authorization shall not prevent the Trustee from contesting any such
tax in appropriate proceedings, and withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings).
Section 11.18 Appointment of Tax Matters Person.
A Tax Matters Person will be appointed for the Lower-Tier REMIC or the
Upper-Tier REMIC for all purposes of the Code and such Tax Matters Person will
perform, or cause to be performed, such duties and take, or cause to be taken,
such actions as are required to be performed or taken by the Tax Matters Person
under the Code. The Tax Matters Person for the Lower-Tier REMIC or the
Upper-Tier REMIC shall be _________________________________ as long as it owns a
Class R Certificate. If _____________________________ does not own a Class R
Certificate, the Tax Matters Person may be any other entity that owns a Class R
Certificate and accepts a designation hereunder as Tax Matters person by
delivering an affidavit in the form of Exhibit I. The Seller shall notify the
Trustee in writing of the name and address of another person who accepts a
designation as Tax Matters Person hereunder.
Section 11.19 Attorneys' Fees.
Any party successfully asserting a claim for a breach of this Agreement
against another party is entitled to receive all reasonable attorneys' fees
incurred by such party in asserting such claim.
Section 11.20 Notices.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
The Trustee: ________________________________
________________________________
________________________________
Attn: __________________________
with a copy to: ________________
________________________________
________________________________
________________________________
________________________________
________________________________
The Depositor: AMRESCO Residential Securities Corporation
700 North Pearl Street
Suite 2400, LB #342
Dallas, Texas 75201-7424
Attn: General Counsel
Tel: (214) 953-7700
Fax: (214) 953-7757
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The Seller: AMRESCO Residential Capital Markets, Inc.
c/o AMRESCO Residential Credit Corporation
One Lakeshore Centre
3281 Guasti Road, Suite 800
Ontario, California 91761
Attn: Capital Markets
Tel: (909) 605-7600
Fax: (909) 605-2402
The Master Servicer: AMRESCO Residential Capital Markets, Inc.
c/o AMRESCO Residential Credit Corporation
One Lakeshore Centre
3281 Guasti Road, Suite 800
Ontario, California 91761
Attn: Investor Reporting
Tel: (909) 605-7600
Fax: (909) 605-2402
The Servicers: ________________________________
________________________________
________________________________
________________________________
________________________________
________________________________
________________________________
________________________________
________________________________
________________________________
________________________________
END OF ARTICLE XI
142
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Seller, the Master Servicer,
each Servicer and the Trustee have caused this Agreement to be duly executed by
their respective officers thereunto duly authorized, all as of the day and year
first above written.
AMRESCO RESIDENTIAL SECURITIES CORPORATION,
as Depositor
By: ____________________________________
Title: ____________________________________
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.,
as Seller and Master Servicer
By: ____________________________________
Title: ____________________________________
___________________________________________
By: ____________________________________
Title: ____________________________________
<PAGE>
SCHEDULE I-A
SCHEDULE OF GROUP I MORTGAGE LOANS
[BY ORIGINATOR]
<PAGE>
SCHEDULE I-B
SCHEDULE OF GROUP II MORTGAGE LOANS
<PAGE>
SCHEDULE II
SCHEDULE OF CLASS S MORTGAGE LOANS
Exhibit 4.3
INDENTURE
between
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__,
as Issuer
and
---------------------------------,
as Indenture Trustee
Dated as of _________________
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
Adjustable Rate Mortgage Loan Asset Backed Notes, Series 199__-__
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE...............................................................2
SECTION 1.1 Definitions............................................................................2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act......................................7
SECTION 1.3 Rules of Construction..................................................................7
ARTICLE II
THE NOTES................................................................................................8
SECTION 2.1 Form...................................................................................8
SECTION 2.2 Execution, Authentication, Delivery and Dating.........................................8
SECTION 2.3 Registration; Registration of Transfer and Exchange....................................9
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes............................................10
SECTION 2.5 Persons Deemed Owners.................................................................10
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.................................11
SECTION 2.7 Cancellation..........................................................................11
SECTION 2.8 Authentication of Notes...............................................................11
SECTION 2.9 Release of Collateral.................................................................12
SECTION 2.10 Book-Entry Notes......................................................................12
SECTION 2.11 Notices to Clearing Agency............................................................13
SECTION 2.12 Definitive Notes......................................................................13
SECTION 2.13 Tax Treatment.........................................................................13
ARTICLE III
COVENANTS...............................................................................................14
SECTION 3.1 Payment of Principal and Interest.....................................................14
SECTION 3.2 Maintenance of Office or Agency.......................................................14
SECTION 3.3 Money for Payments To Be Held in Trust................................................14
SECTION 3.4 Existence.............................................................................16
SECTION 3.5 Protection of Collateral..............................................................16
SECTION 3.6 Annual Opinions as to Collateral......................................................16
SECTION 3.7 Performance of Obligations; Servicing of Mortgage Loans...............................17
SECTION 3.8 Negative Covenants....................................................................18
SECTION 3.9 Annual Statement as to Compliance.....................................................19
SECTION 3.10 Covenants of the Issuer...............................................................19
SECTION 3.11 Investment Company Act................................................................19
SECTION 3.12 Restricted Payments...................................................................20
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes...........................................20
SECTION 3.14 Notice of Events of Default...........................................................20
SECTION 3.15 Further Instruments and Acts..........................................................20
SECTION 3.16 No Other Business.....................................................................20
SECTION 3.17 No Borrowing..........................................................................20
SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. ..................................20
SECTION 3.19 Capital Expenditures..................................................................20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV
SATISFACTION AND DISCHARGE..............................................................................21
SECTION 4.1 Satisfaction and Discharge of Indenture...............................................21
SECTION 4.2 Application of Trust Money............................................................22
SECTION 4.3 Repayment of Moneys Held by Paying Agent..............................................22
ARTICLE V
REMEDIES................................................................................................22
SECTION 5.1 Events of Default.....................................................................22
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment....................................23
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.............23
SECTION 5.4 Remedies; Priorities..................................................................25
SECTION 5.5 Optional Preservation of the Collateral...............................................27
SECTION 5.6 Limitation of Suits...................................................................27
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest......................28
SECTION 5.8 Restoration of Rights and Remedies....................................................28
SECTION 5.9 Rights and Remedies Cumulative........................................................28
SECTION 5.10 Delay or Omission Not a Waiver........................................................28
SECTION 5.11 Control by The Note Insurer...........................................................28
SECTION 5.12 Waiver of Past Defaults...............................................................29
SECTION 5.13 Undertaking for Costs.................................................................29
SECTION 5.14 Waiver of Stay or Extension Laws......................................................29
SECTION 5.15 Action on Notes.......................................................................29
SECTION 5.16 Performance and Enforcement of Certain Obligations....................................30
ARTICLE VI
THE INDENTURE TRUSTEE...................................................................................30
SECTION 6.1 Duties of Indenture Trustee...........................................................30
SECTION 6.2 Rights of Indenture Trustee...........................................................32
SECTION 6.3 Individual Rights of Indenture Trustee................................................32
SECTION 6.4 Indenture Trustee's Disclaimer........................................................32
SECTION 6.5 Notice of Defaults....................................................................32
SECTION 6.6 Reports by Indenture Trustee to Owners................................................32
SECTION 6.7 Compensation and Indemnity............................................................32
SECTION 6.8 Replacement of Indenture Trustee......................................................33
SECTION 6.9 Successor Indenture Trustee by Merger.................................................34
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.....................34
SECTION 6.11 Eligibility; Disqualification.........................................................35
SECTION 6.12 Preferential Collection of Claims Against Issuer......................................35
ARTICLE VII
OWNERS' LISTS AND REPORTS...............................................................................35
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners.....................35
SECTION 7.2 Preservation of Information; Communications to Owners.................................36
SECTION 7.3 Reports by Issuer.....................................................................36
SECTION 7.4 Reports by Indenture Trustee..........................................................36
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES....................................................................37
SECTION 8.1 Collection of Money...................................................................37
SECTION 8.2 Accounts; Distributions...............................................................37
SECTION 8.3 General Provisions Regarding Accounts.................................................38
SECTION 8.4 Servicer's Monthly Statements.........................................................38
SECTION 8.5 Release of Collateral.................................................................38
SECTION 8.6 Opinion of Counsel....................................................................39
ARTICLE IX
SUPPLEMENTAL INDENTURES.................................................................................39
SECTION 9.1 Supplemental Indentures Without Consent of Owners.....................................39
SECTION 9.2 Supplemental Indentures with Consent of Owners........................................40
SECTION 9.3 Execution of Supplemental Indentures..................................................41
SECTION 9.4 Effect of Supplemental Indenture......................................................41
SECTION 9.5 Conformity with Trust Indenture Act...................................................42
SECTION 9.6 Reference in Notes to Supplemental Indentures.........................................42
SECTION 9.7 Amendments to Trust Agreement.........................................................42
ARTICLE X
REDEMPTION OF NOTES.....................................................................................42
SECTION 10.1 Redemption. ..........................................................................42
SECTION 10.2 Form of Redemption Notice.............................................................43
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture
Trustee and Note Insurer..............................................................43
ARTICLE XI
MISCELLANEOUS...........................................................................................43
SECTION 11.1 Compliance Certificates and Opinions, etc.............................................43
SECTION 11.2 Form of Documents Delivered to Indenture Trustee......................................44
SECTION 11.3 Acts of Owners........................................................................44
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Note Insurer.........45
SECTION 11.5 Notices to Owners; Waiver.............................................................45
SECTION 11.6 Conflict with Trust Indenture Act.....................................................46
SECTION 11.7 Effect of Headings and Table of Contents..............................................46
SECTION 11.8 Successors and Assigns................................................................46
SECTION 11.9 Separability..........................................................................46
SECTION 11.10 Benefits of Indenture.................................................................46
SECTION 11.11 Legal Holidays........................................................................46
SECTION 11.12 Governing Law.........................................................................46
SECTION 11.13 Counterparts..........................................................................46
SECTION 11.14 Recording of Indenture................................................................46
SECTION 11.15 Trust Obligation......................................................................47
SECTION 11.16 No Petition...........................................................................47
SECTION 11.17 Inspection............................................................................47
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 11.18 Grant of Owner Rights to Note Insurer.....................................................47
SECTION 11.19 Third Party Beneficiary...................................................................47
SECTION 11.20 Suspension and Termination of Note Insurer's Rights.......................................48
</TABLE>
EXHIBITS
SCHEDULE A - Schedule of Mortgage Loans
EXHIBIT A - Form of Note
<PAGE>
INDENTURE (this "Indenture" or this "Agreement") dated as of
_______________, between AMRESCO RESIDENTIAL SECURITIES CORPORATION MORTGAGE
LOAN OWNER TRUST 199__-__, a Delaware business trust (the "Issuer"), and
_____________________________, a ___________ banking corporation, as indenture
trustee and not in its individual capacity (the "Indenture Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Owners of the AMRESCO Residential
Securities Corporation Adjustable Rate Mortgage Loan Asset Backed Notes, Series
199__-__ and the Note Insurer.
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants to the
Indenture Trustee on the Closing Date, as Indenture Trustee for the benefit of
the Owners of the Notes and the Note Insurer, all of the Issuer's right, title
and interest whether now existing or hereafter acquired in and to: (i) the Trust
Estate; (ii) all right, title and interest of the Issuer in the Sale and
Servicing Agreement (including the Issuer's right to cause the Seller to
repurchase Mortgage Loans from the Issuer under certain circumstances described
therein); (iii) all present and future claims, demands, causes of action and
choses in action in respect of any or all of the foregoing and all payments on
or under and all proceeds of every kind and nature whatsoever in respect of any
or all of the foregoing, including all proceeds of the conversion thereof,
voluntary or involuntary, into cash or other liquid property, all cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, insurance proceeds, condemnation awards, rights to
payment of any and every kind and other forms of obligations and receivables,
instruments and other property which at any time constitute all or part of or
are included in the proceeds of any of the foregoing; (iv) all funds on deposit
from time to time in the Accounts (including the Note Account) and (v) all other
property of the Trust from time to time (collectively, the "Collateral").
The foregoing Grant is made in trust to secure (i) the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, (ii) the
payment of all other amounts payable under this Indenture and (iii) compliance
with the provisions of this Indenture, all as provided in this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Owners of
the Notes and the Note Insurer, acknowledges such Grant, accepts the trust
hereunder and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of the Owners of the Notes and
the Note Insurer may be adequately and effectively protected. The Indenture
Trustee agrees that it will hold the Note Insurance Policy in trust and that it
will hold any proceeds of any claim made upon the Note Insurance Policy solely
for the use and benefit of the Owners of the Notes in accordance with the terms
hereof and the terms of the Note Insurance Policy. The Indenture Trustee agrees
and acknowledges that the Files will be held by the Custodian, as agent of the
Indenture Trustee, in trust, for the use and benefit of the Issuer, the Note
Insurer and all present and future Owners of the Notes in _____________________.
The Indenture Trustee further agrees and acknowledges that each other item of
Collateral that is physically delivered to the Indenture Trustee will be held by
the Indenture Trustee in _______________________.
The Indenture Trustee further acknowledges that in the event the
conveyance of the Mortgage Loans by the Depositor to the Issuer pursuant to the
Sale and Servicing Agreement is determined to constitute a financing, the
Indenture Trustee holds the Mortgage Loans as the designee of the Issuer,
subject, however, to a prior lien in favor of the Noteholders and the Note
Insurer.
1
<PAGE>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions. Except as otherwise specified herein or as the context
may otherwise require, the following terms have the respective meanings set
forth below for all purposes of this Indenture.
"Act": The meaning specified in Section 11.3(a) hereof.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer": With respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter).
"Book-Entry Notes": A beneficial interest in the Notes, the ownership
and transfer of which shall be made through book entries by a Clearing Agency as
described in Section 2.10.
"Book-Entry Owner": With respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Business Day": Any day other than a Saturday, Sunday or a day on which
commercial banking institutions in The City of New York, Dallas, Texas, State of
California, the city in which the Corporate Trust Office is located or the city
in which the principal office of the Note Insurer is located are authorized or
obligated by law or executive order to be closed.
"Certificate of Trust": The certificate of trust of the Issuer
substantially in the form of Exhibit A to the Trust Agreement.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant": A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date": On or about _________________________.
"Code": The Internal Revenue Code of 1986, as amended from time to
time, and the Treasury Regulations promulgated thereunder.
"Collateral": The meaning specified in the Granting Clause of this
Indenture.
2
<PAGE>
"Corporate Trust Office": The principal office of the Indenture Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Agreement is located
at _______________________, ________________, _____________, Attention:
____________________________, or at such other address as the Indenture Trustee
may designate from time to time by notice to the Owners and the Issuer, or the
principal corporate trust office of any successor Indenture Trustee at the
address designated by such successor Indenture Trustee by notice to the Owners,
the Note Insurer and the Issuer.
"Default": Any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes": The meaning specified in Section 2.12.
"Depositor": AMRESCO Residential Securities Corporation, a Delaware
corporation.
"Event of Default": The meaning specified in Section 5.1 hereof.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Final Payment Date": __________________________.
"Grant": To mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Indenture Trustee": ____________________, a ________________
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee under this Indenture.
"Independent": When used with respect to any specified Person, that the
Person (a) is in fact independent of the Issuer, any other obligor on the Notes,
the Depositor, the Seller and any Affiliate of any of the foregoing Persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Depositor, the Seller or any
Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Depositor, the Seller or any Affiliate of
any of the foregoing Persons as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.
"Independent Certificate": A certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
3
<PAGE>
"Issuer": AMRESCO Residential Securities Corporation Mortgage Loan
Owner Trust 199__-__ until a successor replaces it and, thereafter, means the
successor and, for purposes of any provision contained herein and required by
the TIA, each other obligor on the Notes.
"Issuer Order" and "Issuer Request": A written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
"Moody's": Moody's Investors Service, Inc., or any successor thereto.
"Note": The Issuer's Adjustable Rate Mortgage Loan Asset Backed Notes,
Series 199__-__, substantially in the Form of Exhibit A hereto.
"Note Register" and "Note Registrar": The respective meanings specified
in Section 2.3.
"Officer's Certificate": A certificate signed by any Authorized Officer
of the Issuer, under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1, and delivered to the
Indenture Trustee.
"Opinion of Counsel": One or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and
the Note Insurer, and which opinion or opinions shall be addressed to the
Indenture Trustee, as Indenture Trustee, and the Note Insurer and shall comply
with any applicable requirements of Section 11.1 and shall be in form and
substance satisfactory to the Indenture Trustee and the Note Insurer.
"Outstanding": With respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Owners of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision for such notice has been made, satisfactory to the Indenture
Trustee);
(iii) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser; provided, that in determining
whether the Owners of the requisite Outstanding Amount of the Notes
have given any request, demand, authorization, direction, notice,
consent, or waiver hereunder or under any Operative Document, Notes
owned by the Issuer, any other obligor upon the Notes, the Depositor,
the Seller or any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except that, in
determining whether the Indenture Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Notes that the Indenture Trustee knows to be
so owned shall be so disregarded. Notes so owned that have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Indenture Trustee the pledgee's right so to
act with respect to such Notes and that the pledgee
4
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is not the Issuer, any other obligor upon the Notes, the Depositor, the
Seller or any Affiliate of any of the foregoing Persons;
(iv) Notes alleged to have been destroyed, lost or stolen for
which replacement Notes have been issued as provided for in Section 2.4
thereof; and
(v) Notes as to which the Indenture Trustee has made the final
distribution thereon, whether or not such Notes are ever returned to
the Indenture Trustee.
"Outstanding Amount": The aggregate principal amount of all Notes that
are Outstanding at the date of determination.
"Owner": The Person in whose name a Note is registered on the Note
Register; provided that the exercise of any rights of such Owner under this
Indenture shall at all times be subject to Section 11.18 hereto.
"Owner Trustee": __________________________, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, or any successor
Owner Trustee under the Trust Agreement.
"Paying Agent": The Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make payments to and distributions from the
Note Account, including payment of principal of or interest on the Notes on
behalf of the Issuer.
"Payment Date": The 25th day of any month or if such day is not a
Business Day, the next succeeding Business Day, commencing in
___________________.
"Predecessor Note": With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 2.4 in lieu of a mutilated, lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Rating Agency": Either or both of (i) Standard & Poor's or (ii)
Moody's. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Note Insurer, notice of which
designation shall be given to the Issuer, the Depositor, the Seller, the
Indenture Trustee, the Owner Trustee and the Servicer.
"Rating Agency Condition": With respect to any action to which a Rating
Agency Condition applies, that each Rating Agency shall have been given 10 days
(or such shorter period as is acceptable to each Rating Agency) prior notice
thereof and that each of the Rating Agencies shall have notified the Depositor,
the Seller, the Servicer, the Note Insurer and the Issuer in writing that such
action will not result in a reduction or withdrawal of the then current rating
of the Notes.
"Record Date": With respect to any Payment Date, the last Business Day
immediately preceding such Payment Date.
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"Redemption Price": In the case of a redemption of the Notes pursuant
to Section 10.1, an amount equal to the sum of (i) the unpaid principal amount
of the Notes redeemed plus accrued and unpaid interest thereon (including any
Available Funds Cap Carry Forward Amounts) at the Note Rate to but excluding the
Redemption Date, (ii) any unpaid Trust Fees and Expenses, (iii) all other
amounts owed to the Note Insurer pursuant to the Insurance Agreement and (iv)
any unreimbursed Delinquency Advances and Servicing Advances.
"Registered Owner": The Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
"Responsible Officer": With respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement": The Sale and Servicing Agreement dated
as of _____________, among the Issuer, the Depositor, the Seller, the Servicer,
and the Indenture Trustee.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": AMRESCO Residential Capital Markets, Inc., in its capacity as
seller under the Sale and Servicing Agreement, and its successor in interest.
"Servicer": ___________________, in its capacity as servicer under the
Sale and Servicing Agreement, and any Successor Servicer thereunder.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
"State": Any one of the 50 States of the United States of America or
the District of Columbia.
"Successor Servicer": The meaning specified in Section 3.7(e).
"Trust Estate": The assets subject to this Agreement, the Sale and
Servicing Agreement and the Trust Agreement and assigned to the Trust, which
assets consist of (a) the Initial Mortgage Loans listed in Schedule I to the
Sale and Servicing Agreement and any Subsequent Mortgage Loans listed in any
schedule or schedules attached to any Subsequent Transfer Agreement, including
the related Files that the Seller and the Depositor cause to be delivered to the
Indenture Trustee, all payments of principal received, collected or otherwise
recovered after the Cut-Off Date (or Subsequent Cut-Off Date) for each Mortgage
Loan (other than any principal payments due thereon on or prior to the Cut-Off
Date or Subsequent Cut-Off Date), all payments of interest accruing on each
Mortgage Loan after the Cut-Off Date (or Subsequent Cut-Off Date) therefor
(other than any interest payments due thereon on or prior to the Cut-Off Date or
Subsequent Cut-Off Date) and all other proceeds received in respect of such
Mortgage Loans, (b) the Note Insurance Policy, (c) any Insurance Policies, (d)
all cash, instruments or other property held or required to be deposited in the
Principal and Interest Account, the Note Account, the Pre-Funding Account, the
Capitalized Interest Account and the Available Funds Cap Carry Forward Amount
Account, including all investments made with funds in such accounts (but not
including any income on funds deposited in, or investments made with funds
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deposited in, the Principal and Interest Account, which income shall belong to
and be for the account of the Servicer, and not including any income on funds
deposited in, or investments made with funds deposited in, the Note Account or
Available Funds Cap Carry-Forward Amount Account, which income shall belong to
and be for the account of the Issuer), (e) the Issuer's rights under the Sale
and Servicing Agreement, and (f) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or other liquid assets,
including, without limitation, all insurance proceeds and condemnation awards.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as
amended, as in force on the date hereof, unless otherwise specifically provided.
"UCC": Unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, for all purposes of this Indenture capitalized terms used but
not otherwise defined herein have the respective meanings set forth in the Sale
and Servicing Agreement or, if not defined therein, in the Trust Agreement.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security Owner" means an Owner.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the Indenture securities means the Issuer and any other
obligor on the Indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
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(vi) any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to
time amended, modified or supplemented (as provided in such agreements)
and includes (in the case of agreements or instruments) references to
all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and
assigns.
ARTICLE II
THE NOTES
SECTION 2.1 Form. The Notes shall be designated as the "AMRESCO
Residential Securities Corporation Mortgage Loan Asset Backed Notes, Series
199__-__" and, together with the Indenture Trustee's certificate of
authentication, shall be in substantially the form set forth in Exhibit A
hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution thereof. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
The Notes may be marked as temporary, and any Note being so marked may
be cancelled and destroyed for substitution by a replacement Note, subject to
the provisions of Section 2.2.
SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Owner Trustee shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.8,
the Indenture Trustee shall authenticate and deliver Notes for original issue in
an aggregate principal amount of $___________. The aggregate principal amount of
Notes Outstanding at any time may not exceed such amount.
The Notes that are authenticated and delivered by the Indenture Trustee
to or upon the order of the Issuer on the Closing Date shall be dated
______________. All other Notes that are authenticated after the Closing Date
for any other purpose under this Indenture shall be dated the date of their
authentication. The
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Notes shall be issuable as registered Notes in the minimum denomination of
$25,000 and integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar with the consent of the Note Insurer, the Issuer will give the
Indenture Trustee prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note
Register, and the Indenture Trustee shall have the right to inspect the Note
Register at all reasonable times and to obtain copies thereof, and the Indenture
Trustee and the Note Insurer shall have the right to rely upon a certificate
executed on behalf of the Note Registrar by an Authorized Officer thereof as to
the names and addresses of the Owners of the Notes and the principal amounts and
number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Owner shall
obtain from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes in any authorized denominations, of a like
aggregate principal amount.
At the option of any Owner, Notes owned by such Owner may be exchanged
for other Notes in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Indenture Trustee shall authenticate and the Owner shall obtain from the
Indenture Trustee, the Notes which the Owner making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by the
Owner thereof or such Owner's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
No service charge shall be made to an Owner for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that
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may be imposed in connection with any registration of transfer or exchange of
Notes, other than exchanges pursuant to Section 2.4 or Section 9.6 not involving
any transfer.
The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to such Note.
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer, the Note Insurer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, and provided that the requirements of 8-405 of the UCC are
met, the Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note; provided, however, that if
any such destroyed, lost or stolen Note, but not a mutilated Note, shall have
become or within seven days shall be due and payable, or shall have been called
for redemption, instead of issuing a replacement Note, the Issuer may pay such
destroyed, lost or stolen Note when so due or payable or upon the Redemption
Date without surrender thereof. If, after the delivery of such replacement Note
or payment of a destroyed, lost or stolen Note pursuant to the proviso to the
preceding sentence, a bona fide purchaser of the original Note in lieu of which
such replacement Note was issued presents for payment such original Note, the
Issuer, the Note Insurer and the Indenture Trustee shall be entitled to recover
such replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer, the Note Insurer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Owner of such Note, other than the Note
Insurer, of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other reasonable expenses (including
the fees and expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.5 Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Note Insurer, the
Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture
Trustee may treat the Person in whose name any Note is registered (as of the day
of determination) as the owner of such Note for the purpose of receiving
payments of principal of and interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Issuer, the Note Insurer, the Indenture Trustee or any agent of the Issuer or
the Indenture Trustee shall be affected by notice to the contrary.
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SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.
(a) The Notes shall accrue interest at the Note Rate as set forth in
the Sale and Servicing Agreement, and such interest shall be payable on each
Payment Date as specified therein, subject to Section 3.1 hereof. Any
installment of interest or principal, if any, payable on any Note that is
punctually paid or duly provided for by the Issuer on the applicable Payment
Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered on the Record Date by check mailed first-class
postage prepaid to such Person's address as it appears on the Note Register on
such Record Date, except that, unless Definitive Notes have been issued pursuant
to Section 2.12, with respect to Notes registered on the Record Date in the name
of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payment will be made by wire transfer in immediately available funds to
the account designated by such nominee and except for the final installment of
principal payable with respect to such Note on a Payment Date or on the
applicable Final Payment Date (and except for the Redemption Price for any Note
called for redemption pursuant to Section 10.1), which shall be payable as
provided below. The funds represented by any such checks returned undelivered
shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the Sale and Servicing Agreement and the form of the
Notes set forth in Exhibit A. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the earlier of (i) the Final Payment Date, (ii) the Redemption Date or (iii)
the date on which an Event of Default shall have occurred and be continuing, if
the Indenture Trustee or the Owners of Notes representing not less than a
majority of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2. All principal
payments on the Notes shall be made pro rata to the Owners. The Indenture
Trustee shall notify the Person in whose name a Note is registered at the close
of business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. A copy of such form of notice shall be sent to the Note Insurer by
the Indenture Trustee. Notices in connection with redemptions of Notes shall be
mailed to Owners as provided in Section 10.2.
SECTION 2.7 Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes may be held or disposed of by the Indenture
Trustee in accordance with its standard retention or disposal policy as in
effect at the time, unless the Issuer shall direct by an Issuer Order that they
be destroyed or returned to it; provided, that such Issuer Order is timely and
the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.8 Authentication of Notes. The Notes may be authenticated by
the Indenture Trustee upon Issuer Request.
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SECTION 2.9 Release of Collateral.
(a) Subject to subsections (b) and (c) hereof, Section 11.1 hereof and
the terms of the Operative Documents, the Indenture Trustee shall release
property from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and Independent
Certificates in accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion
of Counsel in lieu of such Independent Certificates to the effect that the TIA
does not require any such Independent Certificates.
(b) The Servicer, on behalf of the Issuer, shall be entitled to obtain
a release from the lien of this Indenture for any Mortgage Loan and the related
Property at any time (i) after a payment by the Seller or the Issuer of the Loan
Purchase Price of the Mortgage Loan, (ii) after a Qualified Replacement Mortgage
is substituted for such Mortgage Loan and payment of the Substitution Amount if
any, (iii) after liquidation of the Mortgage Loan in accordance with Section
4.13 of the Sale and Servicing Agreement and the deposit of all Liquidation
Proceeds thereon in the Principal and Interest Account, or (iv) upon the
termination of a Mortgage Loan (due to, among other causes, a prepayment in full
of the Mortgage Loan and sale or other disposition of the related Property), if
the Issuer delivers to the Indenture Trustee and the Note Insurer an Issuer
Request (A) identifying the Mortgage Loan and the related Property to be
released, (B) requesting the release thereof, (C) setting forth the amount
deposited in the Principal and Interest Account with respect thereto, and (D)
certifying that the amount deposited in the Principal and Interest Account (x)
equals the Loan Purchase Price of the Mortgage Loan, in the event a Mortgage
Loan and the related Property are being released from the lien of this Indenture
pursuant to item (i) above, (y) equals the Substitution Amount related to the
Qualified Replacement Mortgage and the Mortgage Loan being released from the
lien of this Indenture pursuant to item (ii) above, or (z) equals the entire
amount of recoveries received with respect to such Mortgage Loan and the related
Property in the event of a release from the lien of this Indenture pursuant to
items (iii) or (iv) above.
(c) The Indenture Trustee shall, if requested in writing by the
Servicer, temporarily release or cause the Custodian to temporarily release to
the Servicer the File pursuant to the provisions of Section 4.14 of the Sale and
Servicing Agreement upon compliance by the Servicer of the provisions thereof
provided that the Indenture Trustee's File shall have been stamped to signify
the Issuer's pledge to the Indenture Trustee under this Indenture.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by,
or on behalf of, the Issuer. The Book-Entry Notes shall be registered initially
on the Note Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Owner of any Note will receive a definitive Note
representing such Book-Entry Owner's interest in such Note, except as provided
in Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to such Book-Entry Owners pursuant to
Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar, the Note Insurer and the Indenture
Trustee shall be entitled to deal with the Clearing Agency for
all purposes of this Indenture (including the payment of
principal of and interest on the Notes and the giving of
instructions or directions hereunder) as the sole Owner of the
Notes, and shall have no obligation to the Book-Entry Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the
provisions of this Section shall control;
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(iv) the rights of Book-Entry Owners shall be exercised only
through the Clearing Agency and shall be limited to those
established by law and agreements between such Book-Entry
Owners and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued
pursuant to Section 2.12, the initial Clearing Agency will
make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of
and interest on the Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Owners of Notes
evidencing a specified percentage of the Outstanding Amount of
the Notes, the Clearing Agency shall be deemed to represent
such percentage only to the extent that it has received
instructions to such effect from Book-Entry Owners and/or
Clearing Agency Participants owning or representing,
respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to
the Indenture Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Owners is required under this Indenture, unless and until
Definitive Notes shall have been issued to such Book-Entry Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Owners of the Notes to the
Clearing Agency, and shall have no obligation to such Book-Entry Owners.
SECTION 2.12 Definitive Notes. If (i) the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Notes and the Issuer is unable to locate a qualified successor, (ii)
the Issuer at its option advises the Indenture Trustee in writing that it elects
to terminate the book-entry system through the Clearing Agency or (iii) after
the occurrence of an Event of Default, Owners of the Book-Entry Notes
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of such Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Book-Entry Owners, then the Clearing Agency shall
notify all Book-Entry Owners and the Indenture Trustee of the occurrence of such
event and of the availability of Definitive Notes to Book-Entry Owners
requesting the same. Upon surrender to the Indenture Trustee of the typewritten
Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Notes in accordance with the instructions of
the Clearing Agency. None of the Issuer, the Note Registrar, the Note Insurer or
the Indenture Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee
shall recognize the Owners of the Definitive Notes as Owners.
SECTION 2.13 Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that, for federal, state and
local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Collateral. The Issuer, by entering
into this Indenture, and each Owner, by its acceptance of a Note (and each
Book-Entry Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
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ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and
punctually pay (or will cause to be duly and punctually paid) the principal of
and interest, if any, on the Notes in accordance with the terms of the Notes and
this Indenture. Without limiting the foregoing, subject to and in accordance
with Section 8.2(c), on each Payment Date the Issuer will cause to be
distributed all amounts on deposit in the Note Account deposited or retained
therein pursuant to the Sale and Servicing Agreement for the benefit of the
Notes, to the Owners and the Note Insurer. Amounts properly withheld under the
Code by any Person from a payment to any Owner of interest and/or principal
shall be considered as having been paid by the Issuer to such Owner for all
purposes of this Indenture.
The Notes shall be non-recourse obligations of the Issuer and shall be
limited in right of payment to amounts available from the Collateral and any
amounts received by the Indenture Trustee under the Note Insurance Policy in
respect of the Notes, as provided in this Indenture and the Sale and Servicing
Agreement. The Issuer shall not otherwise be liable for payments on the Notes.
If any other provision of this Indenture shall be deemed to conflict with the
provisions of this Section 3.1, the provisions of this Section 3.1 shall
control.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain
in the ____________ ____________________________, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Issuer will give
prompt written notice to the Indenture Trustee and the Note Insurer of the
location, and of any change in the location, of any such office or agency. If at
any time the Issuer shall fail to maintain any such office or agency or shall
fail to furnish the Indenture Trustee with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Issuer hereby appoints the Indenture Trustee as its agent to receive all such
surrenders, notices and demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Section 8.2 (a ) and (b), all payments of amounts due and payable with respect
to any Notes that are to be made from amounts withdrawn from the Principal and
Interest Account or retained in the Note Account pursuant to Section 8.2(c)
shall be made on behalf of the Issuer by the Indenture Trustee or by the Paying
Agent, and no amounts so withdrawn from the Principal and Interest Account or
retained in the Note Account for payments of Notes shall be paid over to the
Issuer except as provided in this Section 3.3.
On or before the second Business Day preceding each Payment Date and
Redemption Date, the Indenture Trustee shall cause to be deposited in the Note
Account an aggregate sum sufficient to pay the amounts due on such Payment Date
under the Notes, such sum to be held in trust for the benefit of the Persons
entitled thereto.
Subject to the prior consent of the Note Insurer, any Paying Agent
shall be appointed by Issuer Order with written notice thereof to the Indenture
Trustee and the Note Insurer. Any Paying Agent appointed by the Issuer shall be
a Person who would be eligible to be Indenture Trustee hereunder as provided in
Section 6.11. The Issuer shall not appoint any Paying Agent (other than the
Indenture Trustee) which is not, at the time of such appointment, a Designated
Depository Institution.
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The Issuer will cause each Paying Agent to execute and deliver to the
Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section 3.3, that such Paying
Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the
Owners entitled thereto until such sums shall be paid to such
Owners or otherwise disposed of as herein provided and pay
such sums to such Owners as herein provided;
(ii) give the Indenture Trustee and the Note Insurer notice of
any default by the Issuer (or any other obligor upon the
Notes) of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such
Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the
standards required to be met by a Paying Agent at the time of
its appointment;
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection
therewith; provided, however, that with respect to withholding
and reporting requirements applicable to original issue
discount (if any) on the Notes, the Issuer shall have first
provided the calculations pertaining thereto to the Indenture
Trustee; and
(vi) not commence a bankruptcy proceeding against the Issuer
in connection with this Indenture.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer on Issuer Request;
and the Owner of such Note shall thereafter, as an unsecured general creditor,
look only to the Issuer for payment thereof (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Indenture Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of ______________, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date
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of such publication, any unclaimed balance of such money then remaining will be
repaid to the Issuer. The Indenture Trustee shall also adopt and employ, at the
expense and direction of the Issuer, any other reasonable means of notification
of such repayment (including, but not limited to, mailing notice of such
repayment to Owners whose Notes have been called but have not been surrendered
for redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Indenture Trustee or of any
Paying Agent, at the last address of record for each such Owner).
SECTION 3.4 Existence.
(a) Subject to subsection (b) of this Section 3.4, the Issuer will keep
in full effect its existence, rights and franchises as a business trust under
the laws of the State of Delaware (unless it becomes, or any successor Issuer
hereunder is or becomes, organized under the laws of any other State or of the
United States of America, in which case the Issuer will keep in full effect its
existence, rights and franchises under the laws of such other jurisdiction) and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
SECTION 3.5 Protection of Collateral. The Issuer will from time to time
and upon the direction of the Note Insurer execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of all
or any portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights
of the Indenture Trustee, the Owners and the Note Insurer in
such Collateral against the claims of all persons and parties.
SECTION 3.6 Annual Opinions as to Collateral. On or before
______________ in each calendar year, beginning in ______, the Issuer shall
furnish to the Indenture Trustee and the Note Insurer an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
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continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until _______________ of the following
calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Mortgage Loans.
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) Subject to the prior consent of the Note Insurer, the Issuer may
contract with or otherwise obtain the assistance of other Persons to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee and the Note Insurer in
an Officer's Certificate of the Issuer shall be deemed to be action taken by the
Issuer. Initially, the Issuer has contracted with the Seller and the Servicer to
assist the Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Operative Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Operative
Document or any provision thereof without the consent of the Indenture Trustee,
the Note Insurer, and the Owners of at least a majority of the Outstanding
Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Termination Event under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies
thereof, and shall specify in such notice the action, if any, the Issuer is
taking with respect of such default. If such Servicer Termination Event shall
arise from the failure of the Servicer to perform any of its duties or
obligations under the Sale and Servicing Agreement with respect to the Mortgage
Loans, the Issuer shall take all reasonable steps available to it to remedy such
failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 4.20 of
the Sale and Servicing Agreement, the Issuer, upon the prior written consent of
or upon the direction of the Note Insurer, shall appoint a successor servicer
(the "Successor Servicer") in accordance with the provisions of Section 4.20 of
the Sale and Servicing Agreement.
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(f) Upon any termination of the Servicer's rights and powers pursuant
to the Sale and Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee and the Note Insurer. As soon as a Successor Servicer is
appointed pursuant to Section 4.20 of the Sale and Servicing Agreement, the
Issuer shall notify the Indenture Trustee of such appointment, specifying in
such notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee and the Note Insurer, or, if a
Note Insurer Default has occurred and is continuing, the Owners of at least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Sale and Servicing Agreement) or the Operative
Documents, or waive timely performance or observance by the Servicer or the
Seller under the Sale and Servicing Agreement; and (ii) that any such amendment
shall not (A) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, distributions that are required to be made for the benefit
of the Owners or (B) reduce the aforesaid percentage of the Notes that is
required to consent to any such amendment, without the consent of the Owners of
all the outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Indenture Trustee and the Note Insurer,
the Issuer agrees, promptly following a request by the Indenture Trustee or the
Note Insurer to do so, to execute and deliver, in its own name and at its own
expense, such agreements, instruments, consents and other documents as the
Indenture Trustee or the Note Insurer may deem necessary or appropriate in the
circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture or
the Sale and Servicing Agreement, sell, transfer,
exchange or otherwise dispose of any of the
properties or assets of the Issuer, including those
included in the Collateral, unless directed to do so
by the Indenture Trustee or the Note Insurer;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the
Notes (other than amounts properly withheld from such
payments under the Code) or assert any claim against
any present or former Owner by reason of the payment
of the taxes levied or assessed upon any part of the
Collateral;
(iii) engage in any business or activity other than as
permitted by the Trust Agreement or other than in
connection with, or relating to, the issuance of
Notes pursuant to this Indenture, or amend the Trust
Agreement as in effect on the Closing Date other than
in accordance with Section 11.1 thereof,
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guaranty any
indebtedness of any Person, except for such
indebtedness as may be incurred by the Issuer in
connection with the issuance of the Notes pursuant to
this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
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(vii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this
Indenture to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be
released from any covenants or obligations with
respect to the Notes under this Indenture except as
may be expressly permitted hereby, (B) permit any
lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of
this Indenture) to be created on or extend to or
otherwise arise upon or burden the Collateral or any
part thereof or any interest therein or the proceeds
thereof (other than tax liens, mechanics' liens and
other liens that arise by operation of law, in each
case on any of the Properties and arising solely as a
result of an action or omission of the related
Mortgagor) or (C) permit the lien of this Indenture
not to constitute a valid first priority (other than
with respect to any such tax, mechanics' or other
lien) security interest in the Collateral;
(viii) take any other action or fail to take any action
which may cause the Issuer to be taxable as (a) an
association pursuant to Section 7701 of the Code and
the corresponding regulations or (b) as a taxable
mortgage pool pursuant to Section 7701(i) of the Code
and the corresponding regulations.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Indenture Trustee and the Note Insurer, within 120 days after the end of
each fiscal year of the Issuer (commencing with the ______ fiscal year), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during such
year and of its performance under this Indenture has
been made under such Authorized Officer's
supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with
all conditions and covenants under the Indenture
throughout such year, or, if there has been a default
in its compliance with any such condition or
covenant, specifying each such default known to such
Authorized Officer and the nature and status thereof.
SECTION 3.10 Covenants of the Issuer. All covenants of the Issuer in
the Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the statements,
representations, warranties or obligations of the Issuer hereunder, as to all of
which the parties hereto agree to look solely to the property of the Issuer.
SECTION 3.11 Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.11
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
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SECTION 3.12 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Seller, the Indenture Trustee, the Owner Trustee, the Note
Insurer, the Owners and the Certificateholders as contemplated by, and to the
extent funds are available for such purpose under, the Sale and Servicing
Agreement or the Trust Agreement. The Issuer will not, directly or indirectly,
make or cause to be made payments to or distributions from the Principal and
Interest Account except in accordance with this Indenture and the Operative
Documents.
SECTION 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer
shall treat the Notes as indebtedness for all federal, state and local income
and franchise tax purposes.
SECTION 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Note Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder and each default on the part of the
Servicer, the Depositor or the Seller of its obligations under the Sale and
Servicing Agreement.
SECTION 3.15 Further Instruments and Acts. Upon request of the
Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
SECTION 3.16 No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Operative Documents and all activities
incidental thereto.
SECTION 3.17 No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes and amounts due to the Note Insurer under this
Indenture and the Insurance Agreement.
SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by this Indenture or the Operative Documents, the Issuer shall
not make any loan or advance or credit to, or guarantee (directly or indirectly
or by an instrument having the effect of assuring another's payment or
performance on any obligation or capability of so doing or otherwise), endorse
or otherwise become contingently liable, directly or indirectly, in connection
with the obligations, stocks or dividends of, or own, purchase, repurchase or
acquire (or agree contingently to do so) any stock, obligations, assets or
securities of, or any other interest in, or make any capital contribution to,
any other Person.
SECTION 3.19 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes (except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Owners to receive payments of
principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8 and
3.10 hereof, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.7 and
the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights
of Owners as beneficiaries hereof with respect to the property so deposited with
the Indenture Trustee payable to all or any of them), and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when all of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.4 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.3) have been delivered to the Indenture Trustee for
cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
a. have become due and payable,
b. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited
or caused to be irrevocably deposited with the Indenture Trustee cash or direct
obligations of or obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Indenture Trustee for cancellation
when due to the Final Payment Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1), as the case may be;
(B) the later of (a) eighteen months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full of all unpaid
Trust Fees and Expenses and all sums owing to the Note Insurer under the
Insurance Agreement and (c) the date on which the Issuer has paid or caused to
be paid all other sums payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture
Trustee) an Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.1 and, subject to Section
11.2, each stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture with respect to the Notes have
been complied with.
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SECTION 4.2 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.3 and 4.3 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Owners of the Notes for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest; but such
moneys need not be segregated from other funds except to the extent required
herein or in the Sale and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.3 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default. "Event of Default,"wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any Current Interest on any Note when the
same becomes due and payable (it being understood that any Available Funds Cap
Carry Forward Amount does not constitute interest due and payable); or
(b) default in the payment of the principal of or any installment of
the principal of any Note when the same becomes due and payable; or
(c) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section 5.1 specifically dealt with), or any representation or warranty of
the Issuer made in this Indenture, the Insurance Agreement, the Sale and
Servicing Agreement or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such default
shall continue or not be cured, or the circumstance or condition in respect of
which such misrepresentation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 30 days after there shall have
been given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Owners of a majority
of the Outstanding Amount of the Notes, a written notice specifying such default
or incorrect representation or warranty and requiring it to be remedied and
stating that such notice is a notice of Default hereunder; or
(d) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Issuer's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
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(e) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Issuer to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Collateral, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due, or the taking of any action by the
Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee and the Note Insurer,
within five days after the occurrence thereof, written notice in the form of an
Officer's Certificate of any event which with the giving of notice and the lapse
of time would become an Event of Default under clauses (c) and (d) above, its
status and what action the Issuer is taking or proposes to take with respect
thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, the Indenture Trustee (x)
shall, at the direction or upon the prior written consent of the Note Insurer or
(y) may, if a Note Insurer Default has occurred and is continuing, at the
direction of the Owners of Notes representing not less than a majority of the
Outstanding Amount of the Notes declare all the Notes to be immediately due and
payable, by a notice in writing to the Issuer (and to the Indenture Trustee if
given by Owners), and upon any such declaration the unpaid principal amount of
such Notes, together with accrued and unpaid interest thereon through the date
of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Note Insurer or, if a Note Insurer
Default exists, the Owners of Notes representing a majority of the Note
Principal Balances of all Notes, with the prior written consent of the Note
Insurer, by written notice to the Issuer and the Indenture Trustee, may waive
the related Event of Default and rescind and annul such declaration and its
consequences if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
(i) all payments of principal of and interest on all
Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred;
and
(ii) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee
and its agents and counsel; and
(iii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely
by such acceleration, have been cured or waived as
provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default
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is made in the payment of the principal of or any installment of the principal
of any Note when the same becomes due and payable, the Issuer will, upon demand
of the Indenture Trustee and at the direction of the Note Insurer, pay to the
Indenture Trustee, for the benefit of the Owners of the Notes and the Note
Insurer, the whole amount then due and payable on such Notes for principal and
interest, with interest upon the overdue principal and, to the extent payment at
such rate of interest shall be legally enforceable, upon overdue installments of
interest at the rate borne by the Notes and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and the Note Insurer and their respective agents and
counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, shall at the direction of the Note Insurer, and if a Note Insurer Default
has occurred and is continuing, the Indenture Trustee may, in its discretion,
and shall at the direction of the Owners of the Notes representing a majority of
the Outstanding Amount of the Notes, institute a Proceeding for the collection
of the sums so due and unpaid, and may prosecute such Proceeding to judgment or
final decree, and may enforce the same against the Issuer or other obligor upon
such Notes and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged
or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall, at the direction of the Note Insurer, and if a Note Insurer
Default has occurred and is continuing, the Indenture Trustee may and shall at
the direction of the Owners of the Notes representing a majority of the
Outstanding Amount of the Notes, as more particularly provided in Section 5.4,
proceed to protect and enforce its rights and the rights of the Note Insurer and
the Owners, by such appropriate Proceedings as the Indenture Trustee shall deem
most effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Indenture Trustee by this Indenture or by
law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, upon the direction of the Note Insurer, by intervention
in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in
respect of the Notes and to file such other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to
the Indenture Trustee, each predecessor Indenture
Trustee and the Note Insurer, and their respective
agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each
predecessor Indenture Trustee (except as a result of
negligence or bad faith), the Note Insurer and of the
Owners allowed in such Proceedings;
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(ii) unless prohibited by applicable law and regulations,
to vote on behalf of the Owners of Notes in any
election of a trustee, a standby trustee or Person
performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to
distribute all amounts received with respect to the
claims of the Owners, the Note Insurer and the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee, the Note
Insurer or the Owners of Notes allowed in any
judicial proceedings relative to the Issuer, its
creditors and its property; and any trustee,
receiver, liquidator, custodian or other similar
official in any such Proceeding is hereby authorized
by each of such Owners and the Note Insurer to make
payments to the Indenture Trustee and, in the event
that the Indenture Trustee shall consent to the
making of payments directly to such Owners and the
Note Insurer, to pay to the Indenture Trustee such
amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each
predecessor Indenture Trustee and their respective
agents, attorneys and counsel, and all other expenses
and liabilities incurred, and all advances made, by
the Indenture Trustee and each predecessor Indenture
Trustee except as a result of negligence or bad
faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Owner or the Note Insurer any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Owner thereof
or the Note Insurer or to authorize the Indenture Trustee to vote in respect of
the claim of any Owner in any such proceeding except, as aforesaid, to vote for
the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Owners of the Notes and the Note Insurer.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Owners, and it shall not be necessary to make any
Owner a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee shall, at the direction of the Note Insurer, and if a Note
Insurer Default has occurred and is continuing, the Indenture Trustee may and at
the direction of the Owners of the Notes representing a majority of the
Outstanding Amount of the Notes shall, upon receipt of satisfactory indemnity
and assurances, do one or
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more of the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts
then payable on the Notes or under this Indenture
with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes
moneys adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture
with respect to the Collateral;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect
and enforce the rights and remedies of the Indenture
Trustee, the Note Insurer or the Owners;
(iv) sell the Collateral or any portion thereof or rights
or interest therein in a commercially reasonable
manner, at one or more public or private sales called
and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Collateral following an Event of Default, unless (A) the Owners of
100% of the Outstanding Amount of the Notes consent thereto, (B) the proceeds of
such sale or liquidation distributable to the Owners are sufficient to discharge
in full all amounts then due and unpaid upon such Notes for principal and
interest or (C) the Indenture Trustee determines that the Collateral will not
continue to provide sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent of
Owners of 66-2/3% of the Outstanding Amount of the Notes. In determining such
sufficiency or insufficiency with respect to clauses (B) and (C), the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Collateral
for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for the Indenture Trustee
Fee then due and any costs or expenses incurred by it in connection with the
enforcement of the remedies provided for in this Article V;
SECOND: to the Note Insurer for the Premium Amount then due
and unpaid;
THIRD: to the Servicer for the Servicing Fee then due and
unpaid;
FOURTH: to Owners for amounts due and unpaid on the Notes for
Current Interest, pro rata, according to the amounts due and payable on the
Notes for interest;
FIFTH: to Owners of the Notes for amounts due and unpaid on
the Notes for principal, pro rata;
SIXTH: to the Note Insurer for any amounts then due and
payable under the Insurance Agreement; and
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SEVENTH: to Owners of the Notes for any Available Funds Cap
Carry Forward Amount then unpaid; and
EIGHTH: to the Trust Paying Agent, for any amounts to be
distributed, pro rata, to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Owners pursuant to this Section. At least 15 days
before such record date, the Indenture Trustee shall mail to each Owner, the
Note Insurer and the Issuer a notice that states the record date, the payment
date and the amount to be paid.
SECTION 5.5 Optional Preservation of the Collateral. If the Notes have
been declared to be due and payable under Section 5.2 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Collateral. It is the desire of the parties hereto and the Owners that
there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the
Collateral. In determining whether to maintain possession of the Collateral, the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the
Collateral for such purpose.
SECTION 5.6 Limitation of Suits. No Owner of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder for so long as a Note Insurer Default has not occurred or is
not continuing and if a Note Insurer Default has occurred and is continuing,
unless:
(a) such Owner has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Owners of a majority of the Outstanding Amount of the Notes
have made written request to the Indenture Trustee to institute such Proceeding
in respect of such Event of Default in its own name as Indenture Trustee
hereunder;
(c) such Owner or Owners have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceedings; and
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Owners of a majority
of the Outstanding Amount of the Notes.
It is understood and intended that no one or more Owners of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Owners of Notes or to obtain or to seek to obtain priority or preference
over any other Owners or to enforce any right under this Indenture, except in
the manner herein provided.
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In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Owners To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Owner of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective Final Payment Date thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Owner.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
Trustee, the Note Insurer or any Owner has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee, the Note Insurer or to such Owner, then and in every such
case the Issuer, the Indenture Trustee, the Note Insurer and the Owners shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee and the Owners shall continue as though no
such Proceeding had been instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Note Insurer or to the
Owners is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee, the Note Insurer or any Owner of any Note to exercise any
right or remedy accruing upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this Article
V or by law to the Indenture Trustee, the Note Insurer or to the Owners may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Note Insurer or by the Owners, as the case may be,
subject, in each case, however, to the right of the Note Insurer to control any
such right and remedy, except as provided in Section 11.20.
SECTION 5.11 Control by The Note Insurer. The Note Insurer, or if a
Note Insurer Default exists, the Owners of a majority of the Outstanding Amount
of the Notes shall have the right to direct the time, method and place of
conducting any Proceeding for any remedy available to the Indenture Trustee with
respect to the Notes or exercising any trust or power conferred on the Indenture
Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) if a Note Insurer Default exists, subject to the express terms of
Section 5.4, any direction to the Indenture Trustee to sell or liquidate the
Collateral shall be by Owners of Notes representing not less than 100% of the
Outstanding Amount of the Notes;
(c) if the conditions set forth in Section 5.5 have been satisfied and
the Indenture Trustee elects to retain the Collateral pursuant to such Section,
then any direction to the Indenture Trustee by Owners of
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Notes representing less than 100% of the Outstanding Amount of the Notes to sell
or liquidate the Collateral shall be of no force and effect; and
(d) if a Note Insurer Default exists, the Indenture Trustee may take
any other action deemed proper by the Indenture Trustee that is not inconsistent
with such direction.
Notwithstanding the rights of the Note Insurer and the Owners set forth
in this Section, subject to Section 6.1, the Indenture Trustee need not take any
action that it determines might involve it in liability or might materially
adversely affect the rights of any Owners not consenting to such action.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the Note
Insurer, or if a Note Insurer Default exists, the Owners of Notes representing
not less than a majority of the Outstanding Amount of the Notes may waive any
past Default or Event of Default and its consequences except a Default (a) in
the payment of principal of or interest on any of the Notes or (b) in respect of
a covenant or provision hereof that cannot be modified or amended without the
consent of the Note Insurer or the Owner of each Note, as applicable. In the
case of any such waiver, the Issuer, the Indenture Trustee, the Note Insurer and
the Owners of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Owner of any Note by such Owner's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee or the Note Insurer, (b) any suit instituted by any Owner, or
group of Owners, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Owner for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture (or, in
the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
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of the Indenture Trustee or the Owners shall be impaired by the recovery of any
judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do so,
the Issuer shall take all such lawful action as the Indenture Trustee may
request to compel or secure the performance and observance by the Depositor, the
Seller and the Servicer, as applicable, of each of their obligations to the
Issuer under or in connection with the Sale and Servicing Agreement and to
exercise any and all rights, remedies, powers and privileges lawfully available
to the Issuer under or in connection with the Sale and Servicing Agreement to
the extent and in the manner directed by the Indenture Trustee, including the
transmission of notices of default on the part of the Depositor, the Seller or
the Servicer thereunder and the institution of legal or administrative actions
or proceedings to compel or secure performance by the Depositor, the Seller or
the Servicer of each of their obligations under the Sale and Servicing
Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the written direction (which direction shall be in
writing or by telephone, confirmed in writing promptly thereafter) of the Owners
of 66-2/3% of the Outstanding Amount of the Notes shall, exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Depositor, the
Seller or the Servicer under or in connection with the Sale and Servicing
Agreement including the right or power to take any action to compel or secure
performance or observance by the Depositor, the Seller or the Servicer, as the
case may be, of each of their obligations to the Issuer thereunder and to give
any consent, request, notice, direction, approval, extension, or waiver under
the Sale and Servicing Agreement and any right of the Issuer to take such action
shall be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee.
(a) If an Event of Default of which a Responsible Officer of the
Indenture Trustee shall have actual knowledge has occurred and is continuing,
the Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates
(or similar documents) or opinions furnished to the Indenture Trustee
and conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates
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(or similar documents) and opinions to determine whether or not they
conform to the requirements of this Indenture; provided that the
Indenture Trustee shall not be responsible for the accuracy or content
of any certificate (or similar document) or opinion furnished to it
pursuant to the terms of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Indenture Trustee shall not be personally liable for
any error of judgment made in good faith by a Responsible Officer
unless it is proved that the Indenture Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be personally liable
with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 5.11 or
for exercising or omitting to exercise any trust or power conferred
upon the Indenture Trustee under this Indenture.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer and except to the extent of income or other gain on investments which are
deposits in or certificates of deposit of the Indenture Trustee in its
commercial capacity.
(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and further provided that nothing in
this Section 6.1(g) shall be construed to limit the exercise by the Indenture
Trustee of any right or remedy permitted under this Indenture or otherwise in
the event of the Issuer's failure to pay the Indenture Trustee's fees and
expenses pursuant to Section 6.7. In determining that such repayment or
indemnity is not reasonably assured to it, the Indenture Trustee must consider
not only the likelihood of repayment or indemnity by or on behalf of the Issuer
but also the likelihood of repayment or indemnity from amounts payable to it
from the Collateral pursuant to Section 6.7.
(h) Every provision of this Indenture relating to the conduct of,
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
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SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Indenture
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel, which shall not be at
the expense of the Indenture Trustee. The Indenture Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on an
Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of any such
agent or attorney or custodian appointed by the Indenture Trustee with due care.
(d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any willful misconduct or gross negligence on the part of the
Custodian.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in this Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to the Note Insurer and each Owner notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provisions of such Note), the Indenture Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of Owners.
SECTION 6.6 Reports by Indenture Trustee to Owners. The Indenture
Trustee shall deliver to each Owner such information as may be required to
enable such Owner to prepare its federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Indenture Trustee shall
receive compensation for fees and reimbursement for expenses pursuant to Section
3.03(b)(i) and Section 3.03(b)(iv)(D) of the Sale and Servicing Agreement. The
Indenture Trustee and any director, officer, employee or agent of the Indenture
Trustee shall be indemnified by the Trust and held harmless against any loss,
liability, or "unanticipated out-of-pocket" expense incurred or paid to third
parties (which expenses shall not include
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salaries paid to employees, or allocable overhead, of the Indenture Trustee) in
connection with the acceptance or administration of its trusts hereunder or the
Notes, other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of duties hereunder or
by reason of reckless disregard of obligations and duties hereunder. All such
amounts described in the preceding sentence shall be payable as provided in (A)
Section 3.03(b)(i) of the Sale and Servicing Agreement with respect to such
amounts that are Indenture Trustee Reimbursable Expenses and (B) Section
3.03(b)(iv)(D) with respect to the remainder of such amounts, subject in the
case of clause (B), subject to Section 6.1(g) of this Indenture. The provisions
of this Section 6.7 shall survive the termination of this Indenture.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section shall survive the discharge of this Indenture. When the Indenture
Trustee incurs expenses after the occurrence of a Default specified in Section
5.1(e) or (f) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.
SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section. The Indenture Trustee may resign at
any time by so notifying the Issuer and the Note Insurer. The Owners of a
majority of the Outstanding Amount of the Notes (with the consent of the Note
Insurer) may remove the Indenture Trustee by so notifying the Indenture Trustee
and may appoint a successor Indenture Trustee. The Note Insurer (or the Issuer
upon the prior written consent of the Note Insurer) shall remove the Indenture
Trustee if:
(a) the Indenture Trustee fails to comply with Section 6.11;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed, or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee acceptable to the Note
Insurer. A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee, the Note Insurer and to the
Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to the Owners.
The retiring Indenture Trustee shall promptly transfer all property held by it
as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Owners of a majority of the Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any Owner
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
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Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.7 shall continue for the
benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Note
Insurer and the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force provided in the Notes or in this Indenture.
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Indenture
Trustee shall have the power, with the prior written consent of the Note
Insurer, and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Owners, such title to the
Collateral, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Indenture
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 6.11 and no notice to Owners of the appointment of any
co-trustee or separate trustee shall be required under Section 6.8 hereof;
provided that the Indenture Trustee shall deliver notice of any such co-trustee
or separate trustee to the Seller, the Servicer and the Note Insurer.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed the Indenture Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Collateral or
any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Indenture Trustee;
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(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Indenture on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall
at all times be authorized to exercise corporate trust powers. The Indenture
Trustee shall also satisfy the requirements of TIA Section 310(a) and shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition and it or its parent shall have a
long-term debt rating of A3 or better by Moody's or shall otherwise be
acceptable to Moody's. The Indenture Trustee shall comply with TIA Section
310(b), including the optional provision permitted by the second sentence of TIA
Section 310(b)(9); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities of the Issuer are outstanding if the requirements for such exclusion
set forth in TIA Section 310(b)(1) are met. If at any time the Indenture Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect specified in Section
6.8 hereof.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VII
OWNERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of
Owners. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after each Record Date, a list, in such form
as the Indenture Trustee may reasonably require, of the names and addresses of
the Owners as of such Record Date, (b) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date
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not more than 10 days prior to the time such list is furnished; provided,
however, that so long as the Indenture Trustee is the Note Registrar, no such
list shall be required to be furnished.
SECTION 7.2 Preservation of Information; Communications to Owners.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Owners contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.1
and the names and addresses of Owners received by the Indenture Trustee in its
capacity as Note Registrar. The Indenture Trustee may destroy any list furnished
to it as provided in such Section 7.1 upon receipt of a new list so furnished.
(b) Owners may communicate pursuant to TIA Section 312(b) with other
Owners with respect to their rights under this Indenture or under the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
SECTION 7.3 Reports by Issuer. The Issuer shall:
(a) file with the Indenture Trustee and the Note Insurer, within 15
days after the Issuer is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Issuer may be required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(b) file with the Indenture Trustee and the Note Insurer and the
Commission in accordance with the rules and regulations prescribed from time to
time by the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and regulations;
and
(c) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Owners described in TIA Section 313(c)) such summaries
of any information, documents and reports required to be filed by the Issuer
pursuant to clauses (i) and (ii) of this Section 7.3(a) and by rules and
regulations prescribed from time to time by the Commission.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each January 1, beginning with January 1, _____,
the Indenture Trustee shall mail to the Note Insurer and to each Owner as
required by TIA Section 313(c) a brief report dated as of such date that
complies with TIA Section 313(a). The Indenture Trustee also shall comply with
TIA Section 313(b).
A copy of each report at the time of its mailing to Owners shall be
filed by the Indenture Trustee with the Commission and each securities exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any securities exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money.
(a) General. Except as otherwise expressly provided herein, the
Indenture Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Collateral, the Indenture Trustee may, and upon written request of the Note
Insurer shall, take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
(b) Claims Under Note Insurance Policy. The Notes will be insured by
the Note Insurance Policy pursuant to the terms set forth therein,
notwithstanding any provisions to the contrary contained in this Indenture or
the Sale and Servicing Agreement. All amounts received under the Note Insurance
Policy shall be used solely for the payment to Owners of Insured Payments;
provided, however that the Note Insurance Policy does not insure the payment of
the Available Funds Cap Carry Forward Amount.
SECTION 8.2 Accounts; Distributions.
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee for the
benefit of the Owners and the Note Insurer, the Accounts as provided in the Sale
and Servicing Agreement. The Indenture Trustee shall deposit amounts into the
Accounts in accordance with the terms hereof and the Sale and Servicing
Agreement.
(b) On or before the Monthly Remittance Date prior to each Payment
Date, the Servicer shall withdraw from the Principal and Interest Account the
amounts specified in Section 3.03(a) of the Sale and Servicing Agreement and
will deliver such amount to the Indenture Trustee for deposit into the Note
Account. No later than the Business Day prior to each Payment Date, to the
extent funds are available in the Note Account, the Indenture Trustee shall
either retain funds in the Note Account or make the withdrawals from the Note
Account and deposits into the other Accounts for distribution on such Payment
Date as required pursuant to Section 3.03(b) of the Sale and Servicing
Agreement.
(c) On each Payment Date and the Redemption Date, to the extent funds
are available in the Note Account, the Indenture Trustee shall make the
following distributions from the amounts on deposit in the Note Account and the
Available Funds Cap Carry-Forward Amount Account in the following order of
priority (except as otherwise provided in Section 5.4(b)):
(i) to the Owners of the Notes, the Current Interest for
such Payment Date; provided, that if there are not
sufficient funds in the Note Account to pay the
entire amount of accrued and unpaid interest then due
on the Notes, the amount in the Note Account shall be
applied to the payment of such interest on the Notes
pro rata on the basis of the total such interest due
on the Notes;
(ii) to the Owners of the Notes, the Principal Payment
Amount for such Payment Date until the Note Principal
Balance is reduced to zero; and
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(iii) to the Owners, the amount, if any, then on deposit in
the Available Funds Cap Carry-Forward Amount Account.
(d) The Indenture Trustee shall make claims under the Note Insurance
Policy pursuant to Section 7.02 of the Sale and Servicing Agreement and in
accordance with the Note Insurance Policy. The Indenture Trustee shall deposit
any Insured Payment received from the Note Insurer in the Note Account. All
amounts received under the Note Insurance Policy shall be used solely for the
payment to Owners of principal and interest on the Notes.
SECTION 8.3 General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Accounts shall be invested
in Eligible Investments and reinvested by the Indenture Trustee at the direction
of the Seller in accordance with the provisions of Section 3.05 of the Sale and
Servicing Agreement. The Issuer will not direct the Indenture Trustee to make
any investment of any funds or to sell any investment held in any of the
Accounts unless the security interest Granted and perfected in such Account will
continue to be perfected in such investment or the proceeds of such sale, in
either case without any further action by any Person, and, in connection with
any direction to the Indenture Trustee to make any such investment or sale.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Seller shall have failed to give investment directions
for any funds on deposit in the Accounts to the Indenture Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Indenture
Trustee) on any Business Day or (ii) a Default or Event of Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.2 or (iii) if such
Notes shall been declared due and payable following an Event of Default, amounts
collected or receivable from the Collateral are being applied in accordance with
Section 5.5 as if there had not been such a declaration, then the Indenture
Trustee shall, to the fullest extent practicable, invest and reinvest funds in
the Accounts in one or more Eligible Investments.
SECTION 8.4 Servicer's Monthly Statements. On each Payment Date (to the
extent it receives the supporting documentation from the Servicer on a timely
basis), the Indenture Trustee shall deliver the report required by Section 3.09
of the Sale and Servicing Agreement with respect to such Payment Date to the
Depositor, the Seller, the Servicer, the Rating Agencies, and the Note Insurer.
SECTION 8.5 Release of Collateral.
(a) Subject to the payment of its fees and expenses pursuant to Section
6.7, the Indenture Trustee may, and when required by the provisions of this
Indenture and the Sale and Servicing Agreement shall, execute instruments to
release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
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satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Note Insurer, the Indenture Trustee and the
Owner Trustee have been paid, release any remaining portion of the Collateral
that secured the Notes from the lien of this Indenture and release to the Issuer
or any other Person entitled thereto any funds then on deposit in the Accounts.
The Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Subsection (b) only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.6 Opinion of Counsel. The Indenture Trustee and the Note
Insurer shall receive at least seven Business Days notice when requested by the
Issuer to take any action pursuant to Section 8.5(a), accompanied by copies of
any instruments involved, and the Indenture Trustee shall also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with
and such action will not materially and adversely impair the security for the
Notes or the rights of the Owners in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Collateral. Counsel rendering
any such opinion may rely, without independent investigation, on the accuracy
and validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Owners.
(a) Without the consent of the Owners of any Notes but with prior
notice to the Rating Agencies and with the prior written consent of the Note
Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or
better to assure, convey and confirm unto the
Indenture Trustee any property subject or required to
be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional
property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to
the Issuer, and the assumption by any such successor
of the covenants of the Issuer herein and in the
Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Owners of the Notes, or to surrender
any right or power herein conferred upon the Issuer;
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(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture
that may be inconsistent with any other provision
herein or in any supplemental indenture or to make
any other provisions with respect to matters or
questions arising under this Indenture or in any
supplemental indenture; provided, that such action
shall not adversely affect the interests of the
Owners of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with
respect to the Notes and to add to or change any of
the provisions of this Indenture as shall be
necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to
effect the qualification of the Indenture under the
TIA or under any similar federal statute hereafter
enacted and to add to the Indenture such other
provisions as may be expressly required by the TIA;
or
(viii) to modify or alter the provisions of the definition
of the term "Outstanding".
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, with the prior written
consent of the Note Insurer, when authorized by an Issuer Order, may, upon
satisfaction of the Rating Agency Condition but without the consent of any of
the Owners , enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Owners of the Notes under this Indenture; provided, however, that
such action shall not, as evidenced by (i) an Opinion of Counsel or (ii)
satisfaction of the Rating Agency Condition, adversely affect in any material
respect the interests of any Owner.
SECTION 9.2 Supplemental Indentures with Consent of Owners. The Issuer
and the Indenture Trustee, when authorized by an Issuer Order, also may, with
the prior consent of the Note Insurer and with the consent of the Owners of not
less than a majority of the Outstanding Amount of the Notes, by Act of such
Owners delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Owners of the
Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Owner of each Note affected thereby
and the Note Insurer if affected thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof or, the Note Rate,
change the provisions of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Collateral to payment of
principal of or interest on the Notes, or change any place of payment where, or
the coin or currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of the provisions of this
Indenture requiring the application of funds available therefor, as provided in
Article V, to the payment
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of any such amount due on the Notes on or after the respective due dates thereof
(or, in the case of redemption, on or after the Redemption Date);
(b) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Owners of which is required for any such supplemental indenture,
or the consent of the Owners of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(c) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Collateral pursuant to Section 5.4;
(d) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Operative Documents cannot be modified or waived without
the consent of the Owner of each Note affected thereby;
(e) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment of interest or principal due
on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to affect the rights of the Owners
of Notes to the benefit of any provisions for the mandatory redemption of the
Notes contained herein; or
(f) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Owner of any
Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Owners of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
In connection with requesting the consent of the Owners pursuant to
this Section, the Indenture Trustee shall mail to the Owners of the Notes to
which such amendment or supplemental indenture relates a notice setting forth in
general terms the substance of such supplemental indenture. It shall not be
necessary for any Act of Owners under this Section to approve the particular
form of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and shall be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Owners of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all
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respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Notes.
SECTION 9.7 Amendments to Trust Agreement. Subject to Section 11.1 of
the Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to
any proposed amendment to the Trust Agreement or an amendment to or waiver of
any provision of any other document relating to the Trust Agreement, such
consent to be given without the necessity of obtaining the consent of the Owners
of any Notes upon satisfaction of the requirements under Section 11.1 of the
Trust Agreement.
Nothing in this Section shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption. The Owners of a majority of the Outstanding
Amount of Certificates (the "Majority Certificateholders") have the option to
purchase all of the Collateral at the Redemption Price on the Redemption Date or
any Payment Date thereafter pursuant to Section 5.02 of the Sale and Servicing
Agreement. If the Majority Certificateholders decline to exercise such option to
purchase the Collateral, the Note Insurer may do so as provided in Section
5.02(c) of the Sale and Servicing Agreement. Upon such purchase by either the
Majority Certificateholders or the Note Insurer, the Issuer shall use the
proceeds it receives from the sale of the Mortgage Loans to redeem the Notes, in
whole and not in part, and terminate this Indenture.
Any such redemption by the Majority Certificateholders or the Note
Insurer, as applicable, shall be accomplished by the Majority Certificateholders
or the Note Insurer, as applicable, depositing or causing to be deposited into
the Principal and Interest Account by 10:00 A.M. Pacific Standard Time on the on
the Monthly Remittance Date prior to the Redemption Date (or such later Payment
Date on which the Collateral is purchased) the amount of the Redemption Price.
On the Payment Date after the date that the Redemption Price is deposited into
the Principal and Interest Account, the Redemption Price shall be transferred to
the Note Account for distribution to the Owners on the Redemption Date; and any
amounts received with respect to the Mortgage Loans and REO Properties
subsequent to such transfer shall belong to the Servicer or the Note Insurer, as
applicable.
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The Majority Certificateholders or the Issuer shall furnish the
Depositor, the Indenture Trustee, the Rating Agencies and the Note Insurer
notice of any such redemption in accordance with Section 10.2 no later than 15
days prior to the Redemption Date.
SECTION 10.2 Form of Redemption Notice
(a) Notice of redemption under Section 10.1 shall be given by the
Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed
or transmitted not later than 10 days prior to the applicable Redemption Date to
each Owner of Notes, as of the close of business on the Record Date preceding
the applicable Redemption Date, at such Owner's address or facsimile number
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as
provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give notice of redemption, or any defect therein, to any Owner of any Note shall
not impair or affect the validity of the redemption of any other Note
SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of
Indenture Trustee and Note Insurer. The Notes or portions thereof to be redeemed
shall, following notice of redemption as required by Section 10.2 (in the case
of redemption pursuant to Section 10.1), on the Redemption Date become due and
payable at the Redemption Price and (unless the Issuer shall default in the
payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Price. The Issuer may not redeem the
Notes unless, (i) all outstanding obligations under the Notes have been paid in
full and (ii) the Indenture Trustee has been paid all amounts to which they are
entitled hereunder and the Note Insurer has been paid all Premium Amounts and
Reimbursement Amounts to which it is entitled as of the applicable Redemption
Date.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc.
Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and (ii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; and
(3) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Seller, the Issuer or the Depositor,
stating that the information with respect to such factual matters is in the
possession of the Servicer, the Seller, the Issuer or the Depositor, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Owners.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by Owners
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Owners in person or by agents duly appointed
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in writing; and except as herein otherwise expressly provided such action shall
become effective when such instrument or instruments are delivered in writing to
the Indenture Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Owners
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.1) conclusive in favor of
the Indenture Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Notes shall bind the Owner of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies and Note Insurer. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Owners or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Owners is to be made
upon, given or furnished to or filed with:
(a) the Indenture Trustee by any Owner or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Indenture Trustee at its Corporate Trust Office, or
(b) in the case of the Issuer, Rating Agencies or Note Insurer as
provided in Section 6.12 of the Sale and Servicing Agreement.
SECTION 11.5 Notices to Owners; Waiver. Where this Indenture provides
for notice to Owners of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Owner affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Owners is given by mail ,neither the failure to mail
such notice nor any defect in any notice so mailed to any particular Owner shall
affect the sufficiency of such notice with respect to other Owners, and any
notice that is mailed in the manner herein provided shall conclusively be
presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Owners shall be filed with the Indenture Trustee
but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Owners when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
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Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.7 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.8 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
SECTION 11.9 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.10 Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Owners, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Collateral, any benefit or any legal or equitable right, remedy or claim
under this Indenture, except that the Note Insurer is an express third party
beneficiary to this Indenture as provided in Section 11.19.
SECTION 11.11 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.12 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ________________, WITHOUT REFERENCE TO
ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.14 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Owners or any other Person secured
hereunder or for the enforcement of any right or remedy granted
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to the Indenture Trustee under this Indenture.
SECTION 11.15 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any Owner of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
SECTION 11.16 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Owner, by accepting a Note, hereby covenant and agree that
they will not at any time institute against the Depositor or the Issuer, or join
in any institution against the Depositor or the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, this Indenture or any
of the Operative Documents.
SECTION 11.17 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or the Note
Insurer, during the Issuer's normal business hours, to examine all the books of
account, records, reports and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information except to the extent disclosure may be
required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
SECTION 11.18 Grant of Owner Rights to Note Insurer. In consideration
for the guarantee of the Notes by the Note Insurer pursuant to the Note
Insurance Policy, the Owners hereby grant to the Note Insurer the right to act
as the Owner of 100% of the outstanding Notes for the purpose of exercising the
rights of the Owners of the Notes hereunder, including the voting rights of such
Owners, but excluding those rights requiring the consent of all such Owners
under Section 9.2 and any rights of such Owners to distributions under Section
8.2 hereof; provided that the preceding grant of rights to the Note Insurer by
the Owners shall be subject to Section 11.20 hereof. The rights of the Note
Insurer to direct certain actions and consent to certain actions of the Owners
hereunder will terminate at such time as the Principal Balance has been reduced
to zero and the Note Insurer has been reimbursed for all Insured Payments and
any other amounts owed under the Note Insurance Policy and the Insurance
Agreement and the Note Insurer has no further obligation under the Note
Insurance Policy.
SECTION 11.19 Third Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce any rights reserved to it hereunder as if it were
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actually a party hereto.
SECTION 11.20 Suspension and Termination of Note Insurer's Rights.
(a) During the continuation of a Note Insurer Default, rights granted
or reserved to the Note Insurer hereunder shall vest instead in the Owners;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Reimbursement Amount, and the Note Insurer shall retain
those rights under Section 9.2 hereof to consent to any supplement to this
Indenture.
(b) At such time as either (i) the Note Principal Balance has been
reduced to zero or (ii) the Note Insurance Policy has been terminated following
a Note Insurer Default, and in either case of (i) or (ii) the Note Insurer has
been reimbursed for all Insured Payments and any other amounts owed under the
Note Insurance Policy and the Insurance Agreement (and the Note Insurer no
longer has any obligation under the Note Insurance Policy, except for breach
thereof by the Note Insurer), then the rights and benefits granted or reserved
to the Note Insurer hereunder (including the rights to direct certain actions
and receive certain notices) shall terminate and the Owners shall be entitled to
the exercise of such rights and to receive such benefits of the Note Insurer
following such termination to the extent that such rights and benefits are
applicable to the Owners.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
By: __________________________________________________________
not in its individual capacity but solely as Owner Trustee
By: ________________________________
Name: ________________________________
Title: ________________________________
______________________________________,
as Indenture Trustee
By: ________________________________
Name ________________________________
Title: ________________________________
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STATE OF ____________
COUNTY OF ___________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared , known to me to be the person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said _____________________
___________________________, not in its individual capacity, but solely as Owner
Trustee on behalf of AMRESCO RESIDENTIAL SECURITIES CORPORATION MORTGAGE LOAN
OWNER TRUST 199__-__, a Delaware business trust, and that such person executed
the same as the act of said business trust for the purpose and consideration
therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this _____ day of _________________.
________________________________________________
Notary Public in and for the State of __________
(Seal)
My commission expires:
________________________
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STATE OF ______________________
COUNTY OF _____________________
BEFORE ME, the undersigned authority, a Notary Public in and for said county and
state, on this day personally appeared , known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of ___________________________, a ________________
corporation, and that such person executed the same as the act of said
corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ________ day of ______________.
______________________________________________
Notary Public in and for the State of ________
(Seal)
My commission expires:
________________________
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SCHEDULE A
Available Upon Request to the Indenture Trustee
<PAGE>
EXHIBIT A
Form of Note
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
Date of Indenture: As of ________ Original Note Principal Balance: $________
First Payment Date: _____________ CUSIP No. _____________
Denomination: $_________________ Note No: 0001
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
ADJUSTABLE RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 199__-__
AMRESCO RESIDENTIAL SECURITIES CORPORATION MORTGAGE LOAN OWNER
TRUST 199__-__, a business trust organized and existing under the laws of the
State of Delaware (herein referred to as the "Issuer"), for value received,
hereby promises to pay to Cede & Co., or registered assigns, the principal sum
of _______________________ ($_____________) payable on each Payment Date in an
amount equal to the result obtained by multiplying (i) a fraction the numerator
of which is $_____________________ and the denominator of which is
$_____________ by (ii) the aggregate amount, if any, payable under this Note
pursuant to the Indenture dated as of __________, between the Issuer and
____________________, a _______________ corporation as Indenture Trustee (the
"Indenture Trustee"); provided, however, that the entire unpaid principal amount
of this Note shall be due and payable on the earlier of (i) the Payment Date
occurring in _________________ (the "Final Payment Date"), (ii) the Redemption
Date, if any, pursuant to Article X of the Indenture or (iii) the date on which
an Event of Default shall have occurred and be continuing, if the Indenture
Trustee, at the direction or upon prior written consent of the Note Insurer or,
if a Note Insurer Default has occurred and is continuing, the Owners of Notes
representing not less than a majority of the Outstanding Amount of the Notes,
have declared the Notes to be immediately due and payable in the manner provided
in Section 5.2 of the Indenture. Capitalized terms used but not defined herein
are defined in Article I of the Indenture.
Pursuant to the terms of the Indenture, payments will be made on the
25th day of each month or, if such day is not a Business Day, on the Business
Day immediately following such 25th day (the "Payment
<PAGE>
Date"), commencing on the first Payment Date specified above, to the Person in
whose name this Note is registered at the close of business on the applicable
Record Date, in an amount equal to the product of (a) the Percentage Interest
evidenced by this Note and (b) the sum of the Current Interest, Principal
Payment Amount and any Insured Payment with respect to such Payment Date, all as
more specifically set forth in the Indenture and the Sale and Servicing
Agreement.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
[Signatures follow]
2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date: _________________
AMRESCO RESIDENTIAL SECURITIES
CORPORATION MORTGAGE LOAN OWNER TRUST
199__-__
By: __________________________________________
not in its individual capacity but solely
as Owner Trustee under the Trust Agreement
By: ______________________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: _________________
__________________________________,
as Indenture Trustee
By: ______________________________
Authorized Signatory
3
<PAGE>
[Reverse of Note]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Adjustable Rate Mortgage Loan Asset Backed Notes, Series
199__-__ (herein called the "Notes"), issued under the Indenture, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the Owners of the Notes. To the extent that any provision
of this Note contradicts or is inconsistent with the provisions of the
Indenture, the provisions of the Indenture shall control and supersede such
contradictory or inconsistent provision herein. Terms not defined herein will
have the definitions as provided in the Indenture. The Notes are subject to all
terms of the Indenture.
The Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Payment Date and the
Redemption Date, if any, pursuant to Article II of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which an Event of Default shall have
occurred and be continuing and the Indenture Trustee, at the direction or upon
the prior written consent of _______________________ (the "Note Insurer") or, if
a Note Insurer Default has occured and is continuing, at the direction of the
Owners of the Notes representing not less than a majority of the Outstanding
Amount of the Notes, have declared the Notes to be immediately due and payable
in the manner provided in Section 5.2 of the Indenture. All principal payments
on the Notes shall be made pro rata to the Owners entitled thereto on the basis
of their Note Principal Balance.
The Note Insurer has issued a Note Insurance Policy in the name of the
Indenture Trustee for the benefit of the Owners. Unless a Note Insurer Default
shall be continuing, subject to Section 11.18 of the Indenture, the Note Insurer
shall be deemed to be the Owner of 100% of the Note Principal Balance of the
Outstanding Notes for the purpose of exercising the rights, including voting
rights, of the Owners under the Indenture. In addition, on each Payment Date,
after the Owners have been paid all amounts to which they are entitled, the Note
Insurer will be entitled to be reimbursed for any unreimbursed Insured Payments
and any other amounts owed under the Note Insurance Policy.
Payments of interest on this Note are due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Owner of the Note (or one or more Predecessor Notes) on the
Note Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payments will be
made by wire transfer in immediately available funds to the account designated
by such nominee. Such checks shall be mailed to the Person entitled thereto at
the address of such Person as it appears on the Note Register as of the
applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Payment Date
shall be binding upon all future Owners of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof,
whether or not noted hereon. If funds are expected to be available, as provided
in the Indenture, for payment in full of the then remaining unpaid principal
amount of this Note on a Payment Date, then the Indenture Trustee, in the name
of and on behalf of the Issuer, will notify the Person who was the Owner hereof
as of
4
<PAGE>
the Record Date preceding such Payment Date by notice mailed or transmitted by
facsimile prior to such Payment Date, and the amount then due and payable shall
be payable only upon presentation and surrender of this Note at the Indenture
Trustee's principal Corporate Trust Office or at the office of the Indenture
Trustee's agent appointed for such purposes located in The City of
__________________.
As provided in the Indenture, the Notes may be redeemed if the Majority
Certificateholders, on the Redemption Date or any Payment Date thereafter,
purchase all of the Collateral at the Redemption Price. Upon such purchase, the
Issuer shall use the proceeds it receives from the sale of the Collateral to
redeem the Notes, in whole, but not in part, and terminate the Indenture
pursuant to Article X of the Indenture and Section 5.02 of the Sale and
Servicing Agreement. If such holders of Certificates decline to exercise such
option, the Note Insurer may do so as provided in Section 5.02 of the Sale and
Servicing Agreement.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by the Owner hereof or such Owner's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged for any registration of
transfer or exchange of this Note, other than for exchanges as provided under
Sections 2.4 and 9.6 of the Indenture, but the transferor may be required to pay
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any such registration of transfer or exchange.
Each Owner, by acceptance of a Note or, in the case of a Book-Entry
Owner, a beneficial interest in a Note, covenants and agrees that no recourse
may be taken, directly or indirectly, with respect to the obligations of the
Issuer, the Depositor, the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director or employee of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such person may have expressly agreed and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
Each Owner or Book-Entry Owner, by acceptance of a Note or, in the case
of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Owner or Book-Entry Owner will
not at any time institute against the Seller, the Servicer, the Depositor, or
the Issuer, or join in any institution against the Seller, the Servicer, the
Depositor or the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or similar law in connection with any obligations relating to the
Notes, the Indenture or any of the Operative Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness
5
<PAGE>
of the Issuer secured by the Trust Estate. Each Owner, by acceptance of a Note
(and each Book-Entry Owner by acceptance of a beneficial interest in a Note),
agrees to treat the Notes for federal, state and local income, single business
and franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Owners of the Notes under the Indenture at any time
by the Issuer with the consent of the Note Insurer and the Owner of Notes
representing a majority of the Outstanding Amount of Notes. The Indenture also
contains provisions permitting the Note Insurer, or if a Note Insurer Default
exists, the Owners of Notes representing not less than a majority of the
Outstanding Amount of the Notes on behalf of the Owners of all the Notes to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Owner of this Note (or any one or more Predecessor
Notes) shall be conclusive and binding upon such Owners and upon all future
Owners of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
amendment thereof, in certain limited circumstances, or the waiver of certain
terms and conditions set forth in the Indenture, without the consent of Owners
of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of _________________, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Operative Documents, none of the Issuer in its individual
capacity, the Owner Trustee in its individual capacity, any owner of a
beneficial interest in the Issuer, or any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on this Note or performance of, or
omission to perform, any of the covenants, obligations or indemnifications
contained in the Indenture. The Owner of this Note by its acceptance hereof
agrees that, except as expressly provided in the Operative Documents, in the
case of an Event of Default under the Indenture, the Owner shall have no claim
against any of the foregoing for any deficiency, loss or claim therefrom;
provided, however, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.
6
<PAGE>
ASSIGNMENT
Social Security or Taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _______________________, attorney, to transfer said Note on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated: __________________*/
Signature Guaranteed:
_________________________*/
*/ NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by Note Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Securities Exchange Act of 1934, as amended.
7
Exhibit 5.1
[Arter & Hadden LLP Letterhead]
August 24, 1998
AMRESCO Residential Securities Corporation
700 N. Pearl Street
Suite 2400
Dallas, Texas 75201-7424
Re: AMRESCO Residential Securities Corporation
Mortgage Loan Asset Backed Certificates
Mortgage Loan Asset Backed Notes
Registration Statement on Form S-3 - No. 333-____
Ladies and Gentlemen:
We have acted as counsel to AMRESCO Residential Securities Corporation
(the "Depositor") in connection with the preparation and filing of the
registration statement on Form S-3 (such registration statement, the
"Registration Statement") being filed today with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), in
respect of Mortgage Loan Asset Backed Certificates (the "Certificates") which
you plan to offer in series, each series to be issued under a separate pooling
and servicing agreement (a "Pooling and Servicing Agreement"), in substantially
the form set forth as an exhibit to the Registration Statement, among the
Depositor, AMRESCO Residential Capital Markets, Inc. (the "Seller" and the
"Master Servicer"), the various servicers to be identified in the prospectus
supplement for such series of Certificates ("Servicers" or "Special Servicers",
as applicable), and a trustee (the "Trustee") to be identified in the prospectus
supplement for such series of Certificates and in respect of Mortgage Loan Asset
Backed Notes (the "Notes") which you plan to offer in series, each series to be
issued under a separate indenture (an "Indenture"), in substantially the form
set forth as an exhibit to the Registration Statement, among a business trust
formed by the Depositor (the "Issuer") and a trustee (the "Indenture Trustee")
to be identified in the prospectus supplement for such series of Notes.
We have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such documents and records of
the Depositor and such other instruments and other certificates of public
officials, officers and representatives of the Depositor and such other
<PAGE>
AMRESCO Residential Securities Corporation
August 24, 1998
Page 2
persons, and we have made such investigations of law, as we deemed appropriate
as a basis for the opinions expressed below.
The opinions expressed below are subject to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
This opinion is limited to matters involving the Federal laws of the
United States of America and to the extent relevant to the opinions expressed
herein, the General Corporation Law of the State of Delaware. All opinions
expressed herein are based on laws, regulations and policy guidelines currently
in force and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
1. When, in respect of a series of Certificates, a Pooling and
Servicing Agreement has been duly authorized by all necessary action and duly
executed and delivered by the Depositor, the Seller, the Master Servicer, the
Special Servicer, the Servicers and the Trustee for such series, such Pooling
and Servicing Agreement, will be a valid and legally binding obligation of the
Depositor; and
2. When a Pooling and Servicing Agreement for a series of Certificates
has been duly authorized by all necessary action and duly executed and delivered
by the Depositor, the Seller, the Master Servicer, the Special Servicer, the
Servicers and the Trustee for such series, and when the Certificates of such
series have been duly executed and authenticated in accordance with the
provisions of the Pooling and Servicing Agreement, and issued and sold as
contemplated in the Registration Statement and the prospectus, as amended or
supplemented, delivered pursuant to Section 5 of the Act in connection
therewith, such Certificates will be legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates will be entitled to the
benefits of such Pooling and Servicing Agreement; and
3. When, in respect of a series of Notes, an Indenture has been duly
authorized by all necessary action and duly executed and delivered by the Issuer
and the Indenture Trustee for such series, such Indenture, will be a valid and
legally binding obligation of the Issuer; and
4. When an Indenture for a series of Notes has been duly authorized by
all necessary action and duly executed and delivered by the Issuer and the
Indenture Trustee for such series, and when the Notes of such series have been
duly executed and authenticated in accordance with the provisions of the
Indenture and issued and sold as contemplated in the Registration Statement and
the prospectus, as amended or supplemented, delivered pursuant to Section 5 of
the Act in connection therewith, such Notes will be valid and binding
non-recourse obligations of the related Issuer, enforceable against the related
Issuer, in accordance with their terms.
<PAGE>
AMRESCO Residential Securities Corporation
August 24, 1998
Page 3
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters".
This opinion is furnished by us as counsel to the company and is solely
for the benefit of the addressee thereof. It may not be relied upon by any other
person or for any other purpose without our prior written consent.
Very truly yours,
\s\ Arter & Hadden LLP
----------------------
Arter & Hadden LLP
Exhibit 8.1
[Arter & Hadden LLP Letterhead]
August 24, 1998
AMRESCO Residential Securities Corporation
700 N. Pearl Street
Suite 2400
Dallas, Texas 75201-7424
Re: AMRESCO Residential Securities Corporation
Mortgage Loan Asset Backed Certificates
Mortgage Loan Asset Backed Notes
Registration Statement on Form S-3 - No. 333-____
Ladies and Gentlemen:
We have acted as counsel to AMRESCO Residential Securities Corporation
in connection with the preparation and filing of the registration statement on
Form S-3 (such registration statement, the "Registration Statement") being filed
today with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), in respect of Mortgage Loan Asset Backed
Certificates (the "Certificates") and Mortgage Loan Asset Backed Notes (the
"Notes") which you plan to offer in series. Our opinions formed the basis for
the description of federal income tax consequences appearing under the heading
"Certain Federal Income Tax Consequences" of the applicable prospectus
supplement contained in the Registration Statement. Assuming issuance of
Certificates of a series and assuming the federal income tax characterization of
those Certificates as REMIC interests, FASIT interests, standard interests,
stripped interests or partnership interests at that time, we confirm that the
description under "Certain Federal Income Tax Consequences" in the prospectus of
the federal income tax consequences with respect to a series of Certificates
presents our opinion of the material tax issues relating to an investment in
those Certificates. Assuming issuance of Notes as indebtedness at that time, we
confirm that the description under "Certain Federal Income Tax Consequences" in
the prospectus of the federal income tax consequences with respect to a series
of Notes presents our opinion of the material tax issues relating to an
investment in those Notes.
<PAGE>
AMRESCO Residential Securities Corporation
August 24, 1998
Page 2
We hereby consent to the filing of this letter as Exhibit 8.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and related prospectus supplement under the heading "Certain Federal
Income Tax Consequences."
Very truly yours,
\s\ Arter & Hadden LLP
----------------------
Arter & Hadden LLP
Exhibit 10.1
SALE AND SERVICING AGREEMENT
Dated as of _________________
Among
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__,
as Issuer,
AMRESCO RESIDENTIAL SECURITIES CORPORATION
as Depositor,
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
as Seller,
-------------------------,
as Servicer
and
----------------------------------------
as Indenture Trustee
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
ADJUSTABLE RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 199__-__
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION.......................................................................1
Section 1.01 Definitions............................................................................1
Section 1.02 Use of Words and Phrases..............................................................16
Section 1.03 Captions; Table of Contents...........................................................17
Section 1.04 Opinions..............................................................................17
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEPOSITOR,
THE SERVICER AND THE SELLER; COVENANT OF DEPOSITOR TO
CONVEY MORTGAGE LOANS...................................................................................18
Section 2.01 Representations and Warranties of the Depositor.......................................18
Section 2.02 Representations and Warranties of the Servicer........................................20
Section 2.03 Representations and Warranties of the Seller..........................................22
Section 2.04 Covenants of Seller to Take Certain Actions with Respect to the
Mortgage Loans in Certain Situations..................................................24
Section 2.05 Conveyance of the Initial Mortgage Loans and Qualified Replacement
Mortgages.............................................................................31
Section 2.06 Acceptance by Indenture Trustee; Certain Substitutions of Mortgage
Loans; Certification by Indenture Trustee.............................................34
Section 2.07 Conveyance of the Subsequent Mortgage Loans...........................................35
Section 2.08 Custodian.............................................................................37
Section 2.09 Books and Records.....................................................................37
ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES....................................................................38
Section 3.01 Reserved..............................................................................38
Section 3.02 Establishment of Accounts.............................................................38
Section 3.03 Flow of Funds.........................................................................38
Section 3.04 Pre-Funding Account and Capitalized Interest Account..................................40
Section 3.05 Investment of Accounts................................................................41
Section 3.06 Payment of Trust Expenses.............................................................41
Section 3.07 Eligible Investments..................................................................42
Section 3.08 Accounting and Directions by Indenture Trustee........................................43
Section 3.09 Reports by Indenture Trustee to Owners and Note Insurer...............................44
Section 3.10 Reports by Indenture Trustee..........................................................45
ARTICLE IV
SERVICING AND ADMINISTRATION OF MORTGAGE LOANS..........................................................47
Section 4.01 Servicer and Sub-Servicers............................................................47
Section 4.02 Collection of Certain Mortgage Loan Payments..........................................48
Section 4.03 Sub-Servicing Agreements Between Servicer and Sub-Servicers...........................48
Section 4.04 Successor Sub-Servicers...............................................................49
Section 4.05 Liability of Servicer; Indemnification................................................49
Section 4.06 No Contractual Relationship Between Sub-Servicer, Indenture Trustee
or the Owners.........................................................................49
Section 4.07 Assumption or Termination of Sub-Servicing Agreement by Indenture
Trustee...............................................................................49
</TABLE>
i
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<TABLE>
<S> <C>
Section 4.08 Principal and Interest Account........................................................50
Section 4.09 Delinquency Advances and Servicing Advances...........................................51
Section 4.10 Compensating Interest; Repurchase of Mortgage Loans...................................52
Section 4.11 Maintenance of Insurance..............................................................52
Section 4.12 Due-on-Sale Clauses; Assumption and Substitution Agreements...........................53
Section 4.13 Realization Upon Defaulted Mortgage Loans; Workout of Mortgage Loans..................54
Section 4.14 Indenture Trustee to Cooperate; Release of Files......................................55
Section 4.15 Servicing Compensation................................................................56
Section 4.16 Annual Statement as to Compliance.....................................................56
Section 4.17 Annual Independent Certified Public Accountants' Reports..............................56
Section 4.18 Access to Certain Documentation and Information Regarding the
Mortgage Loans........................................................................56
Section 4.19 Assignment of Agreement...............................................................57
Section 4.20 Removal of Servicer; Retention of Servicer; Resignation of Servicer...................57
Section 4.21 Inspections by Note Insurer; Errors and Omissions Insurance...........................60
Section 4.22 Reserved..............................................................................60
Section 4.23 Adjustable Rate Mortgage Loans........................................................60
Section 4.24 Administration of the Issuer..........................................................60
ARTICLE V
TERMINATION.............................................................................................61
Section 5.01 Termination...........................................................................61
Section 5.02 Termination Upon Option of Holders of Certificates....................................61
Section 5.03 Redemption of Notes...................................................................61
Section 5.04 Disposition of Proceeds...............................................................62
ARTICLE VI
MISCELLANEOUS...........................................................................................63
Section 6.01 Acts of Owners........................................................................63
Section 6.02 Recordation of Agreement..............................................................63
Section 6.03 Duration of Agreement.................................................................63
Section 6.04 Successors and Assigns................................................................63
Section 6.05 Severability..........................................................................63
Section 6.06 Governing Law; Submission to Jurisdiction.............................................63
Section 6.07 Counterparts..........................................................................64
Section 6.08 Amendment.............................................................................64
Section 6.09 Specification of Certain Tax Matters..................................................65
Section 6.10 The Note Insurer......................................................................65
Section 6.11 Third Party Rights....................................................................65
Section 6.12 Notices...............................................................................65
Section 6.13 Benefits of Agreement.................................................................67
Section 6.14 Legal Holidays........................................................................67
Section 6.15 Usury.................................................................................68
Section 6.16 No Petition...........................................................................68
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
CERTAIN MATTERS REGARDING THE NOTE INSURER..............................................................69
Section 7.01 Trust Estate and Accounts Held for Benefit of the Note Insurer........................69
Section 7.02 Claims Upon the Policy; Policy Payments Account.......................................69
Section 7.03 Effect of Payments by the Note Insurer; Subrogation...................................70
Section 7.04 Notices to the Note Insurer...........................................................70
Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners...............................70
SCHEDULE I SCHEDULE OF MORTGAGE LOANS
EXHIBIT A FORM OF CERTIFICATE RE: MORTGAGE LOANS PREPAID
IN FULL AFTER CUT-OFF DATE
EXHIBIT B-1 FORM OF INDENTURE TRUSTEE'S RECEIPT
EXHIBIT B-2 FORM OF CUSTODIAN'S RECEIPT
EXHIBIT C FORM OF POOL CERTIFICATION
EXHIBIT D MORTGAGE LOANS WITH DOCUMENT EXCEPTIONS
EXHIBIT E FORM OF SUBSEQUENT TRANSFER AGREEMENT
</TABLE>
iii
<PAGE>
SALE AND SERVICING AGREEMENT dated as of ________________ by and among
AMRESCO RESIDENTIAL SECURITIES CORPORATION MORTGAGE LOAN OWNER TRUST 199__-__, a
Delaware business trust (the "Issuer" or the "Trust"), AMRESCO RESIDENTIAL
SECURITIES CORPORATION, a Delaware corporation, in its capacity as Depositor
(the "Depositor"), AMRESCO RESIDENTIAL CAPITAL MARKETS, INC., a Delaware
corporation in its capacities as the Seller (the "Seller"), ___________________,
as the Servicer (the "Servicer") and __________________________,
a __________________ corporation, in its capacity as the indenture trustee on
behalf of the Owners of the Notes (the "Indenture Trustee").
WHEREAS, the Seller is engaged in the business of originating,
purchasing and servicing mortgage loans secured by first and second lien
mortgages and deeds of trust on residential property;
WHEREAS, the Seller desires to sell to the Depositor and the Depositor
desires to purchase from the Seller the Initial Mortgage Loans and the Depositor
desires to sell to the Issuer and the Issuer desires to purchase from the
Depositor the Initial Mortgage Loans and all monies due and to become due
thereunder after __________________;
WHEREAS, the Issuer desires to purchase a pool of Initial Mortgage
Loans which were originated or purchased by the Seller as well as Subsequent
Mortgage Loans which will be transferred to the Issuer pursuant to any
Subsequent Transfer Agreement;
WHEREAS, the Seller is willing to sell such Initial Mortgage Loans to
the Depositor and the Depositor is willing to sell such Initial Mortgage Loans
to the Issuer;
WHEREAS, the Servicer has agreed to service the Mortgage Loans, in
accordance with the terms of this Agreement;
WHEREAS, __________________________, is willing to serve in the
capacity of Indenture Trustee hereunder; and
WHEREAS, __________________________ (the "Note Insurer") is intended to
be a third party beneficiary of this Agreement and is hereby recognized by the
parties hereto to be a third-party beneficiary of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Issuer, the Depositor, the Seller, the
Servicer, and the Indenture Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Account": Any account established in accordance with Section 3.02 or
4.08 hereof.
"Accrual Period": With respect to any Payment Date, the period
commencing on the immediately preceding Payment Date (or the Closing Date in the
case of the first Payment Date) to and including the day prior to the current
Payment Date. Calculations of interest will be made on the basis of the actual
number of days elapsed in the related Accrual Period and a year of 360 days.
"Addition Notice": With respect to the transfer of Subsequent Mortgage
Loans to the Issuer pursuant to Section 2.07 hereof, notice given not less than
five Business Days prior to the related Subsequent Transfer
<PAGE>
Date of the Seller's designation of Subsequent Mortgage Loans to be sold to the
Issuer and the aggregate Loan Balance of such Subsequent Mortgage Loans.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement": This Sale and Servicing Agreement, as it may be amended
from time to time, including the Exhibits and Schedules hereto.
"Annual Loss Percentage (Rolling Twelve Month)": As of any date of
determination thereof, a fraction, expressed as a percentage, the numerator of
which is the aggregate of the Realized Losses for each of the twelve immediately
preceding Remittance Periods and the denominator of which is the Maximum
Collateral Amount.
"Appraised Value": The appraised value of any Property based upon the
appraisal made at the time of the origination of the related Mortgage Loan, or,
in the case of a Mortgage Loan which is a purchase money mortgage, the sales
price of the Property at such time of origination, if such sales price is less
than such appraised value.
"Authorized Officer": With respect to any Person, any officer of such
Person who is authorized to act for such Person in matters relating to this
Agreement, and whose action is binding upon, such Person; with respect to the
Depositor and the Seller, initially including those individuals whose names
appear on the lists of Authorized Officers delivered at the Closing; with
respect to the Indenture Trustee, any officer assigned to the Corporate Trust
Division (or any successor thereto), including any Vice President, Assistant
Vice President, Trust Officer, any Assistant Secretary, any trust officer or any
other officer of the Indenture Trustee customarily performing functions similar
to those performed by any of the above designated officers and having direct
responsibility for the administration of this Agreement.
"Available Funds": As defined in Section 3.02(b) hereof.
"Available Funds Cap Carry-Forward Amortization Amount": As of any
Payment Date, any amount distributed from the Available Funds Cap Carry-Forward
Amount Account on such Payment Date pursuant to Section 3.03(c) hereof.
"Available Funds Cap Carry-Forward Amount": As of any Payment Date, the
sum, if any, of (i) the aggregate of the Available Funds Cap Carry-Forward
Amounts from all prior Payment Dates after deducting all Available Funds Cap
Carry-Forward Amortization Amounts actually paid on all prior Payment Dates,
(ii) the product of (x) one-twelfth of the Formula Note Rate on such Payment
Date and (y) the amount described in clause (i) of this definition and (iii) the
difference between (a) the amount of interest due on the Notes on such Payment
Date calculated at the Formula Note Rate applicable on such date and (b) the
amount of interest due on the Notes on such Payment Date calculated at the Note
Rate applicable on such date.
"Available Funds Cap Carry-Forward Amount Account": The Available Funds
Cap Carry-Forward Amount Account established in accordance with Section 3.02
hereof and maintained by the Indenture Trustee.
"Available Funds Cap Rate": On each Payment Date the weighted average
of the Coupon Rates of the Mortgage Loans less (i) prior to ____________,
_______% per annum and (ii) on or after the Payment Date in ____________,
_______% per annum.
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"Available Funds Shortfall": As defined in Section 3.03(b)(ii)(A).
"Backup Servicer": The Indenture Trustee shall initially serve as
Backup Servicer hereunder in the event of the termination of the Servicer,
subject to the right of the Indenture Trustee to assign such duties to a party
acceptable to the Note Insurer and the Owners of the majority of the Percentage
Interests of the Certificates.
"Business Day": Any day other than a Saturday, Sunday or a day on which
commercial banking institutions in The City of New York, Dallas, Texas, State of
California, the city in which the Corporate Trust Office is located or the city
in which the principal office of the Note Insurer is located are authorized or
obligated by law or executive order to be closed.
"Capitalized Interest Account": The Capitalized Interest Account
established in accordance with Section 3.02(b) hereof and maintained by the
Indenture Trustee. Funds on deposit in the Capitalized Interest Account shall be
invested in a trust deposit with the Indenture Trustee from the day following
the Closing Date until the end of the Funding Period.
"Capitalized Interest Requirement": With respect to Payment Dates in
________ and __________, the excess, if any, of (x) the sum of the interest
accruing at a rate equal to the Note Rate plus the Premium Amount (expressed as
a per annum percentage of the Note Principal Balance) on (1) the Pre-Funded
Amount outstanding as of the end of the Remittance Period for a period equal to
the Remittance Period plus (2) the aggregate Loan Balances of any Subsequent
Mortgage Loans transferred to the Issuer during the Remittance Period for a
period from the first day of the Remittance Period until the Subsequent Cut-Off
Date (provided, however, if the related Subsequent Cut-Off Date begins on or
prior to such Remittance Period, the related Loan Balances will be zero) over
(y) any Pre-Funding Account Earnings to be distributed to the Note Account on
the related Payment Date pursuant to Section 3.04(d).
"Carry-Forward Amount": As to any Payment Date, the sum of (x) the
amount, if any, by which (i) the Current Interest for the immediately preceding
Payment Date exceeded (ii) the amount of the actual distribution made to the
Owners on such immediately preceding Payment Date pursuant to Section
3.03(b)(iv)(B) hereof plus (y) interest on such excess at the Note Rate for the
number of days in the related Accrual Period.
"Certificate": Any one of the Certificates issued pursuant to the Trust
Agreement.
"Certificate Distribution Account": The Certificate Distribution
Account established in accordance with the Trust Agreement.
"Civil Relief Interest Shortfalls": With respect to any Remittance
Period, for any Mortgage Loans as to which there has been a reduction in the
amount of interest collectible thereon for the most recently ended Remittance
Period as a result of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, the amount, if any, by which (i) interest collectible on such Mortgage
Loans during the most recently ended Remittance Period is less than (ii) the sum
of (a) one month's interest on the Loan Balance of such Mortgage Loans at a rate
equal to the Note Rate plus (b) the Servicing Fee and the Trust Fees and
Expenses for such Remittance Period.
"Closing Date": On or about _____________.
"Code": The Internal Revenue Code of 1986, as amended.
"Compensating Interest": As defined in Section 4.10(a) hereof.
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"Corporate Trust Office": The principal office of the Indenture Trustee
at ________________, ____________________, __________________, Attention:
_____________________ or the principal office of any successor Indenture Trustee
hereunder.
"Coupon Rate": The rate of interest borne by each Mortgage Note from
time to time.
"Cram Down Loss": With respect to a Mortgage Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Loan Balance or the Coupon Rate of such Mortgage Loan, the amount
of such reduction. A "Cram Down Loss" shall be deemed to have occurred on the
date of issuance of such order.
"Cumulative Loss Percentage": As of any date of determination thereof,
the aggregate of all Realized Losses since the Closing Date as a percentage of
the Maximum Collateral Amount.
"Current Interest": With respect to any Payment Date, an amount equal
to the amount of interest accrued on the Note Principal Balance immediately
prior to such Payment Date during the related Accrual Period at the Note Rate
plus the Preference Amount owed to the Owners of the Notes as it relates to
interest previously paid on the Notes plus the Carry-Forward Amount; provided,
however, such amount will be reduced by the amount of any Civil Relief Interest
Shortfalls relating to Mortgage Loans.
"Custodial Agreement": The Custodial Agreement dated as of
_______________ among the Custodian, the Issuer, the Indenture Trustee, the
Depositor, the Seller and the Servicer.
"Custodian": ________________________, as Custodian on behalf of the
Indenture Trustee pursuant to the Custodial Agreement.
"Cut-Off Date": As of the close of business on June 1, 1998.
"Daily Collections": As defined in Section 4.08(c) hereof.
"Delinquency Advance": As defined in Section 4.09(a) hereof.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment due
thereon is not made by the Mortgagor by the close of business on the related Due
Date. A Mortgage Loan is "30 days Delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days Delinquent," "90
days Delinquent" and so on.
"Depositor": AMRESCO Residential Securities Corporation, a Delaware
corporation, or any successor thereto.
"Depository": The Depository Trust Company, 7 Hanover Square, New York,
New York, 10004, and any successor Depository named herein.
"Designated Depository Institution": With respect to the Principal and
Interest Account, a trust account maintained by the trust department of a
federal or state chartered depository institution acceptable to the Note
Insurer, acting in its fiduciary capacity, having combined capital and surplus
of at least $50,000,000; provided, however, that if the Principal and Interest
Account is not maintained with the Indenture Trustee, (i) such institution shall
have a long-term debt rating of at least "A" by Standard & Poor's and "A2" by
Moody's, (ii) a short-term debt rating of at least "A-1" by Standard & Poor's
and (iii) the Servicer shall provide the Indenture Trustee and the Note Insurer
with a statement, which the Indenture
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Trustee will send to the Owners, identifying the location and account
information of the Principal and Interest Account upon a change in the location
of such account.
"Determination Date": The 15th day of each month, or if such day is not
a Business Day, on the preceding Business Day, commencing in _________________.
"Due Date": With respect to any Mortgage Loan, the date on which the
Monthly Payment with respect to such Mortgage Loan is required to be paid
pursuant to the related Mortgage Note exclusive of any days of grace.
"Eligible Investments": Those investments so designated pursuant to
Section 3.07 hereof.
"Excess Overcollateralization Amount": With respect to any Payment
Date, the excess, if any, of (x) the Overcollateralization Amount that would
apply on such Payment Date after taking into account the payment of the
Principal Payment Amount on such Payment Date (except for any distributions of
Overcollateralization Reduction Amounts on such Payment Date), over (y) the
Specified Overcollateralization Amount for such Payment Date.
"Fannie Mae": Fannie Mae, a federally-chartered and privately-owned
corporation existing under the Federal National Mortgage Association Charter
Act, as amended, or any successor thereof.
"Fannie Mae Guide": Fannie Mae's Servicing Guide, as the same may be
amended by Fannie Mae from time to time, and the Servicer shall elect to apply
such amendments in accordance with Section 4.01 hereof.
"FDIC": The Federal Deposit Insurance Corporation, a corporate
instrumentality of the United States, or any successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Indenture Trustee pursuant to
Section 2.05(b) hereof pertaining to a particular Mortgage Loan and any
additional documents required to be added to the File pursuant to this
Agreement.
"Final Certification": As defined in Section 2.06(c) hereof.
"Final Payment Date": __________________.
"Final Recovery Determination": With respect to any defaulted Mortgage
Loan or REO Property (other than a Mortgage Loan purchased by the Seller, the
Depositor or the Servicer), a determination made by the Servicer that all
Liquidation Proceeds which the Servicer, in its reasonable business judgment
expects to be finally recoverable in respect thereof have been so recovered or
that the Servicer believes in its reasonable business judgment the cost of
obtaining any additional recoveries therefrom would exceed the amount of such
recoveries. The Servicer shall maintain records of each Final Recovery
Determination.
"First Mortgage Loan": A Mortgage Loan which constitutes a first
priority mortgage lien with respect to any Property.
"Formula Note Rate": For any Payment Date, the lesser of (x)(i) with
respect to any Payment Date which occurs on or prior to the Redemption Date,
LIBOR plus ____% per annum and (ii) with respect to any Payment Date thereafter,
LIBOR plus ____% per annum and (y) _____% per annum.
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"Funding Period": The period commencing on the Closing Date and ending
on the earliest to occur of (i) the date on which the amount on deposit in the
Pre-Funding Account (exclusive of any investment earnings) is $100,000 or less,
(ii) the occurrence of a Servicer Termination Event pursuant to Section 4.20(a)
hereof or an "Event of Default" (as defined in the Indenture) and (iii)
_________________.
"Highest Lawful Rate": As defined in Section 6.15 hereof.
"Indemnification Agreement": The Indemnification Agreement dated as of
June 19, 1998 among the Note Insurer, the Depositor, the Seller, the Issuer and
the Underwriters.
"Indenture": The Indenture, dated _____________, between the Issuer and
the Indenture Trustee.
"Indenture Trustee": _____________________, a __________________
banking corporation, the Corporate Trust Department of which is located on the
date of execution of this Agreement at ___________________________________, not
in its individual capacity but solely as Indenture Trustee under the Indenture,
and any successor hereunder.
"Indenture Trustee Fee": The fee payable monthly to the Indenture
Trustee on each Payment Date in an amount equal to _______% per annum, on the
outstanding aggregate Loan Balances of the Mortgage Loans as of the related
Determination Date.
"Indenture Trustee Reimbursable Expenses": Any amounts payable pursuant
to the second sentence of Section 6.7 of the Indenture provided that the
aggregate amounts payable as Indenture Trustee Reimbursable Expenses shall not
exceed $50,000.
"Initial Mortgage Loans": The Mortgage Loans to be conveyed to the
Depositor by the Seller and to the Issuer by the Depositor on the Closing Date.
"Insurance Agreement": The Insurance Agreement dated as of ___________,
among the Issuer, the Depositor, the Seller, the Servicer, the Indenture Trustee
and the Note Insurer, as such agreement may be amended from time to time.
"Insurance Policy": Any hazard, flood, title or primary mortgage
insurance policy relating to a Mortgage Loan plus any amount remitted under
Section 4.11 hereof.
"Insured Payment": As defined in the Note Insurance Policy.
"Interest Remittance Amount": As of any Monthly Remittance Date, the
sum, without duplication, of (i) all interest due during the related Remittance
Period with respect to the Mortgage Loans, (ii) all Compensating Interest paid
by the Servicer on such Monthly Remittance Date, (iii) the portion of the
Substitution Amount relating to interest on the Mortgage Loans, (iv) the portion
of any Loan Purchase Price relating to interest on any Mortgage Loan repurchased
during the related Remittance Period, (v) any amounts required to be transferred
from the Capitalized Interest Account to the Note Account pursuant to Section
3.04(e) hereof on the related Payment Date and (vi) the portion of Net
Liquidation Proceeds relating to interest.
"Issuer" or "Trust": AMRESCO Residential Securities Corporation
Mortgage Loan Owner Trust 199__-__, a Delaware business trust.
"Late Payment Rate": For any Monthly Remittance Date, the rate of
interest as it is publicly announced by Citibank, N.A. at its principal office
in New York, New York as its prime rate (any change in such prime rate of
interest to be effective on the date such change is announced by Citibank, N.A.)
plus 3%. The Late Payment Rate shall be computed on the basis of a year of 365
days calculating the actual
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number of days elapsed. In no event shall the Late Payment Rate exceed the
maximum rate permissible under any applicable law limiting interest rates.
"LIBOR": With respect to any Accrual Period, the rate determined by the
Indenture Trustee on the related LIBOR Determination Date on the basis of the
British Bankers Association's "Interest Settlement Rate" for one-month U.S.
dollar deposits as such rate appears on Telerate Page 3750 as of 11:00 a.m.
(London time) on such date; provided that if such rate does not appear on
Telerate Page 3750, the rate for such date will be determined on the basis of
the rates at which one-month U.S. dollar deposits are offered by the Reference
Banks at approximately 11:00 a.m. (London time) on such date to prime banks in
the London interbank market. In such event, the Indenture Trustee will request
the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for that date will be the arithmetic mean of the quotations (rounded upwards if
necessary to the nearest whole multiple of 1/16%). If fewer than two quotations
are provided as requested, the rate for that date will be the arithmetic mean of
the rates quoted by major banks in New York City, selected by the Servicer, at
approximately 11:00 a.m. (New York City time) on such date for one-month U.S.
dollar loan to leading European banks.
"LIBOR Determination Date": With respect to the Accrual Period related
to the __________ Payment Date, the second London Business Day preceding the
Closing Date, and for any Accrual Period thereafter, the second London Business
Day preceding the commencement of such Accrual Period.
"Liquidated Loan": A Mortgage Loan as to which a Final Recovery
Determination has been made.
"Liquidation Proceeds": With respect to any Liquidated Loan, all
amounts (including the proceeds of any Insurance Policy) recovered by the
Servicer in connection with such Liquidated Loan, whether through trustee's
sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan and as of any date
of determination, the actual outstanding principal balance thereof on the
Cut-Off Date with respect to the Initial Mortgage Loans or relevant Subsequent
Cut-Off Date with respect to the Subsequent Mortgage Loans excluding payments of
principal due on or prior to the Cut-Off Date or Subsequent Cut-Off Date, as the
case may be, whether or not received, less any principal payments relating to
such Mortgage Loan included in previous Monthly Remittance Amounts, provided,
however, that the Loan Balance for any Mortgage Loan that has become a
Liquidated Loan shall be zero as of the first day of the Remittance Period
following the Remittance Period in which such Mortgage Loan becomes a Liquidated
Loan, and at all times thereafter.
"Loan Purchase Price": With respect to any Mortgage Loan purchased from
the Trust on or prior to a Monthly Remittance Date pursuant to Section 2.03,
2.04, 2.06(b) or 4.10(b) hereof, an amount equal to the Loan Balance of such
Mortgage Loan as of the date of purchase (assuming that the Monthly Remittance
Amount remitted by the Servicer on such Monthly Remittance Date has already been
remitted), plus all accrued and unpaid interest on such Mortgage Loan at the
Coupon Rate to but not including the date of such purchase together with
(without duplication) the aggregate amounts of (i) all unreimbursed Delinquency
Advances and Servicing Advances theretofore made with respect to such Mortgage
Loan, (ii) all Delinquency Advances which the Servicer has theretofore failed to
remit with respect to such Mortgage Loan and (iii) all reimbursed Delinquency
Advances to the extent that reimbursement is not made from the Mortgagor or from
Liquidation Proceeds from the respective Mortgage Loan.
"Loan-to-Value Ratio": As of any particular date the percentage
obtained by dividing the Appraised Value into the original principal balance of
the Mortgage Note relating to such Mortgage Loan.
"London Business Day": Any day on which dealings in deposits of United
States dollars are transacted in the London interbank market.
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"Maximum Collateral Amount": The sum of the Original Aggregate Loan
Balance and the Original Aggregate Pre-Funded Amount, which sum is equal to
$_______________.
"Monthly Payment Amount": With respect to any Payment Date, the sum of
(x) Current Interest and (y) the Principal Payment Amount for such Payment Date.
"Monthly Payment": With respect to any Mortgage Loan and any Remittance
Period, the payment of principal, if any, and interest due on the Due Date in
such Remittance Period pursuant to the related Mortgage Note.
"Monthly Remittance Amount": As of any Monthly Remittance Date, the sum
of (i) the Interest Remittance Amount for such Monthly Remittance Date and (ii)
the Principal Remittance Amount for such Monthly Remittance Date.
"Monthly Remittance Date": The 20th day of each month, or if such day
is not a Business Day, on the preceding Business Day, commencing in
________________.
"Monthly Reporting Date": The Determination Date.
"Moody's": Moody's Investors Service, Inc. or any successor thereto.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple interest in real property securing a
Mortgage Note.
"Mortgage Loans": Such Mortgage Loans (including Initial Mortgage Loans
and Subsequent Mortgage Loans) transferred and assigned to the Trust pursuant to
Section 2.05(a) and 2.07(a) hereof, together with any Qualified Replacement
Mortgages substituted therefor in accordance with this Agreement, as from time
to time are held as a part of the Trust Estate, the Mortgage Loans originally so
held being identified in the Schedule of Mortgage Loans. The term "Mortgage
Loan" includes any Mortgage Loan which is Delinquent, which relates to a
foreclosure or which relates to a Property which is REO Property prior to such
Property's disposition by the Trust. Any mortgage loan which, although intended
by the parties hereto to have been, and which purportedly was, transferred and
assigned to the Trust by the Depositor, in fact was not transferred and assigned
to the Trust for any reason whatsoever, including, without limitation, the
incorrectness of the statement set forth in Section 2.04(b)(x) hereof with
respect to such mortgage loan, shall nevertheless be considered a "Mortgage
Loan" for all purposes of this Agreement.
"Mortgage Note": The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgagor": The obligor on a Mortgage Note.
"Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation
Proceeds net of expenses incurred by the Servicer (including unreimbursed
Servicing Advances) in connection with the liquidation of any defaulted Mortgage
Loan and unreimbursed Delinquency Advances relating to such Mortgage Loan. In no
event shall Net Liquidation Proceeds with respect to any Liquidated Loan be less
than zero.
"Net Monthly Excess Cashflow": As defined in Section 3.03(b)(iii)
hereof.
"90-Day Delinquent Loan": With respect to any Determination Date, all
REO Properties and each Mortgage Loan, with respect to which any portion of a
Monthly Payment is, as of the last day of the prior Remittance Period, three
months (calculated from Due Date with respect to such Mortgage Loan to Due Date)
or more past due (without giving effect to any grace period).
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"90+ Delinquency Percentage (Rolling Six Month)": With respect to any
Determination Date, the average of the percentage equivalents of the fractions
determined for each of the six immediately preceding Remittance Periods the
numerator of each of which is equal to the aggregate Loan Balance of 90-Day
Delinquent Loans as of the end of such Remittance Period and the denominator of
which is the Loan Balance of all of the Mortgage Loans as of the end of such
Remittance Period.
"Note": Any one of the Notes substantially in the form attached to the
Indenture as Exhibit A.
"Note Account": The segregated note account established in accordance
with Section 3.02(a) hereof and maintained at the Corporate Trust Office.
"Note Insurance Policy": The Note Guaranty Insurance Policy (number
_______) dated __________ __________ issued by the Note Insurer to the Indenture
Trustee for the benefit of the Owners pursuant to which the Note Insurer
guarantees Insured Payments.
"Note Insurer": ____________________, a ________________ insurance
company and any successor thereto, as issuer of the Note Insurance Policy.
"Note Insurer Default": The existence and continuance of any of the
following:
(a) the Note Insurer fails to make a payment required under
the Note Insurance Policy in accordance with its terms; or
(b)(i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Note Insurer in
an involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law and the continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 90 consecutive days; or
(B) a final and nonappealable decree or order adjudging the Note Insurer as
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganizing, rehabilitation, arrangement, adjustment or composition of or in
respect of the Note Insurer under any applicable United States federal or state
law, or appointing a custodian, receiver, liquidator, rehabilitator, assignee,
indenture trustee, sequestrator or other similar official of the Note Insurer or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs; or
(ii) the commencement by the Note Insurer of a voluntary case
or proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent of the
Note Insurer to the entry of a decree or order for relief in respect of the Note
Insurer in an involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency case or proceeding against the Note
Insurer, or the filing by the Note Insurer to the filing of such petition or to
the appointment of or the taking possession by a custodian, receiver,
liquidator, assignee, indenture trustee, sequestrator or similar official of the
Note Insurer or of any substantial part of its property, or the failure of the
Note Insurer to pay debts generally as they become due, or the admission by the
Note Insurer in writing of its inability to pay its debts generally as they
become due.
"Note Principal Balance": As of any time of determination, the Original
Note Principal Balance less the aggregate of all amounts actually distributed on
account of the Principal Payment Amount pursuant to Section 3.03(b)(iv) hereof
with respect to principal thereon on all prior Payment Dates; provided, however,
that solely for purposes of determining the Note Insurer's rights, as subrogee,
the Note Principal Balance shall not be reduced by any principal amount paid to
the Owner thereof from Insured Payments.
"Note Rate": For any Payment Date, in any month up to and including the
month in which the Redemption Date occurs, the lesser of (i) the Formula Note
Rate and (ii) the Available Funds Cap Rate for such Payment Date.
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"Officer's Certificate": A certificate signed by any Authorized Officer
of any Person delivering such certificate and delivered to the Indenture
Trustee.
"Operative Documents": Collectively, this Agreement, the Indenture, the
Certificate of Trust, the Trust Agreement, the Note Insurance Policy, the Notes,
any Subsequent Transfer Agreement, the Custodial Agreement, the Indemnification
Agreement and the Insurance Agreement.
"Original Aggregate Loan Balance": The aggregate Loan Balances of all
Initial Mortgage Loans as of the Cut-Off Date, which is $_____________.
"Original Aggregate Pre-Funded Amount": The amount deposited in the
Pre-Funding Account on the Closing Date from the proceeds of the sale of the
Notes, which amount is equal to $______________.
"Original Capitalized Interest Amount" $____________.
"Original Note Principal Balance": $___________.
"Overcollateralization Amount": As of any Payment Date, the excess, if
any, of (x) the sum of (i) the aggregate Loan Balances of the Mortgage Loans as
of the close of business on the last day of the related Remittance Period and
(ii) any amount on deposit in the Pre-Funding Account at such time exclusive of
Pre- Funding Account Earnings over (y) the Note Principal Balance for such
Payment Date (after taking into account the payment of the Principal Payment
Amount thereon (except for any Overcollateralization Deficit and
Overcollateralization Increase Amount) on such Payment Date).
"Overcollateralization Deficiency Amount": With respect to any Payment
Date, the excess, if any, of (i) the Specified Overcollateralization Amount
applicable to such Payment Date over (ii) the Overcollateralization Amount
applicable to such Payment Date prior to taking into account the payment of any
Overcollateralization Increase Amounts on such Payment Date.
"Overcollateralization Deficit": With respect to any Payment Date, the
amount, if any, by which (x) the Note Principal Balance after taking into
account the payment of the Principal Payment Amount on such Payment Date
(without regard to any Insured Payment to be made on such Payment Date and
except for any Overcollateralization Deficit), exceeds (y) the sum of (i) the
aggregate Loan Balances of the Mortgage Loans as of the close of business on the
last day of the related Remittance Period and (ii) any amount on deposit in the
Pre-Funding Account as of the close of business on the last day of the related
Remittance Period exclusive of the Pre-Funding Account Earnings.
"Overcollateralization Increase Amount": With respect to any Payment
Date, the lesser of (i) the Overcollateralization Deficiency Amount as of such
Payment Date (after taking into account the payment of the Principal Payment
Amount on such Payment Date (except for any Overcollateralization Increase
Amount)) and (ii) the aggregate amount of Net Monthly Excess Cashflow pursuant
to Section 3.03(b)(iii)(A) on such Payment Date.
"Overcollateralization Reduction Amount": With respect to any Payment
Date, an amount equal to the lesser of (x) the Excess Overcollateralization
Amount for such Payment Date and (y) the Principal Remittance Amount for the
related Remittance Period.
"Overfunded Interest Amount": With respect to each Subsequent Transfer
Date, the excess, if any, of (i) interest accruing from the related Subsequent
Cut-Off Date to _________________ on the aggregate Loan Balances of the
Subsequent Mortgage Loans acquired by the Issuer on such Subsequent Transfer
Date, calculated at the Note Rate over (ii) interest accruing from the
Subsequent Cut-Off Date to ____________ on the aggregate Loan Balance of the
Subsequent Mortgage Loans acquired by the Issuer on such Subsequent Transfer
Date, calculated at the rate at which Pre-Funded Amounts are invested as of such
Subsequent Transfer Date.
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"Owner": The Person in whose name a Note is registered in the Register,
and the Note Insurer, to the extent described in Sections 7.01 and 7.05.
"Owner Trustee": _______________________, as owner trustee under the
Trust Agreement, and any successor owner trustee under the Trust Agreement.
"Paying Agent": Initially, the Indenture Trustee, and thereafter, the
Indenture Trustee or any other Person that meets the eligibility standards for
the Paying Agent specified in Section 6.11 of the Indenture and is authorized by
the Indenture Trustee and the Depositor to make payments on the Certificates on
behalf of the Indenture Trustee.
"Payment Date": Any date on which the Indenture Trustee is required to
make distributions to the Owners, which shall be the 25th day of each month or
if such day is not a Business Day, the next Business Day thereafter, commencing
in the month following the Closing Date. The first Payment Date will be
__________________.
"Percentage Interest": With respect to the Notes, a fraction, expressed
as a decimal, the numerator of which is the Original Note Principal Balance
represented by such Note and the denominator of which is the aggregate Original
Note Principal Balance represented by all the Notes. With respect to the
Certificates, the portion evidenced thereby, expressed as a percentage, as
stated on the face of such Certificate, all of which shall total 100% with
respect to the Certificates.
"Person": Any individual, corporation, limited partnership,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Policy Payments Account": The policy payments account maintained by
the Indenture Trustee pursuant to Section 7.02(b) hereof.
"Preference Amount": With respect to the Notes means any amounts of
interest and principal included in previous distributions of the Monthly Payment
Amount to the Owners of the Notes which are recoverable and sought to be
recovered as a voidable preference by a indenture trustee in bankruptcy pursuant
to the United States Bankruptcy Code (11 U.S.C.) as amended from time to time in
accordance with a final, nonappealable order of a court having competent
jurisdiction. Such amount will be paid in accordance with the terms of the Note
Insurance Policy.
"Preference Claim": As defined in Section 7.02(d) hereafter.
"Pre-Funded Amount": With respect to any Determination Date, the amount
remaining on deposit in the Pre-Funding Account.
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 3.02 hereof and maintained by the Indenture Trustee.
"Pre-Funding Account Earnings": With respect to the __________ Payment
Date, the actual investment earnings earned during the period from the Closing
Date through ____________ (inclusive) on the portion of the Pre-Funded Amount
remaining during such period as calculated by the Indenture Trustee pursuant to
Section 2.07(d) hereof; and with respect to the ____________ Payment Date, the
actual investment earnings earned during the period from ____________ through
____________ (inclusive) on the portion of the Pre-Funded Amount, remaining
during such period as calculated by the Indenture Trustee pursuant to Section
2.07(d) hereof.
"Premium Amount": As determined in the Insurance Agreement.
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"Prepayment": Any payment of principal of a Mortgage Loan which is
received by the Servicer in advance of the scheduled Due Date for the payment of
such principal and which is not accompanied by an amount of interest
representing the full amount of scheduled interest due on any Due Date in any
month or months subsequent to the month of prepayment, Substitution Amounts, the
portion of the purchase price of any Mortgage Loan purchased from the Trust
pursuant to Section 2.03, 2.04, 2.06(b) or 4.10(b) hereof representing principal
and the proceeds of any Insurance Policy which are to be applied as a payment of
principal on the related Mortgage Loan shall be deemed to be Prepayments for all
purposes of this Agreement.
"Preservation Expenses": Expenditures made by the Servicer in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation.
"Principal and Interest Account": Each principal and interest account
established and maintained by the Servicer pursuant to Section 4.08(a) hereof.
"Principal Payment Amount": With respect to the Notes for any Payment
Date, the lesser of:
(a) the Total Available Funds plus any Insured Payment minus the
Current Interest and Trust Fees and Expenses for such Payment Date; and
(b) the excess, if any, of (i) the sum of (without duplication):
(A) the Preference Amount with respect to principal owed to
the Owners of the Notes that remains unpaid as of such Payment Date,
(B) the principal portion of all scheduled monthly payments on
the Mortgage Loans due on or prior to the related Due Date thereof, to
the extent actually received by the Servicer during the related
Remittance Period and any Prepayments made by the Mortgagors and
actually received by the Servicer during the related Remittance Period,
(C) the Loan Balance of each Mortgage Loan was repurchased by
the Seller or purchased by the Servicer on or prior to the related
Monthly Remittance Date, to the extent such Loan Balance is actually
received by the Servicer during the related Remittance Period,
(D) any Substitution Amounts delivered by the Seller on the
related Monthly Remittance Date in connection with a substitution of a
Mortgage Loan (to the extent such Substitution Amounts relate to
principal), to the extent such Substitution Amounts are actually
received by the Servicer on the related Remittance Date,
(E) all Net Liquidation Proceeds actually collected by the
Servicer with respect to the Mortgage Loans during the related
Remittance Period (to the extent such Net Liquidation Proceeds relate
to principal),
(F) the amount of any Overcollateralization Deficit for such
Payment Date,
(G) the principal portion of the proceeds received by the
Indenture Trustee from any termination of the Trust (to the extent such
proceeds related to principal),
(H) on the Payment Date immediately following the actual end
of the Funding Period, all amounts remaining on deposit in the
Pre-Funding Account to the extent not used to purchase Subsequent
Mortgage Loans during the Funding Period; and
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(I) the amount of any Overcollateralization Increase Amount
for such Payment Date, to the extent of any Net Monthly Excess Cashflow
available for such purpose,
over
(ii) the amount of any Overcollateralization Reduction Amount for such
Payment Date.
"Principal Remittance Amount": As of any Monthly Remittance Date, the
sum, without duplication, of (i) the principal actually collected by the
Servicer with respect to Mortgage Loans during the related Remittance Period,
(ii) the Loan Balance of each such Mortgage Loan that was purchased from the
Trust on or prior to such Monthly Remittance Date, to the extent such Loan
Balance was actually received by the Servicer, (iii) any Substitution Amounts
relating to principal delivered by the Seller in connection with a substitution
of a Mortgage Loan, to the extent such Substitution Amounts were actually
received by the Servicer on or prior to such Monthly Remittance Date, (iv) the
principal portion of all Net Liquidation Proceeds actually collected by the
Servicer with respect to such Mortgage Loans during the related Remittance
Period (to the extent such Net Liquidation Proceeds related to principal), (v)
any amounts required to be transferred from the Pre-Funding Account to the Note
Account pursuant to Section 3.04(c) and (vi) the amount of investment losses
required to be deposited pursuant to Sections 3.05(e) and 4.08(b).
"Property": The underlying property securing a Mortgage Loan.
"Prospectus": The Depositor's Prospectus dated ______________
constituting part of the Registration Statement.
"Prospectus Supplement": The AMRESCO Residential Securities Corporation
Mortgage Loan Owner Trust 199__-__ Prospectus Supplement dated _______________
to the Prospectus.
"Qualified Replacement Mortgage": A Mortgage Loan substituted for
another pursuant to Section 2.03, 2.04 and 2.06(b) hereof, which (i) has a
Coupon Rate at least equal to the Coupon Rate of the Mortgage Loan being
replaced; (ii) is of the same property type or is a single family dwelling and
the same occupancy status or is a primary residence as the Mortgage Loan being
replaced, (iii) shall mature no later than _________________ (iv) has a
Loan-to-Value Ratio as of the Replacement Cut-Off Date no higher than the
Loan-to-Value Ratio of the replaced Mortgage Loan at such time, (v) shall be of
the same or higher credit quality classification (determined in accordance with
the Seller's credit underwriting guidelines set forth in the Seller's
underwriting manual) as the Mortgage Loan which such Qualified Replacement
Mortgage replaces, (vi) shall be a First Mortgage Loan, (vii) has a Loan Balance
as of the related Replacement Cut-Off Date equal to or less than the Loan
Balance of the replaced Mortgage Loan as of such Replacement Cut-Off Date,
(viii) shall not provide for a "balloon" payment, (ix) shall be an adjustable
rate Mortgage Loan (x) shall adjust based on the same index, have no lower
margin, have the same interval between adjustment dates and have a maximum
Coupon Rate no lower than, and a minimum Coupon Rate no higher than the Mortgage
Loan being replaced. In the event that one or more mortgage loans are proposed
to be substituted for one or more Mortgage Loans, the Note Insurer may allow the
foregoing tests to be met on a weighted average basis or other aggregate basis
acceptable to the Note Insurer, as evidenced by a written approval delivered to
the Indenture Trustee by the Note Insurer, except that the requirements of
clauses (i), (iv) and (ix) hereof must be satisfied as to each Qualified
Replacement Mortgage.
"Rating Agencies": Collectively, Moody's and Standard & Poor's or any
successors thereto.
"Realized Loss": As to any Liquidated Loan (or, in the case of a Cram
Down Loss a Mortgage Loan that is not a Liquidated Loan), the amount (not less
than zero), if any, by which (A) the sum of (x) the Loan Balance thereof as of
the date of liquidation, (y) the amount of accrued but unpaid interest thereon
(to the extent that there are no outstanding advances for such interest by the
Servicer) and (z) the amount of any Cram Down Loss with respect thereto is in
excess of (B) the Net Liquidation Proceeds realized thereon applied in reduction
of such Loan Balance.
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"Redemption Date": The first Monthly Remittance Date on which the
aggregate Loan Balances of the Mortgage Loans has declined to less than
$____________.
"Redemption Price": As defined in Section 5.02(a) hereof.
"Reference Banks": Bankers Trust Company, Barclays Bank PLC and
National Westminster Bank PLC, provided that if any of the foregoing banks are
not suitable to serve as a Reference Bank, then any leading banks selected by
the Indenture Trustee which are engaged in transactions in Eurodollar deposits
in the international Eurocurrency market (i) with an established place of
business in London, (ii) not controlling, under the control of or under common
control with the Seller or any affiliate thereof, (iii) whose quotations are
included in the calculation of LIBOR appearing on Telerate Page 3750 on the
relevant LIBOR Determination Date and (iv) which have been designated as such by
the Indenture Trustee.
"Register": The note register maintained by the Registrar in accordance
with Section 2.3 of the Indenture, in which the names of the Owners are set
forth.
"Registrar": The Indenture Trustee, acting in its capacity as Registrar
appointed pursuant to the Indenture, or any duly appointed and eligible
successor thereto.
"Registration Statement": The Registration Statement filed by the
Depositor with the Securities and Exchange Commission (Registration Number
333-_____), including all amendments thereto and including the Prospectus
relating to the Notes.
"Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all
Insured Payments previously paid to the Indenture Trustee by the Note Insurer
and not previously repaid to the Note Insurer pursuant to Section 3.03(b)(ii)
hereof plus (ii) interest accrued on each such Insured Payment not previously
repaid calculated at the Late Payment Rate and (y)(i) any amounts then due and
owing to the Note Insurer under the Insurance Agreement (including, without
limitation, any unpaid Premium Amount relating to such Payment Date or an
earlier Payment Date) plus (ii) interest on such amounts at the Late Payment
Rate. The Note Insurer shall notify the Indenture Trustee, the Depositor and the
Seller of the amount of any Reimbursement Amount.
"Remittance Period": With respect to each Monthly Remittance Date, the
period commencing the second day of the calendar month immediately preceding
such Monthly Remittance Date and ending the first day of the calendar month in
which such Monthly Remittance Date occurs.
"REO Property": A Property acquired by the Servicer on behalf of the
Trust through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified Replacement
Mortgage, the first day of the calendar month in which such Qualified
Replacement Mortgage is conveyed to the Trust.
"Residual Net Monthly Excess Cashflow": With respect to any Payment
Date, the aggregate Net Monthly Excess Cashflow, if any, remaining after the
making of all applications, transfers and disbursements described in Sections
3.03(b)(i), (ii), (iii) and (iv) hereof.
"Schedule of Mortgage Loans": The schedule of Mortgage Loans with
respect to the Initial Mortgage Loans listing each Initial Mortgage Loan to be
conveyed on the Closing Date and with respect to Subsequent Mortgage Loans
listing each Subsequent Mortgage Loan conveyed to the Issuer as of each
Subsequent Transfer Date. Such Schedules of Mortgage Loans shall identify each
Mortgage Loan by the Servicer's loan number, borrower's name and address
(including the state and zip code) of the Property and shall set forth as to
each Mortgage Loan (a) the lien status thereof, (b) the Loan-to-Value Ratio as
of the CutOff Date, (c) the Loan Balance as of the Cut-Off Date, (d) the Coupon
Rate at origination thereof, (e) the maximum Coupon Rate, (f) the minimum Coupon
Rate, (g) the index, (h) the gross margin, (i) the lifetime
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rate cap, (j) the periodic rate cap, (k) the original Loan Balance thereof, (l)
the scheduled monthly payment of principal and interest as of the Closing Date,
(m) the maturity date of the related Mortgage Note, (n) the first adjustment
date, (o) the frequency of adjustment, (p) the property type, (q) occupancy
status, (r) Appraised Value and (s) the original term-to-maturity thereof.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": AMRESCO Residential Capital Markets, Inc., a Delaware
corporation.
"Servicer": ___________________________, and its permitted successors
and assigns.
"Servicer Loss Test": The Servicer Loss Test for any period set out
below is satisfied, if the Cumulative Loss Percentage for such period does not
exceed the percentage set out for such period below (provided, that for purposes
of the calculations of the Servicer Loss Test, Realized Losses attributable
solely to Cram Down Losses should be excluded from the calculation of Cumulative
Loss Percentage).
Cumulative Loss
Period Percentage
------ ----------
______, 19__ - ______, 19__ __.__%
______, 19__ - ______, 20__ __.__%
______, 20__ - ______, 20__ __.__%
______, 20__ - ______, 20__ __.__%
______, 20__ - and thereafter __.__%
"Servicer Termination Event": As defined in Section 4.20(a) hereof.
"Servicer Termination Test": The Servicer Termination Test is satisfied
for any date of determination thereof, if (x) the 90+ Delinquency Percentage
(Rolling Six Month) is less than ____%, (y) the Servicer Loss Test is satisfied
and (z) the Annual Loss Percentage (Rolling Twelve Month) for the twelve month
period immediately preceding the date of determination thereof is not greater
than ____%.
"Servicing Advance": As defined in Section 4.09(b) and Section 4.13(a)
hereof.
"Servicing Fee": With respect to any Mortgage Loan, an amount retained
by the Servicer as compensation for servicing and administration duties relating
to such Mortgage Loan pursuant to Section 4.15 and equal to one month's interest
at ____% per annum of the then outstanding principal balance of such Mortgage
Loan as of the first day of each Remittance Period payable on a monthly basis;
provided, however, that if a successor Servicer is appointed pursuant to Section
4.20 hereof, the Servicing Fee shall be the amount as agreed upon by the
Indenture Trustee, the Note Insurer, the successor Servicer and the Owners of a
majority of the Percentage Interests of the Certificates, such amount not to
exceed 0.50% per annum.
"Specified Overcollateralization Amount": As defined in the Insurance
Agreement.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. or any successor thereto.
"Subsequent Cut-Off Date": The beginning of business on the date
specified in a Subsequent Transfer Agreement with respect to those Subsequent
Mortgage Loans which are sold, transferred and assigned by the Seller to the
Issuer pursuant to the related Subsequent Transfer Agreement.
"Subsequent Mortgage Loans": The Mortgage Loans sold to the Issuer
pursuant to Section 2.07 hereof, which shall be listed on the Schedule of
Mortgage Loans attached to a Subsequent Transfer Agreement.
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"Subsequent Transfer Agreement": Each Subsequent Transfer Agreement
dated as of a Subsequent Transfer Date executed by the Indenture Trustee and the
Seller substantially in the form of Exhibit E hereto, by which Subsequent
Mortgage Loans are sold and assigned by the Seller to the Issuer.
"Subsequent Transfer Date": The date specified in each Subsequent
Transfer Agreement.
"Sub-Servicer": Any Person with whom the Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
4.03 hereof in respect of the qualification of a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the Servicer
and any Sub-Servicer relating to servicing and/or administration of certain
Mortgage Loans as permitted by Section 4.03.
"Substitution Amount": As defined in Section 2.03 hereof.
"Telerate Page 3750": The display designated as page "3750" on the Dow
Jones Telerate Capital Markets Report (or such other page as may replace page
3750 on that report for the purpose of displaying "Interest Settlement Rates" of
major banks).
"Total Available Funds": As defined in Section 3.02(b) hereof.
"Total Monthly Excess Cashflow": As defined in Section 3.03(b)(ii)
hereof.
"Total Monthly Excess Spread": With respect to any Payment Date, the
excess of (i) the aggregate of all interest which is collected on the Mortgage
Loans during the related Remittance Period (net of the Servicing Fee, the
Indenture Trustee Fee and the Indenture Trustee Reimbursable Expenses) plus (x)
any Delinquency Advances, (y) Compensating Interest paid by the Servicer for
such Remittance Period and (z) any amounts required to be transferred from the
Capitalized Interest Account pursuant to Section 3.04(e) hereof over (ii) the
sum of the Current Interest and the Premium Amount for such Payment Date.
"Trust" or "Issuer": AMRESCO Residential Securities Corporation
Mortgage Loan Owner Trust 199__-__, a Delaware business trust.
"Trust Agreement": The Owner Trust Agreement dated as of
________________ between the Depositor and the Owner Trustee.
"Trust Estate": As defined in the Indenture.
"Trust Fees and Expenses": As of each Payment Date, an amount equal to
the Premium Amount, the Indenture Trustee Fee and any Indenture Trustee
Reimbursable Expenses.
"Underwriters": ________________________, _______________________,
________________ and ______________________________.
Section 1.02 Use of Words and Phrases.
"Herein", "hereby", "hereunder", "hereof", "hereinbefore",
"hereinafter" and other equivalent words refer to this Agreement as a whole and
not solely to the particular section of this Agreement in which any such word is
used. The definitions set forth in Section 1.01 hereof include both the singular
and the plural. Whenever used in this Agreement, any pronoun shall be deemed to
include both singular and plural and to cover all genders.
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Section 1.03 Captions; Table of Contents.
The captions or headings in this Agreement and the Table of Contents
are for convenience only and in no way define, limit or describe the scope and
intent of any provisions of this Agreement.
Section 1.04 Opinions.
Each opinion with respect to the validity, binding nature and
enforceability of documents or Notes may be qualified to the extent that the
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether considered in a
proceeding or action in equity or at law) and may state that no opinion is
expressed on the availability of the remedy of specific enforcement, injunctive
relief or any other equitable remedy. Any opinion required to be furnished by
any Person hereunder must be delivered by counsel upon whose opinion the
addressee of such opinion may reasonably rely, and such opinion may state that
it is given in reasonable reliance upon an opinion of another, a copy of which
must be attached, concerning the laws of a foreign jurisdiction. Any opinion
delivered hereunder shall be addressed to the Rating Agencies, the Note Insurer
and the Indenture Trustee.
END OF ARTICLE I
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ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE SERVICER AND THE SELLER;
COVENANT OF DEPOSITOR TO CONVEY MORTGAGE LOANS
Section 2.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants to the
Indenture Trustee, the Owner Trustee, the Issuer, the Seller, the Servicer, the
Note Insurer and the Owners that as of the Closing Date:
(a) The Depositor is a corporation duly organized and validly existing
and in good standing under the laws governing its creation and existence and is
in good standing as a foreign corporation in each jurisdiction in which the
nature of its business, or the properties owned or leased by it make such
qualification necessary. The Depositor has all requisite corporate power and
authority to own and operate its properties, to carry out its business as
presently conducted and as proposed to be conducted and to enter into and
discharge its obligations under this Agreement and the other Operative Documents
to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which it is a party by the Depositor and its performance
and compliance with the terms of this Agreement and the other Operative
Documents to which it is a party have been duly authorized by all necessary
corporate action on the part of the Depositor and will not violate the
Depositor's Certificate of Incorporation, or Bylaws or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in a breach of, any material contract, agreement or
other instrument to which the Depositor is a party or by which the Depositor is
bound or violate any statute or any order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over the
Depositor or any of its properties.
(c) This Agreement and the other Operative Documents to which the
Depositor is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which default would materially and adversely affect the
condition (financial or other) or operations of the Depositor or its properties
or the consequences of which would materially and adversely affect its
performance hereunder and under the other Operative Documents to which the
Depositor is a party.
(e) No litigation is pending with respect to which the Depositor has
received service of process or, to the best of the Depositor's knowledge,
threatened against the Depositor which litigation might have consequences that
would prohibit its entering into this Agreement or any other Operative Documents
to which it is a party or that would materially and adversely affect the
condition (financial or otherwise) or operations of the Depositor or its
properties or might have consequences that would materially and adversely affect
its performance hereunder and under the other Operative Documents to which the
Depositor is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Depositor contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
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(g) The statements contained in the Registration Statement which
describe the Depositor or matters or activities for which the Depositor is
responsible in accordance with the Operative Documents or which are attributable
to the Depositor therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Depositor required to be stated therein or necessary to make
the statements contained therein with respect to the Depositor, in light of the
circumstances under which they were made, not misleading. The Registration
Statement does not contain any untrue statement of a material fact required to
be stated therein or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to the Depositor that
materially adversely affects or in the future may (so far as the Depositor can
now reasonably foresee) materially adversely affect the Depositor or the
Mortgage Loans that has not been set forth in the Registration Statement.
(h) Neither the Owner Trustee nor the Depositor has any obligation to
register the Trust as an investment company under the Investment Company Act of
1940, as amended.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state or federal securities laws, real estate syndication or
"Blue Sky" statutes, as to which the Depositor makes no such representation or
warranty), that are necessary or advisable in connection with the purchase and
sale of the Notes and the execution and delivery by the Depositor of the
Operative Documents to which it is a party, have been duly taken, given or
obtained, as the case may be, are in full force and effect on the date hereof,
are not subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may be taken
or review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
Operative Documents on the part of the Depositor and the performance by the
Depositor of its obligations under this Agreement and such of the other
Operative Documents to which it is a party.
(j) The transactions contemplated by this Agreement are in the ordinary
course of business of the Depositor.
(k) The Depositor has received fair consideration and reasonably
equivalent value in exchange for the sale of its interest in the Mortgage Loans.
(l) The Depositor did not sell any interest in any Mortgage Loan with
an intent to hinder, delay or defraud any of its creditors.
(m) The Depositor is not insolvent, nor will it be made insolvent by
the sale of the Mortgage Loans, nor is the Depositor aware of any pending
insolvency.
(n) On the Closing Date, the Issuer will have good title to each
Mortgage Loan and such other items comprising the Trust Estate free and clear of
any lien.
(o) No material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(p) The Depositor is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Depositor or legal
documents associated with the transaction contemplated by this Agreement.
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(q) To the best knowledge of the Depositor, there has been no material
adverse change in any information submitted by the Depositor in writing to the
Note Insurer with respect to the transactions contemplated by this Agreement
(unless such information was subsequently supplemented in writing).
It is understood and agreed that the representations and warranties set
forth in this Section 2.01 shall survive delivery of the respective Mortgage
Loans to the Issuer.
Upon discovery by any of the Depositor, the Issuer, the Seller, the
Servicer, the Custodian, any Sub- Servicer, the Note Insurer, any Owner or the
Indenture Trustee (each, for purposes of this paragraph, a party) of a breach of
any of the representations and warranties set forth in this Section 2.01 which
materially and adversely affects the interests of the Owners or of the Note
Insurer, the party discovering such breach shall give prompt written notice to
the other parties. As promptly as practicable, but in any event, within 60 days
of its discovery or its receipt of notice of breach, the Depositor shall cure
such breach in all material respects; provided, however, that if the Depositor
can establish to the reasonable satisfaction of the Note Insurer that it is
diligently pursuing remedial action, then the cure period may be extended for an
additional 90 days with the written approval of the Note Insurer.
Section 2.02 Representations and Warranties of the Servicer.
The Servicer hereby represents, warrants and covenants to the
Depositor, the Issuer, the Owner Trustee, the Indenture Trustee, the Note
Insurer and the Owners that as of the Closing Date:
(a) The Servicer is a corporation duly organized and validly existing
and in good standing under the laws of its state of incorporation, is, and each
Sub-Servicer is, in compliance with the laws of each state in which any Property
is located to the extent necessary to enable it to perform its obligations
hereunder and is in good standing in each jurisdiction in which the nature of
its business, or the properties owned or leased by it make such qualification
necessary. The Servicer and each Sub-Servicer have all requisite partnership or
corporate, as the case may be, power and authority to own and operate its or
their properties, to carry out its or their business as presently conducted and
as proposed to be conducted and to enter into and discharge its or their
obligations under this Agreement and the other Operative Documents to which the
Servicer is a party.
(b) The execution and delivery of this Agreement and any other
Operative Document to which it is a party by the Servicer and its performance
and compliance with the terms hereof and thereof have been duly authorized by
all necessary action on the part of the Servicer and will not violate the
Servicer's Articles of Incorporation or Bylaws or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or other
instrument to which the Servicer is a party or by which the Servicer is bound or
violate any statute or any order, rule or regulation of any court, governmental
agency or body or other tribunal having jurisdiction over the Servicer or any of
its properties.
(c) This Agreement and the Operative Documents to which the Servicer is
a party, assuming due authorization, execution and delivery by the other parties
hereto and thereto, each constitutes a valid, legal and binding obligation of
the Servicer, enforceable against it in accordance with the terms hereof and
thereof, except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Servicer is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which might have consequences that would materially and
adversely affect the condition (financial or otherwise) or operations of the
Servicer or its properties or might have consequences that would materially and
adversely affect its performance hereunder or under the other Operative
Documents to which the Servicer is a party.
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(e) No litigation is pending with respect to which the Servicer has
received service of process or, to the best of the Servicer's knowledge,
threatened against the Servicer which litigation might have consequences that
would prohibit its entering into this Agreement or any other Operative Document
or that would materially and adversely affect the condition (financial or
otherwise) or operations of the Servicer or its properties or might have
consequences that would materially and adversely affect the validity or the
enforceability of the Mortgage Loans or its performance hereunder and the other
Operative Documents to which the Servicer is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Servicer contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Prospectus Supplement which
describe the Servicer or matters or activities for which the Servicer is
responsible or which are attributed to the Servicer therein are true and correct
in all material respects, and the Prospectus Supplement does not contain any
untrue statement of a material fact with respect to the Servicer or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein with respect to the Servicer, in light of the
circumstances under which they were made, not misleading.
(h) The Servicing Fee is a "current (normal) servicing fee rate" as
that term is used in Statement of Financial Accounting Standards No. 65 issued
by the Financial Accounting Standards Board. Neither the Servicer nor any
affiliate thereof will report on any financial statements any part of the
Servicing Fee as an adjustment to the sales price of the Mortgage Loans.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Servicer makes no such representation or warranty),
that are necessary or advisable in connection with the execution and delivery by
the Servicer of the Operative Documents to which it is a party, have been duly
taken, given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Servicer and the
performance by the Servicer of its obligations under this Agreement and such of
the other Operative Documents to which it is a party.
(j) The collection practices used by the Servicer with respect to the
Mortgage Loans have been, in all material respects, legal, proper, prudent and
customary in the mortgage servicing business and in conformity with relevant
Fannie Mae guidelines.
(k) The transactions contemplated by this Agreement are in the ordinary
course of business of the Servicer.
(l) No material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(m) The Servicer is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Servicer or legal
documents associated with the transaction contemplated by this Agreement.
(n) To the best knowledge of the Servicer, there has been no material
adverse change in any information submitted by the Servicer in writing to the
Note Insurer with respect to the transactions contemplated by this Agreement
(unless such information was subsequently supplemented in writing).
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It is understood and agreed that the representations and warranties set
forth in this Section 2.02 shall survive delivery of the Mortgage Loans to the
Issuer.
Upon discovery by any of the Depositor, the Seller, the Issuer, the
Custodian, any Sub-Servicer, the Note Insurer, any Owner or the Indenture
Trustee (each, for purposes of this paragraph, a party) of a breach of any of
the representations and warranties set forth in this Section 2.02 which
materially and adversely affects the interests of the Owners or of the Note
Insurer, the party discovering such breach shall give prompt written notice to
the other parties. As promptly as practicable, but in any event, within 60 days
of its discovery or its receipt of notice of breach, the Servicer shall cure
such breach in all material respects and, upon the Servicer's continued failure
to cure such breach, may thereafter be removed by the Note Insurer or by the
Indenture Trustee with the written consent of the Note Insurer pursuant to
Section 4.20 hereof; provided, however, that if the Servicer can establish to
the reasonable satisfaction of the Note Insurer that it is diligently pursuing
remedial action, then the cure period may be extended for an additional 90 days
with the written approval of the Note Insurer.
Section 2.03 Representations and Warranties of the Seller.
The Seller hereby represents, warrants and covenants to the Issuer, the
Depositor, the Servicer, the Owner Trustee, the Indenture Trustee, the Note
Insurer and the Owners that as of the Closing Date:
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws governing its creation and existence and is in good
standing in each jurisdiction in which the nature of its business, or the
properties owned or leased by it make such qualification necessary. The Seller
has all requisite authority to own and operate its properties, to carry out its
business as presently conducted and as proposed to be conducted and to enter
into and discharge its obligations under this Agreement and the other Operative
Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which it is a party by the Seller and its performance and
compliance with the terms of this Agreement and the other Operative Documents to
which it is a party have been duly authorized by all necessary corporate action
on the part of the Seller and will not violate the Seller's Articles of
Incorporation and Bylaws Partnership or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, or
result in a breach of, any material contract, agreement or other instrument to
which the Seller is a party or by which the Seller is bound or violate any
statute or any order, rule or regulation of any court, governmental agency or
body or other tribunal having jurisdiction over the Seller or any of its
properties.
(c) This Agreement and the other Operative Documents to which the
Seller is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Seller, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Seller is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default would materially and adversely affect the
condition (financial or other) or operations of the Seller or its properties or
the consequences of which would materially and adversely affect its performance
hereunder and under the other Operative Documents to which the Seller is a
party.
(e) No litigation is pending with respect to which the Seller has
received service of process or, to the best of the Seller's knowledge,
threatened against the Seller which litigation might have consequences that
would prohibit its entering into this Agreement or any other Operative Documents
to which it is a party or that would materially and adversely affect the
condition (financial or otherwise) or operations of the Seller
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or its properties or might have consequences that would materially and adversely
affect its performance hereunder and under the other Operative Documents to
which the Seller is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Seller contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the certificate, statement or report not misleading.
(g) The statements contained in the Prospectus Supplement which
describe the Seller or matters or activities for which the Seller is responsible
in accordance with the Operative Documents or which are attributable to the
Seller therein are true and correct in all material respects, and the Prospectus
Supplement does not contain any untrue statement of a material fact with respect
to the Seller required to be stated therein or necessary to make the statements
contained therein with respect to the Seller, in light of the circumstances
under which they were made, not misleading. The Prospectus Supplement does not
contain any untrue statement of a material fact required to be stated therein or
omit to state any material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. There is no fact known to the Seller that materially adversely
affects or in the future may (so far as the Seller can now reasonably foresee)
materially adversely affect the Seller or the Mortgage Loans that has not been
set forth in the Prospectus Supplement.
(h) Upon the receipt of each Mortgage Loan (including the related
Mortgage Note) and other items of the Trust Estate by the Indenture Trustee, the
Issuer will have good title to such Mortgage Loan (including the related
Mortgage Note) and such other items of the Trust Estate free and clear of any
lien, charge, mortgage, encumbrance or rights of others, except as set forth in
Section 2.04(b)(ix) (other than liens which will be simultaneously released (and
except for the lien of the Indenture)).
(i) Neither the Seller nor any affiliate thereof will report on any
financial statement any part of the Servicing Fee as an adjustment to the sales
price of the Mortgage Loans.
(j) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Seller makes no such representation or warranty), that
are necessary or advisable in connection with the purchase and sale of the Notes
and the execution and delivery by the Seller of the Operative Documents to which
it is a party, have been duly taken, given or obtained, as the case may be, are
in full force and effect on the date hereof, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and either the
time within which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal therefrom
taken, and are adequate to authorize the consummation of the transactions
contemplated by this Agreement and the other Operative Documents on the part of
the Seller and the performance by the Seller of its obligations under this
Agreement and such of the other Operative Documents to which it is a party.
(k) The origination practices used by the Seller with respect to the
Mortgage Loans have been, in all material respects, legal, proper, prudent and
customary in the mortgage lending business.
(l) The transactions contemplated by this Agreement are in the ordinary
course of business of the Seller.
(m) Neither the Owner Trustee nor the Seller has any obligation to
register the Trust as an investment company under the Investment Company Act of
1940, as amended.
(n) The Seller is not insolvent, nor will it be made insolvent by the
transfer of the Mortgage Loans, nor is the Seller aware of any pending
insolvency.
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(o) The Seller received fair consideration and reasonably equivalent
value in exchange for the sale of the interests in the Mortgage Loans.
(p) The Seller did not sell any interest in any Mortgage Loan with any
intent to hinder, delay or defraud any of its creditors.
(q) No material adverse change affecting any security for the Notes has
occurred prior to delivery of and payment for the Notes.
(r) The Seller is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Seller or legal
documents associated with the transaction contemplated by this Agreement.
(s) To the best knowledge of the Seller, there has been no material
adverse change in any information submitted by the Seller in writing to the Note
Insurer with respect to the transactions contemplated by this Agreement (unless
such information was subsequently supplemented in writing).
It is understood and agreed that the representations and warranties set
forth in this Section 2.03 shall survive delivery of the respective Mortgage
Loans to the Indenture Trustee.
Upon discovery by any of the Issuer, the Depositor, the Servicer, the
Custodian, any Sub-Servicer, any Owner, the Seller, the Note Insurer or the
Indenture Trustee (each, for purposes of this paragraph, a "party") of a breach
of any of the representations and warranties set forth in this Section 2.03
which materially and adversely affects the interests of the Owners or the
interests of the Note Insurer, the party discovering such breach shall give
prompt written notice to the other parties. The Seller hereby covenants and
agrees that within 60 days of its discovery or its receipt of notice of breach,
it shall cure such breach in all material respects or, with respect to a breach
of clause (h) above, the Seller may (or may cause an affiliate of the Seller to)
on or prior to the second Monthly Remittance Date next succeeding such discovery
or receipt of notice (i) substitute in lieu of any Mortgage Loan not in
compliance with clause (h) a Qualified Replacement Mortgage and, if the
outstanding principal amount of such Qualified Replacement Mortgage as of the
applicable Replacement Cut-Off Date is less than the Loan Balance of such
Mortgage Loan as of such Replacement Cut-Off Date, deliver an amount (a
"Substitution Amount") equal to such difference together with the aggregate
amount of (A) all Delinquency Advances and Servicing Advances theretofore made
with respect to such Mortgage Loan and (B) all Delinquency Advances which the
Servicer has theretofore failed to remit with respect to such Mortgage Loan to
the Servicer for deposit in the Principal and Interest Account or (ii) purchase
such Mortgage Loan from the Issuer at the Loan Purchase Price, which purchase
price shall be delivered to the Servicer for deposit in the Principal and
Interest Account. The Seller shall deliver an Officer's Certificate to the
Indenture Trustee and the Note Insurer concurrently with the delivery of a
Qualified Replacement Mortgage pursuant to Sections 2.03, 2.04 and 2.06 stating
that such Mortgage Loan meets the requirements of the definition of a Qualified
Replacement Mortgage and that all other conditions to the substitution thereof
have been satisfied. Any Mortgage Loan as to which repurchase or substitution
was delayed pursuant to this Section shall be repurchased or substituted for
(subject to compliance with Section 2.03, 2.04 or 2.06, as the case may be) upon
the occurrence of a default or imminent default with respect to such Mortgage
Loan.
Section 2.04 Covenants of Seller to Take Certain Actions with Respect
to the Mortgage Loans in Certain Situations.
(a) Upon the discovery by the Issuer, the Depositor, the Seller, the
Servicer, the Note Insurer, any Sub-Servicer, any Owner, the Custodian or the
Indenture Trustee that the representations and warranties set forth in clause
(b) below were untrue in any material respect as of the Closing Date (or in the
case of the Subsequent Mortgage Loans, as of the respective Subsequent Transfer
Date) with the result that the interests of the Owners or of the Note Insurer
are materially and adversely affected, the party discovering such breach shall
give prompt written notice to the other parties. Upon the earliest to occur of
the Seller's discovery, its
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receipt of notice of breach from any one of the other parties or such time as a
situation resulting from an existing statement which is untrue materially and
adversely affects the interests of the Owners or of the Note Insurer, the Seller
hereby covenants and warrants that it shall promptly cure such breach in all
material respects or subject to the last three sentences of Section 2.03 it
shall on or before the second Monthly Remittance Date next succeeding such
discovery, receipt of notice or such time (i) substitute in lieu of each
Mortgage Loan which has given rise to the requirement for action by the Seller a
Qualified Replacement Mortgage and deliver the Substitution Amount to the
Servicer for deposit in the Principal and Interest Account or (ii) purchase such
Mortgage Loan from the Trust at a purchase price equal to the Loan Purchase
Price thereof, which purchase price shall be delivered to the Servicer for
deposit in the Principal and Interest Account; provided, however, that if the
Seller can establish to the reasonable satisfaction of the Note Insurer that it
is diligently pursuing remedial action, the period of time in which the Seller
must substitute a Qualified Replacement Mortgage or purchase such Mortgage Loan
may be extended for an additional 30 days with the written approval of the Note
Insurer. It is understood and agreed that the obligation of the Seller so to
substitute or purchase any Mortgage Loan as to which such a statement set forth
below is untrue in any material respect and has not been remedied shall
constitute the sole remedy respecting a discovery of any such statement which is
untrue in any material respect in this Section 2.04 available to the Owners and
the Indenture Trustee.
(b) The Seller hereby represents, warrants and covenants to the
Indenture Trustee, the Issuer, the Servicer, the Note Insurer and the Owners
that as of the Closing Date (with respect to the Initial Mortgage Loans) and as
of the respective Subsequent Transfer Date (with respect to the Subsequent
Mortgage Loans):
(i) The information with respect to each Initial Mortgage Loan
and Subsequent Mortgage Loan set forth in the related Schedule of
Mortgage Loans is true and correct as of the Cut-Off Date (or in the
case of the Subsequent Mortgage Loans, as of the related Subsequent
Transfer Date);
(ii) All the original or certified documentation set forth in
Section 2.05 (including all material documents related thereto) with
respect to each Initial Mortgage Loan has been or will be delivered
to the Custodian on behalf of the Indenture Trustee on the Closing
Date (or in the case of the Subsequent Mortgage Loans, on the
related Subsequent Transfer Date) or as otherwise provided in
Section 2.05;
(iii) Each Mortgage Loan being transferred to the Trust is
secured by a Mortgage;
(iv) Each Property is improved by a single (one-to-four)
family residential dwelling (except for _____% of the Initial
Mortgage Loans in the amount of $_____________, that are
condominiums, planned unit developments, townhouses, manufactured
housing, or multifamily residential), provided that no more than
_____% of the Properties are secured by manufactured homes, each of
which is considered to be real property under the applicable local
law;
(v) As of the Cut-Off Date, no Initial Mortgage Loan has a
Loan-to-Value Ratio in excess of 90%, except for ___ Initial
Mortgage Loans in the amount of $____________ that had a
Loan-to-Value Ratio not greater than 100%;
(vi) Each Mortgage Loan is being serviced by the Servicer in
accordance with the terms of this Agreement;
(vii) The Mortgage Note related to each Initial Mortgage Loan
bears a current Coupon Rate of at least _____% per annum;
(viii) Each Mortgage Note with respect to the Initial Mortgage
Loans will provide for a schedule of substantially level and equal
Monthly Payments which are sufficient to amortize fully the
principal balance of such Mortgage Note on or before its maturity
date except for ___ Initial
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Mortgage Loans in the amount of $__________ representing ____% of
the aggregate Loan Balance of the Initial Mortgage Loans as of the
Cut-Off Date, which may provide for a "balloon" payment due at the
end up to the 20th year;
(ix) As of the Closing Date (with respect to the Initial
Mortgage Loans) and any Subsequent Transfer Date (with respect to
the Subsequent Mortgage Loans), each Mortgage is a valid and
subsisting first lien of record (or is in the process of being
recorded) on the Property as noted on Schedule I attached hereto
subject, in all cases, to the exceptions to title set forth in the
title insurance policy or attorney's opinion of title, with respect
to the related Mortgage Loan, which exceptions are generally
acceptable to banking institutions in connection with their regular
mortgage lending activities, and such other exceptions to which
similar properties are commonly subject and which do not
individually, or in the aggregate, materially and adversely affect
the benefits of the security intended to be provided by such
Mortgage;
(x) Immediately prior to the transfer and assignment of the
Mortgage Loans by the Seller to the Depositor and by the Depositor
to the Issuer herein contemplated, the Seller and the Depositor, as
the case may be, held good and indefeasible title to, and was the
sole owner of, each Mortgage Loan (including the related Mortgage
Note) subject to no liens, charges, mortgages, encumbrances or
rights of others except as set forth in clause (ix) or other liens
which will be released simultaneously with such transfer and
assignment; and immediately upon the transfer and assignment herein
contemplated, the Issuer will hold good and indefeasible title to,
and be the sole owner of, each Mortgage Loan subject to no liens,
charges, mortgages, encumbrances or rights of others except as set
forth in paragraph (ix) or other liens which will be released
simultaneously with such transfer and assignment and except for the
lien of the Indenture;
(xi) As of the opening of business on the Cut-Off Date, no
Initial Mortgage Loan is 30 days or more Delinquent except that
there are ____ Initial Mortgage Loans with an outstanding aggregate
Loan Balance of $_____________ that are 30 or more days Delinquent
but not more than 59 days Delinquent and there are ___ Initial
Mortgage Loans with an aggregate loan balance of $____________ that
are 60 or more days Delinquent but not more than 89 days Delinquent;
(xii) There is no delinquent tax or assessment lien on any
Property, and each Property is free of substantial damage and is in
good repair;
(xiii) There is no valid and enforceable offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the
obligation of the related Mortgagor to pay the unpaid principal of
or interest on such Mortgage Note;
(xiv) There is no mechanics' lien or claim for work, labor or
material affecting any Property which is or may be a lien prior to,
or equal with, the lien of the related Mortgage except those which
are insured against by any title insurance policy referred to in
paragraph (xvi) below;
(xv) Each Mortgage Loan at the time it was made complied in
all material respects with applicable state and federal laws and
regulations, including, without limitation, the federal Truth-
in-Lending Act (as amended by the Riegle Community Development and
Regulatory Improvement Act of 1994) and other consumer protection
laws, usury, equal credit opportunity, disclosure and recording
laws;
(xvi) With respect to each Mortgage Loan either (a) an
attorney's opinion of title has been obtained but no lender's title
insurance policy has been obtained, or (b) a lender's title
insurance policy, issued in standard American Land Title Association
form by a title insurance company authorized to transact business in
the state in which the related Property is situated, in an amount at
least equal to the original balance of such Mortgage Loan, insuring
the mortgagee's interest under the related Mortgage Loan as the
holder of a valid first mortgage lien of record on the real
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property described in the related Mortgage, as the case may be,
subject only to exceptions of the character referred to in paragraph
(ix) above, was effective on the date of the origination of such
Mortgage Loan, and, as of the Closing Date, such policy is valid and
thereafter such policy shall continue in full force and effect
(provided that an attorney's opinion of title without a lender's
title insurance policy has been obtained with respect to no more
than 2% of the Original Aggregate Loan Balance);
(xvii) The improvements upon each Property are covered by a
valid and existing hazard insurance policy with a carrier generally
acceptable to the Servicer that provides for fire and extended
coverage representing coverage not less than the least of (A) the
outstanding principal balance of the related Mortgage Loan, (B) the
minimum amount required to compensate for damage or loss on a
replacement cost basis or (C) the full insurable value of the
Property;
(xviii) If any Property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as
having special flood hazards, a flood insurance policy in a form
meeting the requirements of the current guidelines of the Flood
Insurance Administration is in effect with respect to such Property
with a carrier generally acceptable to the Servicer in an amount
representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan, (B) the minimum
amount required to compensate for damage or loss on a replacement
cost basis or (C) the maximum amount of insurance that is available
under the Flood Disaster Protection Act of 1973;
(xix) Each Mortgage and Mortgage Note are the legal, valid and
binding obligation of the maker thereof and are enforceable in
accordance with their terms, except only as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether considered in
a proceeding or action in equity or at law), and all parties to each
Mortgage Loan had full legal capacity to execute all documents
relating to such Mortgage Loan and convey the estate therein
purported to be conveyed;
(xx) The Seller has caused and will cause to be performed any
and all acts required to be performed to preserve the rights and
remedies of the Indenture Trustee in any Insurance Policies
applicable to any Mortgage Loans delivered by the Seller including,
without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the
Indenture Trustee;
(xxi) As of the Closing Date, no more than ____% of the
aggregate Loan Balance of the Initial Mortgage Loans will be secured
by Properties located within any single zip code area;
(xxii) Each original Mortgage was recorded or is in the
process of being recorded, and all subsequent assignments of the
original Mortgage have been delivered for recordation or have been
recorded in the appropriate jurisdictions wherein such recordation
is necessary to perfect the lien thereof as against creditors of or
purchasers from the Seller (or, subject to Section 2.05 hereof, are
in the process of being recorded); each Mortgage and assignment of
Mortgage is in recordable form and is acceptable for recording under
the laws of the jurisdiction in which the property securing such
Mortgage is located;
(xxiii) The terms of each Mortgage Note and each Mortgage have
not been impaired, altered or modified in any respect, except by a
written instrument which has been recorded, if necessary, to protect
the interest of the Owners and the Note Insurer and which has been
delivered to the Indenture Trustee. The substance of any such
alteration or modification is reflected on the related Schedule of
Mortgage Loans;
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(xxiv) The proceeds of each Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee
to make future advances thereunder. Any and all requirements as to
completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with.
All costs, fees and expenses incurred in making or closing or
recording such Mortgage Loans were paid;
(xxv) The related Mortgage Note is not and has not been
secured by any collateral, pledged account or other security except
the lien of the corresponding Mortgage;
(xxvi) No Mortgage Loan has a shared appreciation feature, or
other contingent interest feature;
(xxvii) Each Property is located in the state identified in
the respective Schedule of Mortgage Loans and consists of one or
more parcels of real property with a residential dwelling erected
thereon;
(xxviii) Each Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of the
related Mortgage Loan in the event the related Property is sold
without the prior consent of the mortgagee thereunder;
(xxix) Any advances made after the date of origination of a
Mortgage Loan but prior to the Cut-Off Date with respect to the
Initial Mortgage Loans (or the relevant Subsequent Transfer Date
with respect to the Subsequent Mortgage Loans) have been
consolidated with the outstanding principal amount secured by the
related Mortgage, and the secured principal amount, as consolidated,
bears a single interest rate and single repayment term reflected on
the Schedule of Mortgage Loans. The consolidated principal amount
does not exceed the original principal amount of the related
Mortgage Loan. No Mortgage Note permits or obligates the Servicer to
make future advances to the related Mortgagor at the option of the
Mortgagor;
(xxx) There is no proceeding pending or threatened for the
total or partial condemnation of any Property, nor is such a
proceeding currently occurring, and each Property is undamaged by
waste, fire, water, flood, earthquake or earth movement;
(xxxi) All of the improvements which were included for the
purposes of determining the Appraised Value of any Property lie
wholly within the boundaries and building restriction lines of such
Property, and no improvements on adjoining properties encroach upon
such Property, and are stated in the title insurance policy and
affirmatively insured;
(xxxii) No improvement located on or being part of any
Property is in violation of any applicable zoning law or regulation.
All inspections, licenses and certificates required to be made or
issued with respect to all occupied portions of each Property and,
with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy and fire underwriting
certificates, have been made or obtained from the appropriate
authorities and such Property is lawfully occupied under the
applicable law;
(xxxiii) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will become
payable by the Owners or the Indenture Trust to the trustee under
the deed of trust, except in connection with a trustee's sale after
default by the related Mortgagor;
(xxxiv) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder
thereof adequate for the realization against the related Property of
the benefits of the security, including (A) in the case of a
Mortgage designated as a deed of
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trust, by trustee's sale and (B) otherwise by judicial foreclosure.
There is no homestead or other exemption other than any applicable
Mortgagor redemption rights available to the related Mortgagor which
would materially interfere with the right to sell the related
Property at a trustee's sale or the right to foreclose the related
Mortgage;
(xxxv) Other than with respect to the Delinquencies noted in
item (xi) hereof, there is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Mortgage
Note and no event which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration; and neither the
Servicer nor the Seller has waived any default, breach, violation or
event of acceleration;
(xxxvi) No instrument of release or waiver has been executed
in connection with any Mortgage Loan, and no Mortgagor has been
released, in whole or in part, except in connection with an
assumption agreement which has been approved by the primary mortgage
guaranty insurer, if any, and which has been delivered to the
Custodian;
(xxxvii) Reserved;
(xxxviii) Each Mortgage Loan was underwritten in accordance
with the credit underwriting guidelines of the Seller as set forth
in the Seller's Policies and Procedures Manual, as in effect on the
date hereof and such Manual conforms in all material respects to the
description thereof set forth in the Prospectus Supplement;
(xxxix) Each Mortgage Loan was originated based upon a full
appraisal, which included an interior inspection of the subject
property;
(xl) The Mortgage Loans were not selected for sale to the
Issuer by the Seller on any basis intended to adversely affect the
Issuer;
(xli) No more than ____% of the aggregate Loan Balance of the
Initial Mortgage Loans are secured by Properties that are non-owner
occupied Properties (i.e., investor-owned and vacation);
(xlii) The Seller has no actual knowledge that there exist any
hazardous substances, hazard wastes or solid wastes, as such terms
are defined in the Comprehensive Environmental Response Compensation
and Liability Act, the Resource Conservation and Recovery Act of
1976, or other federal, state or local environmental legislation on
any Property;
(xliii) The Seller was properly licensed or otherwise
authorized, to the extent required by applicable law, to originate
or purchase each Mortgage Loan and the consummation of the
transactions herein contemplated, including, without limitation, the
receipt of interest by the Owners and the ownership of the Mortgage
Loans by the Issuer will not involve the violation of such laws;
(xliv) With respect to each Property subject to a ground lease
(i) the current ground lessor has been identified and all ground
rents which have previously become due and owing have been paid;
(ii) the ground lease term extends, or is automatically renewable,
for at least five years beyond the maturity date of the related
Mortgage Loan; (iii) the ground lease has been duly executed and
recorded; (iv) the amount of the ground rent and any increases
therein are clearly identified in the lease and are for
predetermined amounts at predetermined times; (v) the ground rent
payment is included in the borrower's monthly payment as an expense
item in determining the qualification of the borrower for such
Mortgage Loan; (vi) the Issuer has the right to cure defaults on the
ground lease; and (vii) the terms and conditions of the leasehold do
not prevent
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the free and absolute marketability of the Property. As of the
Cut-Off Date, the Loan Balance of the Initial Mortgage Loans with
related Properties subject to ground leases does not exceed 1% of
the Original Aggregate Loan Balance;
(xlv) Reserved;
(xlvi) No Mortgage Loan is subject to a temporary rate
reduction pursuant to a buydown program;
(xlvii) No more than ____% of the aggregate Loan Balance of
the Initial Mortgage Loans was originated under the Seller's
non-income verification program;
(xlviii) The Coupon Rate on each Mortgage Loan is calculated
on the basis of a year of 360 days with twelve 30-day months;
(xlix) Neither the operation of any of the terms of each
Mortgage Note and each Mortgage nor the exercise of any right
thereunder will render either the Mortgage Note or the Mortgage
unenforceable, in whole or in part, nor subject it to any right of
rescission, set-off, counterclaim or defense, including, without
limitation, the defense of usury;
(l) Any adjustment to the Coupon Rate on a Mortgage Loan has
been legal, proper and in accordance with the terms of the related
Mortgage Note;
(li) No Mortgage Loan is subject to negative amortization; and
(lii) As of the Cut-Off Date, the FTC holder regulation
provided in 16 C.F.R. Part 433 applies to none of the Mortgage
Loans.
(c) In the event that any Qualified Replacement Mortgage is delivered
by the Seller to the Trust pursuant to Section 2.03, Section 2.04 or Section
2.06 hereof, the Seller shall be obligated to take the actions described in
Section 2.04(a) with respect to such Qualified Replacement Mortgage upon the
discovery by any of the Owners, the Seller, the Servicer, the Note Insurer, any
Sub-Servicer, the Custodian or the Indenture Trustee that the statements set
forth in subsection (b) above are untrue in any material respect on the date
such Qualified Replacement Mortgage is conveyed to the Trust such that the
interests of the Owners or the Note Insurer in the related Qualified Replacement
Mortgage are materially and adversely affected; provided, however, that for the
purposes of this subsection (c) the statements in subsection (b) above referring
to items "as of the Cut-Off Date" or "as of the Closing Date" shall be deemed to
refer to such items as of the date such Qualified Replacement Mortgage is
conveyed to the Trust. Notwithstanding the fact that a representation contained
in subsection (b) above may be limited to the Seller's or the Depositor's
knowledge, such limitation shall not relieve the Seller of its repurchase
obligation under this Section and Section 2.05 hereof.
(d) It is understood and agreed that the covenants set forth in this
Section 2.04 shall survive delivery of the respective Mortgage Loans (including
Qualified Replacement Mortgages) to the Indenture Trustee or the Custodian.
(e) The Indenture Trustee shall have no duty to conduct any affirmative
investigation other than as specifically set forth in this Agreement as to the
occurrence of any condition requiring the repurchase or substitution of any
Mortgage Loan pursuant to this Article II or the eligibility of any Mortgage
Loan for the purpose of this Agreement.
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Section 2.05 Conveyance of the Initial Mortgage Loans and Qualified
Replacement Mortgages.
(a) On the Closing Date, the Seller, concurrently with the execution
and delivery hereof, transfers, assigns, sets over and otherwise conveys without
recourse, to the Depositor and the Depositor, concurrently with the execution
and delivery hereof, transfers, assigns, sets over and otherwise conveys without
recourse, to the Issuer, all of its respective right, title and interest in and
to the Initial Mortgage Loans (other than payments of principal and interest due
on the Initial Mortgage Loans on or before the Cut-Off Date). The transfer by
the Seller to the Depositor and by the Depositor to the Issuer of the Initial
Mortgage Loans set forth on the Schedule of Mortgage Loans to the Issuer is
absolute and is intended by all parties hereto to be treated as a sale by the
Seller to the Depositor and by the Depositor to the Issuer. Pursuant to the
Indenture, the Issuer will pledge the Trust Estate to the Indenture Trustee to
be held on behalf of the Owners of the Notes.
In the event that either such conveyance or a conveyance pursuant to
Section 2.07 and any Subsequent Transfer Agreement is deemed to be a loan, the
parties intend that the Seller shall be deemed to have granted to the Depositor
and the Depositor shall be deemed to have granted to the Issuer a security
interest in the Trust Estate, and that this Agreement shall constitute a
security agreement under applicable law.
In connection with the sale, transfer, assignment, and conveyance from
the Seller to the Depositor, the Seller has filed, in the appropriate office or
offices in the States of Delaware and Texas, a UCC-1 financing statement
executed by the Seller as debtor, naming the Depositor as secured party and
listing the Initial Mortgage Loans, the Subsequent Mortgage Loans, and the other
property described above as collateral. The characterization of the Seller as
the debtor and the Depositor as the secured party in such financing statements
is solely for protective purposes and shall in no way be construed as being
contrary to the intent of the parties that this transaction be treated as a sale
of the Seller's entire right, title and interest in the Trust Estate. In
connection with such filing, the Seller agrees that it shall cause to be filed
all necessary continuation statements thereof and to take or cause to be taken
such actions and execute such documents as are necessary to perfect and protect
the Depositor's interest in the Trust Estate.
In connection with the sale, transfer, assignment, and conveyance from
the Depositor to the Issuer, the Depositor has filed, in the appropriate office
or offices in the States of Delaware and Texas a UCC-1 financing statement
executed by the Depositor as debtor, naming the Issuer as secured party and
listing the Initial Mortgage Loans, the Subsequent Mortgage Loans and the other
property described above as collateral. The characterization of the Depositor as
a debtor and the Issuer as the secured party in such financing statements is
solely for protective purposes and shall in no way be construed as being
contrary to the intent of the parties that this transaction be treated as a sale
of the Depositor's entire right, title and interest in the Trust Estate. In
connection with such filing, the Depositor agrees that it shall cause to be
filed all necessary continuation statements thereof and to take or cause to be
taken such actions and execute such documents as are necessary to perfect and
protect the Issuer's, the Owners' and the Note Insurer's interest in the Trust
Estate.
In connection with the pledge of the Trust Estate from the Issuer to
the Indenture Trustee, on behalf of the Owners of the Notes, the Issuer has
filed, in the appropriate office or offices in the State of Delaware, a UCC-1
Financing Statement executed by the Issuer as debtor, naming the Indenture
Trustee, on behalf of the Owners of the Notes, as the secured party and listing
the Initial Mortgage Loans, the Subsequent Mortgage Loans and the other property
described above as collateral. In connection with such filing, the Issuer agrees
that it shall cause to be filed all necessary continuation statements thereof
and to take or cause to be taken such actions and execute such documents as are
necessary to perfect and protect the Indenture Trustee's interest in the Trust
Estate on behalf of the Owners of the Notes.
(b) In connection with the transfer and assignment of the Initial
Mortgage Loans, or on each Subsequent Transfer Date with respect to the
Subsequent Mortgage Loan, the Seller agrees to:
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(i) deliver without recourse to the Custodian, on behalf of
the Indenture Trustee, on the Closing Date with respect to each Initial
Mortgage Loan or on each Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans, (A) the original Mortgage Notes endorsed in
blank or to the order of "_______________________, as Indenture Trustee
for the AMRESCO Residential Securities Corporation Adjustable Rate
Mortgage Loan Asset Backed Notes, Series 199__-__ without recourse,"
(B) (I) the original title insurance commitment or a copy thereof
certified as a true copy by the closing agent or the Seller, and when
available, the original title insurance policy or a copy certified by
the issuer of the title insurance policy or (II) the attorney's opinion
of title, (C) originals or copies of all intervening assignments
certified as true copies by the closing agent or the Seller, showing a
complete chain of title from origination to the Issuer, if any,
including warehousing assignments, if recorded, (D) originals of all
assumption and modification agreements, if any and (E) either: (1) the
original Mortgage, with evidence of recording thereon (if such original
Mortgage has been returned to the Seller from the applicable recording
office) or a copy of the Mortgage certified as a true copy by the
closing agent or the Seller, or (2) a copy of the Mortgage certified by
the public recording office in those instances where the original
recorded Mortgage has been lost or retained by the recording office;
(ii) cause, within 60 days following the Closing Date with
respect to the Initial Mortgage Loans or on each Subsequent Transfer
Date with respect to the Subsequent Mortgage Loans or assignments of
the Mortgages to "__________________, as Indenture Trustee for the
AMRESCO Residential Securities Corporation Adjustable Rate Mortgage
Loan Asset Backed Notes, Series 199__-__ without recourse," to be
submitted for recording in the appropriate jurisdictions; provided,
however, that the Seller shall not be required to prepare an assignment
for any Mortgage described in subsection (b)(i)(E)(2) above with
respect to which the original recording information has not yet been
received from the recording office until such information is received;
provided, further, that the Seller shall not be required to record an
assignment of a Mortgage if the Seller furnishes to the Indenture
Trustee and the Note Insurer, on or before the Closing Date, with
respect to the Initial Mortgage Loans or on each Subsequent Transfer
Date with respect to the Subsequent Mortgage Loans, at the Seller's
expense, an opinion of counsel with respect to the relevant
jurisdiction that such recording is not necessary to perfect the
Indenture Trustee's interest in the related Mortgage Loans (in form and
substance satisfactory to the Indenture Trustee, and the Note Insurer
and the Rating Agencies); provided further, however, notwithstanding
the delivery of any legal opinions, each assignment of Mortgage shall
be recorded upon the earliest to occur of: (i) reasonable direction by
the Note Insurer or (ii) the occurrence of a Servicer Termination
Event;
(iii) deliver the title insurance policy or title searches,
the original Mortgages and such recorded assignments, together with
originals or duly certified copies of any and all prior assignments
(other than unrecorded warehouse assignments), to the Custodian, on
behalf of the Indenture Trustee, within 15 days of receipt thereof by
the Seller (but in any event, with respect to any Mortgage as to which
original recording information has been made available to the Seller,
within one year after the Closing Date with respect to the Initial
Mortgage Loans or on each Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans); and
(iv) furnish to the Indenture Trustee and the Note Insurer at
the Seller's expense, an opinion of counsel with respect to the sale
and perfection of the Subsequent Mortgage Loans delivered to the
Issuer.
Notwithstanding anything to the contrary contained in this Section
2.05, in those instances where the public recording office retains the original
Mortgage, the assignment of a Mortgage or the intervening assignments of the
Mortgage after it has been recorded, the Seller and the Depositor shall be
deemed to have satisfied their obligations hereunder upon delivery to the
Custodian, on behalf of the Indenture Trustee of a copy of such Mortgage, such
assignment or assignments of Mortgage certified by the public recording office
to be a true copy of the recorded original thereof.
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Not later than ten days following the end of the 60-day period referred
in clause (ii) of this subsection (b), the Seller shall deliver to the
Custodian, on behalf of the Indenture Trustee a list of all Mortgages for which
no Mortgage assignment has yet been submitted for recording by the Seller, which
list shall state the reason why the Seller has not yet submitted such Mortgage
assignments for recording. With respect to any Mortgage assignment disclosed on
such list as not yet submitted for recording for a reason other than a lack of
original recording information, the Custodian, on behalf of the Indenture
Trustee shall make an immediate demand on the Seller to prepare such Mortgage
assignments, and shall inform the Note Insurer, in writing, of the Seller's
failure to prepare such Mortgage assignments. Thereafter, the Custodian, on
behalf of the Indenture Trustee shall cooperate in executing any documents
prepared by the Note Insurer and submitted to the Custodian, on behalf of the
Indenture Trustee in connection with this provision. Following the expiration of
each 60-day period referred to in clause (ii) of this subsection (b), the Seller
shall promptly prepare a Mortgage assignment for any Mortgage for which original
recording information is subsequently received by the Seller, and shall promptly
deliver a copy of such Mortgage assignment to the Custodian, on behalf of the
Indenture Trustee. The Seller agrees that it will follow its normal servicing
procedures and attempt to obtain the original recording information necessary to
complete a Mortgage assignment. In the event that the Seller is unable to obtain
such recording information with respect to any Mortgage prior to the end of the
18th calendar month following the Closing Date with respect to the Initial
Mortgage Loans and the relevant Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans and has not provided to the Custodian, on behalf of
the Indenture Trustee a Mortgage assignment with evidence of recording thereon
relating to the assignment of such Mortgage to the Indenture Trustee, the
Custodian, on behalf of the Indenture Trustee shall notify the Seller of the
Seller's obligation to provide a completed assignment (with evidence of
recording thereon) on or before the end of the 20th calendar month following the
Closing Date with respect to the Initial Mortgage Loans and the relevant
Subsequent Transfer Date with respect to the Subsequent Mortgage Loans. A copy
of such notice shall be sent by the Custodian, on behalf of the Indenture
Trustee to the Note Insurer. If no such completed assignment (with evidence of
recording thereon) is provided before the end of such 20th calendar month, the
related Mortgage Loan shall be deemed to have breached the representation
contained in clause (xxii) of Section 2.04(b) hereof; provided, however, that if
as of the end of such 20th calendar month the Seller demonstrates to the
satisfaction of the Note Insurer that it is exercising its best efforts to
obtain such completed assignment and, during each month thereafter until such
completed assignment is delivered to the Custodian, on behalf of the Indenture
Trustee, the Seller continues to demonstrate to the satisfaction of the Note
Insurer that it is exercising its best efforts to obtain such completed
assignment, the related Mortgage Loan will not be deemed to have breached such
representation. The requirement to deliver a completed assignment with evidence
of recording thereon will be deemed satisfied upon delivery of a copy of the
completed assignment certified by the applicable public recording office.
Copies of all Mortgage assignments received by the Custodian, on behalf
of the Indenture Trustee shall be retained in the related File.
All recording required pursuant to this Section 2.05 shall be
accomplished at the expense of the Seller.
(c) In the case of Initial Mortgage Loans which have been prepaid in
full after the Cut-Off Date and prior to the Closing Date, the Seller, in lieu
of the foregoing, will deliver within six (6) days after the Closing Date to the
Indenture Trustee a certification of an Authorized Officer in the form set forth
in Exhibit A.
(d) The Seller shall transfer, assign, set over and otherwise convey
without recourse, to the Depositor and the Depositor shall transfer, assign, set
over and otherwise convey without recourse, to the Issuer all right, title and
interest of the Seller in and to any Qualified Replacement Mortgage delivered to
the Custodian, on behalf of the Indenture Trustee on behalf of the Issuer by the
Seller pursuant to Section 2.03, 2.04 or 2.06 hereof and all its right, title
and interest to principal and interest due on such Qualified Replacement
Mortgage after the applicable Replacement Cut-Off Date; provided, however, that
the Seller shall reserve and retain all right, title and interest in and to
payments of principal and interest due on such Qualified Replacement Mortgage on
or prior to the applicable Replacement Cut-Off Date.
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(e) As to each Mortgage Loan released from the lien of the Indenture in
connection with the conveyance of a Qualified Replacement Mortgage therefor, the
Indenture Trustee will transfer, assign, set over and otherwise convey without
recourse or representation, on the Seller's order, all of its and the Issuer's
right, title and interest in and to such released Mortgage Loan and all the
Issuer's right, title and interest to principal and interest due on such
released Mortgage Loan after the applicable Replacement Cut-Off Date; provided,
however, that the Issuer shall reserve and retain all right, title and interest
in and to payments of principal and interest due on such released Mortgage Loan
on or prior to the applicable Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Issuer, the Seller agrees to (i) deliver without
recourse to the Custodian, on behalf of the Indenture Trustee on the date of
delivery of such Qualified Replacement Mortgage the original Mortgage Note
relating thereto, endorsed in blank or to the order of "______________________,
as Indenture Trustee for AMRESCO Residential Securities Corporation Adjustable
Rate Mortgage Loan Asset Backed Notes, Series 199__-__ without recourse," (ii)
cause promptly to be recorded an assignment in the appropriate jurisdictions,
(iii) deliver the original Qualified Replacement Mortgage and such recorded
assignment, together with original or duly certified copies of any and all prior
assignments, to the Custodian, on behalf of the Indenture Trustee within 15 days
of receipt thereof by the Seller (but in any event within 60 days after the date
of conveyance of such Qualified Replacement Mortgage) and (iv) deliver the title
insurance policy, or where no such policy is required to be provided under
Section 2.05(b)(i)(B), the other evidence of title in same required in Section
2.05(b)(i)(B).
(g) As to each Mortgage Loan released from the Trust in connection with
the conveyance of a Qualified Replacement Mortgage the Custodian, on behalf of
the Indenture Trustee shall deliver on the date of conveyance of such Qualified
Replacement Mortgage and on the order of the Seller (i) the original Mortgage
Note relating thereto, endorsed without recourse or representation, to the
Seller, (ii) the original Mortgage so released and all assignments relating
thereto and (iii) such other documents as constituted the File with respect
thereto.
(h) If a Mortgage assignment is lost during the process of recording,
or is returned from the recorder's office unrecorded due to a defect therein,
the Seller shall prepare a substitute assignment or cure such defect, as the
case may be, and thereafter cause each such assignment to be duly recorded.
Section 2.06 Acceptance by Indenture Trustee; Certain Substitutions of
Mortgage Loans; Certification by Indenture Trustee.
(a) The Indenture Trustee agrees to execute and deliver and to cause
the Custodian to execute and deliver on the Closing Date an acknowledgment of
receipt of the items delivered by the Seller or the Depositor in the forms
attached as Exhibit B-1 and Exhibit B-2 hereto, and declares through the
Custodian that it will hold such documents and any amendments, replacement or
supplements thereto, as well as any other assets included in the definition of
Trust Estate and delivered to the Custodian, on behalf of the Indenture Trustee,
as Indenture Trustee in trust upon and subject to the conditions set forth
herein and in the Indenture for the benefit of the Owners. The Indenture Trustee
agrees, for the benefit of the Owners, to cause the Custodian to review such
items within 45 days after the Closing Date (or, with respect to any document
delivered after the Closing Date, within 45 days of receipt and with respect to
any Subsequent Mortgage Loan or Qualified Replacement Mortgage, within 45 days
after the assignment thereof) and to deliver to the Depositor, the Seller, the
Servicer, the Issuer and the Note Insurer a certification in the form attached
hereto as Exhibit C (a "Pool Certification") to the effect that, as to each
Mortgage Loan listed in the Schedule of Mortgage Loans (other than any Mortgage
Loan paid in full or any Mortgage Loan specifically identified in such Pool
Certification as not covered by such Pool Certification), (i) all documents
required to be delivered to it pursuant to Section 2.05(b)(i) of this Agreement
are in its possession, (ii) such documents have been reviewed by it and have not
been mutilated, damaged or torn and relate to such Mortgage Loan and (iii) based
on its examination and only as to the foregoing documents, the information set
forth on the Schedule of Mortgage Loans accurately reflects the information set
forth in the File. Neither
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the Custodian on behalf of the Indenture Trustee, nor the Indenture Trustee
shall have any responsibility for reviewing any File except as expressly
provided in this subsection 2.06(a). Without limiting the effect of the
preceding sentence, in reviewing any File, the Custodian or the Indenture
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment is in proper form (except
to determine if the Indenture Trustee is the assignee), whether any document has
been recorded in accordance with the requirements of any applicable jurisdiction
or whether a blanket assignment is permitted in any applicable jurisdiction, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be, and, where applicable, that it purports
to be recorded. Neither the Custodian on behalf of the Indenture Trustee, nor
the Indenture Trustee shall be under any duty or obligation to inspect, review
or examine any such documents, instruments, certificates or other papers to
determine that they are genuine, enforceable, or appropriate for the represented
purpose or that they are other than what they purport to be on their face, nor
shall the Custodian or the Indenture Trustee be under any duty to determine
independently whether there are any intervening assignments or assumption or
modification agreements with respect to any Mortgage Loan.
(b) If the Custodian, on behalf of the Indenture Trustee during such
45-day period finds any document constituting a part of a File which is not
executed, has not been received, or is unrelated to the Mortgage Loans
identified in the Schedule of Mortgage Loans, or that any Mortgage Loan does not
conform to the description thereof as set forth in the Schedule of Mortgage
Loans, the Custodian, on behalf of the Indenture Trustee shall promptly so
notify the Depositor, the Seller, the Issuer, the Owners and the Note Insurer.
In performing any such review, the Custodian, on behalf of the Indenture Trustee
may conclusively rely on the Seller as to the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
review of the items delivered by the Seller pursuant to Section 2.05(b)(i) is
limited solely to confirming that the documents listed in Section 2.05(b)(i)
have been executed and received, relate to the Files identified in the Schedule
of Mortgage Loans and conform to the description thereof in the Schedule of
Mortgage Loans. The Seller agrees to use reasonable efforts to remedy a material
defect in a document constituting part of a File of which it is so notified by
the Custodian, on behalf of the Indenture Trustee. If, however, within 90 days
after such notice to it respecting such defect the Seller has not remedied the
defect and the defect materially and adversely affects the interest in the
related Mortgage Loan of the Owners or the Note Insurer, the Seller will (or
will cause an affiliate of the Seller to) on the next succeeding Monthly
Remittance Date (i) substitute in lieu of such Mortgage Loan a Qualified
Replacement Mortgage and deliver the Substitution Amount to the Servicer for
deposit in the Principal and Interest Account or (ii) purchase such Mortgage
Loan at a purchase price equal to the Loan Purchase Price thereof, which
purchase price shall be delivered to the Servicer for deposit in the Principal
and Interest Account.
(c) In addition to the foregoing, the Indenture Trustee also agrees to
cause the Custodian to make a review during the 12th month after the Closing
Date indicating the current status of the exceptions previously indicated on the
Pool Certification (the "Final Certification"). After delivery of the Final
Certification, the Custodian, on behalf of the Indenture Trustee and the
Servicer shall provide to the Note Insurer no less frequently than monthly
updated certifications indicating the then current status of exceptions, until
all such exceptions have been eliminated.
Section 2.07 Conveyance of the Subsequent Mortgage Loans.
(a) Subject to the satisfaction of the conditions set forth in Section
2.05 and paragraphs (b), (c) and (d) below (based on the Custodian's review of
such conditions) in consideration of the Issuer's delivery on the relevant
Subsequent Transfer Dates to or upon the order of the Depositor of all or a
portion of the balance of funds in the Pre-Funding Account, the Seller shall
indirectly (through the Depositor), on any Subsequent Transfer Date, sell,
transfer, assign, set over and otherwise convey without recourse, to the Issuer,
and the Issuer shall purchase all of the Seller's right, title and interest in
and to any and all benefits accruing to the Seller from the Subsequent Mortgage
Loans (other than any principal and interest due on or prior to the relevant
Subsequent Cut-Off Date) which the Seller is causing to be delivered to the
Custodian, on behalf of the Indenture Trustee herewith (and all substitutions
therefor as provided by Section 2.03, 2.04 and 2.06), together with the related
Subsequent Mortgage Loan documents and the Seller's interest in any Property
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which secured a Subsequent Mortgage Loan but which has been acquired by
foreclosure or deed in lieu of foreclosure, and all payments thereon and
proceeds of the conversion, voluntary or involuntary, of the foregoing and
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, hazard insurance and title insurance policy
relating to the Subsequent Mortgage Loans, cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any and every kind, and other forms of obligations and
receivables which at any time constitute all or part of or are included in the
proceeds of any of the foregoing). Notwithstanding anything to the contrary
herein, there shall be no more than three Subsequent Transfer Dates during the
Funding Period.
The transfer of the Subsequent Mortgage Loans set forth on the related
Schedule of Mortgage Loans by the Seller to the Depositor and by the Depositor
to the Issuer shall be absolute and shall be intended by the Owners and all
parties hereto to be treated as a sale by the Seller to the Issuer. The amount
released from the Pre-Funding Account shall be one-hundred percent (100%) of the
aggregate principal balances of the Subsequent Mortgage Loans so transferred.
Upon the transfer by the Seller of the Subsequent Mortgage Loans hereunder, such
Subsequent Mortgage Loans (and all principal and interest due thereon subsequent
to the Subsequent Cut-Off Date) and all other rights and interests with respect
to such Subsequent Mortgage Loans transferred pursuant to a Subsequent Transfer
Agreement shall be deemed for all purposes hereunder to be part of the Trust
Estate.
(b) The obligation of the Indenture Trustee to accept the transfer of
the Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Seller and the Depositor shall have provided the
Indenture Trustee and the Note Insurer with an Addition Notice and
shall have provided any information reasonably requested by any of the
foregoing with respect to the Subsequent Mortgage Loans;
(ii) the Seller and the Depositor shall have delivered to the
Indenture Trustee a duly executed written Subsequent Transfer Agreement
(including an acceptance by the Indenture Trustee) in substantially the
form of Exhibit E hereto, which shall include a Schedule of Mortgage
Loans, listing the Subsequent Mortgage Loans and any other exhibits
listed thereon;
(iii) the Seller and the Depositor shall have delivered to the
Servicer for deposit in the related Principal and Interest Account all
principal and interest due in respect of such Subsequent Mortgage Loans
after the related Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, neither the Seller
nor the Depositor was insolvent, nor will either of them be made
insolvent by such transfer, nor is either of them aware of any pending
insolvency;
(v) the Funding Period shall not have ended; and
(vi) the Seller and the Depositor each shall have delivered to
the Indenture Trustee and the Note Insurer an Officer's Certificate
confirming the satisfaction of each condition precedent specified in
this paragraph (b) and in the related Subsequent Transfer Agreement and
the Note Insurer shall have consented to such transfer (such consent
not to be unreasonably withheld).
(c) The obligation of the Issuer to purchase a Subsequent Mortgage Loan
on any Subsequent Transfer Date is subject to the following requirements: (i) no
notice has been received by the Seller, the Depositor, the Note Insurer or the
Indenture Trustee that the rating on the Notes have been downgraded by any
Rating Agency; (ii) such Subsequent Mortgage Loan will not be 30 days or more
contractually Delinquent as of the Subsequent Cut-Off Date (except that not more
than 1% of the aggregate Loan Balance of the Mortgage Loans (including Initial
Mortgage Loans and Subsequent Mortgage Loans) may be 60 or
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days Delinquent as of the Closing Date or related Subsequent Transfer Date);
(iii) the weighted average margin of the Subsequent Mortgage Loans will be at
least ____%; (iv) such Subsequent Mortgage Loan will be an adjustable rate
Mortgage Loan; (v) the original term to maturity of such Subsequent Mortgage
Loan may not exceed 30 years; (vi) such Subsequent Mortgage Loan must be a first
lien; and (vii) following the purchase of such Subsequent Mortgage Loan by the
Trust, the Mortgage Loans (including the Subsequent Mortgage Loans) (a) will
have a weighted average Coupon Rate of at least _____%; (b) will have a weighted
average Loan-to-Value Ratio of not more than _____%; (c) will have at least
_____% Mortgage Loans which are owner occupied; and (d) will have at least
_____% Mortgage Loans secured by single family detached properties.
(d) In connection with each Subsequent Transfer Date and, if
applicable, on the Payment Dates occurring during the Funding Period, the
Trustee shall determine: (i) the amount and correct dispositions of the
Capitalized Interest Requirement, Overfunded Interest Amount, Pre-Funding
Account Earnings and the Pre-Funded Amount and (ii) any other necessary matters
in connection with the administration of the Pre- Funding Account and of the
Capitalized Interest Account. In the event that any amounts are released as a
result of an error in calculation to the Owners, the Seller or the Depositor
from the Pre-Funding Account or from the Capitalized Interest Account, such
Owners, the Seller or the Depositor shall immediately repay such amounts to the
Indenture Trustee or the Indenture Trustee shall have the right to withhold such
amounts from future distributions on such Notes.
Section 2.08 Custodian.
Notwithstanding anything to the contrary in this Agreement, the parties
hereto acknowledge that the functions of the Indenture Trustee with respect to
the custody, acceptance, inspection and release of the Files pursuant to
Sections 2.05, 2.06, 2.07 and 4.14 and the related Pool Certification and Final
Certification shall be performed by the Custodian pursuant to the Custodial
Agreement. The fees and expenses of the Custodian will be paid by the Seller.
Section 2.09 Books and Records.
The sale of each Mortgage Loan shall be reflected in the Seller's and
the Depositor's balance sheets and other financial statements as a sale of
assets by the Seller and the Depositor, as the case may be, under generally
accepted accounting principles.
END OF ARTICLE II
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ARTICLE III
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 3.01 Reserved.
Section 3.02 Establishment of Accounts.
(a) The Depositor shall cause to be established on the Closing Date,
and the Indenture Trustee shall maintain, at the Corporate Trust Office, the
Note Account, the Pre-Funding Account, the Capitalized Interest Account and the
Available Funds Cap Carry-Forward Amount Account each to be held by the
Indenture Trustee in the name of the Indenture Trustee, in trust for the Owners
of the AMRESCO Residential Securities Corporation Adjustable Rate Mortgage Loan
Asset Backed Notes, Series 199__-__ and the Note Insurer as their interests may
appear.
(b) On each Determination Date the Indenture Trustee shall determine
(based solely on information provided to it by the Servicer) with respect to the
immediately following Payment Date, the amounts that are expected to be on
deposit in the Note Account (exclusive of any deposits from the Pre- Funding
Account and Capitalized Interest Account expected to be made and inclusive of
any investment earnings on Eligible Investments held in the Note Account) as of
such date on such Payment Date (disregarding the amounts of any Insured
Payments) and equal to the sum of (x) such amounts excluding the amount of any
Total Monthly Excess Cashflow included in such amounts plus (y) any amounts of
related Total Monthly Excess Cashflow to be applied on such Payment Date
pursuant to Section 3.03(b)(iii) plus (z) any deposit to the Note Account from
the Pre-Funding Account expected to be made. The amount described in clause (x)
of the preceding sentence with respect to each Payment Date is the "Available
Funds" and the sum of the amounts described in clauses (x), (y) and (z) of the
preceding sentence with respect to each Payment Date is the "Total Available
Funds."
Section 3.03 Flow of Funds.
(a) The Indenture Trustee shall deposit in the Note Account without
duplication, upon receipt, (i) any Insured Payments from the Policy Payment
Account pursuant to Section 7.02(b) hereof, (ii) the proceeds of any liquidation
of the assets of the Trust, (iii) all remittances made to the Indenture Trustee
pursuant to Section 4.08(d)(ii) and (iv) the Monthly Remittance Amount.
(b) With respect to funds on deposit in the Note Account, on each
Payment Date, the Indenture Trustee shall make the following allocations,
disbursements and transfers from amounts deposited therein pursuant to
subsection (a) in the following order of priority, and each such allocation,
transfer and disbursement shall be treated as having occurred only after all
preceding allocations, transfers and disbursements have occurred:
(i) first, on each Payment Date from amounts then on deposit in
the Note Account, (A) to itself, the Indenture Trustee Fee and
the Indenture Trustee Reimbursable Expenses, and (B) provided
that no Note Insurer Default has occurred and is continuing
the Premium Amount for such Payment Date shall be paid to the
Note Insurer;
(ii) second, on each Payment Date, the Indenture Trustee shall
allocate an amount equal to the sum of (x) the Total Monthly
Excess Spread with respect to such Payment Date plus (y) any
Overcollateralization Reduction Amount with respect to such
Payment Date (such sum being the "Total Monthly Excess
Cashflow" with respect to such Payment Date) in the following
order of priority:
(A) first, such Total Monthly Excess Cashflow shall be
allocated to the payment of the Principal Payment
Amount pursuant to clause (b)(iv)(C) below (excluding
any Overcollateralization Increase Amount) in an
amount equal to the amount, if any,
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by which (x) the Principal Payment Amount (excluding
any Overcollateralization Increase Amount) exceeds
(y) the Available Funds (net of the Current Interest
and the Trust Fees and Expenses) and shall be paid as
part of the Principal Payment Amount pursuant to
clause (iv)(C) below (the amount of such difference
being the "Available Funds Shortfall"); and
(B) second, any portion of the Total Monthly Excess
Cashflow remaining after the allocations described in
clause (A) above shall be allocated to the payment to
the Note Insurer in respect of amounts owed on
account of any Reimbursement Amount pursuant to
clause (b)(iv)(A)(I).
(iii) third, the amount, if any, of the Total Monthly Excess
Cashflow on a Payment Date remaining after the allocations and
payments described in clause (ii) above (the "Net Monthly
Excess Cashflow" for such Payment Date) is required to be
applied in the following order of priority:
(A) first, such Net Monthly Excess Cashflow shall be used
to reduce to zero, through the payment to the Owners
of the Notes of an Overcollateralization Increase
Amount included in the Principal Payment Amount,
which shall be retained pursuant to clause (b)(iv)(C)
below, any Overcollateralization Deficiency Amount as
of such Payment Date;
(B) second, an amount equal to the lesser of (i) any
portion of the Net Monthly Excess Cashflow remaining
after the applications described in clause (A) and
(ii) the Available Funds Cap Carry-Forward Amount for
such Payment Date shall be deposited into the
Available Funds Cap Carry-Forward Amount Account;
(C) third, any Net Monthly Excess Cashflow remaining
after the application described in clauses (A) and
(B) above shall be allocated to the payment to the
Servicer pursuant to clause (iv)(A)(II) below to the
extent of any unreimbursed Delinquency Advances and
unreimbursed Servicing Advances;
(iv) fourth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above from
amounts (including any related Insured Payment) then on
deposit in the Note Account, the Indenture Trustee shall:
(A) distribute (I) to the Note Insurer the amounts
described in clause (b)(ii)(B) above and (II) to the
Servicer the amounts described in clause (b)(iii)(C)
above;
(B) retain in the Note Account, the Current Interest
(including the proceeds of any Insured Payments
relating to interest made by the Note Insurer);
(C) retain in the Note Account, the Principal Payment
Amount until the Note Principal Balance is reduced to
zero (including the proceeds of any Insured Payments
relating to principal made by the Note Insurer);
(D) distribute to the Indenture Trustee, for the
reimbursement of expenses of the Indenture Trustee
not reimbursed pursuant to clause (b)(i) above which
expenses were incurred in connection with its duties
and obligations hereunder; and
(v) fifth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above, the
Indenture Trustee shall distribute to the Certificate
Distribution Account, the Residual Net Monthly Excess
Cashflow, if any, for such Payment Date.
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(c) On each Payment Date, the Indenture Trustee shall distribute to the
Owners, the amount, if any, then on deposit in the Available Funds Cap
Carry-Forward Amount Account.
(d) Notwithstanding any of the foregoing provisions, the aggregate
amounts distributed on all Payment Dates to the Owners of the Notes on account
of principal pursuant to clause (b)(iv)(C) shall not exceed the original Note
Principal Balance.
(e) Upon receipt of Insured Payments from the Note Insurer on behalf of
Owners of the Notes, the Indenture Trustee shall deposit such Insured Payments
in the Policy Payments Account. On each Payment Date, pursuant to Section
7.02(b) hereof, such amounts will be transferred from the Policy Payment Account
to the Note Account and the Indenture Trustee shall distribute such Insured
Payments, or the proceeds thereof in accordance with Section 3.03(b), to the
Owners of such Notes.
(f) The Indenture Trustee or Paying Agent shall (i) receive for each
Owner of the Notes any Insured Payment from the Note Insurer and (ii) disburse
the same to the Owners of the Notes as set forth in Section 3.03(b). Insured
Payments disbursed by the Indenture Trustee or Paying Agent from proceeds of the
Note Insurance Policy shall not be considered payment by the Trust, nor shall
such payments discharge the obligation of the Trust with respect to such Notes
and the Note Insurer shall be entitled to receive the Reimbursement Amount
pursuant to Section 3.03(b)(ii)(B) hereof. Nothing contained in this paragraph
shall be construed so as to impose duties or obligations on the Indenture
Trustee that are different from or in addition to those expressly set forth in
this Agreement.
Section 3.04 Pre-Funding Account and Capitalized Interest Account.
(a) On the Closing Date, the Indenture Trustee will deposit, on behalf
of the Owners of the Notes and the Note Insurer in the Pre-Funding Account the
Original Aggregate Pre-Funded Amount from the proceeds of the sale of the Notes
and in the Capitalized Interest Account the Original Capitalized Interest
Amount.
(b) On any Subsequent Transfer Date, the Seller shall instruct the
Indenture Trustee to withdraw from the Pre-Funding Account an amount equal to
100% of the aggregate Loan Balances of the Subsequent Mortgage Loans sold to the
Issuer on such Subsequent Transfer Date and pay such amount to or upon the order
of the Depositor upon satisfaction of the conditions set forth in Sections 2.05
and 2.07 hereof with respect to such transfer. In no event shall the Seller be
permitted to instruct the Indenture Trustee to release from the Pre-Funding
Account to the Note Account an amount in excess of the Original Pre-Funded
Amount.
(c) If the Pre-Funded Amount has been reduced to $100,000 or less on or
before the ___________ or the ______________ Monthly Remittance Date, the Seller
shall instruct the Indenture Trustee to withdraw from the Pre-Funding Account
the amount (exclusive of any related Pre-Funding Account Earnings still on
deposit therein) remaining in the Pre-Funding Account and deposit such amount to
the Note Account, on the __________ or the __________ Monthly Remittance Date,
as applicable, for distribution to the related Owners of the Notes.
(d) On the Payment Dates during and immediately following the Funding
Period, the Indenture Trustee shall transfer from the Pre-Funding Account to the
Capitalized Interest Account the Pre-Funding Account Earnings, if any,
applicable to such Payment Date.
(e) On the Payment Dates during and immediately following the Funding
Period, the Indenture Trustee shall transfer from the Capitalized Interest
Account to the Note Account, the sum of the Capitalized Interest Requirement, if
any, and any Pre-Funding Account Earnings for such Payment Date.
(f) On each Subsequent Transfer Date the Indenture Trustee shall
distribute the Overfunded Interest Amount, if any (calculated by the Indenture
Trustee on the day prior to such Subsequent Transfer Date) from the Capitalized
Interest Account to the Seller and on the Payment Date immediately following
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the Funding Period the Indenture Trustee shall distribute to the Seller any
amounts remaining in the Capitalized Interest Account after taking into account
the transfers on such Payment Date described above. The Capitalized Interest
Account shall be closed at the end of the Funding Period. All amounts, if any,
remaining in the Capitalized Interest Account on such day shall be transferred
to the Seller.
Section 3.05 Investment of Accounts.
(a) Consistent with any requirements of the Code, all or a portion of
any Account held by the Indenture Trustee for the benefit of the Owners shall be
invested and reinvested by the Indenture Trustee in trust for the benefit of the
Owners and the Note Insurer, as directed in writing by the Seller, in one or
more Eligible Investments bearing interest or sold at a discount. The bank
serving as Indenture Trustee or any affiliate thereof may be the obligor on any
investment which otherwise qualifies as an Eligible Investment. No investment in
any Account shall mature later than the Business Day immediately preceding the
next Payment Date.
(b) If any amounts are needed for disbursement from any Account held by
the Indenture Trustee and sufficient uninvested funds are not available to make
such disbursement, the Indenture Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Account. No
investments will be liquidated prior to maturity unless the proceeds thereof are
needed for disbursement.
(c) Subject to the terms of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Account held
by the Indenture Trustee resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Indenture
Trustee is the obligor thereon).
(d) The Indenture Trustee shall invest and reinvest funds in the
Accounts held by the Indenture Trustee, in accordance with the written
instructions delivered to the Indenture Trustee on the Closing Date, but only in
one or more Eligible Investments bearing interest or sold at a discount.
If the Seller shall have failed to give investment directions to the
Indenture Trustee then the Indenture Trustee shall invest in money market funds
described in Section 3.07(j) to be redeemable without penalty no later than the
Business Day immediately preceding the next Payment Date.
(e) All income or other gain from investments in any Account held by
the Indenture Trustee shall be deposited in such Account immediately on receipt,
and any loss resulting from such investments shall be charged to such Account,
as appropriate, subject to the requirement of Section 4.08(b) that the Servicer
contribute funds in an amount equal to such loss in the case of the Principal
and Interest Account.
Section 3.06 Payment of Trust Expenses.
(a) The Seller shall pay the amount of the expenses of the Trust (other
than payments of premiums to the Note Insurer) (including the Indenture
Trustee's fees and expenses not covered or paid by Section 3.03(b)(i) and
3.03(b)(iv)(D)), and the Seller shall promptly pay such expenses directly to the
Persons to whom such amounts are due.
(b) The Seller shall pay directly on the Closing Date the reasonable
fees and expenses of counsel to the Indenture Trustee and the Owner Trustee.
(c) In the event the Depositor fails to do so, the Seller shall pay the
fees and expenses (including any "Expenses" (as defined in the Trust Agreement))
of the Owner Trustee.
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Section 3.07 Eligible Investments.
The following are Eligible Investments:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and interest
by, the United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United States, FHLMC
senior debt obligations, and Fannie Mae senior debt obligations, but excluding
any of such securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption;
(b) Federal Housing Administration debentures;
(c) FHLMC participation certificates which guaranty timely payment of
principal and interest and senior debt obligations;
(d) Consolidated senior debt obligations of any Federal Home Loan
Banks;
(e) Fannie Mae mortgage-backed securities (other than stripped mortgage
securities which are valued greater than par on the portion of unpaid principal)
and senior debt obligations;
(f) Federal funds, certificates of deposit, time deposits, and bankers'
acceptances (having original maturities of not more than 365 days) of any
domestic bank, the short-term debt obligations of which have been rated A-1 by
Standard & Poor's and P-1 by Moody's;
(g) Deposits of any bank or savings and loan association (the long-term
deposit rating of which is Baa3 or better by Moody's and BBB by Standard &
Poor's) which has combined capital, surplus and undivided profits of at least
$50,000,000 which deposits are insured by the FDIC and held up to the limits
insured by the FDIC;
(h) Repurchase agreements collateralized by securities described in
(a), (c), or (e) above with any registered broker/dealer subject to the
Securities Investors Protection Corporation's jurisdiction and subject to
applicable limits therein promulgated by Securities Investors Protection
Corporation or any commercial bank, if such broker/dealer or bank has an
uninsured, unsecured and unguaranteed short-term or long-term obligation rated
P-1 or Aa2, respectively, or better by Moody's and A-1+ or AA, respectively, or
better by Standard & Poor's, provided:
a. A master repurchase agreement or specific written
repurchase agreement governs the transaction, and
b. The securities are held free and clear of any lien by the
Indenture Trustee or an independent third party acting solely as agent
for the Indenture Trustee, and such third party is (a) a Federal
Reserve Bank, (b) a bank which is a member of the FDIC and which has
combined capital, surplus and undivided profits of not less than $125
million, or (c) a bank approved in writing for such purpose by the Note
Insurer, and the Indenture Trustee shall have received written
confirmation from such third party that it holds such securities, free
and clear of any lien, as agent for the Indenture Trustee, and
c. A perfected first security interest under the Uniform
Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1
et seq. or 31 C.F.R. 350.0 et seq., in such securities is created for
the benefit of the Indenture Trustee, and
d. The repurchase agreement has a term of thirty days or less
and the Indenture Trustee will value the collateral securities no less
frequently than weekly and will liquidate the collateral
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securities if any deficiency in the required collateral percentage is
not restored within two business days of such valuation, and
e. The fair market value of the collateral securities in
relation to the amount of the repurchase obligation, including
principal and interest, is equal to at least 106%.
(i) Commercial paper (having original maturities of not more than 270
days) rated in the highest short-term rating categories of Standard & Poor's and
Moody's;
(j) Investments in no load money market funds registered under the
Investment Company Act of 1940 whose shares are registered under the Securities
Act and rated AAAm or AAAm-G by Standard & Poor's and Aaa by Moody's; and
(k) Any other investment permitted by each of the Rating Agencies and
the Note Insurer; provided that no instrument described above shall evidence
either the right to receive (a) only interest with respect to the obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provided a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations;
and provided, further, that all instruments described hereunder shall mature at
par on or prior to the next succeeding Payment Date unless otherwise provided in
this Agreement and that no instrument described hereunder may be purchased at a
price greater than par if such instrument may be prepaid or called at a price
less than its purchase price prior to stated maturity.
Section 3.08 Accounting and Directions by Indenture Trustee.
By 12:00 noon, New York time, on each Payment Date (or such earlier
period as shall be agreed by the Seller and the Indenture Trustee), the
Indenture Trustee shall notify (based solely on information provided to the
Indenture Trustee by the Servicer and upon which the Indenture Trustee may rely)
the Seller, the Depositor, each Owner and the Note Insurer, of the following
information with respect to such Payment Date (which notification may be given
by facsimile, or by telephone promptly confirmed in writing):
(1) The aggregate amount on deposit in the Note Account as of
the related Determination Date;
(2) The Monthly Payment Amount, on the next Payment Date;
(3) The amount of any Overcollateralization Increase Amount;
(4) The amount of any Insured Payment to be made by the Note
Insurer on such Payment Date;
(5) The application of the amounts described in clauses (1),
(3) and (4) above in respect of the distribution of the Monthly Payment
Amount on such Payment Date in accordance with Section 3.03 hereof;
(6) The Note Principal Balance;
(7) The amount, if any, of any Realized Losses for the related
Remittance Period;
(8) The amount of any Overcollateralization Reduction Amount;
and
(9) For the Payment Dates in ______ and __________, (A) the
Pre-Funded Amount previously used to purchase Subsequent Mortgage
Loans, (B) the Pre-Funded Amount distributed
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as principal, (C) the Pre-Funding Account Earnings transferred to the
Capitalized Interest Account and (D) the amounts transferred from the
Capitalized Interest Account to the Note Account and the amount
transferred to the Seller, if any.
Section 3.09 Reports by Indenture Trustee to Owners and Note Insurer.
(a) On the Business Day preceding each Payment Date the Indenture
Trustee shall transmit a report in writing to each Owner, the Owner Trustee, the
Note Insurer, Standard & Poor's and Moody's, which report shall contain the
following:
(i) the amount of the distribution with respect to such
Owners' of the Notes (based on a Note in the original principal amount
of $1,000);
(ii) the amount of such Owner's distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments in full or other Prepayments or other recoveries of
principal included therein and any Pre-Funded Amounts distributed as a
prepayment and any related Overcollateralization Increase Amount;
(iii) the amount of such Owner's distributions allocable to
interest (based on a Note in the original principal amount of $1,000);
(iv) if the interest portion of the Monthly Payment Amount
(net of any Insured Payment) paid to the Owners of the Notes on such
Payment Date was less than the Current Interest on such Payment Date,
the Carry Forward Amount resulting therefrom;
(v) the amount of any Insured Payment included in the
amounts distributed to the Owners of Notes on such Payment Date;
(vi) the principal amount of the Notes which will be
Outstanding and the aggregate Loan Balance after giving effect to any
payment of principal on such Payment Date;
(vii) the Overcollateralization Amount and
Overcollateralization Deficit, if any, remaining after giving effect to
all distributions and transfers on such Payment Date;
(viii) based upon information furnished by the Servicer, such
information as may be required by Section 6049(d)(7)(C) of the Code and
the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(ix) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution;
(x) the weighted average Coupon Rate of the Mortgage Loans;
(xi) such other information as the Note Insurer may
reasonably request with respect to Delinquent Mortgage Loans;
(xii) the weighted average gross margin of the Mortgage Loans;
(xiii) the Loan Balance of each of the three largest Mortgage
Loans outstanding;
(xiv) the Note Rate;
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(xv) the Available Funds Cap Carry Forward Amortization
Amount, if any, and the remaining Available Funds Cap Carry Forward
Amount, if any; and
(xvi) for each Payment Date during and immediately following
the Funding Period, the total remaining Pre-Funded Amount in the
Pre-Funding Account.
The Servicer shall provide to the Indenture Trustee the information
described in Section 4.08(d)(iii) and in clause (b) below to enable the
Indenture Trustee to perform its reporting obligations under this Section, and
such obligations of the Indenture Trustee under this Section are conditioned
upon such information being received and the information provided in clauses
(ii), (ix) and (x) shall be based solely upon information contained in the
monthly servicing report provided by the Servicer to the Indenture Trustee
pursuant to Section 4.08 hereof.
(b) In addition, on the Business Day preceding each Payment Date the
Indenture Trustee will distribute to each Owner, the Owner Trustee, the Note
Insurer, Standard & Poor's and Moody's, together with the information described
in Subsection (a) preceding, the following information which is hereby required
to be prepared by the Servicer and furnished to the Indenture Trustee for such
purpose on or prior to the related Monthly Reporting Date:
(i) the number and aggregate principal balances of
Mortgage Loans (a) 30-59 days Delinquent, (b) 60-89 days Delinquent and
(c) 90 or more days Delinquent, as of the close of business on the last
Business Day of the calendar month immediately preceding the Payment
Date, (d) the numbers and aggregate Loan Balances of all Mortgage Loans
as of such Payment Date and (e) the percentage that each of the amounts
represented by clauses (a), (b) and (c) represent as a percentage of
the respective amounts in clause (d);
(ii) the status and the number and dollar amounts of
all Mortgage Loans in foreclosure proceedings as of the close of
business on the last Business Day of the calendar month immediately
preceding such Payment Date, separately stating, for this purpose, all
Mortgage Loans with respect to which foreclosure proceedings were
commenced in the immediately preceding calendar month;
(iii) the number of Mortgagors and the Loan Balances
of (a) the related Mortgages involved in bankruptcy proceedings as of
the close of business on the last Business Day of the calendar month
immediately preceding such Payment Date and (b) Mortgage Loans that are
"balloon" loans;
(iv) the existence and status of any REO Properties,
as of the close of business of the last Business Day of the month
immediately preceding the Payment Date;
(v) the book value of any REO Property as of the
close of business on the last Business Day of the calendar month
immediately preceding the Payment Date;
(vi) the Cumulative Loss Percentage, the amount of
cumulative Realized Losses, the current period Realized Losses, and the
Annual Loss Percentage (Rolling Twelve Month); and
(vii) the 90+ Delinquency Percentage (Rolling Six
Month) and the amount of 90- Day Delinquent Loans.
Section 3.10 Reports by Indenture Trustee.
(a) The Indenture Trustee shall report to the Depositor, the Seller,
the Note Insurer and each Owner, with respect to the amount on deposit in the
Note Account and the identity of the investments included therein, as the
Depositor, the Seller, any Owner or the Note Insurer may from time to time
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reasonably request. Without limiting the generality of the foregoing, the
Indenture Trustee shall, at the reasonable request of the Issuer, the Seller,
any Owner or the Note Insurer transmit promptly to the Issuer, the Seller, any
Owner and the Note Insurer copies of all accountings of receipts in respect of
the Mortgage Loans furnished to it by the Servicer and shall notify the Seller
and the Note Insurer if any Monthly Remittance Amount has not been received by
the Indenture Trustee when due.
(b) The Indenture Trustee shall report to the Note Insurer and each
Owner with respect to any written notices it may from time to time receive which
provide an Authorized Officer with actual knowledge that any of the statements
set forth in Section 2.04(b) hereof are inaccurate.
END OF ARTICLE III
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ARTICLE IV
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 4.01 Servicer and Sub-Servicers.
Acting directly or through one or more Sub-Servicers as provided in
Section 4.03, the Servicer shall service and administer the Mortgage Loans in
accordance with this Agreement, the terms of the respective Mortgage Loans, and
the servicing standards set forth in the Fannie Mae Guide and shall have full
power and authority, acting alone, to do or cause to be done any and all things
in connection with such servicing and administration which it may deem necessary
or desirable but without regard to: (i) any relationship that the Servicer, any
Sub-Servicer or any Affiliate of the Servicer or any Sub-Servicer may have with
the Mortgagor; (ii) the ownership of any Note by the Servicer or any Affiliate
of the Servicer; (iii) the Servicer's obligation to make Delinquency Advances or
Servicing Advances; or (iv) the Servicer's or any Sub- Servicer's right to
receive compensation for its services hereunder or with respect to any
particular transaction. It is the intent of the parties hereto that the Servicer
shall have all of the servicing obligations hereunder which a lender would have
under the Fannie Mae Guide (as such provisions relate to second lien mortgages);
provided, however, that to the extent that such standards, such obligations or
the Fannie Mae Guide are amended by Fannie Mae after the date hereof and the
effect of such amendment would be to impose upon the Servicer any material
additional costs or other burdens relating to such servicing obligations, the
Servicer may, at its option, in accordance with the servicing standards set
forth herein, determine not to comply with such amendment.
Subject to Section 4.03 hereof, the Servicer may, and is hereby
authorized to, perform any of its servicing responsibilities with respect to all
or certain of the Mortgage Loans through a Sub-Servicer as it may from time to
time designate, but no such designation of a Sub-Servicer shall serve to release
the Servicer from any of its obligations under this Agreement. Such Sub-Servicer
shall have the rights and powers of the Servicer which have been delegated to
such Sub-Servicer with respect to such Mortgage Loans under this Agreement.
Without limiting the generality of the foregoing, but subject to
Sections 4.13 and 4.14, the Servicer in its own name or in the name of a
Sub-Servicer may be authorized and empowered pursuant to a power of attorney
executed and delivered by the Indenture Trustee to execute and deliver, and may
be authorized and empowered by the Indenture Trustee, to execute and deliver, on
behalf of itself, the Owners, the Issuer and the Indenture Trustee or any of
them, (i) any and all instruments of satisfaction or cancellation or of partial
or full release or discharge and all other comparable instruments with respect
to the Mortgage Loans and with respect to the Properties, (ii) to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect
ownership of any Property in the name of the Servicer on behalf of the Issuer
and Indenture Trustee, and (iii) to hold title to any Property upon such
foreclosure or deed in lieu of foreclosure on behalf of the Issuer and Indenture
Trustee; provided, however, that to the extent any instrument described in
clause (i) preceding would be delivered by the Servicer outside of its usual
procedures for mortgage loans held in its own portfolio the Servicer shall,
prior to executing and delivering such instrument, obtain the prior written
consent of the Note Insurer, and provided further, however, that Section 4.13(a)
and Section 4.14(a) shall each constitute a revocable power of attorney from the
Issuer and Indenture Trustee to the Servicer to execute an instrument of
satisfaction (or assignment of mortgage without recourse) with respect to any
Mortgage Loan held by the Indenture Trustee hereunder paid in full or foreclosed
(or with respect to which payment in full has been escrowed). Revocation of the
power of attorney created by the final proviso of the preceding sentence shall
take effect upon (i) the receipt by the Servicer of written notice thereof from
the Indenture Trustee, (ii) a Servicer Termination Event or (iii) the
termination of the Notes. The Indenture Trustee shall execute any documentation
furnished to it by the Servicer for recordation by such Servicer in the
appropriate jurisdictions, as shall be necessary to effectuate the foregoing.
Subject to Sections 4.13 and 4.14, the Indenture Trustee shall execute a power
of attorney to the Servicer or any Sub-Servicer and furnish
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them with any other documents as the Servicer or such Sub-Servicer shall
reasonably request to enable the Servicer and such Sub-Servicer to carry out
their respective servicing and administrative duties hereunder.
Upon the request of the Indenture Trustee or the Issuer, the Servicer
shall send to the Indenture Trustee or the Issuer, the details concerning the
servicing of the Mortgage Loans on computer generated tape, diskette or other
machine readable format.
The Servicer shall give prompt notice to the Indenture Trustee and the
Issuer of any action, of which the Servicer has actual knowledge, to (i) assert
a claim against the Trust or (ii) assert jurisdiction over the Trust.
Servicing Advances incurred by the Servicer or any Sub-Servicer in
connection with the servicing of the Mortgage Loans (including any penalties in
connection with the payment of any taxes and assessments or other charges) on
any Property shall be recoverable by the Servicer or such Sub-Servicer to the
extent described in Section 4.09(b) hereof.
Section 4.02 Collection of Certain Mortgage Loan Payments.
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of any applicable Insurance Policy, follow collection procedures
for all Mortgage Loans at least as rigorous as those described in the Fannie Mae
Guide. Consistent with the foregoing, the Servicer may in its discretion waive
or permit to be waived any late payment charge, prepayment charge, assumption
fee or any penalty interest in connection with the prepayment of a Mortgage Loan
or any other fee or charge which the Servicer would be entitled to retain
hereunder as servicing compensation. In the event the Servicer shall consent to
the deferment of the due dates for payments due on a Mortgage Note, the Servicer
shall nonetheless make payment of any required Delinquency Advance with respect
to the payments so extended to the same extent as if such installment were due,
owing and Delinquent and had not been deferred, and shall be entitled to
reimbursement therefor in accordance with Section 4.09(a) hereof.
Section 4.03 Sub-Servicing Agreements Between Servicer and
Sub-Servicers.
The Servicer may, with the prior written consent of the Note Insurer,
enter into Sub-Servicing Agreements for any servicing and administration of
Mortgage Loans with any institution which is acceptable to the Note Insurer and
which, (x) is in compliance with the laws of each state necessary to enable it
to perform its obligations under such Sub-Servicing Agreement, (y) has
experience servicing Mortgage Loans that are similar to the Mortgage Loans and
(z) has equity of not less than $5,000,000 (as determined in accordance with
generally accepted accounting principles). The Servicer shall give notice to the
Indenture Trustee, the Owners, the Note Insurer and the Rating Agencies of the
appointment of any Sub-Servicer (and shall receive the confirmation of the
Rating Agencies that such Sub-Servicer shall not result in a withdrawal or
downgrading by any Rating Agency of the rating or the shadow rating of the
Notes). For purposes of this Agreement, the Servicer shall be deemed to have
received payments on Mortgage Loans when any Sub-Servicer has received such
payments. Each Sub-Servicer shall be required to service the Mortgage Loans in
accordance with this Agreement and any such Sub-Servicing Agreement shall be
consistent with and not violate the provisions of this Agreement. Each
Sub-Servicing Agreement shall provide that the Indenture Trustee (if acting as
successor Servicer) or any other successor Servicer shall have the option to
terminate such agreement without payment of any fees if the original Servicer is
terminated or resigns. The Servicer shall deliver to the Indenture Trustee and
the Note Insurer copies of all Sub-Servicing Agreements, and any amendments or
modifications thereof promptly upon the Servicer's execution and delivery of
such instrument.
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Section 4.04 Successor Sub-Servicers.
The Servicer shall be entitled to terminate any Sub-Servicing Agreement
in accordance with the terms and conditions of such Sub-Servicing Agreement and
to either itself directly service the related Mortgage Loans or enter into a
Sub-Servicing Agreement with a successor Sub-Servicer which qualifies under
Section 4.03.
Section 4.05 Liability of Servicer; Indemnification.
(a) The Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Sub-Servicer and the Servicer shall be obligated to the same extent and
under the same terms and conditions as if it alone were servicing and
administering the Mortgage Loans. The Servicer shall be entitled to enter into
any agreement with a Sub-Servicer for indemnification of the Servicer by such
Sub-Servicer; provided, however, that nothing contained in such Sub-Servicing
Agreement shall be deemed to limit or modify this Agreement.
(b) The Servicer (except ___________________ if it is required to
succeed the Servicer hereunder) agrees to indemnify and hold the Issuer, the
Indenture Trustee, the Note Insurer, the Depositor and each Owner harmless
against any and all claims, losses, penalties, fines, forfeitures, legal fees
and related costs, judgments, and any other costs, fees and expenses that the
Issuer, the Indenture Trustee, the Note Insurer and any Owner may sustain in any
way related to the failure of the Servicer to perform its duties and service the
Mortgage Loans in compliance with the terms of this Agreement. The Servicer
shall immediately notify the Issuer, the Indenture Trustee, the Depositor, the
Note Insurer and each Owner if a claim is made by a third party with respect to
this Agreement, and the Servicer shall assume (with the consent of the Indenture
Trustee and the Note Insurer) the defense of any such claim and pay all expenses
in connection therewith, including reasonable counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Issuer, the Servicer, the Indenture Trustee, the Depositor, the Note Insurer
and/or Owner in respect of such claim. The Indenture Trustee shall, in
accordance with instructions received from the Servicer, reimburse the Servicer
only from amounts otherwise distributable on the Certificates for all amounts
advanced by it pursuant to the preceding sentence, except when a final
nonpayable adjudication determines that the claim relates directly to the
failure of the Servicer to perform its duties in compliance with the Agreement.
The provisions of this Section 4.05(b) shall survive the termination of this
Agreement and the payment of the outstanding Notes.
Section 4.06 No Contractual Relationship Between Sub-Servicer,
Indenture Trustee or the Owners.
Any Sub-Servicing Agreement and any other transactions or services
relating to the Mortgage Loans involving a Sub-Servicer shall be deemed to be
between the Sub-Servicer and the Servicer alone and the Indenture Trustee and
the Owners shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to any Sub-Servicer except as
set forth in Section 4.07.
Section 4.07 Assumption or Termination of Sub-Servicing Agreement by
Indenture Trustee.
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Servicer hereunder by
the Indenture Trustee pursuant to Section 4.20, it is understood and agreed that
the Servicer's rights and obligations under any Sub-Servicing Agreement then in
force between the Servicer and a Sub-Servicer shall be assumed simultaneously by
the Indenture Trustee without act or deed on part of the Indenture Trustee;
provided, however, that the Indenture Trustee (if acting as successor Servicer)
or any other successor Servicer may terminate the Sub-Servicer as provided in
Section 4.03.
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The Servicer shall, upon the reasonable request of the Indenture
Trustee, but at the expense of the Servicer, deliver to the assuming party
documents and records relating to each Sub-Servicing Agreement and an accounting
of amounts collected and held by it and otherwise use its best reasonable
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreements to the assuming party.
Section 4.08 Principal and Interest Account.
(a) The Servicer shall establish and maintain at one or more Designated
Depository Institutions the Principal and Interest Account to be held as a trust
account. Each Principal and Interest Account shall be identified on the records
of the Designated Depository Institution as follows: ____________________, on
behalf of __________________ as Indenture Trustee in trust for the benefit of
the Owners of the AMRESCO Residential Securities Corporation Adjustable Rate
Mortgage Loan Asset Backed Notes, Series 199__-__ and the Note Insurer. If the
institution at any time holding the Principal and Interest Account ceases to be
eligible as a Designated Depository Institution hereunder, then the Servicer
shall immediately be required to name a successor institution meeting the
requirements for a Designated Depository Institution hereunder. If the Servicer
fails to name such a successor institution, then the Principal and Interest
Account shall thenceforth be held as a trust account with a qualifying
Designated Depository Institution selected by the Indenture Trustee. The
Servicer shall notify the Indenture Trustee, the Note Insurer and the Owners if
there is a change in the name, account number or institution holding the
Principal and Interest Account.
Subject to subsection (c) below, the Servicer shall deposit all
receipts required pursuant to subsection (c) below and related to the Mortgage
Loans to the Principal and Interest Account on a daily basis (but no later than
the first Business Day after receipt).
(b) All funds in the Principal and Interest Account shall be held (i)
uninvested up to the amount insured by the FDIC or (ii) invested in Eligible
Investments. Any investments of funds in the Principal and Interest Account
shall mature or be withdrawable at par on or prior to the immediately succeeding
Monthly Remittance Date. Any investment earnings on funds held in the Principal
and Interest Account shall be for the account of the Servicer and may only be
withdrawn from the Principal and Interest Account by the Servicer immediately
following the remittance of the Monthly Remittance Amount (and the Total Monthly
Excess Spread included therein) by the Servicer. Any investment losses on funds
held in the Principal and Interest Account shall be for the account of the
Servicer and promptly upon the realization of such loss shall be contributed by
the Servicer to the Principal and Interest Account. Any references herein to
amounts on deposit in the Principal and Interest Account shall refer to amounts
net of such investment earnings.
(c) The Servicer shall deposit to the Principal and Interest Account on
the Business Day after receipt all principal and interest collections on the
Mortgage Loans due after the Cut-Off Date, including any Prepayments and Net
Liquidation Proceeds, other recoveries or amounts related to the Mortgage Loans
received by the Servicer and any income from REO Properties, but net of (i) Net
Liquidation Proceeds to the extent such Net Liquidation Proceeds exceed the sum
of (I) the Loan Balance of the related Mortgage Loan immediately prior to
liquidation, plus (II) accrued and unpaid interest on such Mortgage Loan (net of
the related Servicing Fee) to the date of such liquidation and (III) any
Realized Losses incurred during the related Remittance Period, (ii) principal
and interest due (and Prepayments collected) on the Mortgage Loans on or prior
to the Cut-Off Date or related Subsequent Cut-Off Date, (iii) reimbursements for
Delinquency Advances and (iv) reimbursements for amounts deposited in the
Principal and Interest Account representing payments of principal and/or
interest on a Mortgage Note by a Mortgagor which are subsequently returned by a
depository institution as unpaid (all such net amount herein referred to as
"Daily Collections").
(d) (i) The Servicer may make withdrawals for its own account from the
Principal and Interest Account, only in the following priority and for the
following purposes:
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(A) on each Monthly Remittance Date, to pay itself the
related Servicing Fees;
(B) to withdraw investment earnings on amounts on deposit
in the Principal and Interest Account;
(C) to withdraw amounts that have been deposited to the
Principal and Interest Account in error;
(D) to reimburse itself pursuant to Section 4.09(a) for
unrecovered Delinquency Advances and for any excess
interest collected from a Mortgagor; and
(E) to clear and terminate the Principal and Interest
Account following the termination of the Trust
pursuant to Article V.
(ii) The Servicer shall (a) remit to the Indenture Trustee for deposit
in the Note Account by wire transfer, or otherwise make funds available in
immediately available funds, without duplication, the Daily Collections
allocable to a Remittance Period not later than the related Monthly Remittance
Date and Loan Purchase Prices and Substitution Amounts two Business Days
following the related purchase or substitution, and (b) on each Monthly
Reporting Date, deliver to the Indenture Trustee and the Note Insurer, a monthly
servicing report containing (without limitation) the following information:
principal and interest collected in respect of the Mortgage Loans, scheduled
principal and interest that was due on the Mortgage Loans, relevant information
with respect to Liquidated Loans, if any, summary and detailed delinquency
reports, Liquidation Proceeds and other similar information concerning the
servicing of the Mortgage Loans. In addition, the Servicer shall inform the
Indenture Trustee and the Note Insurer in writing on each Monthly Reporting
Date, of the amounts of any Loan Purchase Prices or Substitution Amounts so
remitted during the related Remittance Period, and of the Loan Balance of the
Mortgage Loan having the largest Loan Balance as of such date.
(iii) The Servicer shall provide to the Indenture Trustee in writing
the information described in Section 4.08(d)(ii)(b) and in Section 4.09(b) to
enable the Indenture Trustee to perform its reporting requirements under Section
3.09.
Section 4.09 Delinquency Advances and Servicing Advances.
(a) On each Monthly Remittance Date, the Servicer shall be required to
remit to the Indenture Trustee for deposit to the Note Account out of the
Servicer's own funds any Delinquent payment of interest with respect to each
Delinquent Mortgage Loan, which payment was not received on or prior to the
related Remittance Date and was not theretofore advanced by the Servicer. Such
amounts of the Servicer's own funds so deposited are "Delinquency Advances".
The Servicer shall be permitted to reimburse itself on any Business Day
for any Delinquency Advances paid from the Servicer's own funds, from
collections on any Mortgage Loans that are not required to be distributed on the
Payment Date occurring during the month in which such reimbursement is made (all
or any portion of such amount to be replaced on future Monthly Remittance Dates
to the extent required for distribution) or as provided in Section
3.03(b)(iii)(C).
Notwithstanding the foregoing, in the event that the Servicer
determines in its reasonable business judgment in accordance with the servicing
standards set out herein that any proposed Delinquency Advance would not be
recoverable, the Servicer shall not be required to make Delinquency Advances
with respect to such Mortgage Loan. To the extent that the Servicer previously
has made Delinquency Advances with respect to a Mortgage Loan that the Servicer
subsequently determines will be nonrecoverable, the Servicer shall be entitled
to reimbursement for such aggregate unreimbursed Delinquency Advances as
provided in the prior paragraph. The Servicer shall give written notice of such
determination as to why such amount would not be recoverable to the Indenture
Trustee and the Note Insurer; the Indenture Trustee shall promptly
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furnish a copy of such notice to the Owners of the Notes; provided, further,
that the Servicer shall be entitled to recover any unreimbursed Delinquency
Advances from Liquidation Proceeds for the related Mortgage Loan.
(b) The Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, (i) Preservation Expenses, (ii) the cost of any enforcement or
judicial proceedings, including foreclosures, (iii) the cost of the management
and liquidation of REO Property and (iv) advances required by Section 4.13(a),
except to the extent that such amounts are determined by the Servicer in its
reasonable business judgment not to be recoverable. Such costs will constitute
"Servicing Advances". The Servicer may recover a Servicing Advance (x) from the
Mortgagors to the extent permitted by the Mortgage Loans or, if not theretofore
recovered from the Mortgagor on whose behalf such Servicing Advance was made,
from Liquidation Proceeds realized upon the liquidation of the related Mortgage
Loan and (y) as provided in Section 3.03(b)(iii)(C). The Servicer shall be
entitled to recover the Servicing Advances from the aforesaid Liquidation
Proceeds prior to the payment of the Liquidation Proceeds to any other party to
this Agreement. Except as provided in the previous sentence, in no case may the
Servicer recover Servicing Advances from the principal and interest payments on
any other Mortgage Loan except as provided in Section 3.03(b)(iii)(C).
Section 4.10 Compensating Interest; Repurchase of Mortgage Loans.
(a) If a Prepayment in full of a Mortgage Loan or a Prepayment of at
least six times a Mortgagor's Monthly Payment occurs during any calendar month,
any difference between (x) the interest collected from the Mortgagor in
connection with such payoff, and (y) the full month's interest at the Coupon
Rate that would be due on the related Due Date for such Mortgage Loan
("Compensating Interest") (but not in excess of the aggregate Servicing Fee for
the related Remittance Period) shall be deposited by the Servicer to the
Principal and Interest Account (or if such difference is an excess, the Servicer
shall retain such excess) on the next succeeding Monthly Remittance Date and
shall be included in the Monthly Remittance Amount to be made available to the
Indenture Trustee on such Monthly Remittance Date.
(b) Subject to the clause (c) below, the Servicer has the right and the
option, but not the obligation, to purchase for its own account any Mortgage
Loan which becomes Delinquent, in whole or in part, as to at least three
consecutive monthly installments or any Mortgage Loan as to which enforcement
proceedings have been brought by the Servicer pursuant to Section 4.13. Any such
Mortgage Loan so purchased shall be purchased by the Servicer on or prior to a
Monthly Remittance Date at a purchase price equal to the Loan Purchase Price
thereof, which purchase price shall be deposited in the Principal and Interest
Account.
(c) If a Mortgage Loan to be repurchased by the Servicer pursuant to
clause (b) above, is the greatest number of days Delinquent of all then
Delinquent Mortgage Loans, the Servicer may repurchase such Mortgage Loans
without having first notified the Note Insurer of such repurchase. In all other
cases, the Servicer must notify the Note Insurer, in writing, of its intent to
repurchase a Mortgage Loan and the Servicer may not repurchase such Mortgage
Loan without the written consent of the Note Insurer; provided, that the Note
Insurer shall be deemed to have consented to such repurchase unless it notifies
the Servicer, in writing, of its objection to such repurchase within 5 days
after its receipt of the notice of proposed repurchase.
(d) The Net Liquidation Proceeds from the disposition of any REO
Property shall be deposited in the Principal and Interest Account and remitted
to the Indenture Trustee as part of the Daily Collections remitted by the
Servicer to the Indenture Trustee.
Section 4.11 Maintenance of Insurance.
(a) The Servicer shall cause to be maintained with respect to each
Mortgage Loan a hazard insurance policy with a carrier generally acceptable to
the Servicer that provides for fire and extended
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coverage, and which provides for a recovery by the Trust of insurance proceeds
relating to such Mortgage Loan in an amount not less than the least of (i) the
outstanding principal balance of the Mortgage Loan (plus the related senior lien
loan, if any) (ii) the minimum amount required to compensate for damage or loss
on a replacement cost basis and (iii) the full insurable value of the premises.
The Servicer shall maintain the insurance policies required hereunder in the
name of the mortgagee, its successors and assigns, as loss payee. The policies
shall require the insurer to provide the mortgagee with 30 days' notice prior to
any cancellation or as otherwise required by law. The Servicer may also maintain
a blanket hazard insurance policy or policies if the insurer or insurers of such
policies are rated investment grade by Moody's and Standard & Poor's.
(b) If the Mortgage Loan at the time of origination (or if required by
federal law, at any time thereafter) relates to a Property in an area identified
in the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, the Servicer will cause to be maintained with respect
thereto a flood insurance policy in a form meeting the requirements of the then
current guidelines of the Federal Insurance Administration with a carrier
generally acceptable to the Servicer in an amount representing coverage, and
which provides for a recovery by the Trust of insurance proceeds relating to
such Mortgage Loan of not less than the least of (i) the outstanding principal
balance of the Mortgage Loan (plus the related senior lien loan, if any), (ii)
the minimum amount required to compensate for damage or loss on a replacement
cost basis and (iii) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973. The Servicer shall indemnify the Trust
out of the Servicer's own funds for any loss to the Trust resulting from the
Servicer's failure to advance premiums for such insurance required by this
Section when so permitted by the terms of the Mortgage as to which such loss
relates.
Section 4.12 Due-on-Sale Clauses; Assumption and Substitution
Agreements.
When a Property has been or is about to be conveyed by the Mortgagor,
the Servicer shall, to the extent it has knowledge of such conveyance or
prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Mortgage Note; provided, however, that the Servicer shall not
exercise any such right if the "due-on-sale" clause, in the reasonable belief of
the Servicer, is not enforceable under applicable law. An opinion of counsel,
provided at the expense of the Servicer, to the foregoing effect shall
conclusively establish the reasonableness of such belief. In such event, the
Servicer shall enter 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 under the Mortgage Note and, unless prohibited
by applicable law or the Mortgage documents, the Mortgagor remains liable
thereon. If the foregoing is not permitted under applicable law, the Servicer is
authorized to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as Mortgagor and becomes liable under the Mortgage Note;
provided, however, that to the extent any such substitution of liability
agreement would be delivered by the Servicer outside of its usual procedures for
Mortgage Loans held in its own portfolio the Servicer shall, prior to executing
and delivering such agreement, obtain the prior written consent of the Note
Insurer. The Mortgage Loan, as assumed, shall conform in all material respects
to the requirements, representations and warranties of this Agreement. The
Servicer shall notify the Indenture Trustee that any such assumption or
substitution agreement has been completed by forwarding to the Indenture Trustee
or to the Custodian on the Indenture Trustee's behalf the original copy of such
assumption or substitution agreement (indicating the File to which it relates)
which copy shall be added by the Indenture Trustee or by the Custodian on the
Indenture Trustee's behalf to the related File and which shall, for all
purposes, be considered a part of such File to the same extent as all other
documents and instruments constituting a part thereof. The Servicer shall be
responsible for recording any such assumption or substitution agreements. In
connection with any such assumption or substitution agreement, no material term
of the Mortgage Loan (including, without limitation, the required monthly
payment on the related Mortgage Loan, the stated maturity, the outstanding
principal amount or the Coupon Rate) shall be changed nor shall any required
monthly payments of principal or interest be deferred or forgiven. Any fee
collected by the Servicer or the Sub-Servicer for consenting to any such
conveyance or
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entering into an assumption or substitution agreement shall be retained by or
paid to the Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 4.13 Realization Upon Defaulted Mortgage Loans; Workout of
Mortgage Loans.
(a) The Servicer shall foreclose upon or otherwise comparably effect
the ownership in the name of the Indenture Trustee on behalf of the Trust of
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of Delinquent payments and which the
Servicer has not purchased pursuant to Section 4.10(b). In connection with such
foreclosure or other conversion, the Servicer shall exercise such of the rights
and powers vested in it hereunder, and use the same degree of care and skill in
their exercise or use, as prudent mortgage lenders would exercise or use under
the circumstances in the conduct of their own affairs and consistent with the
servicing standards set forth in the Fannie Mae Guide, including, but not
limited to, advancing funds for the payment of taxes, amount due with respect to
senior liens loans and insurance premiums. Any amounts so advanced shall
constitute "Servicing Advances" within the meaning of Section 4.09(b) hereof.
The Servicer shall sell any REO Property within 35 months of its acquisition by
the Trust, at such price as the Servicer in good faith deems necessary to comply
with this covenant unless the Servicer obtains for the Note Insurer and the
Indenture Trustee, an opinion of counsel (the expense of which opinion shall be
a Servicing Advance) experienced in federal income tax matters acceptable to the
Note Insurer and the Indenture Trustee, addressed to the Note Insurer, the
Indenture Trustee and the Servicer, to the effect that the holding by the Trust
of such REO Property for any greater period will not result in the imposition of
taxes on the Trust. Pursuant to its efforts to sell such REO Property, the
Servicer shall either itself or through an agent selected by the Servicer
protect and conserve such REO Property in the same manner and to such extent as
is customary in the locality where such REO Property is located and may,
incident to its conservation and protection of the interests of the Owners, rent
the same, or any part thereof, as the Servicer deems to be in the best interest
of the Owners for the period prior to the sale of such REO Property. The
Servicer shall take into account the existence of any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation, on a Property in determining whether to foreclose upon or otherwise
comparably convert the ownership of such Property. The Servicer shall not take
any such action with respect to any Property known by the Servicer to contain
such wastes or substances or to be within one mile of the site of such wastes or
substances, without the prior written consent of the Note Insurer.
(b) The Servicer shall determine, with respect to each defaulted
Mortgage Loan and in accordance with the procedures set forth in the Fannie Mae
Guide, when it has recovered, whether through trustee's sale, foreclosure sale
or otherwise, all amounts it expects to recover from or on account of such
defaulted Mortgage Loan, whereupon such Mortgage Loan shall become a "Liquidated
Loan" and the Servicer shall promptly submit a Liquidation Report (as defined in
the Insurance Agreement) to the Note Insurer.
(c) The Servicer shall not agree to any modification, waiver or
amendment of any provision of any Mortgage Loan unless, in the Servicer's good
faith judgment, such modification, waiver or amendment would minimize the loss
that might otherwise be experienced with respect to such Mortgage Loan and only
in the event of a default with respect to such Mortgage Loan or in the event
that a default with respect to such Mortgage Loan is imminent; provided,
however, that no such modification, waiver or amendment shall extend the
maturity date of such Mortgage Loan beyond the Remittance Period related to the
Final Payment Date. Notwithstanding anything set out in this Section 4.13(c) or
elsewhere in this Agreement to the contrary, the Servicer shall be permitted to
modify, waive or amend any provision of a Mortgage Loan if required by statute
or a court of competent jurisdiction to do so.
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(d) The Servicer shall provide written notice to the Indenture Trustee
and the Note Insurer prior to the execution of any modification, waiver or
amendment of any provision of any Mortgage Loan; provided that if the Note
Insurer does not object in writing to the modification, waiver or amendment
specified in such notice within 5 Business Days after its receipt thereof, the
Servicer may effectuate such modification, waiver or amendment and shall deliver
to the Custodian, on behalf of the Indenture Trustee for deposit in the related
File, an original counterpart of the agreement relating to such modification,
waiver or amendment, promptly following the execution thereof.
(e) The Servicer has no intent to foreclose on any Mortgage based on
the delinquency characteristics as of the Closing Date; provided, that the
foregoing does not prevent the Servicer from initiating foreclosure proceedings
on any date hereafter if the facts and circumstances of such Mortgage including
delinquency characteristics in the Servicer's discretion so warrant such action.
Section 4.14 Indenture Trustee to Cooperate; Release of Files.
(a) Upon the payment in full of any Mortgage Loan (including any
liquidation of such Mortgage Loan through foreclosure or otherwise), or the
receipt by the Servicer of a notification that payment in full will be escrowed
in a manner customary for such purposes, the Servicer shall deliver to the
Custodian, on behalf of the Indenture Trustee the Fannie Mae "Request for
Release of Documents" (Fannie Mae Form 2009). Upon receipt of such Request for
Release of Documents, the Custodian, on behalf of the Indenture Trustee shall
promptly release the related File, in trust, in its reasonable discretion to (i)
the Servicer, (ii) an escrow agent or (iii) any employee, agent or attorney of
the Indenture Trustee. Upon any such payment in full, or the receipt of such
notification that such funds have been placed in escrow, the Servicer is
authorized to give, as attorney-in-fact for the Indenture Trustee and the
mortgagee under the Mortgage which secured the Mortgage Note, an instrument of
satisfaction (or assignment of Mortgage without recourse) regarding the Property
relating to such Mortgage, which instrument of satisfaction or assignment, as
the case may be, shall be delivered to the Person or Persons entitled thereto
against receipt therefor of payment in full, it being understood and agreed that
no expense incurred in connection with such instrument of satisfaction or
assignment, as the case may be, shall be chargeable to the Principal and
Interest Account or to the Indenture Trustee. In lieu of executing any such
satisfaction or assignment, as the case may be, the Servicer may prepare and
submit to the Custodian, on behalf of the Indenture Trustee, a satisfaction (or
assignment without recourse, if requested by the Person or Persons entitled
thereto) in form for execution by the Indenture Trustee with all requisite
information completed by the Servicer; in such event, the Custodian, on behalf
of the Indenture Trustee shall execute and acknowledge such satisfaction or
assignment, as the case may be, and deliver the same with the related File, as
aforesaid.
(b) The Servicer shall have the right (upon receiving the prior written
consent of the Note Insurer) to accept applications of Mortgagors for consent to
(i) partial releases of Mortgages, (ii) alterations and (iii) removal,
demolition or division of properties subject to Mortgages. No application for
approval shall be considered by the Servicer unless: (x) the provisions of the
related Mortgage Note and Mortgage have been complied with; (y) the
Loan-to-Value Ratio and debt-to-income ratio after any release does not exceed
the Loan-to-Value Ratio and debt-to-income ratio of such Mortgage Note on the
Cut-Off Date, or Subsequent Cut-Off Date, as applicable, and any increase in the
Loan-to-Value Ratio shall not exceed 5% unless approved in writing by the Note
Insurer; and (z) the lien priority of the related Mortgage is not affected. Upon
receipt by the Indenture Trustee of an Officer's Certificate executed on behalf
of the Servicer setting forth the action proposed to be taken in respect of a
particular Mortgage Loan and certifying that the criteria set forth in the
immediately preceding sentence have been satisfied, the Indenture Trustee shall
execute and deliver to the Servicer the consent or partial release so requested
by the Servicer. A proposed form of consent or partial release, as the case may
be, shall accompany any Officer's Certificate delivered by the Servicer pursuant
to this paragraph. The Servicer shall notify the Note Insurer and the Rating
Agencies if an application is approved under clause (y) above without approval
in writing by the Note Insurer.
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Section 4.15 Servicing Compensation.
As compensation for its activities hereunder, the Servicer shall be
entitled to retain the amount of the related Servicing Fee with respect to each
Mortgage Loan. Additional servicing compensation in the form of prepayment
charges, release fees, bad check charges, assumption fees, late payment charges,
prepayment penalties, or any other servicing-related fees, Net Liquidation
Proceeds not required to be deposited in the Principal and Interest Account
pursuant to Section 4.08(c)(ii) and similar items may, to the extent collected
from Mortgagors, be retained by the Servicer, unless a successor Servicer is
appointed pursuant to Section 4.20 hereof, in which case the successor Servicer
shall be entitled to such fees as are agreed upon by the Indenture Trustee, the
Note Insurer, the successor Servicer and the majority of the Percentage
Interests of the Certificates.
The right to receive the Servicing Fee may not be transferred in whole
or in part except in connection with the transfer of all of the Servicer's
responsibilities and obligations under this Agreement.
Section 4.16 Annual Statement as to Compliance.
The Servicer, at its own expense, will deliver to the Indenture
Trustee, the Note Insurer, the Depositor, the Issuer, and the Rating Agencies,
on or before __________ of each year, commencing in ____, an Officer's
Certificate stating, as to each signer thereof, that (i) a review of the
activities of the Servicer during such preceding calendar year and of
performance under this Agreement has been made under such officers' supervision,
and (ii) to the best of such officers' knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement for such year,
or, if there has been a default in the fulfillment of all such obligations,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by the Servicer to remedy such default.
The Servicer shall deliver to the Issuer, the Indenture Trustee, the
Note Insurer and the Rating Agencies, promptly after having obtained knowledge
thereof but in no event later than five Business Days thereafter, written notice
by means of an Officer's Certificate of any event which with the giving of
notice or the lapse of time would become a Servicer Termination Event.
Section 4.17 Annual Independent Certified Public Accountants' Reports.
On or before ________ of each year, commencing in _____, the Servicer,
at its own expense (or if the Indenture Trustee is then acting as Servicer, at
the expense of the Seller, which in no event shall exceed $1,000 per annum),
shall cause to be delivered to the Issuer, the Indenture Trustee, the Note
Insurer, the Depositor, and the Rating Agencies a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Note Insurer stating that such firm has examined the
Servicer's overall servicing operations in accordance with the requirements of
the Uniform Single Attestation Procedure for Mortgage Bankers, and stating such
firm's conclusions relating thereto.
Section 4.18 Access to Certain Documentation and Information Regarding
the Mortgage Loans.
The Servicer shall provide to the Depositor, the Indenture Trustee, the
Note Insurer, the Office of Thrift Supervision (the "OTS"), the FDIC and the
supervisory agents and examiners of each of the FDIC and the OTS (which, in the
case of supervisory agents and examiners, may be required by applicable state
and federal regulations) access to the documentation regarding the Mortgage
Loans, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Servicer
designated by it.
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Section 4.19 Assignment of Agreement.
Other than with respect to entering into Sub-Servicing Agreements
pursuant to Section 4.03 hereof, the Servicer may not assign its obligations
under this Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Indenture Trustee and the Note Insurer, which such
consent shall not be unreasonably withheld; provided, however, that any assignee
must meet the eligibility requirements set forth in Section 4.20(h) hereof for a
successor servicer.
Section 4.20 Removal of Servicer; Retention of Servicer; Resignation of
Servicer.
(a) The Note Insurer or the Indenture Trustee (with the prior written
consent of the Note Insurer) (or, except in the case of item (vi) below, the
Owners, with the consent of the Note Insurer) may remove the Servicer upon the
occurrence of any of the following events (each a "Servicer Termination Event"):
(i) The Servicer shall (A) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian or
similar entity with respect to itself or its property, (B) admit in
writing its inability to pay its debts generally as they become due,
(C) make a general assignment for the benefit of creditors, (D) be
adjudicated a bankrupt or insolvent, (E) commence a voluntary case
under the federal bankruptcy laws of the United States of America or
file a voluntary petition or answer seeking reorganization, an
arrangement with creditors or an order for relief or seeking to take
advantage of any insolvency law or file an answer admitting the
material allegations of a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding or (F) take corporate action
for the purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent
of the Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of
a trustee, receiver, liquidator or custodian or similar entity with
respect to the Servicer or of all or any substantial part of its
assets, or other like relief in respect thereof under any bankruptcy or
insolvency law, and, if such proceeding is being contested by the
Servicer in good faith, the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B)
continue undismissed or pending and unstayed for any period of
seventy-five (75) consecutive days; or
(iii) The Servicer shall fail to perform any one or
more of its material obligations hereunder and shall continue in
default thereof for a period of thirty (30) days (one (1) Business Day
in the case of a delay in making a payment required of the Servicer
under this Agreement) after the earlier of (A) actual knowledge of an
officer of the Servicer or (B) receipt of notice from the Indenture
Trustee or the Note Insurer of said failure; provided, however, that if
the Servicer can demonstrate to the reasonable satisfaction of the Note
Insurer that it is diligently pursuing remedial action, then the cure
period may be extended with the written approval of the Note Insurer;
or
(iv) The Servicer shall fail to cure any breach of
any of its representations and warranties set forth in Section 2.02
which materially and adversely affects the interests of the Owners or
the Note Insurer for a period of sixty (60) days after the earlier of
the Servicer's discovery or receipt of notice thereof; provided,
however, that if the Servicer can demonstrate to the reasonable
satisfaction of the Note Insurer that it is diligently pursuing
remedial action, then the cure period may be extended with the written
approval of the Note Insurer; or
(v) The merger, consolidation or other combination of
the Servicer with or into any other entity, unless (A) the Servicer or
an Affiliate of the Servicer is the surviving entity of such
combination or (B) the surviving entity (I) is servicing at least
$300,000,000 of Mortgage Loans that are similar to the Mortgage Loans,
(II) has equity of not less than $10,000,000 (as determined in
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accordance with generally acceptable account principles), (III) is
consented to by the Note Insurer (such consent not to be unreasonably
withheld) and (IV) agrees to assume the Servicer's obligations
thereunder; or
(vi) The failure of the Servicer (except the
Indenture Trustee in its capacity as successor Servicer) to satisfy the
Servicer Termination Test.
(b) Upon the occurrence of a Servicer Termination Event, the Servicer
shall act as servicer under this Agreement, subject to the right of removal set
forth in subsection (a) hereof, for an initial period commencing on the date on
which such Servicer Termination Event occurred and ending on the last day of the
calendar quarter in which such Servicer Termination Event occurred, which period
shall be extended for a succeeding quarterly period on December 31, March 31,
June 30 and September 30 of each year as provided below (each such quarterly
period for which the Servicer shall be designated to act as servicer hereunder,
a "Term of Service"); provided that nothing in this Section 4.20(b) shall
prohibit the Note Insurer or the Indenture Trustee from removing the Servicer
pursuant to Section 4.20(a). Notwithstanding the foregoing, the Note Insurer
may, in its sole discretion, extend the period for which the Servicer is to act
as such for a period in excess of one quarter (provided such extension shall be
an additional one or more quarters), but any such extension shall be revocable
at any time by the Note Insurer upon written notice delivered to the Indenture
Trustee and the Servicer at least fifteen days prior to the expiration of the
related quarterly period.
(c) The Note Insurer agrees to use its best efforts to inform the
Indenture Trustee of any materially adverse information regarding the Servicer's
servicing activities that comes to the attention of the Note Insurer from time
to time.
(d) The Servicer shall not resign from the obligations and duties
hereby imposed on it, except upon determination that its duties hereunder are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it, the other activities
of the Servicer so causing such a conflict being of a type and nature carried on
by the Servicer at the date of this Agreement. Any such determination permitting
the resignation of the Servicer shall be evidenced by an opinion of counsel
acceptable to the Indenture Trustee and the Note Insurer at the expense of the
Servicer to such effect which shall be delivered to the Indenture Trustee and
the Note Insurer.
(e) No removal or resignation of the Servicer shall become effective
until the Indenture Trustee or a successor Servicer shall have assumed the
Servicer's responsibilities and obligations in accordance with this Section.
(f) Upon removal or resignation of the Servicer, the Servicer at its
own expense also shall promptly deliver or cause to be delivered to a successor
servicer or the Indenture Trustee all the books and records (including, without
limitation, records kept in electronic form) that the Servicer has maintained
for the Mortgage Loans, including all tax bills, assessment notices, insurance
premium notices and all other documents as well as all original documents then
in the Servicer's possession.
(g) Any collections then being held by the Servicer prior to its
removal and any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Indenture Trustee and remitted
directly and immediately to the Indenture Trustee or the successor Servicer.
(h) Upon removal or resignation of the Servicer, the Indenture Trustee
may (i) solicit bids for a successor servicer as described below or (ii) shall
appoint the Backup Servicer as the Servicer. If the Indenture Trustee elects to
solicit bids for a successor Servicer, the Indenture Trustee agrees to act as
Backup Servicer during the solicitation process and shall assume all duties of
the Servicer (except as otherwise provided in this Agreement). The Indenture
Trustee shall, if it is unable to obtain a qualifying bid and is prevented by
law from acting as the Servicer, appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution which has been
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designated as an approved seller-servicer by Fannie Mae or FHLMC for first and
second Mortgage Loans and having equity of not less than $5,000,000 (or such
lower level as may be acceptable to the Note Insurer), as determined in
accordance with generally accepted accounting principles and acceptable to the
Note Insurer as the successor to the Servicer hereunder in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer
hereunder. The compensation of any successor Servicer (other than the Indenture
Trustee in its capacity as successor Servicer) so appointed shall be the amount
agreed to between the successor Servicer, the Note Insurer and the majority of
the Percentage Interests of the Certificates, (up to a maximum of 0.50% per
annum on each Mortgage Loan) together with the other servicing compensation in
the form of assumption fees, late payment charges or otherwise as provided in
Sections 4.08 and 4.15; provided, however, that if the Indenture Trustee becomes
the successor Servicer it shall receive as its compensation the same
compensation paid to the Servicer immediately prior to the Servicer's removal or
resignation; provided, further, however, that if the Indenture Trustee acts as
successor Servicer then the Servicer agrees to pay to the Indenture Trustee at
such time that the Indenture Trustee becomes such successor Servicer a set-up
fee of twenty-five dollars ($25.00) for each Mortgage Loan then included in the
Trust Estate. The amount payable in excess of twenty-five dollars ($25.00) per
Mortgage Loan, if any, shall be payable to the successor Servicer and
reimbursable pursuant to Section 3.03(b)(iii)(C) hereof. The Indenture Trustee
shall be obligated to serve as successor Servicer whether or not the fee
described in this section is paid by the Servicer, but shall in any event be
entitled to receive, and to enforce payment of, such fee from the Servicer.
(i) In the event the Indenture Trustee elects to solicit bids as
provided above, the Indenture Trustee shall solicit, by public announcement,
bids from housing and home finance institutions, banks and mortgage servicing
institutions meeting the qualifications set forth above. Such public
announcement shall specify that the successor Servicer shall be entitled to
servicing compensation in accordance with clause (h) above, together with the
other servicing compensation in the form of assumption fees, late payment
charges or otherwise as provided in Sections 4.08 and 4.15. Within thirty days
after any such public announcement, the Indenture Trustee shall negotiate and
effect the sale, transfer and assignment of the servicing rights and
responsibilities hereunder to the qualified party submitting the highest
satisfactory bid as to the price it will pay to obtain servicing. The Indenture
Trustee shall deduct from any sum received by the Indenture Trustee from the
successor to the Servicer in respect of such sale, transfer and assignment all
costs and expenses of any public announcement and of any sale, transfer and
assignment of the servicing rights and responsibilities hereunder. After such
deductions, the remainder of such sum less any amounts due the Indenture Trustee
or the Trust from the Servicer shall be paid by the Indenture Trustee to the
Servicer at the time of such sale, transfer and assignment to the Servicer's
successor.
(j) The Indenture Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing. The Servicer agrees to cooperate with the Indenture Trustee and any
successor Servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Indenture
Trustee or such successor Servicer, as applicable, all documents and records
reasonably requested by it to enable it to assume the Servicer's functions
hereunder and shall promptly also transfer to the Indenture Trustee or such
successor Servicer, as applicable, all amounts which then have been or should
have been deposited in the Principal and Interest Account by the Servicer or
which are thereafter received with respect to the Mortgage Loans. Neither the
Indenture Trustee nor any other successor Servicer shall be held liable by
reason of any failure to make, or any delay in making, any distribution
hereunder or any portion thereof caused by (i) the failure of the Servicer to
deliver, or any delay in delivering, cash, documents or records to it, or (ii)
restrictions imposed by any regulatory authority having jurisdiction over the
Servicer. If the Servicer resigns or is replaced hereunder, the Servicer agrees
to reimburse the Trust, the Owners and the Note Insurer for the costs and
expenses associated with the transfer of servicing to the replacement Servicer,
but subject to a maximum reimbursement to all such parties in the amount of
twenty-five dollars ($25.00) for each Mortgage Loan then included in the Trust
Estate. The amount payable in excess of twenty-five dollars ($25.00) per
Mortgage Loan, if any, shall be payable to the successor Servicer and
reimbursable pursuant to Section 3.03(b)(iii)(C) hereof.
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(k) The Indenture Trustee or any other successor Servicer, upon
assuming the duties of the Servicer hereunder, shall immediately (i) record all
assignments of Mortgage Loans not previously recorded in the name of the
Indenture Trustee pursuant to Section 2.05(b)(ii) as a result of an opinion of
counsel and (ii) make all Delinquency Advances and Compensating Interest
payments and deposit them to the Principal and Interest Account which the
Servicer has theretofore failed to remit with respect to the Mortgage Loans;
provided, however, that if the Indenture Trustee is acting as successor
Servicer, the Indenture Trustee shall only be required to make Delinquency
Advances (including the Delinquency Advances described in this clause (k)) if,
in the Indenture Trustee's reasonable good faith judgment, such Delinquency
Advances will ultimately be recoverable from the Mortgage Loans.
(l) The Servicer which is being removed or is resigning shall give
notice to the Mortgagors, to Moody's and to Standard & Poor's of the transfer of
the servicing to the successor.
(m) The Indenture Trustee shall give notice to the Note Insurer, the
Owners, the Owner Trustee, the Seller, Moody's and Standard & Poor's of the
occurrence of any event described in paragraph (a) above of which the Indenture
Trustee is aware.
Section 4.21 Inspections by Note Insurer; Errors and Omissions
Insurance.
(a) At any reasonable time and from time to time upon reasonable
notice, the Indenture Trustee, the Note Insurer, any Owner or the Issuer, or any
agents thereof may inspect the Servicer's servicing operations and discuss the
servicing operations of the Servicer during the Servicer's normal business hours
with any of its officers or directors; provided, however, that the costs and
expenses incurred by the Servicer or its agents or representatives in connection
with any such examinations or discussions shall be paid by the Servicer.
(b) The Servicer (including the Indenture Trustee if it shall become
the Servicer hereunder) agrees to maintain errors and omissions coverage and a
fidelity bond, each at least to the extent required by Section 305 of Part I of
Fannie Mae Guide or any successor provision thereof; provided, however, that in
any event that the fidelity bond or the errors and omissions coverage is no
longer in effect, the Indenture Trustee shall promptly give such notice to the
Note Insurer, the Issuer and the Owners.
Section 4.22 Reserved.
Section 4.23 Adjustable Rate Mortgage Loans.
The Servicer shall enforce each Mortgage Loan in accordance with its
terms and shall timely calculate, record, report and apply all interest rate
adjustments in accordance with the related Mortgage Note. The Servicer's records
shall, at all times, reflect the then Coupon Rate and monthly payment and the
Servicer shall timely notify the Mortgagor of any changes to the Coupon Rate or
the Mortgagor's monthly payment. If the Servicer fails to make either a timely
or accurate adjustment to the Coupon Rate or monthly payment or to notify the
Mortgagor of such adjustments, upon the Servicer's discovery of such error and
such continued failure, the Servicer shall pay from its own funds any shortage.
If the Servicer's continued failure after notice thereof to make a scheduled
change affects the Trust's rights to make future adjustments under the terms of
such Mortgage Loan, the Servicer shall repurchase such Mortgage Loan in
accordance with the provisions of Article II hereof. Any amounts paid by the
Servicer pursuant to this Section shall not be an advance and shall not be
reimbursable from the proceeds of any Mortgage Loan.
Section 4.24 Administration of the Issuer. The Servicer agrees to
assist the Issuer in performing its duties hereunder and under the Indenture.
END OF ARTICLE IV
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ARTICLE V
TERMINATION
Section 5.01 Termination.
This Agreement will terminate upon notice to the Indenture Trustee of
either: (a) the later of (i) the satisfaction and discharge of the Indenture
pursuant to Section 4.1 of the Indenture or (ii) the disposition of all funds
with respect to the last Mortgage Loan and the remittance of all funds due
hereunder and the payment of all amounts due and payable to the Indenture
Trustee, the Owner Trustee, the Issuer, the Custodian and the Note Insurer; or
(b) the mutual consent of the Servicer, the Seller, the Depositor, the Note
Insurer and all Owners in writing.
Section 5.02 Termination Upon Option of Holders of Certificates.
(a) On any Monthly Remittance Date after the Redemption Date, the
holders of a majority of the Percentage Interests represented by the
Certificates then Outstanding shall have the option to purchase all of the Trust
Estate by paying the Redemption Price to the Issuer by providing notice thereof
to the Indenture Trustee, Owner Trustee and Note Insurer. Such holders may
purchase the Trust Estate at a price equal to (i) the then outstanding Note
Principal Balance, plus all accrued and unpaid interest thereon (including any
Available Funds Cap Carry-Forward Amounts), (ii) any Trust Fees and Expenses due
and unpaid on such date, (iii) the payment of all amounts owed to the Note
Insurer and (iv) any unreimbursed Delinquency Advances and Servicing Advances
and Delinquency Advances which the Servicer has theretofore failed to remit
(such amount, the "Redemption Price"). In connection with such purchase, the
Servicer shall remit to the Indenture Trustee all amounts then on deposit in the
Principal and Interest Account for deposit to the Note Account, which deposit
shall be deemed to have occurred immediately preceding such purchase. The
proceeds from such sale will be distributed first, to the payment of any
outstanding Trust Fees and Expenses, second, to the Note Insurer, all amounts
owed thereto, third, to the Servicer for unreimbursed Servicing Advances and
Delinquency Advances, fourth, to the Owners of the Notes in an amount equal to
the then outstanding Note Principal Balance plus all accrued and unpaid interest
thereon (plus any Available Funds Cap Carry-Forward Amount) and, fifth, to the
holders of the Certificates, the remainder. Provided, however, that no such
termination shall occur unless the Owners of the Note have received an amount
equal to the then outstanding Note Principal Balance plus all accrued and unpaid
interest on the Notes.
(b) Promptly following any purchase described in this Section 5.02, the
Indenture Trustee will release the Files to the holders of such Certificates or
otherwise upon their order, in a manner similar to that described in Section
4.14 hereof.
(c) If the holders of the Certificates decline to exercise the option
to purchase the Mortgage Loans and REO Properties remaining in the Trust Estate
pursuant to Section 5.02(a), then the Note Insurer may do so subject to terms
set out in Section 5.02.
Section 5.03 Redemption of Notes. Upon any purchase described in
Section 5.02 by either the Majority Certificateholders or the Note Insurer, the
Issuer shall use the proceeds it receives to redeem the Notes, in whole and not
in part, and terminate the Indenture. The Notes will be redeemed upon payment of
the Redemption Price, and the payment of the amount set forth in clause (i) of
the definition of Redemption Price set forth in Section 5.02 to the Owners of
the Notes shall be in lieu of the payment otherwise required to be made to the
Owners on such Payment Date in respect of the Notes.
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Section 5.04 Disposition of Proceeds.
The Indenture Trustee shall, upon receipt thereof, deposit the proceeds
of any liquidation of the Trust Estate pursuant to this Article V to the Note
Account; provided, however, that any amounts representing unreimbursed
Delinquency Advances and Servicing Advances theretofore funded by the Servicer
from the Servicer's own funds shall be paid by the Indenture Trustee to the
Servicer from the proceeds of the Trust Estate.
END OF ARTICLE V
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ARTICLE VI
MISCELLANEOUS
Section 6.01 Acts of Owners.
Except as otherwise specifically provided herein, whenever Owner
action, consent or approval is required under this Agreement, such action,
consent or approval shall be deemed to have been taken or given on behalf of,
and shall be binding upon, all Owners if the Owners of the majority of the
Percentage Interest of the Notes agree to take such action or give such consent
or approval.
Section 6.02 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Properties
are situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Owners' expense on
direction of the Owners of the majority of the Percentage Interest of the Notes
or the Note Insurer, but only when accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Owners or is necessary for the administration or servicing of the
Mortgage Loans.
Section 6.03 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 6.04 Successors and Assigns.
All covenants and agreements in this Agreement by any party hereto
shall bind its successors and assigns, whether so expressed or not.
Section 6.05 Severability.
In case any provision in this Agreement or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 6.06 Governing Law; Submission to Jurisdiction.
(a) In view of the fact that Owners are expected to reside in many
states and outside the United States and the desire to establish with certainty
that this Agreement will be governed by and construed and interpreted in
accordance with the law of a state having a well-developed body of commercial
and financial law relevant to transactions of the type contemplated herein, this
Agreement and each Note shall be construed in accordance with and governed by
the laws of the State of ________ applicable to agreements made and to be
performed therein, without giving effect to the conflicts of law principles
thereof.
(b) The parties hereto hereby irrevocably submit to the jurisdiction of
the ________________ _____________________ and any court in the State of
________ located in the City and County of __________, and any appellate court
from any thereof, in any action, suit or proceeding brought against it or in
connection with this Agreement or any of the related documents or the
transactions contemplated hereunder or for recognition or enforcement of any
judgment, and the parties hereto hereby irrevocably and unconditionally agree
that all claims in respect of any such action or proceeding may be heard or
determined in such ________ State court or, to the extent permitted by law, in
such federal court. The parties hereto
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agree that a final judgment in any such action, suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. To the extent permitted by applicable law,
the parties hereto hereby waive and agree not to assert by way of motion, as a
defense or otherwise in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such courts, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that the related documents or the
subject matter thereof may not be litigated in or by such courts.
(c) Each of the Depositor, the Issuer, the Seller and the Servicer
hereby irrevocably appoints and designates the Indenture Trustee as its true and
lawful attorney and duly authorized agent for acceptance of service of legal
process with respect to any action, suit or proceeding set forth in paragraph
(b) above. Each of the Issuer, the Seller and the Servicer agrees that service
of such process upon the Indenture Trustee shall constitute personal service of
such process upon it.
(d) Nothing contained in this Agreement shall limit or affect the right
of the Depositor, the Issuer, the Seller, the Servicer or the Note Insurer or
third-party beneficiary hereunder, as the case may be, to serve process in any
other manner permitted by law or to start legal proceedings relating to any of
the Mortgage Loans against any Mortgagor in the courts of any jurisdiction.
Section 6.07 Counterparts.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 6.08 Amendment.
(a) The Indenture Trustee, the Depositor, the Issuer, the Seller and
the Servicer, may at any time and from time to time, with the prior written
approval of the Note Insurer but without the giving of notice to or the receipt
of the consent of the Owners, amend this Agreement, and the Indenture Trustee
shall consent to the amendment for the purposes of (i) curing any ambiguity,
(ii) correcting or supplementing any provisions of this Agreement which are
inconsistent with any other provisions of this Agreement or adding provisions to
this Agreement which are not inconsistent with the provisions of this Agreement,
(iii) adding any other provisions with respect to matters or questions arising
under this Agreement, or (iv) for any other purpose, provided that such
amendment shall not adversely affect in any material respect any Owner. Any such
amendment shall be deemed not to adversely affect in any material respect any
Owner if there is delivered to the Indenture Trustee written notification from
each Rating Agency that such amendment will not cause such Rating Agency to
reduce its then current rating assigned to the Notes without regard to the Note
Insurance Policy. Notwithstanding anything to the contrary, no such amendment
shall (A) change in any manner the amount of, or delay the timing of, payments
which are required to be distributed to any Owner without the consent of the
Owner of such Note, (B) change the percentages of Percentage Interest which are
required to consent to any such amendments, without the consent of the Owners of
all Notes affected then outstanding or (C) which affects in any manner the terms
or provisions of the Note Insurance Policy.
(b) This Agreement may also be amended from time to time by the Seller,
the Servicer, the Depositor and the Issuer by written agreement, with the prior
written consent of the Owners of the majority of the Percentage Interests in the
Notes and the Note Insurer, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
or of modifying in any manner the rights of the Owners; provided, however, that
no such amendment shall (i) reduce in any manner the amount of, or delay the
timing of, collections of payments on Mortgage Loans or distributions which are
required to be made on any Note, without the consent of the holders of 100% of
the Notes, (ii) adversely affect in any material respect the interests of the
holders of the Notes in any manner other than as described in (i), without the
consent of the holders of 100% of the Notes, or (iii) reduce the percentage of
Notes, the
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<PAGE>
holders of which are required to consent to any such amendment, without the
consent of the holders of 100% of the Notes.
(c) The Note Insurer and the Rating Agencies shall be provided by the
Seller with copies of any amendments to this Agreement, together with copies of
any opinions or other documents or instruments executed in connection therewith.
Section 6.09 Specification of Certain Tax Matters.
Each Owner shall provide the Indenture Trustee with a completed and
executed From W-9 prior to purchasing a Note. The Indenture Trustee shall comply
with all requirements of the Code, and applicable state and local law, with
respect to the withholding from any distributions made to any Owner of any
applicable withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
Section 6.10 The Note Insurer.
Any right conferred to the Note Insurer hereunder shall be suspended
and shall run to the benefit of the Owners during any period in which there
exists a Note Insurer Default; provided, that the right of the Note Insurer to
receive the Premium Amount shall not be suspended if such Note Insurer Default
was a default other than a default under clause (a) of the definition thereof.
At such time as the Notes are no longer Outstanding hereunder and the Note
Insurer has received all Reimbursement Amounts, the Note Insurer's rights
hereunder shall terminate.
Section 6.11 Third Party Rights.
The Indenture Trustee, the Seller, the Issuer, the Depositor, the
Servicer, and the Owners agree that the Note Insurer shall be deemed a
third-party beneficiary of this Agreement as if it were a party hereto.
Section 6.12 Notices.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
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The Indenture Trustee: _______________________________
_______________________________
_______________________________
Tel: (______)_______________
Fax: (______)_______________
The Depositor: AMRESCO Residential Securities Corporation
700 North Pearl Street, Suite 2400
Dallas, Texas 75201-7404
Tel: (214) 953-7700
Fax: (214) 953-7757
The Issuer: AMRESCO Residential Securities Corporation
Mortgage Loan Owner Trust 19__-__
c/o _____________________, as Owner Trustee
_______________________________
_______________________________
_______________________________
Tel: (______)_______________
Fax: (______)_______________
The Seller: AMRESCO Residential Capital Markets, Inc.
700 North Pearl Street, Suite 2400
Dallas, Texas 75201-7404
Tel: (214) 953-7700
Fax: (214) 953-7757
The Servicer: _______________________________
_______________________________
_______________________________
Tel: (______)_______________
Fax: (______)_______________
The Note
Insurer: _______________________________
_______________________________
_______________________________
Tel: (______)_______________
Fax: (______)_______________
The Underwriters: _______________________________
_______________________________
_______________________________
Tel: (______)_______________
Fax: (______)_______________
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______________________________
______________________________
______________________________
Tel: (______)______________
Fax: (______)______________
______________________________
______________________________
______________________________
Tel: (______)______________
Fax: (______)______________
______________________________
______________________________
______________________________
Tel: (______)______________
Fax: (______)______________
Moody's: Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: The Residential Mortgage
Monitoring Department
Tel: (212) 553-0300
Fax: (212) 553-0355
Standard & Poor's: Standard & Poor's Ratings Services,
a division of the McGraw-Hill Companies
26 Broadway
15th Floor
New York, New York 10004
Attention: Residential Mortgage Group
Tel: (212) 208-8000
Fax: (212) 208-8365
Section 6.13 Benefits of Agreement.
Nothing in this Agreement or in the Notes, expressed or implied, shall
give to any Person, other than the Owners, the Note Insurer and the parties
hereto and their successors hereunder, any benefit or any legal or equitable
right, remedy or claim under this Agreement.
Section 6.14 Legal Holidays.
In any case where the date of any Payment Date, any other date on which
any distribution to any Owner is proposed to be paid, or any date on which a
notice is required to be sent to any Person pursuant to the terms of this
Agreement (with the exception of any Monthly Remittance Date or any Monthly
Reporting Date) shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Agreement) payment or mailing need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made or mailed on the nominal date of any such Payment
Date, or such other date for the payment of any distribution to any Owner or the
mailing of such notice, as the case may be, and no interest shall accrue for the
period from and after any such nominal date, provided such payment is made in
full on such next succeeding Business Day. In any case where the date of any
Monthly
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Remittance Date or any Monthly Reporting Date shall not be a Business Day, then
payment or mailing need not be made on such date, but must be made on the
preceding Business Day.
Section 6.15 Usury.
The amount of interest payable or paid on any Note under the terms of
this Agreement shall be limited to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the State of
________ or any applicable law of the United States permitting a higher maximum
nonusurious rate that preempts such applicable ________ laws, which could
lawfully be contracted for, charged or received (the "Highest Lawful Rate"). In
the event any payment of interest on any Note exceeds the Highest Lawful Rate,
the Trust stipulates that such excess amount will be deemed to have been paid to
the Owner of such Note as a result of an error on the part of the Indenture
Trustee acting on behalf of the Trust and the Owner receiving such excess
payment shall promptly, upon discovery of such error or upon notice thereof from
the Indenture Trustee on behalf of the Trust, refund the amount of such excess
or, at the option of such Owner, apply the excess to the payment of principal of
such Note, if any, remaining unpaid. In addition, all sums paid or agreed to be
paid to the Indenture Trustee for the benefit of Owners of Notes for the use,
forbearance or detention of money shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such Notes.
Section 6.16 No Petition. The Indenture Trustee, the Depositor, the
Seller and the Servicer, by entering into this Agreement, and each Owner, by
accepting a Note, hereby covenant and agree that they will not at any time
institute against the Seller, the Servicer, the Depositor or the Issuer, or join
in any institution against the Seller, the Servicer, the Depositor or the Issuer
of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Agreement or any of the Operative Documents.
END OF ARTICLE VI
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ARTICLE VII
CERTAIN MATTERS REGARDING THE NOTE INSURER
Section 7.01 Trust Estate and Accounts Held for Benefit of the Note
Insurer.
The Indenture Trustee shall hold the Trust Estate for the benefit of
the related Owners and the Note Insurer and all references in this Agreement and
in the Notes to the benefit of Owners of the Notes shall be deemed to include
the Note Insurer. The Indenture Trustee shall cooperate in all reasonable
respects with any reasonable request by the Note Insurer for action to preserve
or enforce the Note Insurer's rights or interests under this Agreement and the
Notes.
The Servicer hereby acknowledges and agrees that it shall service and
administer the Mortgage Loans and any REO Properties, and shall maintain the
Principal and Interest Account, for the benefit of the Owners and for the
benefit of the Note Insurer, and all references in this Agreement to the benefit
of or actions on behalf of the Owners shall be deemed to include the Note
Insurer. Unless a Note Insurer Default exists, the Servicer shall not terminate
any Sub-Servicing Agreements without cause without the prior consent of the Note
Insurer.
Section 7.02 Claims Upon the Policy; Policy Payments Account.
(a) In the event that an Insured Payment becomes due pursuant
to the terms of the Note Insurance Policy, the Indenture Trustee shall submit a
Notice (in the form attached to such Note Insurance Policy) in accordance with
the terms of such Note Insurance Policy.
(b) The Indenture Trustee shall establish a separate special
purpose trust account for the benefit of the Owners of the Notes and the Note
Insurer referred to herein as the "Policy Payments Account" over which the
Indenture Trustee shall have exclusive control and sole right of withdrawal. The
Indenture Trustee shall deposit any amount paid under a Note Insurance Policy in
the Policy Payments Account and distribute such amount only for purposes of
payment to the Owners of the Notes of the Insured Payments for which a claim was
made and such amount may not be applied to satisfy any costs, expenses or
liabilities of the Servicer, the Seller, the Depositor, the Custodian, the
Indenture Trustee or the Trust. Amounts paid under the Note Insurance Policy
shall be transferred to the Note Account in accordance with the next succeeding
paragraph and disbursed by the Indenture Trustee to Owners of the Notes in
accordance with Section 3.03. It shall not be necessary for such payments to be
made by checks or wire transfers separate from the checks or wire transfers used
to pay the Insured Payments with other funds available to make such payment.
However, the amount of any payment of principal of or interest on the Notes to
be paid from funds transferred from the Policy Payments Account shall be noted
as provided in paragraph (c) below in the Register and in the statement to be
furnished to Owners of the Notes pursuant to Section 3.08. Funds held in the
Policy Payments Account shall not be invested by the Indenture Trustee.
On any Payment Date with respect to which a claim has been
made under the Note Insurance Policy, the amount of funds received by the
Indenture Trustee as a result of any claim under the Note Insurance Policy, to
the extent required to make the Insured Payment on such Payment Date shall be
withdrawn from the Policy Payments Account and deposited in the Note Account and
applied by the Indenture Trustee, together with the other funds to be withdrawn
from the Note Account, directly to the payment in full of the Insured Payment
due on the Notes. Funds received by the Indenture Trustee as a result of any
claim under the Note Insurance Policy shall be deposited by the Indenture
Trustee in the Policy Payments Account and used solely for payment to the Owners
of the Notes may not be applied to satisfy any costs, expenses or liabilities of
the Servicer, the Seller, the Depositor, the Custodian, the Indenture Trustee or
the Trust. Any funds remaining in the Policy Payments Account on the first
Business Day following a Payment Date shall be remitted to the Note Insurer,
pursuant to the instructions of the Note Insurer, by the end of such Business
Day.
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(c) The Indenture Trustee shall keep a complete and accurate
record of the amount of interest and principal paid in respect of any Note from
moneys received under the Note Insurance Policy. The Note Insurer shall have the
right to inspect such records at reasonable times during normal business hours
upon one Business Day's prior notice to the Indenture Trustee.
(d) The Indenture Trustee shall promptly notify the Note
Insurer and the Fiscal Agent (as defined in the Note Insurance Policy) of any
proceeding or the institution of any action, of which an Authorized Officer of
the Indenture Trustee has actual knowledge, seeking the avoidance as a
preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law (a "Preference Claim") of any distribution made with respect to the
Notes. Each Owner of a Note by its purchase of such Note, the Servicer and the
Indenture Trustee hereby agree that, the Note Insurer (so long as no Note
Insurer Default exists) may at any time during the continuation of any
proceeding relating to a Preference Claim direct all matters relating to such
Preference Claim, including without limitation, (i) the direction of any appeal
of any order relating to such Preference Claim and (ii) the posting of any
surety, supersedeas or performance bond pending any such appeal. In addition and
without limitation of the foregoing, the Note Insurer shall be subrogated to the
rights of the Servicer, the Indenture Trustee and each Owner of a Note in the
conduct of any such Preference Claim, including, without limitation, all rights
of any party to an adversary proceeding action with respect to any court order
issued in connection with any such Preference Claim.
Section 7.03 Effect of Payments by the Note Insurer; Subrogation.
Anything herein to the contrary notwithstanding, any payment
with respect to principal of or interest on any of the Notes which is made with
moneys received pursuant to the terms of the Note Insurance Policy shall not be
considered payment of such Notes from the Trust and shall not result in the
payment of or the provision for the payment of the principal of or interest on
such Notes within the meaning of Section 3.03. The Depositor, the Servicer and
the Indenture Trustee acknowledge, and each Owner by its acceptance of a Note
agrees, that without the need for any further action on the part of the Note
Insurer, the Depositor, the Servicer, the Indenture Trustee or the Registrar (a)
to the extent the Note Insurer makes payments, directly or indirectly, on
account of principal of or interest on any Notes to the Owners of such Notes,
the Note Insurer will be fully subrogated to the rights of such Owners to
receive such principal and interest from the Trust and (b) the Note Insurer
shall be paid such principal and interest but only from the sources and in the
manner provided herein for the payment of such principal and interest.
The Indenture Trustee, the Seller, the Depositor and the
Servicer shall cooperate in all respects with any reasonable request by the Note
Insurer for action to preserve or enforce the Note Insurer's rights or interests
under this Agreement without limiting the rights or affecting the interests of
the Owners as otherwise set forth therein.
Section 7.04 Notices to the Note Insurer.
All notices, statements, reports, certificates or opinions
required by this Agreement to be sent to any other party hereto or to any of the
Owners shall also be sent to the Note Insurer.
Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners.
By accepting its Note, each Owner agrees that unless a Note
Insurer Default exists, the Note Insurer shall have the right to exercise all
rights of the Owners as specified under this Agreement without any further
consent of the Owners.
END OF ARTICLE VII
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IN WITNESS WHEREOF, the Issuer, the Depositor, the Seller, the Servicer
and the Indenture Trustee have caused this Agreement to be duly executed by
their respective officers thereunto duly authorized, all as of the day and year
first above written.
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
By: _________________________________,
as Owner Trustee
By: ____________________________________
Name: ____________________________________
Title:____________________________________
AMRESCO RESIDENTIAL SECURITIES CORPORATION,
as Depositor
By: _____________________________________
Name:
Title:
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.,
as Seller
By: ______________________________________
Name:
Title:
__________________________________________
as Servicer
By: ______________________________________
Name:
Title:
__________________________________________
as Indenture Trustee
By: ______________________________________
Name:
Title:
<PAGE>
STATE OF TEXAS )
: ss.:
COUNTY OF DALLAS )
On the _____ day of ______________, before me, a notary public in and
for the State of Florida, personally appeared _________________________________
____________________________ to me known to me, who, being by me duly sworn, did
depose and say that he resides at _____________________________________________;
that he is the ___________________________ of AMRESCO Residential Securities
Corporation, a Delaware corporation; one of the parties that executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
___________________
Notary Public
<PAGE>
STATE OF TEXAS )
: ss.:
COUNTY OF DALLAS )
On the ____ day of __________________, before me personally came ______
________________, to me known, who, being by me duly sworn, did depose and say
that he/she resides at _______________________________________________________;
that he is the ________________ of AMRESCO Residential Capital Markets, Inc., a
Delaware corporation; and that he signed his name thereto by order of the
respective Boards of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
____________________
Notary Public
<PAGE>
STATE OF _________________ )
: ss.:
COUNTY OF _______________ )
On the ____ day of ____________, before me personally came ____________
__________________________________, to me known, who, being by me duly sworn did
depose and say that he/she resides at _______________________; that he/she is a
_______________________ of ______________________, a Delaware banking
corporation described in and that executed the above instrument as Owner
Trustee; and that he/she signed his/her name thereto by order of the Board of
Directors of said Delaware banking corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
____________________
Notary Public
<PAGE>
STATE OF ________________ )
: ss.:
COUNTY OF ______________ )
On the ____ day of _________________, before me personally came _______
_________________, to me known, who, being by me duly sworn did depose and say
that he/she resides at ____________________ ____________________________; that
he/she is a _________________________ of _____________________, a
______________________ corporation described in and that executed the above
instrument as Indenture Trustee; and that he/she signed his/her name thereto by
order of the Board of Directors of said ________________ corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
___________________
Notary Public
<PAGE>
STATE OF ________________ )
: ss.:
COUNTY OF ______________ )
On the ____ day of _________________, before me personally came _______
_____________________, to me known, who, being by me duly sworn did depose and
say that he/she resides at ______________________________; that he/she is a
___________________ of _____________________, a ______________________
corporation described in and that executed the above instrument as Servicer; and
that he/she signed his/her name thereto by order of the Board of Directors of
said ________________ corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
___________________
Notary Public
<PAGE>
SCHEDULE I
SCHEDULE OF MORTGAGE LOANS
A copy of this Schedule is maintained by the Indenture Trustee at the
Corporate Trust Office and the Servicer.
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE RE: MORTGAGE LOANS
PREPAID IN FULL AFTER CUT-OFF DATE
CERTIFICATE RE: PREPAID LOANS
I, __________________________, _______________ of AMRESCO Residential
Capital Markets, Inc. (the "Seller"), hereby certify that between the "Cut-Off
Date" (as defined in the Sale and Servicing Agreement dated as of __________
among AMRESCO Residential Securities Corporation, as Depositor, Seller, as
Seller, __________________, as Servicer, AMRESCO Residential Securities
Corporation Mortgage Loan Owner Trust 199__-__, as Issuer and
______________________, as Indenture Trustee) and the "Closing Date," the
following schedule of "Mortgage Loans" (each as defined in the Sale and
Servicing Agreement) have been prepaid in full.
Account Original Current Date Paid
Number Name Amount Balance Off
------ ---- ------ ------- ---
Dated: ___________________
By: _______________________________
Title:_____________________________
A-1
<PAGE>
EXHIBIT B-1
INDENTURE TRUSTEE'S ACKNOWLEDGEMENT OF RECEIPT
_______________________, in its capacity as Indenture Trustee (the
"Indenture Trustee") under that certain Sale and Servicing Agreement dated as of
____________ (the "Sale and Servicing Agreement") among AMRESCO Residential
Securities Corporation, as Depositor, AMRESCO Residential Capital Markets, Inc.,
a Delaware corporation, as Seller, __________________, as Servicer, AMRESCO
Residential Securities Corporation Mortgage Loan Owner Trust 199__-__, as Issuer
and ___________________, as Indenture Trustee, hereby acknowledges receipt of
the Insurance Policy (Policy No. ________) from ____________________ and all
other assets of the Trust Estate received by the Indenture Trustee as of the
date hereof.
The Indenture Trustee hereby additionally acknowledges that it shall
cause the Custodian (as defined in the Sale and Servicing Agreement) to review
such items as required by Section 2.06(a) of the Sale and Servicing Agreement.
_______________________________, as
Indenture Trustee
By: _______________________________
Name:______________________________
Title: ____________________________
Dated: _________________
B-1-1
<PAGE>
EXHIBIT B-2
CUSTODIAN'S ACKNOWLEDGMENT OF RECEIPT
_________________________, in its capacity as custodian (the
"Custodian") under the Custodial Agreement dated as of __________________ among
the Custodian, AMRESCO Residential Capital Markets, Inc., as Seller, AMRESCO
Residential Securities Corporation, as Depositor, ____________________, as
Servicer, AMRESCO Residential Securities Corporation Mortgage Loan Owner Trust
199__-__, as Issuer and _______________, in its capacity as Indenture Trustee
(the "Indenture Trustee") under that certain Sale and Servicing Agreement dated
as of _______________ ( the "Sale and Servicing Agreement") among AMRESCO
Residential Securities Corporation, as Depositor, AMRESCO Residential Capital
Markets, Inc., a Delware corporation, as Seller, _______________, as Servicer,
the Issuer, and the Indenture Trustee hereby acknowledges receipt (subject to
review as required by Section 2.06(a) of the Sale and Servicing Agreement) of
the items delivered to it by AMRESCO Residential Capital Markets, Inc. with
respect to the Mortgage Loans pursuant to Section 2.05(b)(i) of the Sale and
Servicing Agreement, except such items as are listed on Exhibit D to the Sale
and Servicing Agreement.
The Schedules of Mortgage Loans is attached to this Receipt.
The Custodian hereby additionally acknowledges that it shall review
such items as required by Section 2.06(a) of the Sale and Servicing Agreement
and shall otherwise comply with Section 2.06(b) and 2.06(c) of the Sale and
Servicing Agreement as required thereby.
________________________________,
as Custodian
By: _______________________________
Name:______________________________
Title: ____________________________
Dated: ___________________
B-2-1
<PAGE>
EXHIBIT C
FORM OF POOL CERTIFICATION
POOL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of
___________________________, in its capacity as Custodian (the "Custodian")
under the Custodial Agreement dated ___________ between the Custodian, AMRESCO
Residential Capital Markets, Inc., as Seller, AMRESCO Residential Securities
Corporation, as Depositor, _______________, as Servicer, AMRESCO Residential
Securities Corporation Mortgage Loan Owner Trust 199__-__, as Issuer and
______________________, a _______________________ corporation, acting in its
capacity as indenture trustee (the "Indenture Trustee") of a certain pool of
mortgage loans (the "Pool") heretofore conveyed in trust to the Indenture
Trustee, pursuant to that certain Sale and Servicing Agreement dated as of
________________ (the "Sale and Servicing Agreement") among AMRESCO Residential
Securities Corporation, as Depositor, AMRESCO Residential Capital Markets, Inc.,
as Seller (the "Seller"), ______________, as Servicer, AMRESCO Residential
Securities Corporation Mortgage Loan Owner Trust 199__-__, as Issuer and the
Indenture Trustee; and
WHEREAS, the Custodian is required, pursuant to Section 2.06(a) of the
Sale and Servicing Agreement, to review the Mortgage Files relating to the Pool
within a specified period following the Closing Date and to notify the Seller
promptly of any defects with respect to the Pool, and the Seller is required to
remedy such defects or take certain other action, all as set forth in Section
2.06(b) of the Sale and Servicing Agreement; and
WHEREAS, Section 2.06(a) of the Sale and Servicing Agreement requires
the Custodian to deliver this Pool Certification upon the satisfaction of
certain conditions set forth therein.
NOW, THEREFORE, the Custodian hereby certifies that it has determined
that all required documents (or certified copies of documents listed in Section
2.05 of the Sale and Servicing Agreement) have been executed or received, and
that such documents relate to the Mortgage Loans identified in the Schedule of
Mortgage Loans pursuant to Section 2.06(a) of the Sale and Servicing Agreement
or, in the event that such documents have not been executed and received or do
not so relate to such Mortgage Loans, any remedial action by the Seller pursuant
to Section 2.06(b) of the Sale and Servicing Agreement has been completed. The
Custodian makes no certification hereby, however, with respect to any
intervening assignments or assumption and modification agreements.
_________________________________, as Custodian
By: _______________________________
Title: ____________________________
Dated: _______________
C-1
<PAGE>
EXHIBIT D TO THE SALE AND SERVICING AGREEMENT
MORTGAGE LOANS WITH DOCUMENT EXCEPTIONS
Loan Number Borrower Name Original Loan Amount Exception
- ----------- ------------- -------------------- ---------
D-1
<PAGE>
EXHIBIT E
FORM OF SUBSEQUENT TRANSFER AGREEMENT
AMRESCO Residential Securities Corporation (the "Depositor"), as
Depositor, AMRESCO Residential Capital Markets, Inc. (the "Seller") as Seller,
and AMRESCO Residential Securities Corporation Mortgage Loan Owner Trust
199__-__, as purchaser (the "Purchaser"), pursuant to the Sale and Servicing
Agreement dated as of ____________ among the Purchaser, as Issuer, the
Depositor, the Seller, as Seller, _________________, as Servicer and
___________________, as Indenture Trustee (the "Sale and Servicing Agreement"),
hereby confirm their understanding with respect to the sale by the Seller and
the purchase by the Depositor and the sale by the Depositor and the purchase by
the Purchaser of those Mortgage Loans (the "Subsequent Mortgage Loans") listed
on the attached Schedule of Mortgage Loans.
Conveyance of Subsequent Mortgage Loans. As of ___________ __, 19___
(the "Subsequent CutOff Date"), the Seller does hereby irrevocably transfer,
assign, setover and otherwise convey to the Depositor and the Depositor does
hereby irrevocably transfer, assign, set over and otherwise convey to the
Purchaser, without recourse (except as otherwise explicitly provided for herein)
all right, title and interest in and to any and all benefits accruing from the
Subsequent Mortgage Loans (other than any principal and interest payments
received thereon on or prior to the Subsequent Cut-Off Date) which are delivered
to the Custodian on behalf of the Indenture Trustee herewith (and all
substitutions therefor as provided by Sections 2.03, 2.04 and 2.06 of the Sale
and Servicing Agreement), together with the related Subsequent Mortgage Loan
documents and the interest in any Property which secured a Subsequent Mortgage
Loan but which has been acquired by foreclosure or deed in lieu of foreclosure,
and all payments thereon and proceeds of the conversion, voluntary or
involuntary, of the foregoing; and proceeds of all the foregoing (including, but
not by way of limitation, all proceeds of any mortgage insurance, hazard
insurance and title insurance policy relating to the Subsequent Mortgage Loans,
cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing). The Depositor shall deliver the original Mortgage or mortgage
assignment with evidence of recording thereon (except as otherwise provided by
the Pooling and Servicing Agreement) and other required documentation in
accordance with the terms set forth in Sections 2.05 and 2.07 of the Sale and
Servicing Agreement.
The costs relating to the delivery of the documents specified in this
Subsequent Transfer Agreement and the Sale and Servicing Agreement shall be
borne by the Depositor.
Additional terms of the sale, if any, are attached hereto as Attachment
A.
The Depositor hereby affirms the representations and warranties set
forth in the Sale and Servicing Agreement that relate to it and the Subsequent
Mortgage Loans as of the date hereof. The Depositor hereby delivers notice and
confirms that each of the conditions set forth in Sections 2.07(b), 2.07(c) and
2.07(d) to the Sale and Servicing Agreement are satisfied as of the date hereof.
All terms and conditions of the Sale and Servicing Agreement are hereby
ratified, confirmed and incorporated herein, provided that in the event of any
conflict the provisions of this Subsequent Transfer Agreement shall control over
the conflicting provisions of the Sale and Servicing Agreement.
E-1
<PAGE>
Terms capitalized herein and not defined herein shall have their
respective meanings as set forth in the Sale and Servicing Agreement.
AMRESCO RESIDENTIAL SECURITIES
CORPORATION,
as Depositor
By: __________________________________
Name:
Title:
AMRESCO RESIDENTIAL CAPITAL
MARKETS, INC.,
as Seller
By: __________________________________
Name:
Title:
_______________________________________,
as Indenture Trustee for AMRESCO Residential
Securities Corporation Mortgage Loan Owner
Trust 199__-__
By: __________________________________
Name:
Title:
Dated: _________________________
E-2
Exhibit 10.2
TRUST AGREEMENT
between
AMRESCO RESIDENTIAL SECURITIES CORPORATION,
as Depositor
and
------------------------------------,
as Owner Trustee
Dated as of ________________
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE...............................................................1
SECTION 1.1 Capitalized Terms......................................................................1
SECTION 1.2 Other Definitional Provisions..........................................................3
ARTICLE II
ORGANIZATION.............................................................................................5
SECTION 2.1 Name...................................................................................5
SECTION 2.2 Office.................................................................................5
SECTION 2.3 Purpose and Powers.....................................................................5
SECTION 2.4 Appointment of Owner Trustee...........................................................6
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate.................................6
SECTION 2.6 Declaration of Trust...................................................................6
SECTION 2.7 Liability of the Holders...............................................................6
SECTION 2.8 Title to Trust Property................................................................6
SECTION 2.9 Situs of Trust.........................................................................7
SECTION 2.10 Representations and Warranties of the Depositor........................................7
SECTION 2.11 Federal Income Tax Allocations.........................................................8
ARTICLE III
THE CERTIFICATES.........................................................................................9
SECTION 3.1 Initial Certificate Ownership..........................................................9
SECTION 3.2 Form of the Certificates...............................................................9
SECTION 3.3 Execution, Authentication and Delivery.................................................9
SECTION 3.4 Registration; Registration of Transfer and Exchange of Certificates...................10
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates.....................................10
SECTION 3.6 Persons Deemed Holders................................................................11
SECTION 3.7 Access to List of Holders' Names and Addresses........................................11
SECTION 3.8 Maintenance of Office For Surrenders..................................................11
SECTION 3.9 Appointment of Trust Paying Agent.....................................................12
SECTION 3.10 Restriction on Transfers of Certificate...............................................12
SECTION 3.11 Duties of the Certificate Registrar and Trust Paying Agent............................16
ARTICLE IV
ACTIONS BY OWNER TRUSTEE................................................................................17
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters................................17
SECTION 4.2 Action by Holders with Respect to Certain Matters.....................................18
SECTION 4.3 Action by Holders with Respect to Bankruptcy..........................................18
SECTION 4.4 Restrictions on Holders' Power........................................................19
SECTION 4.5 Majority Control......................................................................19
i
<PAGE>
ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES.......................................................20
SECTION 5.1 Establishment of Certificate Distribution Account.....................................20
SECTION 5.2 Application of Trust Funds............................................................20
SECTION 5.3 Method of Payment.....................................................................21
SECTION 5.4 Segregation of Moneys; No Interest....................................................21
SECTION 5.5 Accounting and Reports to the Certificateholders, the
Internal Revenue Service and Others...................................................21
SECTION 5.6 Signature on Returns; Tax Matters Partner.............................................21
ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE...............................................................22
SECTION 6.1 General Authority.....................................................................22
SECTION 6.2 General Duties........................................................................22
SECTION 6.3 Action upon Instruction by Owners.....................................................22
SECTION 6.4 No Duties Except as Specified in this Agreement, the
Operative Documents or in Instructions................................................23
SECTION 6.5 No Action Except Under Specified Documents or
Instructions..........................................................................23
SECTION 6.6 Restrictions..........................................................................24
ARTICLE VII
CONCERNING THE OWNER TRUSTEE............................................................................25
SECTION 7.1 Acceptance of Trusts and Duties.......................................................25
SECTION 7.2 Furnishing of Documents...............................................................26
SECTION 7.3 Representations and Warranties of Owner Trustee.......................................27
SECTION 7.4 Reliance; Advice of Counsel...........................................................27
SECTION 7.5 Owner Trustee May Own Certificates and Notes..........................................28
SECTION 7.6 Licenses..............................................................................28
ARTICLE VIII
COMPENSATION AND INDEMNIFICATION OF OWNER TRUSTEE AND ITS AGENTS........................................29
SECTION 8.1 Owner Trustee's Fee and Expenses......................................................29
SECTION 8.2 Indemnification of the Owner Trustee..................................................29
SECTION 8.3 Payments to the Owner Trustee.........................................................30
SECTION 8.4 Indemnification of the Certificate Registrar and Trust Paying Agent...................30
ARTICLE IX
TERMINATION OF TRUST AGREEMENT..........................................................................31
SECTION 9.1 Termination of Trust Agreement........................................................31
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<PAGE>
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES..................................................32
SECTION 10.1 Eligibility Requirements for Owner Trustee............................................32
SECTION 10.2 Resignation or Removal of Owner Trustee...............................................32
SECTION 10.3 Successor Owner Trustee...............................................................33
SECTION 10.4 Merger or Consolidation of Owner Trustee..............................................33
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee.........................................33
ARTICLE XI
MISCELLANEOUS...........................................................................................35
SECTION 11.1 Amendments Without Consent of Certificateholders or Owners of the Notes...............35
SECTION 11.2 Amendments With Consent of Certificateholders.........................................35
SECTION 11.3 Form of Amendments....................................................................35
SECTION 11.4 No Legal Title to Owner Trust Estate..................................................36
SECTION 11.5 Limitations on Rights of Others.......................................................36
SECTION 11.6 Notices...............................................................................36
SECTION 11.7 Severability..........................................................................37
SECTION 11.8 Counterparts..........................................................................37
SECTION 11.9 Successors and Assigns................................................................37
SECTION 11.10 No Petition Covenant..................................................................37
SECTION 11.11 No Recourse...........................................................................37
SECTION 11.12 Headings..............................................................................37
SECTION 11.13 Governing Law.........................................................................37
SECTION 11.14 Integration...........................................................................38
SECTION 11.15 Third-Party Beneficiary...............................................................38
SECTION 11.16 Suspension and Termination of Note Insurer's Rights...................................38
</TABLE>
iii
<PAGE>
TRUST AGREEMENT, dated as of __________________, between AMRESCO
RESIDENTIAL SECURITIES CORPORATION, a Delaware corporation (the "Depositor") and
______________________, a Delaware banking corporation, not in its individual
capacity but solely as Owner Trustee (the "Owner Trustee").
The Depositor and the Owner Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Bankruptcy Action" shall have the meaning assigned to such
term in Section 4.1 hereof.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
I the Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be
amended from time to time.
"Certificate" shall mean a certificate evidencing the
beneficial interest of a Certificateholder in the Trust, substantially in the
form attached hereto as Exhibit B-1.
"Certificate Distribution Account" shall have the meaning
assigned to such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit A to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register mentioned and the registrar appointed pursuant to Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose
name a Certificate is registered.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
______________________________________________________; or at such other
address in the State of Delaware as the Owner Trustee may designate by notice to
the Owners and the Depositor, or the principal corporate trust office of any
successor Owner Trustee (the address (which shall be in the State of Delaware)
of which the successor owner trustee will notify the Owners, the Holders and the
Depositor).
<PAGE>
"Depositor" shall mean AMRESCO Residential Securities
Corporation, a Delaware corporation.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Indenture" shall mean the Indenture, dated as of ___________,
between the Issuer and the Indenture Trustee.
"Indenture Trustee" means ___________________, as Indenture
Trustee under the Indenture.
"Insurance Agreement" shall mean the Insurance Agreement,
dated as of June 1, 1998, among the Depositor, the Seller, the Servicer, the
Issuer, the Indenture Trustee and the Note Insurer.
"Issuer" shall mean AMRESCO Residential Securities Corporation
Mortgage Loan Owner Trust 199__-__, the Delaware business trust created pursuant
to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set
forth in Section 3.11.
"Non-U.S. Person" shall mean an individual, corporation,
partnership or other person other than 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 or any political subdivision thereof, or an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income.
"Note Insurer" shall mean _____________________ and its
successors and assigns.
"Operative Documents" shall mean this Agreement, the Custodial
Agreement, the Indenture, the Insurance Agreement, the Sale and Servicing
Agreement and the other documents and certificates delivered in connection
therewith.
"Owner" shall mean each holder of a Note.
"Owner Trust Estate" shall mean the Trust Estate (as defined
in the Indenture), including the contribution of $1 referred to in Section 2.5
hereof.
"Owner Trustee" shall mean _________________________, a
Delaware corporation, not in its individual capacity but solely as owner trustee
under this Agreement, and any successor owner trustee hereunder.
"Owner Trustee Fee". The fees payable to the Owner Trustee for
its services as owner trustee of the Trust, as provided in the fee agreement
between the Owner Trustee and the Seller.
"Percentage Interest" shall mean with respect to each
Certificate, the percentage portion of all of the Certificates evidenced thereby
as stated on the face of such Certificate.
2
<PAGE>
"Prospective Holder" shall have the meaning set forth in
Section 3.10(a).
"Rating Agency Condition" means, with respect to any action to
which a Rating Agency Condition applies, that each Rating Agency shall have been
given 10 days (or such shorter period as is acceptable to each Rating Agency)
prior notice thereof and that each of the Rating Agencies shall have notified
the Seller, the Servicer, the Note Insurer, the Owner Trustee and the Issuer in
writing that such action will not result in a reduction or withdrawal of the
then current rating of the Notes, without taking into account the Note Insurance
Policy.
"Record Date" shall mean as to each Payment Date the last
Business Day immediately preceding such Payment Date.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement dated as of the date hereof, among the Issuer, the
Depositor, the Seller, the Servicer and the Indenture Trustee.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Paying Agent" shall mean _______________________ or any
successor in interest thereto or any other paying agent or co-paying agent
appointed pursuant to Section 3.9 and authorized by the Issuer to make payments
to and distributions from the Certificate Distribution Account, including
payment of principal of or interest on the Certificates on behalf of the Issuer.
SECTION 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Sale and Servicing Agreement
or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
3
<PAGE>
(d) The words "hereof", "herein", "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
4
<PAGE>
ARTICLE II
ORGANIZATION
SECTION 2.1 Name. The Trust created hereby shall be known as "AMRESCO
Residential Securities Corporation Mortgage Loan Owner Trust 199__-__", in which
name the Owner Trustee may conduct the business of the Trust, make and execute
contracts and other instruments on behalf of the Trust and sue and be sued on
behalf of the Trust.
SECTION 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders,
the Note Insurer, the Owners and the Depositor.
SECTION 2.3 Purpose and Powers. The purpose of the Trust is to engage
in the following activities:
(i) to issue the Notes pursuant to the Indenture and
the Certificates pursuant to this Agreement;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to pay the organizational, start-up and transactional
expenses of the Trust and to pay the balance to the Depositor and the
Seller, as their interests may appear pursuant to the Sale and
Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and
convey the Owner Trust Estate pursuant to the terms of the Indenture
and to hold, manage and distribute to the Certificateholders pursuant
to the terms of the Sale and Servicing Agreement any portion of the
Owner Trust Estate released from the lien of, and remitted to the Trust
pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Operative Documents to which it is to be a party;
(v) to engage in those activities, including entering
into agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(vi) subject to compliance with the Operative Documents,
to engage in such other activities as may be required in connection
with conservation of the assets of the Trust and the making of
distributions to the Certificateholders and the Owners of the Notes.
The Trust is hereby authorized to engage in the foregoing activities
and shall not engage in any activity other than in connection with the foregoing
or other than as required or authorized by the terms of this Agreement or the
Operative Documents.
SECTION 2.4 Appointment of Owner Trustee. The Depositor hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers
5
<PAGE>
and duties set forth herein. The Owner Trustee hereby accepts its appointment
subject to the terms and conditions hereof.
SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution which shall constitute the initial Owner Trust Estate and
shall be deposited in the Certificate Distribution Account. The Depositor or the
Seller shall pay the organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Operative Documents. It is the
intention of the parties hereto that the Trust shall constitute a business trust
under the Business Trust Statute and that this Agreement shall constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for federal and state income and state and local franchise tax
purposes, the Trust shall not be treated as (i) an association subject
separately to taxation as a corporation, (ii) a "publicly traded partnership" as
defined in Treasury Regulation Section 1.7704-1 or (iii) a "taxable mortgage
pool" as defined in Section 7701(i) of the Code, and that the Notes shall be
debt, and the provisions of this Trust Agreement shall be interpreted to further
this intention. Except as otherwise provided in this Trust Agreement, the rights
of the Certificateholders will be those of equity owners of the Trust. Effective
as of the date hereof, the Owner Trustee shall have the rights, powers and
duties set forth herein and in the Business Trust Statute with respect to
accomplishing the purposes of the Trust. The Owner Trustee shall file the
Certificate of Trust pursuant to the Business Trust Statute with the Secretary
of State.
SECTION 2.7 Liability of the Holders. No Certificateholder shall have
any personal liability for any liability or obligation of the Trust. The
Certificates shall be fully paid and nonassessable.
SECTION 2.8. Title to Trust Property.
(a) Subject to the Indenture, legal title to all of the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. No transfer by operation of law or otherwise of
any interest of the Certificateholders shall operate to terminate this Agreement
or the trusts hereunder or entitle any transferee to an accounting or to the
transfer to it of any part of the Owner Trust Estate.
SECTION 2.9 Situs of Trust. The Trust shall be located and administered
in the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York. The Trust shall not have any employees; provided, however, that
nothing herein shall restrict or prohibit the Owner Trustee from having
6
<PAGE>
employees within or without the State of Delaware. Payments shall be received by
the Trust only in Delaware or New York, and payments will be made by the Trust
only from Delaware or New York. The only office of the Trust shall be the
Corporate Trust Office in Delaware.
SECTION 2.10 Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Owner Trustee and the Note
Insurer that:
(a) The Depositor has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority to own its properties and to
conduct its business as such properties are presently owned and such
business is presently conducted.
(b) The Depositor is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such
qualifications.
(c) The Depositor has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Depositor has
full power and authority to sell and assign the property to be sold and
assigned to and deposited with the Trust, and the Depositor has duly
authorized such sale and assignment to the Trust by all necessary
corporate action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Depositor by all necessary
corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms of this Agreement do not
conflict with, result in any breach of any of the terms and provisions
of or constitute (with or without notice or lapse of time) a default
under, the certificate of incorporation or by-laws of the Depositor, or
any indenture, agreement or other instrument to which the Depositor is
a party or by which it is bound; nor result in the creation or
imposition of any lien upon any of its properties pursuant to the terms
of any such indenture, agreement or other instrument (other than
pursuant to the Operative Documents); nor violate any law or, to the
best of the Depositor's knowledge, any order, rule or regulation
applicable to the Depositor of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or any of its
properties.
(e) There are no proceedings or investigations pending or
notice of which has been received in writing before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its
properties: (i) asserting the invalidity of this Agreement, (ii)
seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or (iii) seeking any determination or
ruling that might materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or
enforceability of, this Agreement.
(f) The representations and warranties of the Depositor in
Section 2.01 of the Sale and Servicing Agreement are true and correct.
7
<PAGE>
(g) The Trust is not required to register as an investment
company under the Investment Company Act and is not under the control
of a Person required to so register.
SECTION 2.11 Federal Income Tax Allocations. Net income of the Trust
for any month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the Certificateholders, pro rata.
8
<PAGE>
ARTICLE III
THE CERTIFICATES
SECTION 3.1 Initial Certificate Ownership. Upon the formation of the
Trust by the contribution by the Depositor pursuant to Section 2.5 and until the
issuance of the Certificates, the Depositor shall be the sole owner of the
Trust.
SECTION 3.2 Form of the Certificates.
(a) The Certificates shall be issued without a principal
amount. The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature of an authorized signatory of the Owner Trustee.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust shall be valid, notwithstanding that such individuals or any
of them shall have ceased to be so authorized prior to the authentication and
delivery of such Certificates or did not hold such offices at the date of
authentication and delivery of such Certificates.
(b) The Certificates shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods (with
or without steel engraved borders) all as determined by the authorized signatory
of the Owner Trustee or the Owner Trustee's authenticating agent executing such
Certificates, as evidenced by their execution of such Certificates.
(c) A transferee of a Certificate shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder, upon such transferee's acceptance
of a Certificate duly registered in such transferee's name pursuant to Section
3.4.
SECTION 3.3 Execution, Authentication and Delivery. Concurrently with
the initial sale of the Mortgage Loans by the Depositor to the Trust pursuant to
the Sale and Servicing Agreement, the Owner Trustee shall execute, or cause its
authenticating agent to execute the Certificates representing 100% of the
Percentage Interests of the Trust to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Depositor,
signed by an Authorized Officer of the Depositor, without further corporate
action by the Depositor. The Certificates shall be initially registered in the
name of AMRESCO Residential Capital Markets, Inc. The Trust shall not issue any
other Certificate, except to the Depositor, without the prior written consent of
the Note Insurer, provided, however, that such consent shall not be unreasonably
withheld. No Certificate shall entitle its Holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication substantially in the form set forth
in Exhibit B-1, executed by the Owner Trustee, by manual or facsimile signature.
Such authentication shall constitute conclusive evidence that such Certificate
shall have been duly authenticated and delivered hereunder. All Certificates
shall be dated the date of their authentication.
9
<PAGE>
SECTION 3.4 Registration; Registration of Transfer and Exchange of
Certificates.
The Certificate Registrar shall cause to be kept at its office or
agency in New York, New York, or at its designated agent, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, it shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Upon any resignation of a Certificate
Registrar, the Owner Trustee shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of the Certificate Registrar.
_____________________ shall be the initial Certificate Registrar.
Subject to Section 3.10, upon surrender for registration of transfer of
any Certificate at the office or agency of the Owner Trustee maintained pursuant
to Section 3.8, the Owner Trustee shall execute, and the Certificate Registrar
shall authenticate and deliver in the name of the designated transferee or
transferees, a new Certificate or Certificates of the same Percentage Interest
and dated the date of authentication by the Certificate Registrar.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of a like aggregate Percentage Interest, upon surrender of
the Certificates to be exchanged at such office. Whenever any Certificates are
so surrendered for exchange, the Owner Trustee shall execute and deliver to the
Certificate Registrar who shall authenticate the Certificates which the
Certificateholder making the exchange is entitled to receive.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Certificate Registrar may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be marked "canceled" by the Certificate Registrar.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of Certificates for a period of 15 days preceding the due
date for any payment with respect to the Certificates.
SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates.
(a) If (i) any mutilated Certificate is surrendered to the
Certificate Registrar, or the Certificate Registrar receives evidence to its
satisfaction of the destruction, loss or theft of any Certificate, and (ii)
there is delivered to the Certificate Registrar, the Owner Trustee and the Trust
such security or indemnity as may be required by them to hold each of them
harmless, then, in the absence of notice to the Certificate Registrar or the
Owner Trustee that such Certificate has been acquired by a bona fide purchaser,
the Owner Trustee shall execute on behalf of the Trust and the Certificate
Registrar shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a replacement Certificate of a
like Percentage Interest; provided, however, that if any such destroyed, lost or
stolen Certificate, but not a mutilated Certificate, shall have become or within
seven days shall be due and payable, then instead of issuing a replacement
Certificate the Owner Trustee may pay such destroyed, lost or stolen Certificate
when so due or payable.
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(b) In connection with the issuance of any replacement
Certificate under this Section 3.5, the Owner Trustee or the Certificate
Registrar may require the payment by the Holder of such Certificate of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Owner Trustee and the Certificate Registrar) connected
therewith.
(c) Any duplicate Certificate issued pursuant to this Section
3.5 in replacement of any mutilated, destroyed, lost or stolen Certificate shall
constitute an original additional contractual obligation of the Trust, whether
or not the mutilated, destroyed, lost or stolen Certificate shall be found at
any time or be enforced by anyone, and shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Certificates
duly issued hereunder.
(d) The provisions of this Section 3.5 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Certificates.
SECTION 3.6 Persons Deemed Holders. Prior to due presentation of a
Certificate for registration of transfer, the Owner Trustee, the Certificate
Registrar or any Trust Paying Agent may treat the Person in whose name any
Certificate shall be registered in the Certificate Registrar as the owner of
such Certificate for the purpose of receiving distributions pursuant to Article
V and for all other purposes whatsoever, and neither the Owner Trustee, nor the
Certificate Registrar nor the Trust Paying Agent shall be affected by any notice
to the contrary.
SECTION 3.7 Access to List of Holders' Names and Addresses. The
Certificate Registrar shall furnish or cause to be furnished to the Seller and
the Depositor, within 15 days after receipt by the Certificate Registrar of a
request therefor from the Seller or the Depositor in writing, a list, in such
form as the Seller or the Depositor may reasonably require, of the names and
addresses of the Certificateholders as of the most recent Record Date. If three
or more Certificateholders or one or more Holders of Certificates together
evidencing a Percentage Interest totaling not less than 25% apply in writing to
the Certificate Registrar, and such application states that the applicants
desire to communicate with other Certificateholders with respect to their rights
under this Agreement or under the Certificates and such application is
accompanied by a copy of the communication that such applicants propose to
transmit, then the Certificate Registrar shall, within five Business Days after
the receipt of such application, afford such applicants access during normal
business hours to the current list of Certificateholders. Each
Certificateholder, by receiving and holding a Certificate, shall be deemed to
have agreed not to hold any of the Servicer, the Depositor, the Certificate
Registrar or the Owner Trustee accountable by reason of the disclosure of its
name and address, regardless of the source from which information was derived.
SECTION 3.8 Maintenance of Office For Surrenders. The Certificate
Registrar shall maintain an office or offices or agency or agencies where
Certificates may be surrendered for registration of transfer or exchange. The
Certificate Registrar initially designates the Corporate Trust Office as its
principal office for such purposes. The Certificate Registrar shall give prompt
written notice to the Depositor and to the Certificateholders and Owners of any
change in the location of the Certificate Register or any such office or agency.
SECTION 3.9 Appointment of Trust Paying Agent. The Owner Trustee hereby
appoints _____________________ as the Trust Paying Agent under this Agreement.
The Trust
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Paying Agent shall make distributions to Certificateholders from the Certificate
Distribution Account pursuant to Section 5.2 and shall report the amounts of
such distributions to the Owner Trustee, the Servicer and the Seller. The Trust
Paying Agent shall have the revocable power to withdraw funds from the
Certificate Distribution Account for the purpose of making the distributions
referred to above. The Owner Trustee may revoke such power and remove the Trust
Paying Agent if the Owner Trustee determines in its sole discretion that the
Trust Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. If ________________________ shall no longer
be the Trust Paying Agent, the Owner Trustee shall appoint a successor to act as
Trust Paying Agent (which shall be a bank or trust company acceptable to the
Depositor, the Seller, the Note Insurer and the Rating Agencies). The Owner
Trustee shall cause such successor Trust Paying Agent or any additional Trust
Paying Agent appointed by the Owner Trustee to execute and deliver to the Owner
Trustee an instrument in which such successor Trust Paying Agent or additional
Trust Paying Agent shall agree with the Owner Trustee that as Trust Paying
Agent, such successor Trust Paying Agent or additional Trust Paying Agent shall
hold all sums, if any, held by it for payment to the Certificateholders in trust
for the benefit of the Certificateholders entitled thereto until such sums shall
be paid to such Holders. The Trust Paying Agent shall return all unclaimed funds
to the Trust and upon removal of a Trust Paying Agent such Trust Paying Agent
shall also return all funds in its possession to the Trust. The provisions of
Article VI shall apply to the Owner Trustee also in its role as Trust Paying
Agent, for so long as the Owner Trustee shall act as Trust Paying Agent and, to
the extent applicable, to any other Trust Paying Agent (including _____________
__________________) appointed hereunder. Any reference in this Agreement to the
Trust Paying Agent shall include any co-paying agent unless the context requires
otherwise.
SECTION 3.10 Restriction on Transfers of Certificate.
(a) Each prospective purchaser and any subsequent transferee
of a Certificate (each, a "Prospective Holder"), other than the Depositor or the
Seller, shall represent and warrant, in writing, to the Owner Trustee and the
Certificate Registrar and any of their respective successors that:
(i) Such Person is (A) a "qualified institutional
buyer" as defined in Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), and is aware that the
seller of the Certificate may be relying on the exemption from
the registration requirements of the Securities Act provided
by Rule 144A and is acquiring such Certificate for its own
account or for the account of one or more qualified
institutional buyers for whom it is authorized to act, or (B)
a Person involved in the organization or operation of the
Trust or an affiliate of such Person within the meaning of
Rule 3a-7 of the Investment Company Act of 1940, as amended
(including, but not limited to, the Depositor or the Seller).
(ii) Such Person understands that the Certificate has
not been and will not be registered under the Securities Act
and may be offered, sold, pledged or otherwise transferred
only to a person whom the seller reasonably believes is (A) a
qualified institutional buyer or (B) a Person involved in the
organization or operation of the Trust or an affiliate of such
Person, in a transaction meeting the requirements of Rule 144A
under the Securities Act and in accordance with any applicable
securities laws of any state of the United States.
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(iii) Such Person understands that the Certificate
bears a legend to the following effect:
"THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS.
THIS CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY
OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING
PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE
144A OR (II) A PERSON INVOLVED IN THE ORGANIZATION OR
OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A
PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING, BUT NOT LIMITED TO, AMRESCO RESIDENTIAL
SECURITIES CORPORATION AND AMRESCO RESIDENTIAL
CAPITAL MARKETS, INC.) IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS.
NO PERSON IS OBLIGATED TO REGISTER THIS CERTIFICATE
UNDER THE ACT OR ANY STATE SECURITIES LAWS."
(b) Each Prospective Holder, other than the Depositor or the
Seller, shall either:
(i) represent and warrant, in writing, to the Owner
Trustee and the Certificate Registrar and any of their
respective successors that (1) the Prospective Holder is not
an "employee benefit plan" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "plan" within the meaning of Section
4975(e)(1) of the Code (any such plan or employee benefit
plan, a "Plan") and is not directly or indirectly purchasing
such Certificate on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with assets of a Plan,
or (2) either (I) the Prospective Holder is acquiring such
Certificate for its own account and no part of the assets used
to acquire such Certificate constitutes assets of a Plan, or
(II) the source of funds to be used to acquire such
Certificate is an "insurance company general account," within
the meaning of Prohibited Transaction Class Exemption 95-60,
60 Fed. Reg. 35925 (July 12, 1995) (the "Exemption"), and
there is no Plan with respect to which the amount of such
general account's reserves for the contract(s) held by or on
behalf of such Plan (determined under Section 807(d) of the
Code), together with the amount of the reserves of the
contract(s) held by or on behalf of any other Plans
(determined under section 807(d) of the Code) maintained by
the same employer (or an affiliate thereof as defined in
Section V(a)(1) of the Exemption) or by the same employee
organization, exceed 10% of the total of all liabilities of
such general account; or
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(ii) furnish to the Owner Trustee and the Certificate
Registrar and any of their respective successors an opinion of counsel
acceptable to such persons that (A) the proposed issuance or transfer
of the Certificate to such Prospective Holder will not cause any assets
of the Trust to be deemed assets of a Plan, or (B) the proposed
issuance or transfer of the Certificate will not cause the Owner
Trustee or the Certificate Registrar or any of their respective
successors to be a fiduciary of a Plan within the meaning of Section
3(21) of ERISA and will not give rise to a transaction described in
Section 406 of ERISA or Section 4975(c)(1) of the Code for which a
statutory or administrative exemption is unavailable.
(c) By its acceptance of a Certificate, each Prospective
Holder agrees and acknowledges that no legal or beneficial interest in all or
any portion of any Certificate may be transferred directly or indirectly to (i)
an entity that holds residual securities as nominee to facilitate the clearance
and settlement of such securities through electronic book-entry changes in
accounts of participating organizations (a "Book-Entry Nominee"), or (ii) an
individual, corporation, partnership or other person unless such transferee is
not a Non-U.S. Person (any such person being referred to herein as a
"Non-permitted Foreign Holder"), and any such purported transfer shall be void
and have no effect.
(d) The Owner Trustee shall not execute, and shall not
countersign and deliver, a Certificate in connection with any transfer thereof
unless the transferor shall have provided to the Owner Trustee an IRS Form W-9
and a certificate, signed by the transferee, that it is not a Book-Entry
Nominee or a Non-permitted Foreign Holder, which certificate shall contain the
consent of the transferee to any amendments of this Agreement as may be required
to effectuate further the foregoing restrictions on transfer of the Certificate
to Book-Entry Nominees or Non-permitted Foreign Holders, and an agreement by the
transferee that it will not transfer a Certificate without providing to the
Owner Trustee a certificate in the form provided above.
(e) The Certificates shall bear an additional legend referring
to the restrictions contained in paragraph (b) above.
(f) No offer, sale, transfer, pledge, hypothecation or other
disposition (including any pledge or transfer under a repurchase transaction or
securities loan) of any Certificate shall be made to any entity unless, prior to
such disposition, (i) the Note Insurer has given its prior written consent to
the offer, sale, transfer, pledge, hypothecation or other disposition; provided,
however, that such consent shall not be unreasonably withheld and (ii) the
Prospective Holder delivers to the Owner Trustee and the Certificate Registrar
an opinion of counsel, rendered by a law firm generally recognized to be
qualified to opine concerning the tax aspects of asset securitization, to the
effect that such transfer (including any disposition permitted following any
default under any pledge or repurchase transaction will not cause the Trust to
be (i) treated as an association taxable as a corporation for federal income tax
purposes, (ii) taxable as a taxable mortgage pool as defined in Section 7701(i)
of the Code or (iii) taxable as a "publicly traded partnership" as defined in
Treasury Regulation Section 1.7704-1. Notwithstanding the foregoing, the
provisions of this paragraph shall not apply to the transfer of the Certificates
to the Seller or the Depositor.
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SECTION 3.11 Duties of the Certificate Registrar and Trust Paying Agent
The duties and obligations of the Certificate Registrar and Trust
Paying Agent shall be determined solely by the express provisions of this
Agreement. The Certificate Registrar and Trust Paying Agent shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this Agreement or as set forth in a written amendment to this
Agreement executed by the parties hereto or their successors or assigns. Without
limiting the generality of the foregoing, the Certificate Registrar and Trust
Paying Agent:
(a) shall use the same degree of care and skill as is
reasonably expected of financial institutions acting in comparable
capacities;
(b) will be regarded as making no representations and having
no responsibilities as to the validity, sufficiency, value,
genuineness, ownership or transferability of any Certificates, the
Notes or Mortgage Loans represented thereby, and will not be required
to and will not make any representations as to the validity, value or
genuineness of the Certificates, the Notes or the Mortgage Loans;
(c) shall not be obligated to take any legal action hereunder
that might in its judgment involve any expense or liability unless it
has been furnished with reasonable indemnity;
(d) may rely on and shall be protected in acting in good faith
upon any certificate, instrument, opinion, notice, letter, telegram or
other document, or any security, delivered to it and in good faith
believed by it to be genuine and to have been signed by the proper
party or parties;
(e) may rely on and shall be protected in acting in good faith
upon the written instructions of the Owner Trustee, the Seller and the
Issuer, as indicated herein;
(f) may consult counsel satisfactory to it and the opinion of
such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered, or omitted by it hereunder in
good faith and in furtherance of its duties hereunder, in accordance
with the opinion of such counsel;
(g) shall not be liable for any error of judgment, or for any
act done or step taken or omitted by it, in good faith, or for any
mistake of fact or law, or for anything that it may do or refrain from
doing in connection therewith, except in the case of negligent
performance or omission; and
(h) may execute any of the powers hereunder or perform any
duties hereunder either directly or through agents or attorneys.
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ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters. The
Owner Trustee shall not take action with respect to the following matters,
unless (i) the Owner Trustee shall have notified the Certificateholders and the
Note Insurer in writing of the proposed action at least 30 days before the
taking of such action, and (ii) neither the Certificateholders nor the Note
Insurer shall have notified the Owner Trustee in writing prior to the 30th day
after such notice is given that such Certificateholders or the Note Insurer have
withheld consent or provided alternative direction (provided that any directions
by the Certificateholders shall require the prior consent of the Note Insurer):
(a) the initiation of any claim or lawsuit by the Trust
(except claims and law suits brought in connection with the collection of the
Mortgage Loans) or the compromise of any action, claim or lawsuit brought by or
against the Trust (except claims and law suits brought in connection with the
collection of the Home Equity Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust, (except to the extent such amendment is required under the
Business Trust Statute);
(c) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of a Note or
the Note Insurer is required;
(d) the amendment or other change to this Agreement or any
Operative Documents in circumstances where the consent of any Owner of a Note or
the Note Insurer is not required and such amendment materially adversely affects
the interest of the Certificateholders;
(e) the appointment pursuant to the Indenture of a successor
Note Registrar, Paying Agent or Indenture Trustee or, pursuant to this
Agreement, of a successor Certificate Registrar or Trust Paying Agent, or the
consent to the assignment by the Note Registrar, Paying Agent or Indenture
Trustee, Certificate Registrar or Trust Paying Agent of its obligations under
the Indenture or this Agreement, as applicable;
(f) the consent to the calling or waiver of any default of any
Operative Document;
(g) the consent to the assignment of the Indenture Trustee or
the Servicer of their respective obligations under the Operative Document;
(h) except as provided in Article IX hereof, dissolve,
terminate or liquidate the Trust in whole or in part;
(i) merge or consolidate the Trust with or into any other
entity, or convey or transfer all or substantially all of the Trust's assets to
any other entity;
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(j) cause the Trust to incur, assume or guaranty any
indebtedness other than as set forth in this Agreement;
(k) do any act that conflicts with any other Operative
Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust as described in Section 2.3 hereof;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth
in this Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness and any operating expenses from its
own funds, and the Trust shall not pay the indebtedness, operating expenses or
liabilities of any other entity. The Trust shall maintain appropriate minutes or
other records of all appropriate actions and shall maintain its office separate
from the offices of the Depositor, the Seller and the Servicer.
The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders with the consent of the Note Insurer, and to the
extent otherwise consistent with the Operative Documents, to (i) remove or
replace the Servicer or the Indenture Trustee, (ii) institute proceedings to
have the Trust declared or adjudicated a bankruptcy or insolvent, (iii) consent
to the institution of bankruptcy or insolvency proceedings against the Trust,
(iv) file a petition or consent to a petition seeking reorganization or relief
on behalf of the Trust under any applicable federal or state law relating to
bankruptcy, (v) consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or any similar official) of the Trust or a substantial
portion of the property of the Trust, (vi) make any assignment for the benefit
of the Trust's creditors, (vii) cause the Trust to admit in writing its
inability to pay its debts generally as they become due, (viii) take any action,
or cause the Trust to take any action, in furtherance of any of the foregoing
(any of the above, a "Bankruptcy Action"). So long as the Indenture remains in
effect and no Note Insurer Default exists, no Certificateholder shall have the
power to take, and shall not take, any Bankruptcy Action with respect to the
Trust or direct the Owner Trustee to take any Bankruptcy Action with respect to
the Trust.
SECTION 4.2 Action by Holders with Respect to Certain Matters. The
Owner Trustee shall not have the power to remove the Servicer under the Sale and
Servicing Agreement.
SECTION 4.3 Action by Holders with Respect to Bankruptcy. Neither Owner
Trustee nor any Certificateholder shall have the power to commence a voluntary
proceeding in bankruptcy relating to the Trust without the consent and approval
of (i) the Note Insurer, (ii) the unanimous prior approval of all
Certificateholders and Owners of the Notes, (iii) the Owner Trustee
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and (iv) the Indenture Trustee and the delivery to the Owner Trustee by each
such Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent. This paragraph shall survive
for one year and one day following termination of this Agreement.
SECTION 4.4 Restrictions on Holders' Power. The Certificateholders
shall not direct the Owner Trustee to take or refrain from taking any action if
such action or inaction would be contrary to any obligation of the Trust or the
Owner Trustee under this Agreement or any of the Operative Documents or would be
contrary to Section 2.3, nor shall the Owner Trustee be obligated to follow any
such direction, if given.
SECTION 4.5 Majority Control. Except as expressly provided herein any
action that may be taken or consent that may be given or withheld or written
notice delivered by the Certificateholders under this Agreement may be taken by
Holders of Certificates representing not less than a majority of the
Certificates.
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ARTICLE V
APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES
SECTION 5.1 Establishment of Certificate Distribution Account. The
Owner Trustee shall cause the Servicer, for the benefit of the
Certificateholders, to establish and maintain with ________________________ for
the benefit of the Owner Trustee a Trust Account which while the Trust Paying
Agent holds such Account shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT,
__________________ AS TRUST PAYING AGENT, IN TRUST FOR THE AMRESCO RESIDENTIAL
SECURITIES CORPORATION ADJUSTABLE RATE MORTGAGE LOAN ASSET BACKED CERTIFICATES,
SERIES 199__-__." Funds shall be deposited in the Certificate Distribution
Account as required by the Indenture, or following satisfaction or release of
the Indenture, by the Sale and Servicing Agreement.
All of the right, title and interest of the Owner Trustee in all funds
on deposit from time to time in the Certificate Distribution Account and in all
proceeds thereof shall be held for the benefit of the Certificateholders. Except
as otherwise expressly provided herein or in the Sale and Servicing Agreement,
the Certificate Distribution Account shall be under the sole dominion and
control of the Owner Trustee for the benefit of the Certificateholders.
SECTION 5.2 Application of Trust Funds.
(a) On each Payment Date, the Trust Paying Agent shall distribute to
the Certificateholders from amounts on deposit in the Certificate Distribution
Account the distributions as provided in Section 3.03(b)(v) of the Sale and
Servicing Agreement with respect to such Payment Date.
(b) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to a Certificateholder, such tax shall reduce
the amount otherwise distributable to the Certificateholder in accordance with
this Section. The Trust Paying Agent is hereby authorized and directed to retain
from amounts otherwise distributable to the Certificateholders sufficient funds
for the payment of any tax that is legally owed by the Trust (but such
authorization shall not prevent the Trust Paying Agent from contesting any such
tax in appropriate proceedings, and withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings). The amount of any
withholding tax imposed with respect to a Certificateholder shall be treated as
cash distributed to such Holder at the time it is withheld by the Trust Paying
Agent and remitted to the appropriate taxing authority. If there is a
possibility that withholding tax is payable with respect to a distribution (such
as a distribution to a non-U.S. Holder), the Trust Paying Agent may in its sole
discretion withhold such amounts in accordance with this paragraph (b). In the
event that a Certificateholder wishes to apply for a refund of any such
withholding tax, the Trust Paying Agent shall reasonably cooperate with such
Certificateholder in making such claim so long as such Certificateholder agrees
to reimburse the Trust Paying Agent for any out-of-pocket expenses incurred.
(c) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Noteholders and the Note Insurer.
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SECTION 5.3 Method of Payment. Distributions required to be made to
Certificateholders on any Payment Date shall be made to each Certificateholder
of record on the immediately preceding Record Date either by wire transfer, in
immediately available funds, to the account of such Certificateholder at a bank
or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date, or,
if not, by check mailed to such Certificateholder at the address of such
Certificateholder appearing in the Certificate Register.
SECTION 5.4 Segregation of Moneys; No Interest. Subject to Sections 5.1
and 5.2, moneys received by the Trust Paying Agent hereunder and deposited into
the Certificate Distribution Account will be segregated except to the extent
required otherwise by law and shall be invested in Eligible Investments maturing
no later than one Business Day prior to the related Payment Date at the
direction of the Depositor (with the consent of the Seller). The Trust Paying
Agent shall not be liable for payment of any interest or losses in respect of
such moneys. Investment gains shall be for the account of and paid to the
Certificateholders.
SECTION 5.5 Accounting and Reports to the Certificateholders, the
Internal Revenue Service and Others. The Certificate Registrar shall (a)
maintain (or cause to be maintained) the books of the Trust on a calendar year
basis on the accrual method of accounting, and such books shall be maintained
separately from those of any other entity and reflect the separate interest of
the Trust, (b) deliver to each Certificateholder, as may be required by the Code
and applicable Treasury Regulations, such information as may be required
(including Schedule K-1) to enable such Certificateholder to prepare its federal
and state income tax returns, (c) file such tax returns relating to the Trust
(including a partnership information return, IRS Form 1065), and make such
elections as may from time to time be required or appropriate under any
applicable state or federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a partnership for federal income tax
purposes, (d) cause such tax returns to be signed in the manner required by law
and (e) collect or cause to be collected any withholding tax required to be
withheld (as certified by the Seller) with respect to income or distributions to
Certificateholders. The Certificate Registrar shall elect under Section 1278 of
the Code to include in income currently any market discount that accrues with
respect to the Mortgage Loans. The Certificate Registrar shall not make the
election provided under Section 754 of the Code.
SECTION 5.6 Signature on Returns; Tax Matters Partner.
(a) The Certificate Registrar shall sign on behalf of the
Trust the tax returns of the Trust, unless applicable law requires a
Certificateholder to sign such documents, in which case such documents shall be
signed by the Depositor.
(b) The Depositor shall be designated the "tax matters
partner" of the Trust pursuant to Section 6231(a)(7)(A) of the Code and
applicable Treasury Regulations.
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ARTICLE VI
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE
SECTION 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the
Certificates and the Operative Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Operative Documents to which the Trust is to be a party and any amendment or
other agreement or instrument described in Article III, in each case, in such
form as the Depositor shall approve, as evidenced conclusively by the Owner
Trustee's execution thereof, and, on behalf of the Trust, to direct the
Indenture Trustee to authenticate and deliver the Notes in the aggregate
principal amount of $___________. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust, pursuant to the Operative Documents.
SECTION 6.2. General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Operative
Documents to which the Trust is a party and to administer the Trust in the
interest of the Certificateholders, and in accordance with the provisions of
this Agreement; and
(b) to obtain and preserve, the Trust's qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Indenture, the
Notes, and each other instrument and agreement included in the Owner Trust
Estate.
SECTION 6.3 Action upon Instruction by Owners.
(a) Subject to Article IV, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust, but
only to the extent consistent with the limited purposes of the Trust. Such
direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not
be required to take any action hereunder or under any Operative Document if the
Owner Trustee shall have reasonably determined, or shall have been advised by
counsel, that such action is likely to result in liability on the part of the
Owner Trustee or is contrary to the terms hereof or of any Operative Document or
is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Operative Document, or is unsure as to the application, intent,
interpretation or meaning of any provision of this agreement or the Operative
Documents, the Owner Trustee shall promptly give notice (in such form as shall
be appropriate under the circumstances) to the Note Insurer and the
Certificateholders requesting instruction as to the course of action to be
adopted, and, to the extent the Owner Trustee acts in good faith in accordance
with any such instruction received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not have
received appropriate
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instructions within ten days of such notice (or within such shorter period of
time as reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action which is consistent, in its view, with this Agreement or the
Operative Documents, and as it shall deem to be the best interests of the
Certificateholders, and the Owner Trustee shall have no liability to any Person
for any such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Operative Document or any
such provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account of such
action or inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Operative
Documents, as it shall deem to be in the best interest of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement, the
Operative Documents or in Instructions. The Owner Trustee shall not have any
duty or obligation to manage, make any payment with respect to, register,
record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to
otherwise take or refrain from taking any action under, or in connection with,
any document contemplated hereby to which the Owner Trustee is a party, except
as expressly provided by the terms of this Agreement, any Operative Document or
in any document or written instruction received by the Owner Trustee pursuant to
Section 6.3; and no implied duties or obligations shall be read into this
Agreement or any Operative Document against the Owner Trustee. The Owner Trustee
shall have no responsibility for filing any financing or continuation statement
in any public office at any time or to otherwise perfect or maintain the
perfection of any security interest or lien granted to it hereunder or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Agreement or any Operative Document. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any liens on any part of the Owner Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Owner Trust
Estate.
SECTION 6.5 No Action Except Under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement, (ii) in accordance with the Operative Documents and (iii) in
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
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SECTION 6.6 Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties. Except as otherwise
provided in this Article VII, in accepting the trusts hereby created
___________________ acts solely as Owner Trustee hereunder and not in its
individual capacity and all Persons having any claim against the Owner Trustee
by reason of the transactions contemplated by this Agreement or any Operative
Document shall look only to the assets of the Trust for payment or satisfaction
thereof. The Owner Trustee accepts the trusts hereby created and agrees to
perform its duties hereunder with respect to such trusts but only upon the terms
of this Agreement. The Owner Trustee also agrees to disburse all moneys actually
received by it constituting part of the assets of the Trust upon the terms of
the Operative Documents and this Agreement. The Owner Trustee shall not be
liable or accountable hereunder or under any Operative Document under any
circumstances, except (i) for its own gross negligent action, its own gross
negligent failure to act or its own willful misconduct or (ii) in the case of
the inaccuracy of any representation or warranty contained in Section 7.3 and
expressly made by the Owner Trustee. In particular, but not by way of limitation
(and subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall at no time have any responsibility
or liability for or with respect to the legality, validity and enforceability of
any Mortgage Loan, or the perfection and priority of any security interest
created by any Mortgage Loan in any Property or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the assets
of the Trust or their ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Owners of the Notes under the
Indenture, including, without limitation: the existence, condition and ownership
of any Property; the existence and enforceability of any insurance thereon; the
existence and contents of any Mortgage Loan on any computer or other record
thereof; the validity of the assignment of any Mortgage Loan to the Trust or of
any intervening assignment; the completeness of any Mortgage Loan; the
performance or enforcement of any Mortgage Loan; the compliance by the
Depositor, the Seller or the Servicer with any warranty or representation made
under any Operative Document or in any related document or the accuracy of any
such warranty or representation or any action of the Indenture Trustee, the
Custodian or the Servicer or any subservicer taken in the name of the Owner
Trustee.
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions of
the Note Insurer or any Certificateholder;
(c) no provision of this Agreement or any Operative Document
shall require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Operative Document, if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Operative Documents,
including the Note Principal Balance and the interest on the Notes;
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(e) the Owner Trustee shall not be responsible for or in
respect of and makes no representation as to the validity or sufficiency of any
provision of this Agreement or for the due execution hereof by the Depositor or
for the form, character, genuineness, sufficiency, value or validity of any of
the Owner Trust Estate or for or in respect of the validity or sufficiency of
the Operative Documents, the Notes, the Certificates (other than the execution
thereof and the certificate of authentication on the Certificates, if executed
by the Owner Trustee) or of any Mortgage Loans or any related documents, and the
Owner Trustee shall in no event assume or incur any liability, duty or
obligation to any Owner of a Note or to any Certificateholder, other than as
expressly provided for herein and in the Operative Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Indenture Trustee, the Custodian, the Depositor, the Seller,
or the Servicer under any of the Operative Documents or otherwise and the Owner
Trustee shall have no obligation or liability to perform the obligations of the
Trust under this Agreement or the Operative Documents that are required to be
performed by the Indenture Trustee under the Indenture, the Custodian under the
Custodial Agreement or the Seller or the Servicer under the Sale and Servicing
Agreement;
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement, the Underwriting Agreement or any Operative
Document, at the request, order or direction of any of the Note Insurer or any
of the Certificateholders, unless the Note Insurer or such Certificateholders
have offered to the Owner Trustee security or indemnity satisfactory to it
against the costs, expenses and liabilities that may be incurred by the Owner
Trustee therein or thereby. The right of the Owner Trustee to perform any
discretionary act enumerated in this Agreement or in any Operative Document
shall not be construed as a duty, and the Owner Trustee shall not be answerable
for other than its negligence or willful misconduct in the performance of any
such act;
(h) The Owner Trustee shall have no responsibility for filing
any financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare, execute or file any Securities and
Exchange Commission filing or tax return for the Trust or to record this
Agreement or any Operative Document.
SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish
(a) to the Certificateholders, promptly upon receipt of a written request
therefor, duplicate or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Operative Documents, and (b) to the Note Insurer, copies
of any reports, notices, requests, demands, certificates, financial statements,
and any other instruments relating to the Trust, the Certificates or the Notes
in the possession of the Owner Trustee, that the Note Insurer shall request in
writing.
SECTION 7.3 Representations and Warranties of Owner Trustee.
______________________________ hereby represents and warrants to the Depositor,
for the benefit of the Certificateholders and the Note Insurer, that:
(a) It is a banking corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
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(b) It has full power, authority and legal right to execute,
deliver and perform its obligations under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Agreement.
(c) The execution, delivery and performance by it of this
Agreement (i) shall not violate any provision of any law or regulation governing
the banking and trust powers of the __________________________ or any order,
writ, judgment or decree of any court, arbitrator or governmental authority
applicable to the ________________________ or any of its assets, (ii) shall not
violate any provision of the corporate charter or by-laws of __________________
______________________, or (iii) shall not violate any provision of, or
constitute, with or without notice or lapse of time, a default under, or result
in the creation or imposition of any lien on any properties included in the
Trust pursuant to the provisions of any mortgage, indenture, contract, agreement
or other undertaking to which it is a party, which violation, default or lien
could reasonably be expected to have a materially adverse effect on
_______________________ performance or ability to perform its duties as Owner
Trustee under this Agreement or on the transactions contemplated in this
Agreement.
(d) This Agreement has been duly executed and delivered by
__________________________ and constitutes the legal, valid and binding
agreement of __________________________, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar law affecting the enforcement of creditors'
rights in general and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(e) _________________________ is not in default with respect
to any order or decree of any court or any order, regulation or demand of any
Federal, state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition (financial
or other) or operations of the ___________________ or its properties or might
have consequences that would materially adversely affect its performance
hereunder.
(f) No litigation is pending or, to the best of the
________________________ knowledge, threatened against the _____________________
which would prohibit its entering into this Trust Agreement or performing its
obligations under this Trust Agreement.
SECTION 7.4 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, note or other document or paper believed by
it to be genuine and believed by it to be signed by the proper party or parties.
The Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter, and such certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon.
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(b) In the exercise or administration of the Trust hereunder
and in the performance of its duties and obligations under this Agreement or the
Operative Documents, the Owner Trustee: (i) may act directly or through its
agents, attorneys, custodians or nominees, and the Owner Trustee shall not be
liable for the conduct or misconduct of such agents, attorneys, custodians or
nominees if such agents, attorneys, custodians or nominees shall have been
selected by the Owner Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
opinion or advice of any such counsel, accountants or other such Persons and not
contrary to this Agreement or any of the Operative Documents.
(c) In providing any certificates required of the Issuer
pursuant to the Indenture, the Owner Trustee may rely on an Officer's
Certificate of the Depositor in a form satisfactory to the Owner Trustee.
SECTION 7.5 Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Depositor, the Indenture Trustee,
the Servicer and the Seller in transactions in the same manner and with the same
rights as it would have if it were not the Owner Trustee.
SECTION 7.6 Licenses. The Owner Trustee shall cause the Trust to use
its best efforts to obtain and maintain the effectiveness of any licenses
required in connection with this Agreement and the Operative Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
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ARTICLE VIII
COMPENSATION AND INDEMNIFICATION OF OWNER TRUSTEE AND ITS AGENTS
SECTION 8.1 Owner Trustee's Fee and Expenses. The Owner Trustee shall
receive from the Depositor as compensation for its services hereunder such fees
as have been separately agreed upon before the date hereof between the Depositor
and the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed
by the Depositor for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents, custodians,
nominees, representatives, experts and counsel as the Owner Trustee may employ
in connection with the exercise and performance of its rights and its duties
hereunder.
SECTION 8.2 Indemnification of the Owner Trustee. The Depositor shall
be liable as primary obligor and the Seller shall be liable as secondary obligor
pursuant to the Sale and Servicing Agreement for, and shall indemnify the Owner
Trustee and its successors, assigns, agents and servants (collectively, the
"Indemnified Parties") from and against, any and all liabilities, obligations,
losses, damages, taxes, claims, actions and suits, and any and all reasonable
costs, expenses and disbursements (including reasonable legal fees and expenses)
of any kind and nature whatsoever (collectively, "Expenses") which may at any
time be imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Operative Documents, the Owner Trust Estate, the administration of the Trust or
the action or inaction of the Owner Trustee hereunder, provided that:
(i) the Depositor shall not be liable for or required to
indemnify an Indemnified Party from and against Expenses arising or resulting
from the Owner Trustee's willful misconduct, gross negligence or bad faith, as
specified in the fourth sentence of Section 7.1 or as a result of any inaccuracy
of a representation or warranty contained in Section 7.3 expressly made by the
Owner Trustee;
(ii) with respect to any such claim, the Indemnified Party
shall have given the Seller written notice thereof promptly after the
Indemnified Party shall have actual knowledge thereof;
(iii) while maintaining control over its own defense, the
Seller shall consult with the Indemnified Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Seller shall not be liable for settlement of any claim by an
Indemnified Party entered into without the prior consent of the Seller which
consent shall not be unreasonably withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Agreement. In the
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section 8.2, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection with
the execution and delivery of this Agreement, shall be subject to the approval
of the Seller, which approval shall not be unreasonably withheld. In addition,
upon written notice to the Owner Trustee and with the consent of the Owner
Trustee which consent shall not be unreasonably withheld, the
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Seller has the right to assume the defense of any claim, action or proceeding
against the Owner Trustee.
SECTION 8.3 Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
SECTION 8.4 Indemnification of the Certificate Registrar and Trust
Paying Agent.
(a) Neither the Certificate Registrar, the Trust Paying Agent nor any
of their respective directors, officers, agents or employees, shall be liable
for any action taken or omitted to be taken by it or them hereunder or in
connection herewith in good faith and believed by it or them to be within the
purview of this Agreement, except for its or their own gross negligence, lack of
good faith or willful misconduct. In no event shall the Certificate Registrar,
the Trust Paying Agent nor any of their respective directors, officers, agents
and employees be held liable for any special, indirect or consequential damages
resulting from any action taken or omitted to be taken by it or them hereunder
or in connection herewith even if advised of the possibility of such damages.
(b) The Depositor agrees to indemnify and hold the Certificate
Registrar, the Trust Paying Agent and their respective directors, officers,
agents and employees (each, an "Indemnified Party") harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
reasonably attorney's fees, that may be imposed on, incurred by, or asserted
against such Indemnified Party in any action taken or not taken by such
Indemnified Party hereunder unless such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
were imposed on, incurred by or asserted against such Indemnified Party because
of the breach by such Indemnified Party of its obligations hereunder, which
breach was caused by gross negligence, lack of good faith or willful misconduct
on the part of such Indemnified Party. The foregoing indemnification shall
survive any termination of this Agreement and the resignation or removal of the
Certificate Registrar or Trust Paying Agent.
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust
shall terminate and be of no further force or effect on the earlier of: (i) the
final distribution by the Indenture Trustee of all moneys or other property or
proceeds of the assets of the Trust in accordance with the terms of the
Indenture and (ii) the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy (the late ambassador of the
United States to the Court of St. James's). The bankruptcy, liquidation,
dissolution, death or incapacity of any Certificateholder shall not (x) operate
to terminate this Agreement or the Trust, nor (y) entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or the Owner Trust Estate or (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) The Certificates shall be subject to an early redemption
or termination at the option of the Holders of a majority of the Certificates,
and in certain instances the Note Insurer, in the manner and subject to the
provisions of Section 5.02 of the Sale and Servicing Agreement.
(c) Except as provided in paragraphs (a) and (b) of this
Section 9.1, none of the Depositor, the Seller, the Servicer, the Note Insurer
or any Certificateholder shall be entitled to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the
Payment Date upon which the Certificateholders shall surrender their
Certificates to the Owner Trustee for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to the Note Insurer,
the Rating Agencies and the Trust Paying Agent mailed within five Business Days
of receipt of notice of such termination, stating: (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Owner
Trustee therein designated; (ii) the amount of any such final payment; and (iii)
that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Owner Trustee therein specified. The Owner
Trustee shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Trust Paying Agent at the time such notice is given to
Certificateholders. The Owner Trustee will give notice to the Trust Paying Agent
of each presentation and surrender of the Certificates and the Trust Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.03 of the Sale and Servicing
Agreement.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(d) of the Business Trust Statute.
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ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers;
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a rating of at least "Baa3" by Moody's and "A-1" by
Standard & Poor's and being acceptable to the Note Insurer. If such corporation
shall publish reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Owner Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 10.2.
SECTION 10.2 Resignation or Removal of Owner Trustee. The Owner Trustee
may at any time resign and be discharged from the trusts hereby created by
giving 30 days prior written notice thereof to the Depositor, the Seller, the
Indenture Trustee and the Note Insurer. Upon receiving such notice of
resignation, the Depositor shall promptly appoint a successor Owner Trustee
(acceptable to the Note Insurer) by written instrument, in duplicate, one copy
of which instrument shall be delivered to the resigning Owner Trustee and one
copy to the successor Owner Trustee. If no successor Owner Trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Owner Trustee or the Note Insurer
may petition any court of competent jurisdiction for the appointment of a
successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Indenture Trustee, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Note Insurer, or the Indenture Trustee
with the consent of the Note Insurer, may remove the Owner Trustee. If the
Indenture Trustee or the Note Insurer shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Note Insurer, or the Seller
with the consent of the Note Insurer, shall promptly appoint a successor Owner
Trustee by written instrument in duplicate, one copy of which instrument shall
be delivered to the outgoing Owner Trustee so removed and one copy to the
successor Owner Trustee and payment of all fees owed to the outgoing Owner
Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3, written approval by the Note Insurer and
payment of all fees and expenses owed to the outgoing Owner Trustee. The
Depositor shall provide notice of such resignation or removal of the Owner
Trustee to each of the Rating Agencies and the Note Insurer.
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SECTION 10.3 Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Depositor, the Indenture Trustee, the Note Insurer and to its predecessor Owner
Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee (if acceptable to the Note
Insurer), without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties, and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Depositor and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Depositor shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Indenture Trustee, the Owners, the Note
Insurer and the Rating Agencies. If the Depositor fails to mail such notice
within 10 days after acceptance of appointment by the successor Owner Trustee,
the successor Owner Trustee shall cause such notice to be mailed at the expense
of the Depositor.
SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, and without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto; provided, however, that the Owner Trustee shall mail notice
of such merger or consolidation to the Note Insurer and each of the Rating
Agencies.
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at
any time, for the purpose of meeting any legal requirement of any jurisdiction
in which any part of the Owner Trust Estate or any Property may at the time be
located, the Owner Trustee (with the consent of the Note Insurer) shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and the Note Insurer to act as co-trustee,
jointly with the Owner Trustee, or as separate trustee or trustees, of all or
any part of the assets of the Trust, and to vest in such Person, in such
capacity, such title to the Trust, or any part thereof, and, subject to the
other provisions of this Section, such powers, duties, obligations, rights and
trusts as the Note Insurer and the Owner Trustee may consider necessary or
desirable. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
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(b) Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred
upon and exercised or performed by the Owner Trustee, and such
separate trustee or co-trustee jointly (it being understood
that such separate trustee or co-trustee is not authorized to
act separately without the Owner Trustee joining in such act),
except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed, the
Owner Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be
personally liable by reason of any act or omission of any
other trustee under this Agreement; and
(iii) the Owner Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Owner
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Note Insurer.
(d) Any separate trustee or co-trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
33
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Amendments Without Consent of Certificateholders or Owners
of the Notes. This Agreement may be amended by the Depositor, and the Owner
Trustee without the consent of any of the Certificateholders (but with the prior
written consent of the Note Insurer and prior notice to each of the Rating
Agencies), to (i) cure any ambiguity, (ii) correct or supplement any provision
in this Agreement that may be defective or inconsistent with any other provision
in this Agreement, (iii) add or supplement any credit enhancement for the
benefit of the Owners of the Notes or the Certificateholders, (iv) add to the
covenants, restrictions or obligations of the Depositor or the Owner Trustee and
(v) add, change or eliminate any other provision of this Agreement in any manner
that shall not, adversely affect in any material respect the interests of the
Owners of the Notes or the Certificateholders. An amendment described above
shall be deemed not to adversely affect in any material respect the interests of
any Certificateholder or Owner of a Note if (i) an opinion of counsel is
obtained to such effect or (ii) the party requesting the amendment satisfies the
Rating Agency Condition with respect to such amendment.
SECTION 11.2 Amendments With Consent of Certificateholders. This
Agreement may be amended from time to time by the Depositor, and the Owner
Trustee with the consent of the Note Insurer and more than a majority in
Percentage Interests of the Certificates for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Mortgage Loans or distributions that shall be made
for the benefit of the Certificateholders or (b) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of the Holders of
all of the Certificates then outstanding.
SECTION 11.3 Form of Amendments.
(a) Promptly after the execution of any amendment, supplement
or consent pursuant to Section 11.1 or 11.2, the Owner Trustee shall furnish
written notification of the substance of such amendment or consent to each
Certificateholder, the Indenture Trustee, the Note Insurer and each Rating
Agency.
(b) It shall not be necessary for the consent of the
Certificateholders, pursuant to Section 11.2 to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Certificateholders provided for in this Agreement or in
any other Operative Document) and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
(c) Promptly after the execution of any amendment to the
Certificate of Trust, the Owner Trustee shall cause the filing of such amendment
with the Secretary of State.
34
<PAGE>
(d) Prior to the execution of any amendment to this Agreement
or the Certificate of Trust, the Owner Trustee shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.4 No Legal Title to Owner Trust Estate. The
Certificateholders shall not have legal title to any part of the assets of the
Owner Trust Estate solely by virtue of their status as Certificateholders. The
Certificateholders shall be entitled to receive distributions with respect to
their undivided ownership interest therein only in accordance with Articles V
and IX. No transfer, by operation of law or otherwise, of any right, title, and
interest of the Certificateholders to and in their ownership interest in the
assets of the Trust shall operate to terminate this Agreement or the trusts
hereunder or entitle any transferee to an accounting or to the transfer to it of
legal title to any part of the assets of the Trust.
SECTION 11.5 Limitations on Rights of Others. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Note Insurer,
the Owner Trustee, the Depositor, the Certificateholders and, to the extent
expressly provided herein, the Indenture Trustee and the Owners of the Notes,
and nothing in this Agreement (other than Section 2.7), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the assets of the Trust or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 11.6 Notices.
(a) All demands, notices and communications hereunder shall be
in writing and shall be deemed to have been duly given if personally delivered
at or mailed by overnight mail, certified mail or registered mail, postage
prepaid, to (i) in the case of the Seller, AMRESCO Residential Capital Markets,
Inc., 700 N. Pearl Street, Suite 2400, Dallas, Texas 75201-7424, or such other
addresses as may hereafter be furnished to the Certificateholders in writing by
the Seller, (ii) in the case of the Servicer, ________________, ____________,
___________, or such other addresses as may hereafter be furnished to the
Certificateholders in writing by the Servicer, (iii) in the case of the
Depositor, AMRESCO Residential Securities Corporation, 700 N. Pearl Street,
Suite 2400, Dallas, Texas 75201-7424, or such other addresses as may hereafter
be furnished to the Certificateholders in writing by the Depositor, (iv) in the
case of the Owner Trustee, ___________ _______________________________,
_____________________, (v) in the case of the Certificateholders, as set forth
in the Certificate Register, (vi) in the case of the Indenture Trustee,
_________________________________________________________________________, (vii)
in the case of Moody's, 99 Church Street, New York, New York 10007, Attention:
Home Equity Monitoring Group, (viii) in the case of Standard & Poor's, 25
Broadway, New York, New York 10004, Attention: Residential Mortgage Group, and
(ix) in the case of the Note Insurer,
______________________________________________________, _______________________.
Any such notices shall be deemed to be effective with respect to any party
hereto upon the receipt of such notice by such party, except that notices to the
Certificateholders shall be effective upon mailing or personal delivery.
35
<PAGE>
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.7 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 11.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
SECTION 11.9 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Owner Trustee, the Note Insurer and each Certificateholder and
their respective successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by a
Certificateholder shall bind the successors and assigns of such
Certificateholder.
SECTION 11.10 No Petition Covenant. Notwithstanding any prior
termination of this Agreement, the Trust (or the Owner Trustee on behalf of the
Trust), the Depositor, each Certificateholder and the Indenture Trustee shall
not acquiesce, petition or otherwise invoke or cause the Trust to invoke the
process of any court or governmental authority for the purpose of commencing or
sustaining a case against the Depositor or the Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Depositor or the Trust or any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Depositor or the Trust.
SECTION 11.11 No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Seller, the Servicer, the Owner Trustee, the
Indenture Trustee or any affiliate thereof and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Certificates or the Operative Documents.
SECTION 11.12 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.13 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
36
<PAGE>
SECTION 11.14 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
SECTION 11.15 Third-Party Beneficiary. The parties hereto acknowledge
that the Note Insurer is an express third party beneficiary hereof entitled to
enforce the provisions hereunder as if it were actually a party hereto. Nothing
in this section, however, shall be construed to mitigate in any way, the
fiduciary responsibilities of the Owner Trustee to the Certificateholders nor to
create a fiduciary responsibility of the Owner Trustee to the Note Insurer.
SECTION 11.16 Suspension and Termination of Note Insurer's Rights.
During the continuation of a Note Insurer Default, rights granted or reserved to
the Note Insurer hereunder shall vest instead in the Certificateholders;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement of the Note Insurer Reimbursement Amount, and the Note Insurer
shall retain those rights under Section 11.1 to consent to any amendment of this
Agreement.
At such time as either (i) the Note Principal Balance has been
reduced to zero or (ii) the Insurance Policy has been terminated and in either
case of (i) or (ii) the Note Insurer has been reimbursed for all Insured
Payments and any other amounts owed under the Insurance Policy and the Insurance
Agreement (and the Note Insurer no longer has any obligation under the Insurance
Policy, except for breach thereof by the Note Insurer), then the rights and
benefits granted or reserved to the Note Insurer hereunder (including the rights
to direct certain actions and receive certain notices) shall terminate and the
Certificateholders shall be entitled to the exercise of such rights and to
receive such benefits of the Note Insurer following such termination to the
extent that such rights and benefits are applicable to the Certificateholders.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
________________________________,
as Owner Trustee
By:_____________________________
Name:
Title:
AMRESCO RESIDENTIAL SECURITIES
CORPORATION,
as Depositor
By:_____________________________
Name:
Title:
Acknowledged and Accepted:
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.,
as Seller
By:_____________________________
Name:
Title:
________________________________,
as Trust Paying Agent and
Certificate Registrar
By:_____________________________
Name:
Title:
________________________________,
as Servicer
By:_____________________________
Name:
Title:
38
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
THIS Certificate of Trust of AMRESCO Residential Securities Corporation
Mortgage Loan Owner Trust 199__-__ (the "Trust") dated as of ________________,
is being duly executed and filed by ________________________, a Delaware banking
corporation, as trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. Code, ss.3801 et seq.).
1. Name. The name of the business trust formed hereby is AMRESCO Residential
Securities Corporation Mortgage Loan Owner Trust 199__-__.
2. Delaware Trustee. The name and business address of the trustee of the Trust
in the State of Delaware is ______________________, ___________________________,
___________, ______________________, ______________________________.
3. This Certificate of Trust shall be effective as of its filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has
executed this Certificate of Trust as of the date first above written.
__________________________________,
not in its individual capacity
but solely as Owner Trustee
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT B-1
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE)
THE EQUITY INTEREST IN THE TRUST REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OR (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN
THE MEANING OF RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING BUT NOT LIMITED TO, AMRESCO RESIDENTIAL SECURITIES CORPORATION AND
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.) IN A TRANSACTION THAT IS REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO
REGISTER THIS CERTIFICATE UNDER THE ACT OR ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN SHALL BE MADE
TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED EITHER
(A) A CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT
SUCH TRANSFEREE (1) IS NOT AN "EMPLOYEE BENEFIT PLAN"
WITHIN THE MEANING OF SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR A "PLAN" WITHIN THE MEANING OF SECTION
4975(e)(1) OF THE CODE (ANY SUCH PLAN OR EMPLOYEE BENEFIT
PLAN, A "PLAN") AND IS NOT DIRECTLY OR INDIRECTLY
PURCHASING SUCH CERTIFICATE ON BEHALF OF, AS INVESTMENT
MANAGER OF, AS NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH
ASSETS OF A PLAN, OR (2) EITHER (I) SUCH TRANSFEREE IS
ACQUIRING THE CERTIFICATE FOR ITS OWN ACCOUNT AND NO
PART OF THE ASSETS USED TO ACQUIRE THE CERTIFICATE
CONSTITUTES ASSETS OF A PLAN, OR (II) THE SOURCE OF FUNDS TO
BE USED TO ACQUIRE SUCH CERTIFICATE IS AN "INSURANCE
COMPANY GENERAL ACCOUNT," WITHIN THE MEANING OF
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, 60 FED. REG.
35925 (JULY 12, 1995) (THE "EXEMPTION"), AND THERE IS NO PLAN
<PAGE>
WITH RESPECT TO WHICH THE AMOUNT OF SUCH GENERAL ACCOUNT'S
RESERVES FOR THE CONTRACT(S) HELD BY OR ON BEHALF OF SUCH PLAN
(DETERMINED UNDER SECTION 807(d) OF THE CODE), TOGETHER WITH
THE AMOUNT OF THE RESERVES OF THE CONTRACT(S) HELD BY OR ON
BEHALF OF ANY OTHER PLANS (DETERMINED UNDER SECTION 807(d) OF
THE CODE) MAINTAINED BY THE SAME EMPLOYER (OR AN AFFILIATE
THEREOF AS DEFINED IN SECTION V(a)(1) OF THE EXEMPTION) OR BY
THE SAME EMPLOYEE ORGANIZATION, EXCEED 10% OF THE TOTAL OF ALL
LIABILITIES OF SUCH GENERAL ACCOUNT; OR
(B) AN OPINION OF COUNSEL ACCEPTABLE TO SUCH PERSONS THAT (A)
THE PROPOSED ISSUANCE OR TRANSFER OF THE CERTIFICATE TO
SUCH TRANSFEREE WILL NOT CAUSE ANY ASSETS OF THE TRUST
TO BE DEEMED ASSETS OF A PLAN, OR (B) THE PROPOSED ISSUANCE
OR TRANSFER OF THE CERTIFICATE WILL NOT CAUSE THE OWNER
TRUSTEE OR THE CERTIFICATE REGISTRAR OR ANY OF THEIR
RESPECTIVE SUCCESSORS TO BE A FIDUCIARY OF A PLAN WITHIN
THE MEANING OF SECTION 3(21) OF ERISA AND WILL NOT GIVE RISE
TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR
SECTION 4975(c)(1) OF THE CODE FOR WHICH A STATUTORY OR
ADMINISTRATIVE EXEMPTION IS UNAVAILABLE.
THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS,
PRIOR TO SUCH DISPOSITION, THE PROPOSED TRANSFEREE DELIVERS TO THE OWNER TRUSTEE
AND THE CERTIFICATE REGISTRAR A CERTIFICATE STATING THAT SUCH TRANSFEREE (A)
AGREES TO BE BOUND BY AND TO ABIDE BY THE TRANSFER RESTRICTIONS APPLICABLE TO
THIS CERTIFICATE; (B) IS NOT AN ENTITY THAT WILL HOLD THIS CERTIFICATE AS
NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF SUCH SECURITY THROUGH
ELECTRONIC BOOK ENTRY CHANGES IN ACCOUNTS OF PARTICIPATING ORGANIZATIONS (A
"BOOK ENTRY NOMINEE") AND (C) THAT THIS CERTIFICATE MAY NOT BE PURCHASED BY OR
TRANSFERRED TO ANY PERSON THAT IS A NON-U.S. PERSON. THE TERM "NON-U.S. PERSON"
MEANS A PERSON WHO IS NOT ONE OF THE FOLLOWING: 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 OR ANY POLITICAL SUBDIVISION THEREOF,
AN ESTATE THAT IS SUBJECT TO U.S. FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF
ITS INCOME OR A TRUST IF (I) A COURT IN THE UNITED STATES IS ABLE TO EXERCISE
PRIMARY SUPERVISION OVER THE ADMINISTRATION OF THE TRUST AND (II) ONE OR MORE
UNITED STATES FIDUCIARIES HAVE THE AUTHORITY TO CONTROL ALL SUBSTANTIAL
DECISIONS OF THE TRUST.
B-1-2
<PAGE>
AMRESCO RESIDENTIAL SECURITIES CORPORATION
MORTGAGE LOAN OWNER TRUST 199__-__
CERTIFICATE
No. 0001
THIS CERTIFIES THAT AMRESCO Residential Capital Markets, Inc. (the
"Owner") is the registered owner of a 100% Percentage Interest in AMRESCO
Residential Securities Corporation Mortgage Loan Owner Trust 199__-__ (the
"Trust") existing under the laws of the State of Delaware and created pursuant
to the Trust Agreement, dated as of ________________ (the "Trust Agreement"),
between AMRESCO Residential Securities Corporation, as Depositor, and
________________________, in its individual capacity and in its fiduciary
capacity as owner trustee under the Trust Agreement (the "Owner Trustee").
Capitalized terms used but not otherwise defined herein have the meanings
assigned to such terms in the Trust Agreement. The Owner Trustee, on behalf of
the Issuer and not in its individual capacity, has executed this Certificate by
one of its duly authorized signatories as set forth below. This Certificate is
one of the Certificates referred to in the Trust Agreement and is issued under
and is subject to the terms, provisions and conditions of the Trust Agreement to
which the holder of this Certificate by virtue of the acceptance hereof agrees
and by which the holder hereof is bound. Reference is hereby made to the Trust
Agreement for the rights of the holder of this Certificate, as well as for the
terms and conditions of the Trust created by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Certificate except in accordance with terms and provisions of the Agreement.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
AMRESCO RESIDENTIAL SECURITIES
CORPORATION MORTGAGE LOAN OWNER TRUST
199__-__
By: _______________________________, not
in its individual capacity but solely
as Owner Trustee under the Trust
Agreement
By: ____________________________________
Authorized Signatory
DATED: ___________________
B-1-3
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Agreement.
______________________________,
as Certificate Registrar
______________________________
Authorized Signatory
B-1-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing ____________________________________________________
Attorney to transfer said Instrument on the books of the Certificate Registrar,
with full power of substitution in the premises.
Dated: _____________________
_____________________________*/
Signature Guaranteed:
_____________________________*/
NOTICE: The signature to this assignment must correspond with the name
as it appears upon the face of the within Instrument in every
particular, without alteration, enlargement or any change
whatever. Such signature must be guaranteed by a member firm
of the New York Stock Exchange or a commercial bank or trust
company.
B-1-5
Exhibit 99.1
Subject to Completion, Dated ________________, 1998 CERTIFICATES -
PROSPECTUS SUPPLEMENT BOND INSURANCE
(To Prospectus Dated _________, 1998)
$-----------
AMRESCO Residential Securities Corporation Mortgage Loan Trust 199__-__
$___________ Class A-1 Adjustable Rate Certificates
$___________ _____% Class A-2 Certificates
$___________ _____% Class A-3 Certificates
$___________ _____% Class A-4 Certificates
$___________ _____% Class A-5 Certificates
$___________ _____% Class A-6 Certificates
$___________ _____% Class A-7 Certificates*
$___________ Class A-8 Adjustable Rate Certificates
----------
-------------------------
Servicers
AMRESCO RESIDENTIAL SECURITIES CORPORATION
Depositor
----------
LOGO
AMRESCO
AMRESCO Residential Securities Corporation
The AMRESCO Residential Securities Corporation Mortgage Loan
Pass-Through Certificates, Series 199__-__ (the "Certificates") will consist of
(i) the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates,
Class A-4 Certificates, Class A-5 Certificates, Class A-6 Certificates and Class
A-7 Certificates (collectively, the "Fixed Rate Group Certificates"), (ii) the
Class A-8 Certificates (the "Adjustable Rate Group Certificates"); and together
with the Fixed Rate Group Certificates, the "Class A Certificates"), (iii) one
or more classes of subordinate interest-only Certificates and (iv) a residual
class (the "Class R Certificates"; and together with such other subordinate
Certificates, the "Subordinate Certificates"). Only the Class A Certificates are
offered hereby.
[Surety Name]
On or before the issuance of the Certificates, the Depositor will
obtain from [Surety Name] (the "Certificate Insurer") two financial guaranty
insurance policies relating to the Class A Certificates (the "Certificate
Insurance Policies") in favor of the Trustee. The Certificate Insurance Policies
will in accordance with their respective terms provide for 100% coverage of the
scheduled principal amount of, and scheduled interest due on, the Class A
Certificates.
The Certificates represent undivided ownership interests in one of two
pools (each, a "Mortgage Loan Group") of fixed and adjustable rate mortgage
loans (the "Mortgage Loans") held by AMRESCO Residential Securities Corporation
Mortgage Loan Trust 199__-__ (the "Trust"). The Fixed Rate Group Certificates
will represent undivided ownership interests in the Mortgage Loans in Group I
(the "Fixed Rate Loans and the 5/25 Loans [each defined herein]) and the
Pre-Funding Account (as defined herein) solely. The Adjustable Rate Group
Certificates will represent undivided ownership interests in the Mortgage Loans
in Group II (the Six-Month LIBOR Loans, the 2/28 Loans and the 3/27 Loans (each
as defined herein)) and the Pre-Funding Account solely. All of the Mortgage
Loans are secured solely by first lien mortgages or deeds of trust. The Class A
Certificates also represent an undivided ownership interest in all monies due
under the respective Mortgage Loans after __________, 199__ (the "Cut-Off
Date"), security interests in the properties which secure the Mortgage Loans
(the "Mortgaged Properties"), the financial guaranty insurance policies, funds
on deposit in certain trust accounts, and certain other property.
For a discussion of significant matters affecting investment in the
Certificates, see "Risk Factors" beginning on page S-__ and "Prepayment and
Yield Considerations" beginning on page S-__ herein and "Risk Factors" beginning
on page __ in the Prospectus.
(Cover continued on next page)
----------
THE CLASS A CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SELLER, THE
SERVICERS, THE TRUSTEE OR ANY OF THEIR AFFILIATES. NEITHER THE CLASS A
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
The Class A Certificates will be purchased by the Underwriters from the
Depositor and will be offered by the Underwriters from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Class A Certificates will be approximately $__________, plus accrued interest on
the Fixed Rate Group Certificates (except the Class A-1 Certificates) at the
applicable Pass-Through Rate from __________, 199__ to, but not including, the
Closing Date, before deducting expenses payable by the Depositor estimated to be
2approximately $________.
The Class A Certificates are offered subject to prior sale, when, as,
and if accepted by the Underwriters and subject to the Underwriters' right to
reject orders in whole or in part. It is expected that delivery of the Class A
Certificates will be made in book-entry form through the facilities of The
Depository Trust Company ("DTC"), CEDEL S.A. and the Euroclear System on or
about __________, 199__. The Class A Certificates will be offered in Europe and
the United States of America.
- --------
* The Class A-7 Certificate's Pass-Through Rate is subject to adjustment after
the Clean-Up Call Date, as described in the Summary of Terms herein.
[UNDERWRITER]
[UNDERWRITER]
[UNDERWRITER]
The date of this Prospectus Supplement is ___________, 199__
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
(Cover continued from previous page)
The Trust will be created pursuant to a Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement") to be dated as of __________, 199__,
among the Depositor, AMRESCO Capital Markets, Inc. as Seller (the "Seller"), the
Servicers and ___________, as Trustee (the "Trustee").
The Pooling and Servicing Agreement provides that additional Mortgage
Loans (the "Subsequent Mortgage Loans") may be purchased by the Trust from the
Depositor from time to time on or before __________, 199__ from funds on deposit
in the Pre-Funding Account. Each Subsequent Mortgage Loan so acquired by the
Trust will be assigned to one (and only one) of the Mortgage Loan Groups. On the
Closing Date aggregate cash amounts of approximately $__________ and $__________
will be deposited with the Trustee in the Pre-Funding Account to be used to
acquire Subsequent Mortgage Loans for Group I and Group II, respectively.
It is a condition to issuance of the Class A Certificates that the
Class A Certificates be rated "Aaa" by Moody's, "AAA" by Standard and Poor's and
"AAA" by Fitch.
Distributions of interest will be made to the Owners of the
Certificates on the 25th day of each month (or, if such day is not a business
day, the next business day) beginning __________, 199__. Interest will be passed
through on each Payment Date to the Owners of the Class A Certificates based on
the related Certificate Principal Balance (as defined herein), and at the rate
applicable to the related Class of the Class A Certificates (each, a
"Pass-Through Rate"). On any Payment Date on or prior to the Clean-Up Call Date
(as defined herein), the Pass-Through Rate for the Class A-7 Certificates is %
and, thereafter, will be the lesser of % and the weighted average of the Coupon
Rates of the Mortgage Loans in Group I, less %. The Pass-Through Rate for the
Class A-1 Certificates and the Class A-8 Certificates adjusts monthly based upon
One-Month LIBOR (as defined herein) or as otherwise described herein.
Distributions in reduction of the Certificate Principal Balances will be made on
each Payment Date in the manner and the amounts described herein. Distributions
on the Subordinate Certificates are subordinate to distributions on the Class A
Certificates to the extent described herein.
The yield to investors on the Class A Certificates sold at prices other
than par may be sensitive to the rate and timing of principal payments
(including prepayments, repurchases, defaults and liquidations) on the Mortgage
Loans in the related Group, which may vary over time. See "Prepayment and Yield
Considerations" herein and "Risk Factors" and "Yield, Prepayment and Maturity
Considerations" in the Prospectus.
An election will be made to treat certain assets of the Trust as a
"real estate mortgage investment conduit" (a "REMIC") for
federal income tax purposes. All of the Class A Certificates will constitute
"regular interests" in a REMIC. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
----------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE CLASS A CERTIFICATES, INCLUDING PURCHASES OF THE CLASS A CERTIFICATES TO
STABILIZE ITS MARKET PRICE AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING" IN THIS PROSPECTUS SUPPLEMENT.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Certificates offered by this Prospectus Supplement will be part of
a separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated , 1998, of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement under the Securities Act of 1933
with respect to the Certificates. This Prospectus Supplement and the related
Prospectus, which form a part of the Registration Statement, omit certain
information contained in such Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement can be inspected and
copied at the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C., and the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and electronically
through the Commission's Electronic Data Gathering Analysis and Retrieval system
at the Commission's Web Site (http:\\www.sec.gov).
REPORTS TO OWNERS
Monthly and annual reports concerning the Certificates and the Trust
will be sent by the Trustee to the Owners of Class A Certificates. So long as
any Class A Certificate is in book-entry form, such reports will be sent to Cede
& Co., as the nominee of DTC and as Owner of such Class A Certificates pursuant
to the Pooling and Servicing Agreement. DTC will supply such reports to Owners
of any such Class A Certificates in accordance with its procedures. The
Depositor will file or cause to be filed with the Commission such periodic
reports with respect to the Trust as are required under the Securities Exchange
Act of 1934 and the rules and regulations of the Commission thereunder. It is
the Depositor's intent to suspend the filing of such reports as soon as such
reports are no longer statutorily required.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
------
<S> <C>
SUMMARY OF TERMS...................................................................S-1
RISK FACTORS.......................................................................S-15
THE PORTFOLIO OF MORTGAGE LOANS....................................................S-19
General.......................................................................S-19
Underwriting Guidelines.......................................................S-19
Prepayment Penalties..........................................................S-23
Representations Relating to the Mortgage Loans................................S-23
The Servicers.................................................................S-24
USE OF PROCEEDS....................................................................S-24
THE DEPOSITOR......................................................................S-24
THE SELLER.........................................................................S-24
THE MORTGAGE LOAN POOLS............................................................S-25
General.......................................................................S-25
Initial Mortgage Loans -- Group I.............................................S-25
Initial Mortgage Loans -- Group II............................................S-30
Conveyance of Subsequent Mortgage Loans.......................................S-36
PREPAYMENT AND YIELD CONSIDERATIONS................................................S-36
General.......................................................................S-36
Mandatory Prepayment..........................................................S-38
Projected Prepayment and Yield for Class A Certificates.......................S-38
Payment Lag Feature of Certain Fixed Rate Group Certificates..................S-43
THE ORIGINATORS....................................................................S-43
FORMATION OF THE TRUST AND TRUST PROPERTY..........................................S-43
ADDITIONAL INFORMATION.............................................................S-44
DESCRIPTION OF THE CLASS A CERTIFICATES............................................S-44
General.......................................................................S-44
Payment Dates.................................................................S-44
Distributions.................................................................S-45
Overcollateralization Provisions..............................................S-47
Crosscollateralization Provisions.............................................S-49
Pre-Funding Account...........................................................S-49
Capitalized Interest Account..................................................S-49
Calculation of One-Month LIBOR................................................S-50
Book Entry Registration of the Class A Certificates...........................S-50
Assignment of Rights..........................................................S-53
THE CERTIFICATE INSURANCE POLICIES AND THE
CERTIFICATE INSURER..........................................................S-53
THE POOLING AND SERVICING AGREEMENT................................................S-57
Covenant of the Seller to Take Certain Actions with Respect
to the Mortgage Loans in Certain Situations..............................S-57
Assignment of Mortgage Loans..................................................S-57
Servicing.....................................................................S-59
Removal and Resignation of a Servicer.........................................S-63
Reporting Requirements........................................................S-63
Removal of Trustee for Cause..................................................S-65
Governing Law.................................................................S-65
Amendments....................................................................S-65
Termination of the Trust......................................................S-65
Auction Sale; Step Up on Certain Pass-Through Rates;
Termination...............................................................S-66
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................S-66
REMIC Election................................................................S-66
ERISA CONSIDERATIONS...............................................................S-67
RATINGS............................................................................S-68
LEGAL INVESTMENT CONSIDERATIONS....................................................S-69
UNDERWRITING.......................................................................S-69
REPORT OF EXPERTS..................................................................S-71
CERTAIN LEGAL MATTERS..............................................................S-71
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES......................................................Annex I
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS........................................A-1
AUDITED FINANCIAL STATEMENTS FOR
THE CERTIFICATE INSURER...........................................................B-1
UNAUDITED FINANCIAL STATEMENTS FOR THE
CERTIFICATE INSURER...........................................................C-1
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF PROSPECTUS........................................................... 1
RISK FACTORS.................................................................... 7
DESCRIPTION OF THE CERTIFICATES................................................. 10
General.................................................................... 11
Classes of Certificates.................................................... 11
Distributions of Principal and Interest.................................... 13
Book Entry Registration.................................................... 14
List of Owners of Certificates............................................. 14
THE TRUSTS...................................................................... 15
Mortgage Loans............................................................. 15
Contracts.................................................................. 17
Mortgage-Backed Securities................................................. 17
Other Mortgage Securities.................................................. 17
CREDIT ENHANCEMENT.............................................................. 18
SERVICING OF MORTGAGE LOANS AND CONTRACTS....................................... 22
Payments on Mortgage Loans................................................. 23
Advances................................................................... 23
Collection and Other Servicing Procedures.................................. 23
Primary Mortgage Insurance................................................. 25
Standard Hazard Insurance.................................................. 25
Title Insurance Policies................................................... 27
Claims Under Primary Mortgage Insurance Policies and Standard Hazard
Insurance Policies; Other Realization Upon Defaulted Loan.............. 27
Servicing Compensation and Payment of Expenses............................. 27
Master Servicer............................................................ 28
ADMINISTRATION.................................................................. 28
Assignment of Mortgage Assets.............................................. 28
Evidence as to Compliance.................................................. 31
The Trustee................................................................ 31
Administration of the Certificate Account.................................. 31
Reports.................................................................... 32
Forward Commitments; Pre-Funding........................................... 33
Servicer Events of Default................................................. 33
Rights Upon Servicer Event of Default...................................... 33
Amendment.................................................................. 34
Termination................................................................ 34
USE OF PROCEEDS................................................................. 35
THE DEPOSITOR................................................................... 35
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS.................................... 35
General.................................................................... 35
Foreclosure................................................................ 36
Soldiers' and Sailors' Civil Relief Act.................................... 41
The Contracts.............................................................. 41
The Title I Program........................................................ 44
LEGAL INVESTMENT MATTERS........................................................ 44
ERISA CONSIDERATIONS............................................................ 45
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................... 47
Federal Income Tax Consequences For REMIC Certificates..................... 47
Taxation of Regular Certificates........................................... 48
Taxation of Residual Certificates.......................................... 54
Treatment of Certain Items of REMIC Income and Expense..................... 56
Tax-Related Restrictions on Transfer of Residual Certificates.............. 58
Sale or Exchange of a Residual Certificate................................. 60
Taxes That May Be Imposed on the REMIC Pool................................ 60
Liquidation of the REMIC Pool.............................................. 61
Administrative Matters..................................................... 61
Limitations on Deduction of Certain Expenses............................... 61
Taxation of Certain Foreign Investors...................................... 62
Backup Withholding......................................................... 63
Reporting Requirements..................................................... 63
Federal Income Tax Consequences for Certificates as to Which
No REMIC Election Is Made.............................................. 63
Standard Certificates.......................................................63
Premium and Discount....................................................... 65
Stripped Certificates...................................................... 66
Reporting Requirements and Backup Withholding.............................. 69
Taxation of Certain Foreign Investors...................................... 69
Taxation of Securities Classified as Partnership Interests................. 69
PLAN OF DISTRIBUTION............................................................ 70
LEGAL MATTERS................................................................... 70
FINANCIAL INFORMATION........................................................... 70
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS....................................A-1
</TABLE>
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Index to Location of Principal
Defined Terms for the location of certain capitalized terms.
Issuer: AMRESCO Residential Securities Corporation
Mortgage Loan Trust 199__-__ (the
"Trust").
Certificates Offered: $___________ Mortgage Loan Pass-Through
Certificates, Series 199__-__ to be issued
in the following Classes (each, a "Class"):
<TABLE>
<CAPTION>
Initial Certificate Pass-Through
Principal Balance Rate Class
------------------- ------------- -------
<S> <C> <C>
$___________ (1) Class A-1 Certificates
$___________ _____% Class A-2 Certificates
$___________ _____% Class A-3 Certificates
$___________ _____% Class A-4 Certificates
$___________ _____% Class A-5 Certificates
$___________ _____% Class A-6 Certificates
$___________ _____% (2) Class A-7 Certificates
$___________ (3) Class A-8 Certificates
</TABLE>
(1) On each Payment Date, the Class A-1
Pass-Through Rate will be equal to the
lesser of (i) the rate equal to the London
interbank offered rate for one-month United
States dollar deposits ("One-Month LIBOR")
(calculated as described under "Description
of the Class A Certificates -- Calculation
of One-Month LIBOR" herein) plus _____% per
annum and (ii) the weighted average of the
Coupon Rates on the Mortgage Loans in Group
I, less _____% per annum (the "Fixed Rate
Group Available Funds Cap"). The weighted
average of the Coupon Rates on the Mortgage
Loans in Group I as of the Cut-Off Date is
_____%.
(2) The Pass-Through Rate with respect to
the Class A-7 Certificates shall as of any
Payment Date after the Payment Date on which
the Outstanding Certificate Principal
Balance has declined to less than 10% of the
original Certificate Principal Balance
("Clean-Up Call Date") will be the lesser of
8.825% and the Fixed Rate Group Available
Funds Cap.
(3) On each Payment Date, the Class A-8
Pass-Through Rate will be equal to the
lesser of (i) with respect to any Payment
Date which occurs on or prior to the
Clean-Up Call Date, the rate equal to One-
Month LIBOR plus _____% per annum (and for
any Payment Date thereafter, One-Month LIBOR
plus _____% per annum), and (ii) the
weighted average of the Coupon Rates on the
Mortgage Loans in Group II, less _____% per
annum (the "Adjustable Rate Group Available
Funds Cap"). The weighted average of the
Coupon Rates on the Mortgage Loans in Group
II as of the Cut-Off Date is _____%.
The Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class
A- 4 Certificates, Class A-5 Certificates,
Class A-6 Certificates and Class A-7
Certificates are collectively referred to
herein as the "Fixed Rate Group
Certificates," and the Class A-8
Certificates are also referred to herein as
the "Adjustable Rate Group Certificates."
The Fixed Rate Group Certificates and the
Adjustable Rate Group Certificates are
collectively referred to as the "Class A
Certificates."
Depositor: AMRESCO Residential Securities Corporation
(the "Depositor"), a Delaware corporation.
Seller: AMRESCO Residential Capital Markets, Inc.
(the "Seller"), a Delaware corporation.
Servicers: [to be provided] (each a "Servicer" and
collectively, the "Servicers").
Trustee:
Custodian: ___________________________________
Cut-Off Date: As of the close of business on _____, 199__.
S-1
<PAGE>
Closing Date: On or about __________, 199__.
Description of
the Certificates: The Mortgage Loan Pass-Through Certificates
(the "Certificates") will consist of the
Class A Certificates, one or more classes of
subordinate interest-only Certificates and a
residual class (the "Class R Certificates"
and together with such other subordinate
Certificates, the "Subordinate
Certificates"). The Certificates will be
issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing
Agreement") to be dated as of __________,
199__, among the Depositor, the Seller, the
Servicers and the Trustee. Only the Class A
Certificates will be offered hereby.
On the Closing Date, an aggregate cash
amount of approximately $ (approximately
$__________ and $__________ of which shall
be allocated to Group I and Group II,
respectively) (the "Original Pre-Funded
Amount") will be deposited in a trust
account in the name of the Trustee (the
"Pre-Funding Account"). It is intended that
additional fixed rate and adjustable rate
Mortgage Loans satisfying the criteria
specified in the Pooling and Servicing
Agreement (the "Subsequent Mortgage Loans")
will be purchased by the Trust from the
Depositor from time to time on or before
__________, 199__ from funds on deposit in
the Pre-Funding Account. Each Subsequent
Mortgage Loan so acquired by the Trust will
be assigned to one (and only one) of the
Mortgage Loan Groups. As a result, the
aggregate principal balance of the Mortgage
Loans in each Group will increase by an
amount equal to the aggregate principal
balance of the related Subsequent Mortgage
Loans so purchased and the amount in the
Pre-Funding Account will decrease by the
same amount.
As described below, on the Closing Date,
cash will be deposited in the Capitalized
Interest Account (as defined herein) held by
the Trustee. Funds in the Capitalized
Interest Account will be applied by the
Trustee to cover shortfalls in interest
during the Funding Period (as described
under "Pre-Funding Account") on the
Certificates attributable to the provisions
allowing for purchase of Subsequent Mortgage
Loans.
Denominations: The Class A Certificates are issuable in
book entry form in minimum original
principal amounts of $1,000 and integral
multiples thereof.
The Mortgage Loans: Unless otherwise noted, all statistical
percentages in this Prospectus Supplement
are measured by the aggregate principal
balance of the Initial Mortgage Loans (the
"Original Aggregate Loan Balance") or of the
Initial Mortgage Loans in the applicable
Mortgage Loan Group, in each case as of the
Cut-Off Date. The statistical
characteristics of the Mortgage Loans will
vary upon the transfer into Group I and
Group II of Subsequent Mortgage Loans.
The mortgage loans to be conveyed to the
Trust by the Depositor on the Closing Date
(the "Initial Mortgage Loans") consist of
fixed and adjustable rate conventional
mortgage loans evidenced by promissory notes
(the "Notes") secured by first lien deeds of
trust, security deeds or mortgages (the
"Mortgages"), which are located in _____
states and the District of Columbia. The
properties securing the Initial Mortgage
Loans (the "Mortgaged Properties") consist
primarily of single-family residences (which
may be attached, detached, part of a
two-to-four family dwelling, a condominium
unit or a unit in a planned unit
development). The Mortgaged Properties may
be owner-occupied and non-owner occupied
investment properties. No Loan-to-Value
Ratio (based upon appraisals made at the
time of origination) exceeded 90% as of the
Cut-Off Date. The Initial Mortgage Loans are
not insured by either primary or pool
mortgage insurance policies; however,
certain distributions due to the Owners of
the Class A Certificates (the "Owners") are
insured by the Certificate Insurer pursuant
to the Certificate Insurance Policy. See
"Credit Enhancement" herein. The Mortgage
Loans are not guaranteed by the Seller or
any affiliate thereof.
S-2
<PAGE>
Group I. As of the Cut-Off Date, the average
Loan Balance of the Initial Mortgage Loans
in Group I was $___________; the interest
rates (the "Coupon Rates") of such Initial
Mortgage Loans ranged from _____% to _____%
per annum; the weighted average
Loan-to-Value Ratio of such Initial Mortgage
Loans was _____%; the weighted average
Coupon Rate of such Initial Mortgage Loans
was _____% per annum; and the weighted
average remaining term to maturity of such
Initial Mortgage Loans was _____ months. The
remaining terms to maturity as of the
Cut-Off Date of the Initial Mortgage Loans
in Group I ranged from _____ months to 360
months. The maximum Loan Balance of the
Initial Mortgage Loans in Group I as of the
Cut-Off Date was $___________. Initial
Mortgage Loans in Group I requiring
"balloon" payments represented not more than
_____% of the Original Aggregate Loan
Balance of the Initial Mortgage Loans in
Group I. No Initial Mortgage Loan in Group I
will mature later than June 1, 2026. As a
percentage of the Original Aggregate Loan
Balance of the Initial Mortgage Loans in
Group I, _____% were secured by mortgages on
single-family dwellings, _____% by mortgages
on two-to-four family dwellings, _____% by
mortgages on condominiums, _____% by
mortgages on planned unit developments,
_____% by mortgages on manufactured homes,
_____% by mortgages on townhouses and _____%
by mortgages on other dwellings.
_____% of the Initial Mortgage Loans in
Group I were originated by ________, and the
remaining Initial Mortgage Loans in Group I
were originated by__________. See "The
Initial Mortgage Loan Pools -- Initial
Mortgage Loans -- Group I" herein. All of
the Subsequent Mortgage Loans to be included
in Group I have been purchased by the Seller
from and identified for sale to the Trust.
_______% of the Initial Mortgage Loans in
Group I (the "Fixed Rate Loans") bear
interest at a fixed rate for the life of
such Initial Mortgage Loans. ______% of the
Initial Mortgage Loans in Group I (the "5/25
Loans") bear interest at a fixed rate for a
period of five years after origination and
thereafter have semiannual interest rate and
payment adjustments at frequencies and in
the same manner as the Six- Month LIBOR
Loans (defined below). The 5/25 Loans
generally are subject to a ______% periodic
rate adjustment cap and substantially all
have a lifetime reset cap of _____% to
_____%. The 5/25 Loans consist of Initial
Mortgage Loans aggregating $___________.
Group II. As of the Cut-Off Date, the
average Loan Balance of the Initial Mortgage
Loans in Group II was $___________; the
Coupon Rates of such Initial Mortgage Loans
ranged from _____% to _____% per annum; the
weighted average Loan-to-Value Ratio of such
Initial Mortgage Loans was _____%; the
weighted average Coupon Rate of such Initial
Mortgage Loans was _____% per annum; and the
weighted average remaining term to maturity
of such Initial Mortgage Loans was _____
months. The remaining terms to maturity as
of the Cut-Off Date of the Initial Mortgage
Loans in Group II ranged from _____ months
to _____ months. The maximum Loan Balance of
the Initial Mortgage Loans in Group II as of
the Cut-Off Date was $___________. None of
the Initial Mortgage Loans in Group II
contain "balloon" payments. No Initial
Mortgage Loan in Group II will mature later
than June 1, 2026. As a percentage of the
Original Aggregate Loan Balance of the
Initial Mortgage Loans in Group II, _____%
were secured by mortgages on two-to-four
family dwellings, _____% by mortgages on
condominiums, _____% by mortgages on planned
unit developments, _____% by mortgages on
single-family dwellings, _____% by mortgages
on manufactured homes and _____% by
mortgages on other dwellings. See "The
Mortgage Loan Pools -- Initial Mortgage
Loans -- Group II" herein.
S-3
<PAGE>
All of the Initial Mortgage Loans in Group
II have maximum Coupon Rates. The weighted
average maximum Coupon Rate of the Initial
Mortgage Loans in Group II is _____% per
annum, with maximum Coupon Rates that range
from approximately _____% to _____% per
annum. The Initial Mortgage Loans in Group
II have a weighted average gross margin as
of the Cut-Off Date of _____%. The gross
margin for the Initial Mortgage Loans in
Group II ranges from _____% to _____%. The
minimum Coupon Rates for the Initial
Mortgage Loans in Group II ranges from
_____% to ______%.
_____% of the Initial Mortgage Loans in
Group II (the "Six-Month LIBOR Loans") bear
interest at rates that adjust, along with
the related monthly payments, semiannually
based on Six-Month LIBOR. _____% of the
Six-Month LIBOR Loans have a semiannual
reset cap of _____% and substantially all
have a lifetime reset cap of % to %. % of
the Six-Month LIBOR Loans have a semiannual
reset cap of _____% and substantially all
have a lifetime reset cap of _____%. The
Six-Month LIBOR Loans consist of Initial
Mortgage Loans aggregating $___________.
_____% of the Initial Mortgage Loans in
Group II (the "2/28 Loans") bear interest at
a fixed rate of interest for a period of two
years after origination and thereafter have
semiannual interest rate and payment
adjustments at frequencies and in the same
manner as the Six-Month LIBOR Loans. _____%
of the 2/28 Loans have a periodic rate
adjustment cap of _____% and substantially
all of which have a lifetime reset cap of
______% to _____%. ______% of the 2/28 Loans
have a periodic rate adjustment cap of
_____% and generally have a lifetime reset
cap of _____%. _____% of the 2/28 Loans have
a periodic rate adjustment cap of _______%
and have a lifetime reset cap of _______% to
__________%. The 2/28 Loans consist of
Initial Mortgage Loans aggregating
$____________.
________% of the Initial Mortgage Loans in
Group II (the "3/27 Loans") bear interest at
a fixed rate of interest for a period of
three years after origination and thereafter
have semiannual interest rate and payment
adjustments at frequencies and in the same
manner as the Six-Month LIBOR Loans
primarily subject to a ______% periodic rate
adjustment cap and substantially all of
which have a lifetime reset cap of _____% to
_______%. The 3/27 Loans consist of Initial
Mortgage Loans aggregating _______
$___________.
_____% of the Initial Mortgage Loans in
Group II were originated by and _____% were
originated by ___________.
All of the Subsequent Mortgage Loans to be
included in Group II have been purchased by
the Seller from and identified for sale to
the Trust.
Final Scheduled
Payment Dates: The Final Scheduled Payment Dates for each
of the respective classes of Class A
Certificates are as follows, although it is
anticipated that the actual final Payment
Date for each Class may occur earlier than
the Final Scheduled Payment Date. See
"Prepayment and Yield Considerations"
herein.
<TABLE>
<CAPTION>
Final Scheduled
Payment Date
---------------
<S> <C>
Class A-1 Certificates: ____________, _____
Class A-2 Certificates: ____________, _____
Class A-3 Certificates: ____________, _____
Class A-4 Certificates: ____________, _____
Class A-5 Certificates: ____________, _____
Class A-6 Certificates: ____________, _____
Class A-7 Certificates: ____________, _____
Class A-8 Certificates: ____________, _____
</TABLE>
S-4
<PAGE>
Distributions--General: On the 25th day of each month, or if such
day is not a Business Day, then the next
succeeding Business Day, commencing
__________, 199__ (each such day being a
"Payment Date"), the Trustee will be
required, subject to the availability of
amounts therefor, pursuant to the cash flow
priority hereinafter described, to
distribute to the Owners of the Fixed Rate
Group Certificates (other than the Class A-1
Certificates) of record as of the last day
of the calendar month immediately preceding
the calendar month in which such Payment
Date occurs and to the Owners of the Class
A-1 Certificates and the Class A-8
Certificates of record as of the day
immediately preceding such Payment Date
(each such date, the "Record Date") the
"Class A Distribution Amount" for the
related Class which shall be the sum of (x)
Current Interest and (y) the Principal
Distribution Amount for the related Class
(each as defined below).
For each Payment Date, interest due with
respect to the Fixed Rate Group Certificates
(other than the Class A-1 Certificates) will
be interest which has accrued thereon during
the calendar month immediately preceding the
month in which such Payment Date occurs; the
interest due with respect to the Class A-1
Certificates and the Class A-8 Certificates
will be the interest which has accrued
thereon at the applicable Pass-Through Rate
from the preceding Payment Date (or from the
Closing Date in the case of the first
Payment Date) to and including the day prior
to the current Payment Date. Each period
referred to in the prior sentence relating
to the accrual of interest is the "Accrual
Period" for the related Class of Class A
Certificates. All calculations of interest
on the Fixed Rate Group Certificates (other
than the Class A-1 Certificates) will be
made on the basis of a 360-day year assumed
to consist of twelve 30-day months.
Calculations of interest on the Class A-1
Certificates and the Class A-8 Certificates
will be made on the basis of the actual
number of days elapsed in the related
Accrual Period and a year of 360 days.
A "Business Day" is any day other than a
Saturday, Sunday or a day on which banking
institutions in California or New York City
or in the city in which the corporate trust
office of the Trustee is located are
authorized or obligated by law or executive
order to close.
Allocations of Interest
and Principal: The Class A Distribution Amount relating to
each Group of Mortgage Loans for each
Payment Date (to the extent funds are
available therefor) shall be allocated among
the Class A Certificates in the following
amounts and in the following order of
priority:
(i) First, to the Owners of each of the
Class A Certificates of the related Group,
the related Current Interest on a pro rata
basis (in accordance with the amounts of
such Current Interest) without any priority
among such Class A Certificates; and
(ii) Second, to the Owners of the related
Class of Class A Certificates (A) the
Principal Distribution Amount (as defined
below) applicable to Group I shall be
distributed as follows: (I) first, to the
Owners of the Class A-1 Certificates until
the Class A-1 Certificate Principal Balance
is reduced to zero; (II) second, to the
Owners of the Class A-2 Certificates until
the Class A-2 Certificate Principal Balance
is reduced to zero; (III) third, to the
Owners of the Class A-3 Certificates, until
the Class A-3 Certificate Principal Balance
is reduced to zero; (IV) fourth, to the
Owners of the Class A-4 Certificates, until
the Class A-4 Certificate Principal Balance
is reduced to zero; (V) fifth, to the Owners
of the Class A-5 Certificates, until the
Class A-5 Certificate Principal Balance is
reduced to zero; (VI) sixth, to the Owners
of the Class A-6 Certificates, until the
Class A-6 Certificate Principal Balance is
reduced to zero; and (VII) seventh, to the
Owners of the Class A-7 Certificates, until
the Class A-7 Certificate Principal Balance
is reduced to zero; and (B) the Principal
Distribution Amount applicable to Group II
shall be distributed to the Owners of the
Class A-8 Certificates until the Class A-8
Certificate Principal Balance is reduced to
zero.
S-5
<PAGE>
See "Description of the Class A
Certificates--Distributions,"
"--Overcollateralization Provisions" and
"--Crosscollateralization Provisions" herein
for a discussion of all transfers and
disbursements of funds held in the
Certificate Account.
"Current Interest" with respect to each
Class of Class A Certificates means, with
respect to any Payment Date (i) the
aggregate amount of interest accrued during
the preceding Accrual Period on the
Certificate Principal Balance of the related
Class A Certificates immediately prior to
such Payment Date plus (ii) the Preference
Amount (as defined below) as it relates to
interest previously paid on such Class of
the Class A Certificates prior to such
Payment Date plus (iii) the Carry Forward
Amount, if any, with respect to such Class
of Class A Certificates.
The "Carry Forward Amount" with respect to
any Class of the Class A Certificates for
any Payment Date is the sum of (x) the
amount, if any, by which (i) the Class A
Distribution Amount (as defined herein)
allocable to such Class as of the
immediately preceding Payment Date exceeded
(ii) the amount of the actual distribution
made to the Owners of such Class of Class A
Certificates on such immediately preceding
Payment Date plus (y) 30 days' interest on
the interest portion of such amount,
calculated at the related Pass-Through Rate
in effect with respect to such Class of
Class A Certificates as of such Payment
Date.
The Fixed Rate Group Certificates are
"sequential pay" classes such that the
Owners of the Class A-7 Certificates will
receive no payments of principal until the
Class A-6 Certificate Principal Balance has
been reduced to zero, the Owners of the
Class A-6 Certificates will receive no
payments of principal until the Class A-5
Certificate Principal Balance has been
reduced to zero, the Owners of the Class A-5
Certificates will receive no payments of
principal until the Class A-4 Certificate
Principal Balance has been reduced to zero,
the Owners of the Class A-4 Certificates
will receive no payments of principal until
the Class A-3 Certificate Principal Balance
has been reduced to zero, the Owners of the
Class A-3 Certificates will receive no
payments of principal until the Class A-2
Certificate Principal Balance has been
reduced to zero, and the Owners of the Class
A-2 Certificates will receive no payments of
principal until the Class A-1 Certificate
Principal Balance has been reduced to zero.
The credit enhancement provisions of the
Trust result in a limited acceleration of
principal payments to the Owners of the
Classes of Class A Certificates during
certain periods and may result in no
payments of principal being allocated to any
Class of the Class A Certificates during
certain periods. See "Description of the
Class A Certificates --
Overcollateralization Provisions" and
"Description of the Class A Certificates --
Crosscollateralization Provisions" herein.
Such credit enhancement provisions also have
an effect on the weighted average lives of
the Class A Certificates. See "Prepayment
and Yield Considerations" herein. In
addition, the following discussion makes use
of a number of technical defined terms which
are defined under "Description of the Class
A Certificates --Overcollateralization
Provisions" and "Description of the Class A
Certificates -- Crosscollateralization
Provisions" herein.
On each Payment Date, distributions in
reduction of the Certificate Principal
Balance of the Class A Certificates will be
made in the amounts described herein. The
"Principal Distribution Amount" for each
Mortgage Loan Group and Payment Date shall
be the lesser of:
(a) the Total Available Funds (as defined
below) for the related Mortgage Loan Group
plus any related Insured Payments actually
made by the Certificate Insurer minus the
related Current Interest with respect to the
related Class A Certificates; and
S-6
<PAGE>
(b) the excess, if any, of (i) the sum of:
(A) the Preference Amount with
respect to principal owed to the Owners of
the Class A Certificates for the related
Group that remains unpaid as of such Payment
Date;
(B) all scheduled installments of
principal actually collected or advanced by
the related Servicer during the related
Remittance Period and all unscheduled
collections of principal (other than Prepaid
Installments) actually collected by the
related Servicer during the related
Prepayment Period;
(C) the principal portion of the
Loan Purchase Price with respect to each
Mortgage Loan in the related Mortgage Loan
Group that was repurchased on or prior to
the related Monthly Remittance Date, to the
extent such amount is actually received by
the Trustee on or prior to the related
Monthly Remittance Date;
(D) any Substitution Amounts (i.e.,
the excess, if any, of the Loan Balance of a
Mortgage Loan being replaced over the
outstanding principal balance of a
replacement Mortgage Loan) delivered on the
related Monthly Remittance Date in
connection with a substitution of a Mortgage
Loan in the related Mortgage Loan Group, to
the extent such Substitution Amounts are
actually received by the Trustee on or prior
to the related Monthly Remittance Date;
(E) all Net Liquidation Proceeds
actually collected by the related Servicer
with respect to the Mortgage Loans in the
related Mortgage Loan Group during the
related Prepayment Period (to the extent
such Net Liquidation Proceeds are related to
principal) to the extent such Net
Liquidation Proceeds are actually received
by the Trustee on or prior to the related
Monthly Remittance Date;
(F) the amount of any Subordination
Deficit with respect to the related Mortgage
Loan Group for such Payment Date;
(G) the portion of the proceeds
received with respect to the related
Mortgage Loan Group by the Trustee upon
termination of the Trust (to the extent such
proceeds relate to principal);
(H) with respect to each Group, any
moneys released from the Pre- Funding
Account as a prepayment of the related Class
of Class A Certificates on the Payment Date
which immediately follows the end of the
Funding Period; and
(I) the amount of any Subordination
Increase Amount with respect to the related
Mortgage Loan Group for such Payment Date to
the extent of any Net Monthly Excess Cash
Flow available for such purpose;
over
(ii) the amount of any Subordination
Reduction Amount with respect to the related
Mortgage Loan Group for such Payment Date.
The "Remittance Period" with respect to any
Monthly Remittance Date is the period
commencing on the second day of the month
preceding the month in which the Monthly
Remittance Date occurs and ending on the
first day of the month in which such Monthly
Remittance Date occurs. A "Monthly
Remittance Date" is any date on which funds
on deposit in the Principal and Interest
Account are required to be remitted by the
Servicers to the Certificate Account, which
is the 20th day of each month, or if such
day is not a Business Day, the next
succeeding Business Day, commencing in
__________, 199__. The Prepayment Period
with respect to any Monthly Remittance Date
is the period commencing on the 16th day of
the month preceding the month in which the
Monthly Remittance Date occurs and ending on
the 15th day of the month in which such
Monthly Remittance Date
S-7
<PAGE>
occurs (except that the first Prepayment
Period shall commence on __________, 199__
and end on __________, 199__).
A "Liquidated Mortgage Loan" is, in general,
a defaulted Mortgage Loan as to which the
Servicer has determined that all amounts
that it expects to recover on such Mortgage
Loan have been recovered (exclusive of any
possibility of a deficiency judgment).
The Owners of the Class A Certificates are
entitled to receive ultimate recovery of
Realized Losses which occur in the related
Mortgage Loan Group to the extent such
Realized Losses create a Subordination
Deficit in the related Mortgage Loan Group,
and payment in recovery of such losses will
be in the form of an Insured Payment on the
next following Payment Date if not covered
through Net Monthly Excess Cashflow from the
related Mortgage Loan Group or
crosscollateralization from the other
Mortgage Loan Group.
A "Subordination Deficit" with respect to a
Mortgage Loan Group and a Payment Date is
the amount, if any, by which (x) the related
Certificate Principal Balance, after taking
into account all distributions to be made on
such Payment Date, exceeds (y) the sum of
(i) the aggregate Loan Balances of the
Mortgage Loans in the related Mortgage Loan
Group as of the close of business on the
last day of the related Prepayment Period
and (ii) the respective amount, if any, on
deposit in the Pre-Funding Account as of the
close of business on the last day of the
related Remittance Period in respect of such
Mortgage Loan Group.
"Preference Amount" means any amount
previously distributed to an Owner on a
Class A Certificate that is recoverable and
sought to be recovered as a voidable
preference by a trustee in bankruptcy under
the United States Bankruptcy Code as amended
from time to time, in accordance with a
final nonappealable order of a court having
competent jurisdiction.
A "Subordination Increase Amount" with
respect to a Mortgage Loan Group and Payment
Date is the amount of Net Monthly Excess
Cashflow actually applied as an acceleration
of principal on the related Class A
Certificates until the related Subordination
Deficiency Amount (i.e., generally, the
excess, if any, of the Specified
Subordinated Amount over the Subordinated
Amount) is reduced to zero. A "Subordination
Reduction Amount" with respect to a Mortgage
Loan Group and a Payment Date is the amount
of principal on the related Mortgage Loans
that would otherwise be paid to the related
Class A Certificates and is instead
available to satisfy other cash flow
priorities of the Trust, including
distributions to the Owners of the Class R
Certificates until the Excess Subordinated
Amount (i.e., generally, the excess, if any,
of the Subordinated Amount over the
Specified Subordinated Amount) is reduced to
zero. Net Monthly Excess Cashflow,
Subordination Deficiency Amount, Specified
Subordinated Amount, Subordinated Amount and
Excess Subordinated Amount are defined in
"Description of the Class A
Certificates--Overcollateralization
Provisions--Overcollateralization from
Cashflow Structure" herein.
Servicing: ________________________ will each serve as
a Servicer under the Pooling and Servicing
Agreement with respect to certain Mortgage
Loans. Each Servicer will be responsible for
the servicing of the related Mortgage Loans
and will receive from interest collected on
the applicable Mortgage Loans a monthly
servicing fee on each such Mortgage Loan
equal to the Loan Balance as of the
beginning of the related Remittance Period
multiplied by the applicable Servicing Fee
Rate (such product, the "Servicing Fee").
See "The Pooling and Servicing Agreement--
Servicing" herein.
S-8
<PAGE>
Each Servicer is obligated to make cash
advances ("Advances") with respect to
delinquent payments of principal of and
interest on any Mortgage Loan, other than
Balloon Payments with respect to Balloon
Mortgage Loans, serviced by it to the extent
described in "Servicing of Mortgage
Loans--Advances" herein. The Trustee will be
obligated as a successor servicer to make
any such Advance if a Servicer fails in its
obligation to do so, to the extent provided
in the Pooling and Servicing Agreement.
Credit Enhancement: The Credit Enhancement provided for the
benefit of the Owners of the Class A
Certificates consists of (x) the
overcollateralization and
crosscollateralization mechanics which
utilize the internal cash flows of the Trust
and (y) the Certificate Insurance Policies
(as defined below).
Overcollateralization. The credit
enhancement provisions of the Trust result
in a limited acceleration of payment of the
Class A Certificates (in the aggregate)
relative to the amortization of the related
Mortgage Loans until the required level of
overcollateralization is reached. The
accelerated amortization is achieved by the
application of certain excess interest to
the payment of Class A Certificate
principal. This acceleration feature
creates, with respect to each Mortgage Loan
Group, overcollateralization (i.e., the
excess of the aggregate outstanding Loan
Balances of the Mortgage Loans in the
related Mortgage Loan Group, over the
aggregate related Class A Certificate
Principal Balance). Once the required level
of overcollateralization is reached, and
subject to the provisions described in the
next paragraph, the acceleration feature
will cease, until necessary to maintain the
required level of overcollateralization.
The Pooling and Servicing Agreement provides
that, subject to certain floors, caps and
triggers, the required level of
overcollateralization with respect to a
Mortgage Loan Group may increase or decrease
over time. An increase would result in a
temporary period of accelerated amortization
of the Class A Certificates to increase the
actual level of overcollateralization to its
required level; a decrease would result in a
temporary period of decelerated amortization
to reduce the actual level of
overcollateralization to its required level.
See "Description of the Class A Certificates
-- Overcollateralization Provisions" herein.
As a result of the "sequential pay" feature
of the Fixed Rate Group Certificates, any
such accelerated principal will be paid to
that class of the Fixed Rate Group
Certificates then entitled to receive
distributions of principal.
Crosscollateralization. In addition to the
foregoing, the Pooling and Servicing
Agreement provides for
crosscollateralization through the
application of certain excess amounts
generated by one Mortgage Loan Group to fund
shortfalls in Available Funds and the
required overcollateralization level in the
other Mortgage Loan Group, subject to
certain prior debt service and credit
enhancement requirements of such Mortgage
Loan Group.
See "Prepayment and Yield Considerations",
"Description of the Class A
Certificates--Overcollateralization
Provisions" and "Description of the Class A
Certificates--Crosscollateralization
Provisions" herein and "Credit Enhancement"
in the Prospectus.
Certificate Insurance Policies. [Surety
Name] (the "Certificate Insurer") will issue
the financial guaranty insurance policies
(the "Certificate Insurance Policies"), one
with respect to the Fixed Rate Group
Certificates and one with respect to the
Adjustable Rate Group Certificates, pursuant
to which it will irrevocably and
unconditionally guarantee payment on each
Payment Date to the Trustee for the benefit
of the Owners of each Class of Class A
Certificates of an amount equal to the
Insured Distribution Amount for such Payment
Date. The amount of the actual payment, if
any, made by the Certificate Insurer to the
Owners of the Class A Certificates under the
related Certificate Insurance Policy on each
Payment Date
S-9
<PAGE>
(the "Insured Payment") is the sum of (i)
any shortfall in the amount required to pay
the Subordination Deficit for such Payment
Date from a source other than the related
Certificate Insurance Policy, (ii) any
shortfall in the amount required to pay
Current Interest for such Payment Date from
a source other than the related Certificate
Insurance Policy and (iii) any shortfall in
the amount required to pay the Preference
Amount for such Payment Date from a source
other than the related Certificate Insurance
Policy. The effect of the Certificate
Insurance Policies is to guaranty the timely
payment of interest on, and the ultimate
payment of the principal amount of, each
Class of Class A Certificates. No payments
in respect of principal will be made under
the Certificate Insurance Policies unless a
Subordination Deficit occurs.
Except upon the occurrence of a default by
the Certificate Insurer, the Certificate
Insurer shall have the right to exercise
certain rights of the Owners of the related
Class A Certificates, as specified in the
Pooling and Servicing Agreement, without any
consent of such Owners; and such Owners may
exercise such rights only with the prior
written consent of the Certificate Insurer,
except as provided in the Pooling and
Servicing Agreement. In addition, to the
extent of unreimbursed payments under the
Certificate Insurance Policies, the
Certificate Insurer will be subrogated to
the rights of the Owners of the related
Class A Certificates on which such Insured
Payments were made. In connection with each
Insured Payment on a related Class A
Certificate, the Trustee, as
attorney-in-fact for the Owner thereof, will
be required to assign to the Certificate
Insurer the rights of such Owner with
respect to the Class A Certificate to the
extent of such Insured Payment.
The Certificate Insurance Policies do not
guarantee any specified rate of prepayments,
nor do the Certificate Insurance Policies
provide funds to redeem the Certificates on
any specified date. The Certificate
Insurer's obligation under the Certificate
Insurance Policies will be discharged to the
extent that funds are received by the
Trustee for distribution to the Owners of
the Class A Certificates. See "The
Certificate Insurance Policies and the
Certificate Insurer" herein.
Pre-Funding Account: On the Closing Date, the Original Pre-Funded
Amount will be deposited in the Pre-Funding
Account which account will be in the name
of, and maintained by, the Trustee on behalf
of the Trust and used to acquire Subsequent
Mortgage Loans for addition to Group I and
Group II. With respect to each Group, during
the period (the "Funding Period") from and
including the Closing Date until the
earliest of (i) the date on which the amount
on deposit in the Pre-Funding Account with
respect to the related Group is less than
$100,000, and (ii) __________, 199__, the
Pre- Funded Amount will be maintained in the
Pre-Funding Account. The Original Pre-
Funded Amount will be reduced during the
Funding Period by the amount thereof used to
purchase Subsequent Mortgage Loans in
accordance with the Pooling and Servicing
Agreement. The amount on deposit in the
Pre-Funding Account at any time is the
"Pre-Funded Amount". Subsequent Mortgage
Loans purchased by and added to the Trust on
any date (each, a "Subsequent Transfer
Date") must satisfy the criteria set forth
in the Pooling and Servicing Agreement. Any
Pre-Funded Amount remaining at the end of
the Funding Period for the related Group
will be distributed to the Owners of the
related Class of Class A Certificates then
entitled to receive distributions of
principal on the Payment Date that
immediately follows the end of such Funding
Period in reduction of the Certificate
Principal Balance of such Owners'
Certificates, thus resulting in a partial
principal prepayment of such Class of Class
A Certificates as specified herein under
"Description of the Certificates--
Distributions." All interest and other
investment earnings on amounts on deposit in
the Pre-Funding Account will be deposited in
the Capitalized Interest Account. The
Pre-Funding Account will not be an asset of
the REMIC (as defined herein).
S-10
<PAGE>
Although no assurance can be given, it is
intended that the principal amount of
Subsequent Mortgage Loans sold to the Trust
and added to the Trust will require
application of substantially all of the
Original Pre-Funded Amount and it is not
intended that there will be any material
amount of principal prepaid to the holders
of any Class of the Class A Certificates
from the Pre-Funding Account. In the event
that the Depositor is unable to sell
Subsequent Mortgage Loans to the Trust in an
amount equal to the Original Pre-Funded
Amount, principal prepayments to Owners of
the related Class of the Class A
Certificates will occur no later than the
Payment Date in ________ 199__ in an amount
equal to the Pre-Funded Amount with respect
to the related Mortgage Loan Group remaining
at the end of the Funding Period.
Capitalized Interest Account: On the Closing Date, cash will be deposited
in a trust account (the "Capitalized
Interest Account") in the name of, and
maintained by, the Trustee on behalf of the
Trust. The amount on deposit in the
Capitalized Interest Account, including
reinvestment income thereon, will be used by
the Trustee to fund the excess, if any, of
(i) the sum of the amount of interest
accruing during the related Accrual Period
on the amount by which the aggregate
Certificate Principal Balance of the related
Class of Class A Certificates exceeds the
aggregate Loan Balance of the Mortgage Loans
in the related Group plus the Trustee Fee
and Premium Amount with respect to each
Certificate Insurance Policy accruing during
the related Accrual Period on such excess
balance over (ii) the amount of any
reinvestment income on monies on deposit in
the Pre-Funding Account; such amounts on
deposit will be so applied by the Trustee on
the Payment Date in ________ 199__ to fund
such excess, if any. Any amounts remaining
in the Capitalized Interest Account not
needed for such purpose will be paid to the
Depositor at the end of the Funding Period.
The Capitalized Interest Account will not be
an asset of the REMIC (as defined herein).
Mandatory Prepayment of
Certificates: In the event that at the end of the Funding
Period, not all of the Original Pre- Funded
Amount has been used to acquire Subsequent
Mortgage Loans, then the Owners of the
related Class of Class A Certificates then
entitled to receive distributions of
principal will receive a prepayment no later
than the Payment Date in ________ 199__ in
an amount equal to the portion of the
Original Pre-Funded Amount remaining and
allocable to the related Group.
Auction Sale; Step Up on
Certain Pass-Through
Rate; Termination: The Pooling and Servicing Agreement requires
that, within ninety days following the date
on which the Outstanding Certificate
Principal Balance of a Mortgage Loan Group
has declined to less than 10% of the
Original Certificate Principal Balance of
such Mortgage Loan Group (such date, with
respect to such Mortgage Loan Group, the
"Auction Sale Bid Date"), the Trustee shall
solicit bids for the purchase of all
Mortgage Loans remaining in such Mortgage
Loan Group. In the event that satisfactory
bids are received as described in the
Pooling and Servicing Agreement, the net
sale proceeds will be distributed to the
Owners of the Certificates of such Mortgage
Loan Group in the same order of priority as
interest and principal distributions. If
satisfactory bids are not received, the
Trustee shall decline to sell the Mortgage
Loans and shall not be under any obligation
to solicit any further bids or otherwise
negotiate any further sale of the Mortgage
Loans, in such Mortgage Loan Group. Such
sale and consequent termination of a
Mortgage Loan Group (an "Auction Sale') must
constitute a "qualified liquidation" of the
Classes of Certificates related to such
Mortgage Loan Group under Section 860F of
the Code, including, without limitation, the
requirement that the qualified liquidation
take place over a period not to exceed 90
days. If an Auction Sale with respect to the
Adjustable Rate Group has not occurred by
the 90th day following the related Auction
Sale Bid Date (such date, the "Step Up
Date"), the Pass- Through Rate of each Class
of the Adjustable Rate Group Certificates
will be increased as provided under
"Certificates Offered" in this Summary of
Terms for
S-11
<PAGE>
each Payment Date occurring thereafter. If
an Auction Sale does not occur, the
Servicers will have the right, collectively,
to purchase all of the Mortgage Loans in a
Mortgage Loan Group they are servicing on
any Monthly Remittance Date when the
Outstanding Certificate Principal Balance
has declined to 5% or less of the Original
Certificate Principal Balance of such
Mortgage Loan Group. Any such purchase by
the Servicers will be required to be made on
the same Monthly Remittance Date, so that
such Mortgage Loan Group would be liquidated
on the next succeeding Payment Date. In
addition, in the event that an Auction Sale
has not occurred with respect to both
Mortgage Loan Groups and the Servicers have
not exercised their right to purchase all of
the Mortgage Loans, the Owners of the Class
R Certificates will have the obligation to
purchase all the Mortgage Loans on the
Monthly Remittance Date in 202 . See "The
Pooling and Servicing Agreement--Auction
Sale; Step Up on Certain Pass-Through Rates;
Termination" herein.
Book-Entry Registration
of the Class A
Certificates: The Class A Certificates will initially be
issued in book-entry form. Persons acquiring
beneficial ownership interests in such Class
A Certificates ("Beneficial Owners") may
elect to hold their interests through The
Depository Trust Company ("DTC"), in the
United States, or Centrale de Livraison de
Valeurs Mobilieres, S.A. ("CEDEL") or the
Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as
the case may be, will be in accordance with
the usual rules and operating procedures of
the relevant system. So long as the Class A
Certificates are Book-Entry Certificates (as
defined herein), such Certificates will be
evidenced by one or more Certificates
registered in the name of Cede & Co.
("Cede"), as the nominee of DTC or one of
the European Depositaries. Cross market
transfers between persons holding directly
or indirectly through DTC, on the one hand,
and counterparties holding directly or
indirectly through CEDEL or Euroclear, on
the other, will be effected by DTC through
Citibank N.A. ("Citibank") or Morgan
Guaranty Trust Company of New York
("Morgan", and together with Citibank, the
"European Depositaries"), the relevant
depositaries of CEDEL and Euroclear,
respectively, and each a participating
member of DTC. The Class A Certificates will
initially be registered in the name of Cede.
The interests of the Owners of such
Certificates will be represented by
book-entries on the records of DTC and
participating members thereof. No Beneficial
Owner will be entitled to receive a
definitive certificate representing such
person's interest, except in the event that
Definitive Certificates (as defined herein)
are issued under the limited circumstances
described herein. All references in this
Prospectus Supplement to any Class A
Certificates reflect the rights of
Beneficial Owners only as such rights may be
exercised through DTC and its participating
organizations for so long as such Class A
Certificates are held by DTC. See
"Description of the Class A Certificates--
Book-Entry Registration of the Class A
Certificates" herein, and Annex I hereto,
and "Description of the
Certificates--Book-Entry Registration" in
the Prospectus.
Ratings: It is a condition of issuance of the Class A
Certificates that the Class A Certificates
receive ratings of "AAA" by Standard &
Poor's, A Division of The McGraw-Hill
Companies ("Standard & Poor's"), "Aaa" by
Moody's Investors Service, Inc. ("Moody's"),
and "AAA" by Fitch Investors Service, L.P.
("Fitch"). Standard & Poor's, Moody's and
Fitch are referred to herein collectively as
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
entity. See "Prepayment and Yield
Considerations" and "Ratings" herein. No
person is obligated to maintain any rating
on any Certificate, and, accordingly, there
can be no assurance that the ratings
assigned to any Class of Certificates upon
initial issuance thereof will not be lowered
or withdrawn at any time thereafter.
S-12
<PAGE>
Risk Factors: Credit Considerations. For information with
regard to the Mortgage Loans and their
related risks, see "Risk Factors--Risk of
Higher Delinquencies Associated with
Guidelines" and "The Mortgage Loan Pool"
herein.
Prepayment Considerations. For information
regarding the consequences of prepayments of
the Mortgage Loans and of the failure of the
Depositor to convey Subsequent Mortgage
Loans to the Trust during the Funding Period
in an amount equal to the Original
Pre-Funded Amount, see "Prepayment and Yield
Considerations" and "Risk
Factors--Sensitivity to Prepayments" and
"--The Subsequent Mortgage Loans and the
Pre-Funding Account" herein.
Other Considerations. For a discussion of
other risk factors that should be considered
by prospective investors in the Class A
Certificates, see "Risk Factors" herein and
in the Prospectus.
Federal Tax Aspects: An election will be made to treat the Trust
Estate (exclusive of the Pre-Funding Account
and the Capitalized Interest Account)
created by the Pooling and Servicing
Agreement as a "real estate mortgage
investment conduit" ("REMIC"). The
Certificates (other than the Class R
Certificates) will constitute "regular
interests" in the REMIC. The Class R
Certificates will be designated as the
"residual interest" in the REMIC.
Owners of the Class A Certificates,
including Owners that generally report
income on the cash method of accounting,
will be required to include interest on the
Class A Certificates in income in accordance
with the accrual method of accounting. The
Class A Certificates may be considered to
have been issued with original issue
discount or at a premium. Any such original
issue discount will be includable in the
income of the Owner as it accrues under a
method taking into account the compounding
of interest and using the Prepayment
Assumption. See "Prepayment and Yield
Considerations" and "Certain Federal Income
Tax Consequences" herein. Premium may be
deductible by the Owner either as it accrues
or when principal is received. No
representation is made as to whether the
Mortgage Loans will prepay in accordance
with the Prepayment Assumption, or any other
rate. In general, as a result of the
qualification of the Class A Certificates as
regular interests in a REMIC, the Class A
Certificates will be treated as "qualifying
real property loans" under Section 593(d) of
the Internal Revenue Code of 1986, as
amended (the "Code"), "regular . . .
interest(s) in a REMIC" under Section
7701(a)(19)(C) of the Code and "real estate
assets" under Section 856(c) of the Code in
the same proportion that the assets in the
REMIC consist of qualifying assets under
such sections. In addition, interest on the
Class A Certificates will be treated as
"interest on obligations secured by
mortgages on real property" under Section
856(c) of the Code to the extent that such
Certificates are treated as "real estate
assets" under Section 856(c) of the Code.
ERISA Considerations: A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code (a "Plan") should review
carefully with its legal advisors whether
the purchase or holding of the Class A
Certificates offered hereby could give rise
to a transaction that is prohibited or is
not otherwise permitted either under ERISA
or Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein.
The U.S. Department of Labor has issued to
the Underwriters individual prohibited
transaction exemptions which generally
exempt from the application of certain of
the prohibited transaction provisions of
Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions by
Sections 4975(a) and (b) of the Code
transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten by the Underwriters and the
servicing and operation of related asset
pools, provided that certain conditions are
satisfied.
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A fiduciary of a Plan should review the
sections entitled "ERISA Considerations" in
the Prospectus and this Supplement and
consider the issues discussed therein, and
should consult with its legal advisors prior
to making an investment in the Class A
Certificates.
Legal Investment
Considerations: The Class A Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") for so long as they
are rated in one of the two highest rating
categories by one or more nationally
recognized statistical rating organizations.
As such, the Class A Certificates will be
legal investments for certain entities to
the extent provided in SMMEA, subject to
state laws overriding SMMEA. In addition,
institutions whose investment activities are
subject to review by federal or state
regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of mortgage
related securities. Furthermore, certain
states have enacted legislation overriding
the legal investment provisions of SMMEA. In
addition, institutions whose activities are
subject to review by federal or state
regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of mortgage
related securities.
[Although the Class _____ Certificates are
expected to be rated "AAA" by Standard &
Poor's and "Aaa" by Moody's, the Class A
Certificates will not constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") because the Group _____
Mortgage Loans include second liens.
Accordingly, many institutions with legal
authority to invest in comparably rated
securities based on first home equity loans
may not be legally authorized to invest in
the Class _____ Certificates.]
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RISK FACTORS
Prospective investors in the Class A Certificates should consider the
following risk factors (as well as the risk factors set forth under "Risk
Factors" in the Prospectus) in connection with the purchase of the Class A
Certificates.
Sensitivity to Prepayments. A majority of the Mortgage Loans may not be
prepaid in whole or, above a certain percentage, in part at any time without
penalty. See "The Portfolio of Mortgage Loans--Prepayment Penalties" herein for
a description of prepayment penalty provisions applicable to the Mortgage Loans.
In addition, all of the Mortgage Loans contain due-on-sale provisions which, to
the extent enforced by the Servicer, will result in prepayment of such Mortgage
Loans. Furthermore, the Seller intends to initiate a refinance policy as
described in "The Portfolio of Mortgage Loans-Prepayment Penalties" herein which
could have an impact on prepayments of the Mortgage Loans. See "Prepayment and
Yield Considerations" herein and "Certain Legal Aspects of Mortgage
Assets--Enforceability of Certain Provisions" in the Prospectus. The rate of
prepayments on fixed rate mortgage loans, such as the Mortgage Loans in Group I,
is sensitive to prevailing interest rates. Generally, if prevailing interest
rates fall significantly below the interest rates on the Mortgage Loans in Group
I, such loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest rates on the Mortgage Loans in
Group I. Conversely, if prevailing interest rates rise significantly above the
interest rates on the Mortgage Loans in Group I, the rate of prepayments is
likely to decrease.
The average life of the Class A Certificates, and, if purchased at
other than par, the yields realized by Owners of the Class A Certificates, will
be sensitive to levels of payment (including prepayments relating to the
Mortgage Loans (the "Prepayments")) on the Mortgage Loans. In general, the yield
on a Class A Certificate that is purchased at a premium from the outstanding
principal amount thereof will be adversely affected by a higher than anticipated
level of Prepayments of the Mortgage Loans and enhanced by a lower than
anticipated level. Conversely, the yield on a Class A Certificate that is
purchased at a discount from the outstanding principal amount thereof will be
enhanced by a higher than anticipated level of Prepayments and adversely
affected by a lower than anticipated level. The Servicers have agreed in the
Pooling and Servicing Agreement not to target Mortgagors in their related
Mortgage Loan Group in solicitations to borrowers to refinance their mortgages,
unless such solicitation is consistent with the Seller's refinance policy. See
"Prepayment and Yield Considerations" herein.
[Nature of Collateral. Because _____% of the aggregate Loan Balance of
the Initial Mortgage Loans are secured by second liens subordinate to the rights
of the mortgagee or beneficiary under the related first mortgage or deed of
trust, the proceeds from any liquidation, insurance or condemnation proceedings
with respect to such Mortgage Loans will be available to satisfy the outstanding
balance of a Mortgage Loan only to the extent that the claims of such first
mortgagee or beneficiary have been satisfied in full, including any related
foreclosure costs. In addition, a second mortgagee may not foreclose on the
property securing a second mortgage unless it forecloses subject to the first
mortgage, in which case it must either pay the entire amount due on the first
mortgage to the first mortgagee at or prior to the foreclosure sale or undertake
the obligation to make payments on the first mortgage in the event the mortgagor
is in default thereunder. In servicing second mortgages in its portfolio, it is
generally the Servicer's practice to satisfy the first mortgage at or prior to
the foreclosure sale. The Servicer may also advance funds to keep the first
mortgage current until such time as the Servicer satisfies the first mortgage.
The Trust will have no source of funds (and may not be permitted under the REMIC
provisions of the Code) to satisfy the first mortgage or make payments due to
the first mortgagee. The Servicer generally will be required to advance such
amounts in accordance with the Pooling and Servicing Agreement. See "The Pooling
and Servicing Agreement--Servicing and Sub-Servicing" herein.
An overall decline in the residential real estate market, the general
condition of a Property, or other factors, could adversely affect the values of
the Properties such that the outstanding balances of the Mortgage Loans,
together with any senior liens on the Properties, equal or exceed the value of
the Properties. A decline in the value of a Property would affect the interest
of the Trust in the Property before having any effect on the interest of the
related first mortgagee, and could cause the Trust's interest in the Property to
be extinguished. If such a decline occurs, the actual rates of delinquencies,
foreclosures and losses on the Mortgage Loans could be higher than those
currently experienced in the mortgage lending industry in general. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by borrowers of scheduled payments of principal
and interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the Trust.]
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<PAGE>
The Subsequent Mortgage Loans and the Pre-Funding Account. If the
principal amount of eligible Subsequent Mortgage Loans available during the
Funding Period and sold by the Depositor to the Trust is less than 100% of the
Original Pre-Funded Amount, a prepayment of principal to Owners of the related
Class of the Class A Certificates then entitled to receive payments of principal
will occur as described herein. See "Social, Economic and Other Factors" below.
In addition, any conveyance of Subsequent Mortgage Loans is subject to the
following conditions, among others: (i) each such Subsequent Mortgage Loan must
satisfy the representations and warranties specified in the agreement pursuant
to which such Subsequent Mortgage Loans are transferred to the Trust (each a
"Subsequent Transfer Agreement") and in the Pooling and Servicing Agreement;
(ii) the Depositor will not select such Subsequent Mortgage Loans in a manner
that it believes is adverse to the interest of the Owners of the Certificates or
the Certificate Insurer; (iii) the Depositor will deliver certain opinions of
counsel with respect to the validity of the conveyance of such Subsequent
Mortgage Loans; and (iv) as of each cut-off date (each, a "Subsequent Cut-Off
Date") applicable thereto, the Mortgage Loans, including the Subsequent Mortgage
Loans to be conveyed by the Depositor as of such Subsequent Cut-Off Date, will
satisfy the criteria set forth in the Pooling and Servicing Agreement, as
described herein under "The Mortgage Loan Pool--Conveyance of Subsequent
Mortgage Loans."
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Mortgage Loans by the Trust
for inclusion in the related Mortgage Loan Group by the end of the Funding
Period, the Owners of the related Class of the Class A Certificates then
entitled to receive payments of principal will receive a prepayment of principal
in an amount equal to the related Pre-Funded Amount remaining in the Pre-Funding
Account on the first Payment Date following the end of the Funding Period (in no
event later than the ________ 199__ Payment Date). Although no assurances can be
given, the Depositor expects that the principal amount of Subsequent Mortgage
Loans sold to the Trust will require the application of substantially all
amounts on deposit in the Pre-Funding Account and that there will be no material
principal prepayment to the Owners of the Class A Certificates from the Pre-
Funding Account.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. Following the transfer of
Subsequent Mortgage Loans, it is anticipated that the aggregate characteristics
of the Mortgage Loans then held in the related Mortgage Loan Group will not vary
significantly from those of the Initial Mortgage Loans. See "The Mortgage Loan
Pool--Conveyance of Subsequent Mortgage Loans" herein.
The Seller has acquired and identified for sale to the Trust a
sufficient amount of Subsequent Mortgage Loans to fully utilize the Pre-Funding
Amount.
Risk of Higher Delinquencies Associated with Guidelines. The
Underwriting Guidelines (as described herein under "The Portfolio of Mortgage
Loans--Guidelines") are intended to assess the credit quality of a mortgagor and
the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. The Originators provide loans
primarily to mortgagors who do not qualify for loans conforming to FNMA and
FHLMC guidelines but who also have substantial equity in their property.
Furthermore, the Underwriting Guidelines do not prohibit a borrower from
obtaining secondary financing at the time of origination of the Originator's
first lien, which financing would reduce the equity the borrower would otherwise
have in the related mortgaged property that is indicated in the Originators'
loan-to-value determination.
As a result of the Underwriting Guidelines, the Mortgage Loans are
likely to experience rates of delinquency, foreclosure and bankruptcy that are
higher, and that may be substantially higher, than those experienced by mortgage
loans underwritten to FNMA and FHLMC conforming guidelines. Furthermore, changes
in the values of Mortgaged Properties may have a greater effect on the
delinquency, foreclosure, bankruptcy and loss experience of the Mortgage Loans
than on mortgage loans originated in a more traditional manner. No assurance can
be given that the values of the Mortgaged Properties have remained or will
remain at the levels in effect on the dates of origination of the related
Mortgage Loans.
Effect of Mortgage Loan Yield on Class A-1 and Class A-8 Pass-Through
Rate; Basis Risk. The Class A-1 Pass-Through Rate is based upon the value of an
index (One-Month LIBOR), while the Coupon Rates on the Group I Mortgage Loans
are fixed. Consequently, the interest which becomes due on such Mortgage Loans
in Group I (net of the Servicing Fees, the Trustee Fees and the Premium Amount)
during any Remittance Period may be less than the
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<PAGE>
amount of interest that would accrue at One-Month LIBOR plus the margin on the
Class A-1 Certificates during the related Accrual Period; the interest payable
on the Class A-1 Certificates is subject to the Fixed Rate Group Available Funds
Cap and will be limited to such amount. The Class A-1 Certificates do not
contain any "carry-forward" or "catch- up" feature if the amount of interest
paid is so limited.
The calculation of the Class A-8 Pass-Through Rate is based upon the
value of an index (One-Month LIBOR) which is different from the value of the
index applicable to a substantial portion of the Initial Mortgage Loans in Group
II (Six-Month LIBOR) as described under "The Mortgage Loan Pool -- Initial
Mortgage Loans -- Group II" herein and is subject to the Adjustable Rate Group
Available Funds Cap. The Adjustable Rate Group Available Funds Cap effectively
limits the amount of interest accrued on the Adjustable Rate Group Certificates
to the weighted average of the Coupon Rates on the Mortgage Loans in Group II,
less _____%. _____% of the Initial Mortgage Loans in Group II adjust
semi-annually based upon the London interbank offered rate for Six-Month United
States dollar deposits ("Six- Month LIBOR"), whereas the Pass-Through Rate on
the Class A-8 Certificates adjusts monthly based upon One-Month LIBOR as
described under "Description of the Class A Certificates -- Calculation of
One-Month LIBOR" herein, subject to the Adjustable Rate Group Available Funds
Cap. _____% of the Initial Mortgage Loans in Group II are 2/28 Loans that
provide for a fixed interest rate for a period of two years following
origination. Thereafter, such Mortgage Loans provide for interest rate and
payment adjustments in a manner similar to the Six-Month LIBOR Loans. One- Month
LIBOR and Six-Month LIBOR may respond to different economic and market factors,
and there is not necessarily a correlation between them. Thus, it is possible,
for example, that One-Month LIBOR may rise during periods in which Six-Month
LIBOR is stable or is falling or that, even if both One-Month LIBOR and
Six-Month LIBOR rise during the same period, One-Month LIBOR may rise more
rapidly than Six-Month LIBOR. Furthermore, even if One-Month LIBOR and Six-Month
LIBOR were at the same level, various factors may cause the Adjustable Rate
Group Available Funds Cap to limit the amount of interest that would otherwise
accrue on the Adjustable Rate Group Certificates. In particular, the Class A-8
Pass-Through Rate adjusts monthly, while the interest rates of the Initial
Mortgage Loans in Group II adjust less frequently, with the result that the
Adjustable Rate Group Available Funds Cap may limit increases in the Class A-8
Pass-Through Rate for extended periods in a rising interest rate environment. In
addition, the Initial Mortgage Loans in Group II are subject to periodic
adjustment caps and maximum rate caps which also may result in the Adjustable
Rate Group Available Funds Cap limiting increases in the Class A-8 Pass-Through
Rate. Finally, the Initial Mortgage Loans in Group II accrue interest on the
basis of a 360-day year assumed to consist of twelve 30-day months, while
calculations of interest on the Adjustable Rate Group Certificates will be made
on the basis of the actual number of days elapsed in the related Accrual Period
and a year of 360 days. This may result in the Adjustable Rate Group Available
Funds Cap limiting the Class A-8 Pass-Through Rate in Accrual Periods that have
more than 30 days. Consequently, the interest which becomes due on the Initial
Mortgage Loans in Group II (net of the Servicing Fee, the Premium Amount and the
Trustee Fee related to Group II) during any Remittance Period may not equal the
amount of interest that would accrue at One-Month LIBOR plus the margin on the
Adjustable Rate Group Certificates during the related Accrual Period.
Furthermore, if the Available Funds Cap determines the Class A-8 Pass- Through
Rate for a Payment Date, the value of the Adjustable Rate Group Certificates may
be temporarily or permanently reduced. It is anticipated that Subsequent
Mortgage Loans in Group II will have features similar to the Initial Mortgage
Loans in Group II, resulting in the same limitations on the Class A-8
Pass-Through Rate as are described above. The Class A-8 Certificates do not
contain any "carry-forward" or "catch-up" feature if the amount of interest paid
is limited as described above.
Social, Economic and Other Factors. The ability of the Trust to invest
in Subsequent Mortgage Loans is largely dependent upon the ability of the Seller
to originate or purchase additional mortgage loans. The ability of the Seller to
originate or purchase additional mortgage loans may be affected by a variety of
social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. However, the Seller is unable to determine and has no
basis to predict whether or to what extent economic or social factors will
affect its origination ability or its ability to purchase additional mortgage
loans.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosure, and require
licensing of the Originators. In addition, other state laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the Mortgage Loans. The related Originator will be
required
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to repurchase any Mortgage Loans which, at the time of origination, fail to
comply with applicable federal and state laws and regulations, which failure
results in a material adverse effect on the Trust, the Certificate Insurer or
the parties to the Pooling and Servicing Agreement. 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
Servicers to collect all or part of the principal of or interest on the Mortgage
Loans, may entitle the Mortgagor to a refund of amounts previously paid and, in
addition, could subject the Seller, the Servicers or the related Originator to
damages and administrative enforcement. See "Certain Legal Aspects of Mortgage
Assets" in the Prospectus.
The Mortgage Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
Mortgagors regarding the terms of the Mortgage Loans;
(ii) the Equal Credit 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 Mortgagor's credit
experience.
Violations of certain provisions of these federal laws may limit the ability of
the related Servicer to collect all or part of the principal of or interest on
the Mortgage Loans and in addition could subject the Originators, the Seller or
the Servicers to damages and administrative enforcement. The Originators will be
required to repurchase any Mortgage Loans which, at the time of origination, did
not comply with such federal laws or regulations. See "Certain Legal Aspects of
the Mortgage Assets" in the Prospectus.
The federal Soldiers' and Sailors' Civil Relief Act of 1940 may affect
the ability of the related Servicer to collect full amounts of interest on
certain Mortgage Loans and could interfere with the ability of the related
Servicer to foreclose on certain properties. See "Certain Legal Aspects of the
Mortgage Assets--Soldiers' and Sailors' Civil Relief Act of 1940" in the
Prospectus.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act") which incorporates the Home Ownership and Equity Protection Act of 1994.
The Riegle Act adds certain provisions to Regulation Z, the implementing
regulation of the Truth-In- Lending Act. These provisions impose additional
disclosure and other requirements on creditors with respect to non- purchase
money mortgage loans with high interest rates or high upfront fees and charges.
In general, mortgage loans within the purview of the Riegle Act have annual
percentage rates of 10% greater than the yield on Treasury Securities of
comparable maturity and/or fees and points which exceed the greater of 8% of the
total loan amount or $400. 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 their 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, without limitation, the right to rescind the mortgage loan.
Risk of Seller Insolvency. The Seller believes that the transfer of the
Mortgage Loans to the Depositor and by the Depositor to the Trust constitutes a
sale by the Seller to the Depositor and by the Depositor to the Trust and,
accordingly, that such Mortgage Loans will not be part of the assets of the
Seller in the event of the insolvency of the Seller and will not be available to
the creditors of the Seller. However, in the event of an insolvency of the
Seller, it is possible that a bankruptcy trustee or a creditor of the Seller may
argue that the transaction between the Seller and the Depositor was a pledge of
such Mortgage Loans in connection with a borrowing by the Seller rather than a
true sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Certificates.
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On the Closing Date, the Trustee and the Seller will have received an
opinion of Arter & Hadden, counsel to the Seller, with respect to the true sale
of the Initial Mortgage Loans from the Seller to the Depositor and from the
Depositor to the Trustee, in form and substance satisfactory to the Trustee, the
Certificate Insurer and the Rating Agencies.
Risk of Higher Default Rates Associated with California Real Property.
Because ____% by principal amount of the Mortgaged Properties relating to
Initial Mortgage Loans are located in the State of California, an overall
decline in the related residential real estate markets could adversely affect
the values of the Mortgaged Properties securing such Initial Mortgage Loans
causing the Loan Balances of the related Initial Mortgage Loans to equal or
exceed the value of such Mortgaged Properties.
The standard hazard insurance policy required to be maintained under
the terms of each Mortgage Loan does not insure against physical damage arising
from earth movement (including earthquakes, landslides and mudflows). See
"Servicing of Mortgage Loans and Contracts--Standard Hazard Insurance" in the
Prospectus.
Risk Associated with the Certificate Insurer. If the protection
afforded by overcollateralization and crosscollateralization is insufficient and
if, upon the occurrence of a Subordination Deficit, the Certificate Insurer is
unable to meet its obligations under the Certificate Insurance Policies, then
the Owners of the Class A Certificates could experience a loss on their
investment.
THE PORTFOLIO OF MORTGAGE LOANS
General
The Mortgage Loan Pool primarily includes newly originated loans which
were purchased by the Depositor from the Seller, which acquired such loans from
the related Originators.
Each Originator (or other responsible party) has made certain
representations and warranties with respect to Mortgage Loans originated or sold
by it, as specified below, and, upon a breach of such representations and
warranties occurring after sale of the related Mortgage Loan to the Trust, may
be required to repurchase such Mortgage Loan from the Trust.
Underwriting Guidelines
The Mortgage Loans have been originated by the Originators in
accordance with the underwriting guidelines established by each of them and
reviewed and approved by the Seller (the "Underwriting Guidelines"). The
Underwriting Guidelines are primarily intended to evaluate the value and
adequacy of the mortgaged property as collateral and are also intended to
consider the mortgagor's credit standing and repayment ability. On a
case-by-case basis, the Originator may determine that, based upon compensating
factors, a prospective mortgagor not strictly qualifying under the Underwriting
Guidelines warrants an underwriting exception. Compensating factors may include,
but are not limited to, low loan-to-value ratio, low debt-to-income ratio, good
credit history, stable employment, pride of ownership and time in residence at
the applicant's current address. It is expected that a substantial number of the
Mortgage Loans to be included in the Mortgage Pool will represent such
underwriting exceptions.
Under the Underwriting Guidelines, the Originators review and verify
the loan applicant's sources of income (except under the stated income
programs), calculate the amount of income from all such sources indicated on the
loan application, review the credit history of the applicant and calculate the
debt-to-income ratio to determine the applicant's ability to repay the loan, and
review the mortgaged property for compliance with their Underwriting Guidelines.
The Underwriting Guidelines are applied in accordance with a procedure which
complies with applicable federal and state laws and regulations and requires (i)
an appraisal of the mortgaged property which conforms to FHLMC and FNMA
standards and (ii) a review of such appraisal, which review may be conducted by
the Originator's staff appraiser or representative and, depending upon the
original principal balance and loan-to-value ratio of the mortgaged property may
include a desk review of the original appraisal or a drive-by review appraisal
of the mortgaged property. The Underwriting Guidelines permit single-family
loans with loan-to-value ratios at origination of up to 90% for the highest
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credit grading category (75% under the stated income programs), depending on the
type and use of the property, the creditworthiness of the mortgagor and the
debt-to-income ratio. Under the Underwriting Guidelines, the maximum combined
loan-to-value ratio for purchase money mortgage loans may differ from those
applicable to refinancings.
All of the Mortgage Loans are based on loan application packages
submitted through mortgage brokerage companies or at the related Originator's
retail branches or are purchased from originators approved by the Originators.
Loan application packages submitted through mortgage brokerage companies,
containing in each case relevant credit, property and underwriting information
on the loan request, are compiled by the applicable mortgage brokerage company
and submitted to the Originator for approval and funding. The mortgage brokerage
companies receive a portion of the loan origination fee charged to the mortgagor
at the time the loan is made.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's liabilities, income, credit history
and employment history, as well as certain other personal information. Each
Originator requires a credit report on each applicant from a credit reporting
company. The applicant must provide to the related Originator or the originator
a letter explaining all late payments on mortgage debt and, generally, consumer
(i.e., non-mortgage) debt. The report typically contains information relating to
such matters as credit history with local and national merchants and lenders,
installment debt payments and any record of defaults, bankruptcy, repossession,
suits or judgments. Self-employed individuals are generally required to submit
their two most recent federal income tax returns. As part of their quality
control systems, each Originator generally reverifies information with respect
to the foregoing matters that has been provided by the mortgage brokerage
company prior to funding a loan and periodically audits files based on a random
sample of closed loans. In the course of their pre-funding audit, each
Originator generally reverifies the income of each mortgagor or, for a
self-employed individual, reviews the income documentation obtained pursuant to
the Underwriting Guidelines (except under stated income programs). If the
loan-to-value ratio is greater than a predetermined level, the Originators
generally verify the source of funds for the down payment; however, the related
Originator may not verify the source of funds if the loan-to-value ratio is less
than such level.
Mortgaged properties that are to secure mortgage loans are generally
appraised by qualified independent appraisers who are approved by the related
Originator. In most cases, below-average properties (including properties
requiring major deferred maintenance) are not acceptable as security for
mortgage loans under the Underwriting Guidelines. Each appraisal includes a
market data analysis based on recent sales of comparable homes in the area and,
where deemed appropriate, replacement cost analysis based on the current cost of
constructing a similar home. Except with respect to purchase money mortgage
loans, every independent appraisal is generally reviewed by the related
Originators before the loan is funded, and a drive-by review or appraisal is
generally performed in connection with loan amounts over a certain predetermined
dollar amount established for each State. With respect to purchase money
mortgage loans, an independent appraisal may be reviewed the Originator.
The Underwriting Guidelines are less stringent than the standards
generally acceptable to FNMA and FHLMC with regard to the mortgagor's credit
standing and repayment ability. Mortgagors who qualify under the Underwriting
Guidelines generally have payment histories and debt ratios which would not
satisfy FNMA and FHLMC underwriting guidelines and may have a record of major
derogatory credit items such as outstanding judgments or prior bankruptcies. The
Underwriting Guidelines establish the maximum permitted loan-to-value ratio for
each loan type based upon these and other risk factors.
The Mortgage Loans originated by the Originators were originated
consistent with and generally conform to "Full Documentation", "Limited
Documentation", or "Stated Income Documentation" residential loan programs.
Under each of the programs, the related Originator generally reviews the
applicant's source of income, calculates the amount of income from sources
indicated on the loan application or similar documentation, reviews the credit
history of the applicant, calculates the debt service-to-income ratio to
determine the applicant's ability to repay the loan, reviews the type and use of
the property being financed, and reviews the property. In determining the
ability of the applicant to repay the loan, a rate is established that generally
is equal to the lesser of the fully indexed interest rate on the loan being
applied for or one percent above the initial interest rate on such loan. The
Underwriting Guidelines require that mortgage loans be underwritten in a
standardized procedure which complies with applicable federal and state laws and
regulations and requires the Originator's underwriters to be satisfied that the
value of the property being financed, as indicated by an appraisal and a review
of the appraisal, currently supports the outstanding loan balance. In general,
the
S-20
<PAGE>
maximum loan amount for mortgage loans originated under the programs is
$350,000. Mortgage loans may, however, be originated generally up to $500,000,
provided the LTV is at least 5% below the applicable residential loan program
maximum that would otherwise apply. The Underwriting Guidelines permit
one-to-four-family loans to have LTV's at origination of generally up to 90%,
depending on, among other things, the purpose of the mortgage loan, a
mortgagor's credit history, repayment ability and debt service-to-income ratio,
as well as the type and use of the property. With respect to mortgage loans
secured by mortgaged properties acquired by a mortgagor under a "lease option
purchase," the LTV of the related mortgage loan is generally based on the
appraised value at the time of origination of such mortgage loan.
The Underwriting Guidelines require that income be verified for each
applicant and that the source of funds (if any) required to be deposited by the
applicant into escrow under its various programs as follows: Under the Full
Documentation programs, applicants generally are required to submit two written
forms of verification of stable income for 24 months (or, if the LTV is less
than or equal to 65%, for 12 months). Under the Limited Documentation programs,
generally one such form of verification is required for 12 months. Under the
Stated Income Documentation programs, generally an applicant may be qualified
based upon monthly income as stated on the mortgage loan application if the
applicant meets certain criteria. All the foregoing programs typically require
that with respect to each applicant, there be a telephone verification of the
applicant's employment. Verification of the source of funds (if any) required to
be deposited by the applicant into escrow in the case of a purchase money loan
is generally required under the Full Documentation program guidelines. No such
verification is required under the other programs.
The Underwriting Guidelines require title insurance on all mortgage
loans secured by liens on real property. The Underwriting Guidelines also
require that fire and extended coverage casualty insurance be maintained on the
secured property in an amount at least equal to the principal balance of the
related single-family loan or the replacement cost of the property, whichever is
less.
Under the Underwriting Guidelines, various risk categories are used to
grade the likelihood that the mortgagor will satisfy the repayment conditions of
the mortgage loan. These risk categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor's credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the Underwriting
Guidelines establish lower maximum loan-to-value ratios and maximum loan amounts
for loans graded in such categories.
ARCC Performance Assumption Grouping
The Seller, through its manager AMRESCO Residential Credit Corporation
("ARCC"), performs due diligence on all mortgage loan portfolios which it
acquires, including the Mortgage Loans included in the Trust Estate. Part of
ARCC's review includes a review of the credit-grading process of the related
Originators. ARCC has developed Performance Assumption Groupings ("PAGs") which
are similar to a credit-grading criteria. ARCC determines which PAG the
originators' related credit grade most closely matches, and all loans which the
Originator has placed in that credit grade are placed in the related PAG
category. Because there are multiple factors in both the credit grades
identified by the originators and the PAG categories, it is unlikely that any
credit grade designation will match up exactly to any PAG category. ARCC uses
its best efforts to match the categories based upon its projection of asset
performance for the related credit grade and PAG. It should be noted that while
the Originators have specific criteria for credit grades, they have the
discretion to place a loan in a credit grade for which it does not meet all of
the criteria, based upon consideration of all relevant factors. It should
further be noted that ARCC does not make any attempt to determine how individual
loans would fall under the PAG criteria described below, but only associates the
existing credit grades of the Originator to the various PAG categories.
S-21
<PAGE>
Seller's PAG I
The maximum LTV for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 90% or less.
The maximum back-end debt ratio should not exceed 50%. The prospective
mortgagor should have approximately five (5) years of established
credit with five (5) trade lines. In the last 12 months, mortgage
credit should show no delinquencies in excess of 30 days, and in the
last 24 months, should show delinquencies only for 30 days or less. The
credit history should reveal no foreclosures. In the last 12 months,
installment and revolving accounts should indicate no delinquencies for
major credit, and a maximum of 30 days for minor credit. In the last 24
months, both major and minor credit should be a maximum of 30 days
delinquent. There should be no evidence of judgments, charge offs,
collections or bankruptcies affecting the mortgagor. In last 36 months,
the prospective mortgagor should have had only minor collection actions
totaling less than $500.
Seller's PAG II
The maximum LTV for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 85% or less.
The maximum back end debt ratio should not exceed 50%. The customer
should have approximately three (3) years of established credit with
three (3) trade lines. In the last 12 months, mortgage credit should
show no more than two 30-day delinquencies and no 60-day delinquencies,
and all credits should be current at the time of origination; in the
last 24 months, the credit history should show a maximum of 30 day
delinquencies. In the last 12 months, installment and revolving
accounts should include no more than two 30-day delinquencies for major
credit and a maximum of 60 day delinquency for minor credit. In the
last 24 months, the maximum delinquency should be 60 days for both
major and minor credit. In the last 12 months, there should be no
collection action taken against the prospective mortgagor. In the last
24 months, there should be no judgments or charge offs against the
prospective mortgagor, and discharged bankruptcies should have
reestablished credit with no delinquencies. In the last 36 months,
mortgagor should be subject to only minor collection actions totaling
less than $1,000.
Seller's PAG III
The maximum LTV for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 80% or less.
The maximum back end debt ratio should not exceed 50%. The customer
should have approximately two (2) years of established credit with two
(2) trade lines. In the last 12 months, mortgage credit should show no
more than three 30-day delinquencies and one 60-day delinquency.
Mortgage credit should be a maximum 30 days delinquent at the time of
origination, and in the last 24 months, a maximum of 60 days
delinquent. In the last 12 months, installment and revolving accounts
should show no more than two 60-day delinquencies for major credit and
a maximum delinquency of 90 days for minor credit. In the last 24
months, installment and revolving accounts should be a maximum 90 days
delinquent for both major and minor credit. In the last 12 months,
there should be no judgments or charge offs, and only minor collection
actions totaling less than $500 against the prospective mortgagor. In
the last 24 months, the prospective mortgagor is permitted to have
judgments or charge offs totaling less than $500, and discharged
bankruptcies with a maximum 30-day delinquency on reestablished credit.
In the last 36 months, collection actions totaling less than $2,500 are
permitted.
Seller's PAG IV
The maximum LTV for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 75% or less.
The maximum back-end debt ratio should not exceed 55%. There is no
requirement for an established credit history. In the last 12 months,
mortgage credit should include no more than four 30-day delinquencies
and two 60-day delinquencies, and mortgage credit should be a maximum
of 90 days delinquent at the time of origination. In the last 12
months, installment and revolving accounts should show no more than two
90-day delinquencies for major credit and a maximum of 90 day
delinquencies for minor credit. In the last 24 months, installment and
revolving accounts should be a maximum 90 days delinquent for both
major and minor credit. In the last 12 months, mortgagor may have
discharged
S-22
<PAGE>
bankruptcies with maximum 30 day delinquency on reestablished credit,
and collection actions totaling less than $2,500 are permitted. In the
last 24 months, total judgments and charge offs should be less than
$2,500.
Seller's PAG V
The maximum LTV for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 65% or less.
The maximum back-end debt ratio should not exceed 55%. There is no
requirement for an established credit history. In the last 12 months,
mortgage credit should be a maximum of 120 days delinquent, and no
foreclosure may be pending at the time of origination. In the last 24
months, mortgage credit should be a maximum of 120 days delinquent.
There are no stipulations regarding other derogatory information other
than that bankruptcies should have been discharged.
Approximately _____%, _____%, _____%, and _____% of the Initial Group I
Mortgage Loans and _____%, _____%, _____%, and _____% of the Initial Group II
Mortgage Loans are in the Seller's PAG II, PAG III, PAG IV, and PAG V,
categories, respectively.
Approximately _____%, _____%, and _____% of the Initial Group I
Mortgage Loans and _____%, _____%, and _____% of the Initial Group II Mortgage
Loans are in the Full Documentation, Limited Documentation and Stated Income
Documentation programs, respectively.
Prepayment Penalties
Any Mortgage Loan may be prepaid in full or in part at any time;
however, approximately _____% of the Initial Mortgage Loans in Group I and
_____% of the Initial Mortgage Loans in Group II provide for the payment by the
Mortgagor of a prepayment charge in limited circumstances on certain full or
partial prepayments made for up to five years from the date of execution of the
related Note. The amount of the prepayment charge is as provided in the related
Note. In general, the Note provides that a prepayment charge will apply if, in
any twelve-month period generally during the first five years from the date of
origination of such Mortgage Loan, the Mortgagor prepays an aggregate amount
exceeding 20% of the original principal balance of such Mortgage Loan. The
amount of the prepayment charge will generally be equal to six months' advance
interest calculated on the basis of the rate in effect at the time of such
prepayment on the amount prepaid in excess of 20% of the original balance of
such Mortgage Loan.
The Seller plans to initiate a refinance policy with the Originators
who originated Mortgage Loans for the Trust and for other trusts in which the
Seller or an affiliate of the Seller owns a residual interest in an effort to
retain borrowers who the Seller or the Originators believe are likely to
refinance their loans due to interest rate changes or other reasons. Although
the policy is expected to permit the Originators to solicit such borrowers in
accordance with the Seller's policy, the Depositor believes that this practice
will not likely result in a material change in the prepayment experience of the
Trust because the solicited borrowers would have been expected to refinance
through other originators in any event.
Representations Relating to the Mortgage Loans
Each Originator will have made representations and warranties in
respect of the Mortgage Loans sold by such Originator to the Seller in a loan
purchase and sale agreement (each, a "Transfer Agreement"), which will be
assigned to the Trust. Such representations and warranties generally include,
among other things, that: (i) the information with respect to each Mortgage Loan
set forth in the related Schedule of Mortgage Loans is true and correct as of
the specified date; (ii) each Mortgaged Property is improved by a one-to-four
family residential dwelling, which may include condominiums, townhouses and
manufactured housing permanently attached to foundations; (iii) each Mortgage
Loan had, at the time of origination, either an attorney's certification of
title or a title search or title policy; (iv) as of the Cut-Off Date each
Mortgage Loan was secured by a valid and subsisting first lien of record on the
Mortgaged Property subject in all cases only to the exceptions to title set
forth in the title insurance policy, if any, with respect to the related
Mortgage Loan; (v) each Originator held good and indefeasible title to, and was
the sole owner of, each Mortgage Loan when conveyed by such Originator; and (vi)
each Mortgage Loan was originated in accordance with applicable law and is the
valid, legal and binding obligation of the related Mortgagor.
S-23
<PAGE>
If an Originator cannot cure a breach of any representation or warranty
made by it in respect of a Mortgage Loan that materially and adversely affects
the interests of the Owners or the Certificate Insurer in such Mortgage Loan
within a time period specified in the Transfer Agreement, such Originator will
be obligated under the related Transfer Agreement to purchase from the Trust
such Mortgage Loan at a price (the "Loan Purchase Price") set forth in the
related Transfer Agreement which Loan Purchase Price will be no less than the
principal balance thereof as of the date of purchase plus one month's interest
at the Mortgage Rate (net of the applicable Servicing Fee) (the "Net Coupon
Rate").
As to any such Mortgage Loan required to be repurchased by an
Originator as provided above, rather than repurchase the Mortgage Loan, such
Originator may, at its sole option, remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the Trust and cause the substitution in its place of
another Mortgage Loan of like kind (a "Qualified Replacement Mortgage" as such
term is defined in the Agreement); however, such substitution of a defective
Mortgage Loan may not be made if such substitution would cause the REMIC Trust
not to qualify as a REMIC or result in a prohibited transaction tax under the
Code (generally after two years from the Startup Day).
Upon receipt of notice by a Servicer or upon a Servicer becoming aware
that a representation and warranty made by an Originator in the Transfer
Agreement has been breached, such Servicer will be required to promptly notify
the related Originator, the Certificate Insurer, the Trustee and the Seller of
such breach and request that such Originator cure such breach or honor its
repurchase or substitution obligations for the benefit of the Trust. The
foregoing will constitute the sole remedy available to the Trust for a breach of
representation by an Originator.
The Servicers
The information set forth below concerning the Servicers has been
provided to the Depositor by the related Servicer. Neither the Depositor, the
Seller, the Underwriters nor any of their respective affiliates have made any
independent investigation of such information, nor has either Servicer made any
such investigation with respect to information about the other Servicer.
USE OF PROCEEDS
The Depositor will sell the Initial Mortgage Loans to the Trust
concurrently with delivery of the Certificates. Net proceeds from the sale of
the Class A Certificates will be applied by the Depositor to the purchase of the
Initial Mortgage Loans from the Seller, to the deposit of the Initial Pre-Funded
Amount in the Pre-Funding Account and to the deposit of certain amounts to the
Capitalized Interest Account. Such net proceeds less the Initial Pre-Funded
Amount and the amount deposited in the Capitalized Interest Account will
(together with the Subordinate Certificates retained by the Depositor or its
affiliates) represent the purchase price to be paid by the Trust to the
Depositor for the Initial Mortgage Loans.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on November 9,
1995 and is a wholly-owned subsidiary of AMRESCO, INC. The Depositor maintains
its principal offices at 700 N. Pearl Street, Suite 2400, Dallas, Texas 75201.
Neither the Depositor nor any of its affiliates will insure or guarantee
distributions on the Certificates.
THE SELLER
The Seller, formerly known as AMRESCO Residential Mortgage Corporation,
was incorporated in the State of Delaware on October 13, 1995 and is a
wholly-owned subsidiary of AMRESCO, INC. The Seller changed its name on
September 25, 1996. The Seller maintains its principal offices at 700 N. Pearl
Street, Suite 2400, Dallas, Texas 75201. Neither the Seller nor any of its
affiliates will insure or guarantee distributions on the Certificates.
S-24
<PAGE>
THE MORTGAGE LOAN POOLS
General
The statistical information presented in this Prospectus Supplement
concerning the pool of Mortgage Loans is based on the pool of Initial Mortgage
Loans as of the Cut-Off Date. Subsequent Mortgage Loans are intended to be
purchased by the Trust from the Depositor for inclusion in the Trust from time
to time on or before __________, 199__ from funds on deposit in the Pre-Funding
Account. The Initial Mortgage Loans, any Qualified Replacement Mortgages and the
Subsequent Mortgage Loans are referred to herein collectively as the "Mortgage
Loans." The Subsequent Mortgage Loans, if available, to be purchased by the
Trust will be sold by the Originators to the Seller, by the Seller to the
Depositor and then by the Depositor to the Trust.
This subsection describes generally certain characteristics of the
Initial Mortgage Loans. Unless otherwise specified herein, references herein to
percentages of loan principal balances relating to the Initial Mortgage Loans
refer in each case to the approximate percentage of the aggregate principal
balance of the Initial Mortgage Loans as of the Cut-Off Date, based on the
scheduled principal balances of the Initial Mortgage Loans or the Initial
Mortgage Loans in the applicable Mortgage Loan Group, in each case as of the
Cut-Off Date, after giving effect to all principal payments due on or prior to
the Cut-Off Date. The Initial Mortgage Loan Pool consists of fixed rate and
adjustable-rate Mortgage Loans with remaining terms to maturity of not more than
360 months (including both fully amortizing Mortgage Loans and Balloon Mortgage
Loans). The Initial Mortgage Loans have the characteristics set forth below as
of the Cut-Off Date. Percentages expressed herein based on Loan Balances and
number of Initial Mortgage Loans have been rounded, and in the tables set forth
herein the sum of the percentages may not equal the respective totals due to
such rounding.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups consisting of Mortgage Loans which bear fixed rates only (other than
5/25 Loans which bear fixed rates for five years from origination and then bear
adjustable rates), in the case of Group I, and Mortgage Loans which bear
adjustable interest rates (including 2/28 Loans and 3/27 Loans), in the case of
Group II. The Fixed Rate Group Certificates represent undivided ownership
interests in all Mortgage Loans contained in Group I, and distributions on the
Fixed Rate Group Certificates will be based primarily on amounts available for
distribution in respect of Mortgage Loans in Group I. The Adjustable Rate Group
Certificates represent undivided ownership interests in all Mortgage Loans
contained in Group II, and distributions on the Adjustable Rate Group
Certificates will be based primarily on amounts available for distribution in
respect of Mortgage Loans in Group II.
The Loan-to-Value Ratios shown below were calculated based upon the
appraised values of the Mortgaged Properties at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Mortgaged
Properties have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the residential real estate market
has experienced or should experience an overall decline in property values such
that the outstanding balance of any Mortgage Loan becomes equal to or greater
than the value of the Mortgaged Property, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry.
All of the Mortgage Loans are "Actuarial Loans", which provide that
interest is charged to the Mortgagors thereunder, and payments are due from such
Mortgagors, as of a scheduled day of each month which is fixed at the time of
origination. Scheduled monthly payments made by the Mortgagors on the Actuarial
Loans either earlier or later than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest.
Initial Mortgage Loans -- Group I
The information set forth with respect to Group I is based upon data
provided to the Depositor by each of the related Originators and has been
compiled by the Depositor. Neither the Depositor, the Seller, the Servicers, the
Underwriters, the Originators nor any of their respective affiliates have made
or will have made any representation as to the accuracy or completeness of such
compiled information.
S-25
<PAGE>
As of the Cut-Off Date, the average Loan Balance of the Initial
Mortgage Loans in Group I was $___________; the weighted average Loan-to-Value
Ratio of the Initial Mortgage Loans in Group I was _____%; the weighted average
remaining term to maturity was _____ months; the weighted average original term
to maturity was _____ months. The remaining terms to maturity as of the Cut-Off
Date of the Initial Mortgage Loans in Group I ranged from _____ months to 360
months. The minimum and maximum Loan Balances of Initial Mortgage Loans in Group
I as of the Cut-Off Date were $___________ and $___________, respectively.
Balloon Mortgage Loans represent not more than _____% of the Original Aggregate
Loan Balance of the Initial Mortgage Loans in Group I. % of the Initial Mortgage
Loans in Group I are secured by first lien mortgages or deeds of trust. No
Initial Mortgage Loan in Group I will mature later than , 202___________.
_____% of the Initial Mortgage Loans in Group I bear interest at a
fixed rate for the life of the related Mortgage Loans. The Initial Mortgage
Loans in Group I consist of Mortgage Loans aggregating $___________. The Coupon
Rates of the Initial Mortgage Loans in Group I ranged from _____% per annum to
_____% per annum. The weighted average Coupon Rate of the Initial Mortgage Loans
in Group I was _____% per annum.
____% of the Initial Mortgage Loans in Group I are 5/25 Loans. The
5/25 Loans are all subject to a % periodic rate adjustment cap and substantially
all have a lifetime reset cap of % to %. The 5/25 Loans consist of Initial
Mortgage Loans aggregating $___________.
S-26
<PAGE>
Geographic Distribution of Mortgaged Properties--Initial Group I Mortgage Loans
The geographic distribution of Initial Mortgage Loans in Group I by
state, as of the Cut-Off Date, was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group I Aggregate Group I Group I
Geographic Area Mortgage Loans Loan Balance Loan Balance
- -------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Alabama
Arizona
California
Colorado
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maryland
Michigan
Minnesota
Missouri
Nevada
New Jersey
New Mexico
New York
North Carolina
Ohio
Oregon
Pennsylvania
Tennessee
Texas
Utah
Washington
West Virginia
Wisconsin
Wyoming
Total 100.00%
-------
-------
</TABLE>
S-27
<PAGE>
Original Loan-to-Value Ratios -- Initial Group I Mortgage Loans
The original loan-to-value ratios as of the date of origination of the
Initial Mortgage Loans in Group I (based upon appraisals made at the time of
origination thereof) (the "Loan-to-Value Ratios") as of the Cut-Off Date were
distributed as follows:
<TABLE>
<CAPTION>
% of Aggregate
Range of Number of Group I Aggregate Group I Group I
Original LTVs Mortgage Loans Loan Balance Loan Balance
- ------------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
5.01 - 10.00%
10.01 - 15.00%
15.01 - 20.00%
20.01 - 25.00%
25.01 - 30.00%
30.01 - 35.00%
35.01 - 40.00%
40.01 - 45.00%
45.01 - 50.00%
50.01 - 55.00%
55.01 - 60.00%
60.01 - 65.00%
65.01 - 70.00%
70.01 - 75.00%
75.01 - 80.00%
80.01 - 85.00%
85.01 - 90.00%
Total: 100.00%
--------
--------
</TABLE>
Cut-Off Date Coupon Rates -- Initial Group I Mortgage Loans
The Coupon Rates borne by the Notes relating to the Initial Mortgage
Loans in Group I were distributed as follows as of the Cut-Off Date:
<TABLE>
<CAPTION>
% of Aggregate
Range of Number of Group I Aggregate Group I Group I
Coupon Rates Mortgage Loans Loan Balance Loan Balance
- ------------ ----------------- ----------------- ---------------
<S> <C> <C> <C>
6.501 - 7.000%
7.501 - 8.000%
8.001 - 8.500%
8.501 - 9.000%
9.001 - 9.500%
9.501 - 10.000%
10.001 - 10.500%
10.501 - 11.000%
11.001 - 11.500%
11.501 - 12.000%
12.001 - 12.500%
12.501 - 13.000%
13.001 - 13.500%
13.501 - 14.000%
14.001 - 14.500%
14.501 - 15.000%
Total 100.00%
--------
--------
</TABLE>
S-28
<PAGE>
Cut-Off Date Loan Balances -- Initial Group I Mortgage Loans
The distribution of the outstanding principal amounts of the Initial
Mortgage Loans in Group I as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group I Aggregate Group I Group I
Range of Loan Balances Mortgage Loans Loan Balance Loan Balance
- ---------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
$0.01 - $50,000.00
50,000.01 - 100,000.00
100,000.01 - 150,000.00
150,000.01 - 200,000.00
200,000.01 - 250,000.00
250,000.01 - 300,000.00
300,000.01 - 350,000.00
350,000.01 - 400,000.00
400,000.01 - 450,000.00
450,000.01 - 500,000.00
Total 100.00%
-------
-------
</TABLE>
Types of Mortgaged Properties -- Initial Group I Mortgage Loans
The Mortgaged Properties securing the Initial Mortgage Loans in Group I
as of the Cut-Off Date were of the property types as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group I Aggregate Group I Group I
Property Types Mortgage Loans Loan Balance Loan Balance
- -------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
Single-family
PUD
Townhouses
Condominiums
Manufactured Home
Apartment 2-4 Units
Other
Total 100.00%
--------
--------
</TABLE>
Months Since First Payment Date -- Initial Group I Mortgage Loans
The distribution of the number of months since the date of origination
of the Initial Mortgage Loans in Group I as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Months Elapsed Number of Group I Aggregate Group I Group I
Since Origination Mortgage Loans Loan Balance Loan Balance
- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
0 - 6
7 - 12
Total 100.00%
-------
-------
</TABLE>
S-29
<PAGE>
Remaining Term to Maturity -- Initial Group I Mortgage Loans
The distribution of the number of months remaining to maturity of the
Initial Mortgage Loans in Group I as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Months Remaining Number of Group I Aggregate Group I Group I
to Maturity Mortgage Loans Loan Balance Loan Balance
- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
0 - 60
61 - 120
121 - 180
181 - 240
241 - 360
Total 100.00%
-------
-------
Occupancy Status -- Initial Group I Mortgage Loans
The occupancy status of the Mortgaged Properties securing the Initial
Mortgage Loans in Group I as of the Cut-Off Date was as follows:
% of Aggregate
Number of Group I Aggregate Group I Group I
Occupancy Status Mortgage Loans Loan Balance Loan Balance
- ---------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
Owner Occupied
Non-Owner Occupied
Total 100.00%
--------
--------
</TABLE>
Initial Mortgage Loans -- Group II
The information set forth with respect to Group II is based upon data
provided to the Depositor by each of the related Originators and has been
compiled by the Depositor. Neither the Depositor, the Seller, the Servicers, the
Underwriters, the Originators nor any of their respective affiliates have made
or will have made any representation as to the accuracy or completeness of such
compiled information.
As of the Cut-Off Date, the average Loan Balance of the Initial
Mortgage Loans in Group II was $___________; the Coupon Rates of the Initial
Mortgage Loans in Group II ranged from _____% per annum to _____% per annum; the
weighted average Loan-to-Value Ratio of the Initial Mortgage Loans in Group II
was _____%; the weighted average Coupon Rate of the Initial Mortgage Loans in
Group II was _____% per annum; the weighted average remaining term to maturity
was _____ months; and the weighted average original term to maturity was _____
months. The remaining terms to maturity as of the Cut-Off Date of the Initial
Mortgage Loans in Group II ranged from _____ months to _____ months. The minimum
and maximum Loan Balances of Initial Mortgage Loans in Group II as of the
Cut-Off Date were $___________ and $___________, respectively. None of the
Initial Mortgage Loans in Group II provided for "balloon" payments. No Initial
Mortgage Loan in Group II will mature later than June 1, 2026.
All of the Initial Mortgage Loans in Group II have maximum Coupon
Rates. The weighted average maximum Coupon Rate of the Initial Mortgage Loans in
Group II was _____% per annum, with maximum Coupon Rates that range from _____%
per annum to _____% per annum. The weighted average minimum Coupon Rate of the
Initial Mortgage Loans in Group II was _____% per annum, with minimum Coupon
Rates that range from _____% to _____% per annum. The Initial Mortgage Loans in
Group II have a weighted average gross margin as of the Cut-Off Date of _____%.
The gross margin for the Initial Mortgage Loans in Group II range from _____% to
_____%.
S-30
<PAGE>
_____% of the Initial Mortgage Loans in Group II are Six-Month LIBOR
Loans that bear interest at rates that adjust, along with the related monthly
payments, semiannually based on Six-Month LIBOR. _____% of the Six-Month LIBOR
Loans have a semiannual reset cap of _____%, substantially all of which have a
lifetime reset cap of _____% and _____% have a semiannual reset cap of %. _____%
of the Initial Mortgage Loans in Group II have a semiannual reset cap of %,
substantially all of which have a lifetime reset cap of %. The Six Month LIBOR
Loans consist of Initial Mortgage Loans aggregating $_____.
% of the Initial Mortgage Loans in Group II are 2/28 Loans that
bear interest at a fixed rate of interest for a period of approximately two
years after origination and thereafter have semiannual interest rate and payment
adjustments at frequencies and in the same manner as the Six-Month LIBOR Loans.
% of the 2/28 Loans have a periodic rate adjustment cap of % and substantially
all of which have a lifetime reset cap of % to %. % of the 2/28 Loans have a
periodic rate adjustment cap of % and have a lifetime reset cap of % to %. % of
the 2/28 Loans have a periodic rate adjustment cap of % and generally have a
lifetime reset cap of %. The 2/28 Loans consist of Initial Mortgage Loans
aggregating $_____.
% of the Initial Mortgage Loans in Group II are 3/27 Loans that
bear interest at a fixed rate of interest for a period of approximately three
years after origination and thereafter have semiannual interest rate and payment
adjustments at frequencies and in the same manner as the Six-Month LIBOR Loans
primarily subject to a % periodic rate adjustment cap and substantially all of
which have a lifetime reset cap of % to %. The 3/27 Loans consist of Initial
Mortgage Loans aggregating $_____.
Geographic Distribution of Mortgaged Properties--Initial Group II Mortgage Loans
The geographic distribution of Initial Mortgage Loans in Group II by
state, as of the Cut-Off Date, was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group II Aggregate Group II Group II
Geographic Area Mortgage Loans Loan Balance Loan Balance
- --------------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Alabama
Arizona
California
Colorado
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Michigan
Minnesota
Missouri
Nevada
New Jersey
New Mexico
Ohio
Oregon
Pennsylvania
Texas
Utah
Washington
Wisconsin
Total 100.00%
-------
-------
</TABLE>
S-31
<PAGE>
Original Loan-to-Value Ratios -- Initial Group II Mortgage Loans
The original Loan-to-Value Ratios of the Initial Mortgage Loans in
Group II as of the Cut-Off Date were distributed as follows:
<TABLE>
<CAPTION>
% of Aggregate
Range of Number of Group II Aggregate Group II Group II
Original LTV's Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- --------------- ------------------ ----------------------- ----------------------
<S> <C> <C> <C>
15.01 - 20.00%
25.01 - 30.00%
30.01 - 35.00%
35.01 - 40.00%
40.01 - 45.00%
45.01 - 50.00%
50.01 - 55.00%
55.01 - 60.00%
60.01 - 65.00%
65.01 - 70.00%
70.01 - 75.00%
75.01 - 80.00%
80.01 - 85.00%
85.01 - 90.00%
Total 100.00%
--------
--------
</TABLE>
Cut-Off Date Coupon Rates -- Initial Group II Mortgage Loans
The Coupon Rates borne by the Notes relating to the Initial Mortgage
Loans in Group II were distributed as follows as of the Cut-Off Date:
<TABLE>
<CAPTION>
% of Aggregate
Range of Number of Group II Aggregate Group II Group II
Coupon Rates Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- ------------ -------------------- --------------------- ---------------------
<S> <C> <C> <C>
6.001 - 6.500%
6.501 - 7.000%
7.001 - 7.500%
7.501 - 8.000%
8.001 - 8.500%
8.501 - 9.000%
9.001 - 9.500%
9.501 - 10.000%
10.001 - 10.500%
10.501 - 11.000%
11.001 - 11.500%
11.501 - 12.000%
12.001 - 12.500%
12.501 - 13.000%
13.001 - 13.500%
13.501 - 14.000%
14.001 - 14.500%
14.501 - 15.000%
Total 100.00%
--------
--------
</TABLE>
S-32
<PAGE>
Cut-Off Date Loan Balances -- Initial Group II Mortgage Loans
The distribution of the outstanding principal amounts of the Initial
Mortgage Loans in Group II as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group II Aggregate Group II Group II
Range of Loan Balances Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- ---------------------- -------------- --------------------- ---------------------
<S> <C> <C> <C>
$0.01 - $50,000.00
50,000.01 - 100,000.00
100,000.01 - 150,000.00
150,000.01 - 200,000.00
200,000.01 - 250,000.00
250,000.01 - 300,000.00
300,000.01 - 350,000.00
350,000.01 - 400,000.00
400,000.01 - 450,000.00
450,000.01 - 500,000.00
Total 100.00%
-------
-------
</TABLE>
Types of Mortgaged Properties -- Initial Group II Mortgage Loans
The Mortgaged Properties securing the Initial Mortgage Loans in Group
II as of the Cut-Off Date were of the property types as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group II Aggregate Group II Group II
Property Types Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- -------------- ------------------ --------------------- ----------------------
<S> <C> <C> <C>
Single Family
PUD
Condominiums
Manufactured Home
Apartment 2-4 Units
Other
Total 100.00%
-------
-------
</TABLE>
Months Since Origination -- Initial Group II Mortgage Loans
The distribution of the number of months since the date of origination
of the Initial Mortgage Loans in Group II as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Months Elapsed Number of Group II Aggregate Group II Group II
Since Origination Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- ----------------- ------------------- --------------------- -----------------------
<S> <C> <C> <C>
0 - 6
Total 100.00%
--------
--------
</TABLE>
S-33
<PAGE>
Remaining Term to Maturity -- Initial Group II Mortgage Loans
The distribution of the number of months remaining to maturity of the
Initial Mortgage Loans in Group II as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Months Remaining Number of Group II Aggregate Group II Group II
to Maturity Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- ---------------- ------------------- --------------------- ---------------------
<S> <C> <C> <C>
0 - 120
121 - 180
181 - 240
241 - 360
Total 100.00%
-------
-------
</TABLE>
Occupancy Status Initial -- Group II Mortgage Loans
The occupancy status of the Mortgaged Properties securing the Initial
Mortgage Loans in Group II as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group II Aggregate Group II Group II
Occupancy Status Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- ---------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
Owner Occupied
Non Owner Occupied
Total 100.00%
--------
--------
</TABLE>
S-34
<PAGE>
Margins -- Initial Group II Mortgage Loans
The margins borne by the Notes relating to the Initial Mortgage Loans
in Group II as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Number of Group II Aggregate Group II Group II
Margins Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
------- ------------------ ---------------------- ----------------------
<S> <C> <C> <C>
3.500% - 3.750%
3.751% - 4.000%
4.001% - 4.250%
4.251% - 4.500%
4.501% - 4.750%
4.751% - 5.000%
5.001% - 5.250%
5.251% - 5.500%
5.501% - 5.750%
5.751% - 6.000%
6.001% - 6.250%
6.251% - 6.500%
6.501% - 6.750%
6.751% - 7.000%
7.001% - 7.250%
7.251% - 7.500%
7.501% - 7.750%
7.751% - 8.000%
8.001% - 8.250%
Total 100.00%
-------
-------
</TABLE>
Maximum Coupon Rates -- Initial Group II Mortgage Loans
The maximum Coupon Rates borne by the Notes relating to the Initial
Mortgage Loans in Group II as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Maximum Number of Group II Aggregate Group II Group II
Coupon Rates Mortgage Loans Mortgage Loan Balance Mortgage Loan Balance
- ------------ -------------------- --------------------- ---------------------
<S> <C> <C> <C>
13.001 - 13.500%
13.501 - 14.000%
14.001 - 14.500%
14.501 - 15.000%
15.001 - 15.500%
15.501 - 16.000%
16.001 - 16.500%
16.501 - 17.000%
17.001 - 17.500%
17.501 - 18.000%
18.001 - 18.500%
18.501 - 19.000%
19.001 - 19.500%
19.501 - 20.000%
20.001 - 20.500%
20.501 - 21.000%
21.001 - 21.500%
21.501 - 22.000%
Total 100.00%
-------
-------
</TABLE>
S-35
<PAGE>
Next Rate Adjustment Date Change -- Initial Group II Mortgage Loans
Next rate adjustment date change for each of the Notes relating to the
Initial Mortgage Loans in Group II as of the Cut-Off Date was as follows:
<TABLE>
<CAPTION>
% of Aggregate
Date of Next Coupon Number of Group II Aggregate Group II Group II
Rate Change Mortgage Loans Loan Balance Loan Balance
------------------- ------------------ ------------------ --------------
<S> <C> <C> <C>
August 1, 1996
September 1, 1996
October 1, 1996
November 1, 1996
December 1, 1996
March 1, 1998
April 1, 1998
May 1, 1998
June 1, 1998
100.00%
Total -------
-------
</TABLE>
Conveyance of Subsequent Mortgage Loans
The Pooling and Servicing Agreement permits the Trust to acquire
approximately $__________ and $__________ in aggregate principal balance of
Subsequent Mortgage Loans for addition to Group I and Group II, respectively.
Accordingly, the statistical characteristics of the Mortgage Loan Pool and each
Group will vary as of any Subsequent Cut-Off Date upon the acquisition of
Subsequent Mortgage Loans.
The obligation of the Trust to purchase Subsequent Mortgage Loans on a
Subsequent Transfer Date is subject to the following requirements, among others:
(i) the ratings on the Class A Certificates shall not have been downgraded by
any Rating Agency; (ii) such Subsequent Mortgage Loan may not be 30 or more days
contractually delinquent as of the related Subsequent Cut-Off Date; (iii) the
remaining term to maturity of such Subsequent Mortgage Loan may not exceed 360
months; and (iv) following the purchase of all of the Subsequent Mortgage Loans
by the Trust, the Subsequent Mortgage Loans, as a whole, (a) will have a
weighted average Loan-to-Value Ratio of not more than _____%for the Fixed Rate
Group and _____% for the Adjustable Rate Group; (b) will have a weighted average
gross margin for each Mortgage Loan Group that is not more than basis points
less than the weighted average gross margin for such Mortgage Loan Group as of
the Cut-Off Date; (c) will have no more than _____% in the case of the Fixed
Rate Group and _____% in the case of the Adjustable Rate Group of such
Subsequent Mortgage Loans with Loan-to-Value Ratios in excess of _____%; (d)
will have no more than _____% in the case of the Fixed Rate Group and _____% in
the case of the Adjustable Rate Group with cash out refinancings; (e) in the
case of the Adjustable Rate Group only, will not be comprised of more than
_____% 2/28 Loans and 3/27 Loans; (f) will have weighted average PAG codes of
less than in the case of the Fixed Rate Group and less than in the case of the
Adjustable Rate Group; (g) will have Mortgage Loans that are not more than
_____%, in the case of the Fixed Rate Group, and _____% in the case of the
Adjustable Rate Group, that are in PAG IV and PAG V; and (h) will have no more
than _____% of the Fixed Rate Group and _____% of the Adjustable Rate Group that
are non-owner occupied properties.
PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par
(disregarding, for purposes of this discussion, the effect on an investor's
yield resulting from the timing of the settlement date and those considerations
discussed below under "Payment Lag Feature of Certain Fixed Rate Group
Certificates"), the yield to maturity on the Class A Certificates will be
affected by the rate of payment of principal of the Mortgage Loans in the
related Mortgage Loan Group, including for this purpose Prepayments,
liquidations due to defaults, casualties and condemnations, and repurchases by
S-36
<PAGE>
the Originators of Mortgage Loans. The actual rate of principal prepayments on
pools of mortgage loans is influenced by a variety of economic, tax, geographic,
demographic, social, legal and other factors and has fluctuated considerably in
recent years. In addition, the rate of principal prepayments may differ among
pools of mortgage loans at any time because of specific factors relating to the
mortgage loans in the particular pool, including, among other things, the age of
the mortgage loans, the geographic locations of the properties securing the
loans and the extent of the mortgagors' equity in such properties, changes in
the mortgagors' housing needs, job transfers and unemployment.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the Mortgage Loans in Group I
(other than the 5/25 Loans) is affected by prevailing market rates for mortgage
loans of a comparable term and risk level. When the market interest rate is
below the mortgage coupon, mortgagors may have an increased incentive to
refinance their mortgage loans. Depending on prevailing market rates, the future
outlook for market rates and economic conditions generally, some mortgagors may
sell or refinance mortgaged properties in order to realize their equity in the
mortgaged properties, to meet cash flow needs or to make other investments.
The Mortgage Loans in Group II are adjustable rate mortgage loans. As
is the case with conventional 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 loan to "lock
in" a lower fixed interest rate. However, no assurance can be given as to the
level of prepayments that the Mortgage Loans will experience.
The prepayment behavior of the 2/28 Loans and 3/27 Loans may differ
from that of the other Mortgage Loans in Group II and the prepayment behavior of
the 5/25 Loans may differ from that of the other Mortgage Loans in Group I. As a
2/28 Loan, 3/27 Loan or 5/25 Loan approaches its initial adjustment date, the
borrower may become more likely to refinance such loan to avoid an increase in
the Coupon Rate, even if fixed rate loans are only available at rates that are
slightly lower or higher than the Coupon Rate before adjustment. The existence
of the applicable periodic rate cap, lifetime cap and lifetime floor also may
affect the likelihood of prepayments resulting from refinancings. In addition,
the delinquency and loss experience on the Mortgage Loans in Group II may differ
from that on the Mortgage Loans in Group I because the amount of the monthly
payments on the Mortgage Loans in Group II are subject to adjustment on each
adjustment date.
The prepayment experience on non-conventional mortgage loans may differ
from that on conventional first mortgage loans, primarily due to the credit
quality of the typical borrower. Because the credit histories of many non-
conventional borrowers may preclude them from other traditional sources of
financing, such borrowers may be less likely to refinance due to a decline in
market interest rates. Non-conventional mortgage loans may experience more
prepayments in a rising interest rate environment as the borrower's finances are
stressed to the point of default. Prepayments may also affect the yield to the
Owners of the Adjustable Rate Group Certificates, if the weighted average
margins are reduced.
In addition to the foregoing factors affecting the weighted average
life of each Class of the Class A Certificates, the subordination provisions of
the Trust result in a limited acceleration of the Class A Certificates relative
to the amortization of the related Mortgage Loans until the related Specified
Subordination Amount is reached. The accelerated amortization is achieved by the
application of certain excess interest and principal to the payment of the Class
A Certificate Principal Balance. This acceleration feature creates
overcollateralization which results from the excess of the aggregate Loan
Balances of the Mortgage Loans over the Class A Certificate Principal Balance.
Once the required level of overcollateralization is reached, the acceleration
feature will cease, unless necessary to maintain the required level of
overcollateralization.
A majority of the Mortgage Loans contain prepayment penalty provisions.
For a discussion of such provisions, see "The Portfolio of Mortgage
Loans--Prepayment Penalties" herein.
Balloon Loans. The ability of mortgagors to make payments of Balloon
Payments will normally depend on the mortgagor's ability to obtain refinancing
of their Balloon Loans. The ability to obtain refinancing will depend on a
number of factors prevailing at the time refinancing is required, including,
without limitation, real estate values, the mortgagor's financial situation and
prevailing mortgage loan interest rates. Although the Originators sometimes
provide refinancing of Balloon Loans and may refinance any Mortgage Loan, they
are under no obligation to do so, and make no representation or warranty that
they will do so in the case of any Mortgage Loan. Delinquencies, if any, in the
payment of Balloon Payments may delay the date on which the Certificate
Principal Balance of one or more Classes of the Fixed Rate Group Certificates is
reduced to zero, and may increase the weighted average lives of such
Certificates. Although a low interest rate environment may facilitate the
refinancing of a Balloon Loan, the receipt and reinvestment by Owners of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Balloon Loan. Conversely, a high interest
rate environment may make it more difficult for the mortgagor to accomplish a
refinancing and may result in delinquencies or defaults.
S-37
<PAGE>
Mandatory Prepayment
In the event that at the end of the Funding Period, not all of the
Original Pre-Funded Amount has been used to acquire Subsequent Mortgage Loans,
then the related Class of Class A Certificates then entitled to receive payments
of principal will receive a partial prepayment on the Payment Date in ________
199__ in an amount equal the portion of the Original Pre-Funded Amount remaining
and allocable to each such Class.
Although no assurances can be given, the Depositor expects that the
principal amount of Subsequent Mortgage Loans sold to the Trust will require the
application of substantially all the amount on deposit in the Pre-Funding
Account and that there should be no material principal prepaid to the Owners of
the Class A Certificates on or before the Pre- Funding Payment Date.
Projected Prepayment and Yield for Class A Certificates
As indicated above, if purchased at other than par, the yield to
maturity on a Class A Certificate will be affected by the rate of the payment of
principal of the Mortgage Loans. If the actual rate of payments on the Mortgage
Loans is slower than the rate anticipated by an investor who purchases a Class A
Certificate at a discount, the actual yield to such investor will be lower than
such investor's anticipated yield. If the actual rate of payments on the
Mortgage Loans is faster than the rate anticipated by an investor who purchases
a Class A Certificate at a premium, the actual yield to such investor will be
lower than such investor's anticipated yield.
The "Final Scheduled Payment Date" for each Class of the Class A
Certificates is as follows: Class A-1, ____________, _____, Class A-2,
____________, _____, Class A-3, ____________, _____, Class A-4, ____________,
_____, Class A-5, ____________, _____, Class A-6, ____________, _____, Class
A-7, ____________, _____, and Class A-8, ____________, _____. These dates are
the dates on which the "Initial Certificate Principal Balance" set forth in the
summary hereof for the related Class as of the Closing Date less all amounts
previously distributed to the Owners on account of principal (such amount as to
any Class of the Class A Certificates and as of any time, the related "Class A
Certificate Principal Balance" and as to the Class A Certificates collectively,
the "Certificate Principal Balance") would be reduced to zero assuming that no
Prepayments are received on the Mortgage Loans in the related Group, that
scheduled monthly payments of principal of and interest on each of the related
Mortgage Loans are timely received and no optional termination or mandatory
termination is exercised. The weighted average life of the Class A 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 Payment
Date with respect to the Class A Certificates could occur significantly earlier
than the related Final Scheduled Payment Date because (i) Prepayments are likely
to occur, (ii) [the Owners of the Class R Certificates may cause a termination
of the Trust when the outstanding Certificate Principal Balance is less than 10%
of the original Certificate Principal Balance] and (iii) the Servicers may each
purchase all Mortgage Loans serviced by them, thereby causing a termination of
the Trust when the outstanding Certificate Principal Balance is less than 5% of
the Original Certificate Balance.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of any
Class of the Class A Certificates will be influenced by the rate at which
principal of the Mortgage Loans in the related Mortgage Loan Group is paid,
which may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes Prepayments and liquidations due to
default).
Each Accrual Period for the Adjustable Rate Group Certificates will
consist of the actual number of days elapsed from the 25th day of the month
preceding the month of the applicable Payment Date (or, in the case of the first
Accrual Period, from the Closing Date) through the 24th day of the month of such
Payment Date. After the initial Accrual Period, the Pass-Through Rate of the
Adjustable Rate Group Certificates will be adjusted by reference to changes in
the level of One-Month LIBOR, subject to the effects of the applicable
limitation described herein.
The Pass-Through Rate of the Adjustable Rate Group Certificates may be
calculated by reference to the Coupon Rates on the Mortgage Loans in the
Adjustable Rate Group. Although the Coupon Rates on the Mortgage Loans in the
Adjustable Rate Group are subject to adjustment, the Coupon Rates adjust less
frequently than the Pass-Through Rate of the Adjustable Rate Group Certificates
which adjust by reference to One-Month LIBOR. Changes in One-Month LIBOR may not
correlate with changes in Six-Month LIBOR 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, thereby reducing
the weighted average life of the Adjustable Rate Group Certificates.
Certain of the Mortgage Loans in Group II, including the 2/28 Loans and
the 3/27 Loans, were originated with initial Coupon Rates that were based on
competitive conditions. As a result, the Coupon Rates on such Mortgage Loans in
the Adjustable Rate Group are more likely to adjust on their first, and possibly
subsequent adjustment dates subject to the effects of the applicable periodic
rate cap and lifetime cap. Because the Pass-Through Cap on each Payment Date,
limits on changes in the Coupon Rates of the Mortgage Loans in the Adjustable
Rate Group may limit changes in the Pass-Through Rate of the Adjustable Rate
Group Certificates. In addition, the Coupon Rates for the 2/28 Loans will
S-38
<PAGE>
not adjust until approximately the date on which the 24th scheduled monthly
payment is due and the Coupon Rates for the 3/27 Loans will not adjust until
approximately the date on which the 37th scheduled monthly payment is due.
The Adjustable Rate Group Available Funds Cap on a Payment Date will
depend, in part, on the weighted average of the then-current Coupon Rates of the
outstanding Mortgage Loans in the Adjustable Rate Group. If the Mortgage Loans
in the Adjustable Rate Group bearing higher Coupon Rates were to prepay, the
weighted average Coupon Rate of the Mortgage Loans in the Adjustable Rate Group,
and consequently the Adjustable Rate Group Available Funds Cap, would be lower
than otherwise would be the case.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this Prospectus Supplement with
respect to Group I is the Home Equity Prepayment ("HEP") assumption. HEP assumes
that a pool of loans prepays in the first month of the life of such loan at a
constant prepayment rate that corresponds in CPR (as defined below) to one-tenth
the given HEP percentage and increases by an additional one-tenth each month
thereafter until the tenth month, where it remains at a CPR equal to the given
HEP percentage. The model used in this Prospectus Supplement with respect to
Group II is the Constant Prepayment Rate ("CPR") assumption. The CPR represents
an assumed constant rate of prepayment each month, expressed as an annual rate,
relative to the then outstanding principal balance on a pool of new mortgage
loans for the life of such Mortgage Loans. Neither model purports to be a
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 Depositor believes that no existing statistics of which it
is aware provide a reliable basis for Owners of the Class A Certificates to
predict the amount or the timing of receipt of prepayments on the Mortgage
Loans.
It is very unlikely that the Mortgage Loans will prepay at rates
consistent with HEP or CPR until maturity or that all of the Mortgage Loans in
the related Mortgage Loan Group will prepay at the same rate. There will be
discrepancies between the actual characteristics of the Mortgage Loans included
in the Trust and the assumed characteristics used in preparing the following
tables. Any discrepancy may have an effect upon the percentages of Initial
Certificate Principal Balance outstanding set forth in the table and the
weighted average lives of the Class A Certificates.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there will likely be discrepancies between the
characteristics of the actual Mortgage Loans and the characteristics of the
Mortgage Loans assumed in preparing the tables. Any such discrepancy will likely
have an effect upon the percentages of the Certificate Principal Balances
outstanding and weighted average lives of the Class A Certificates set forth in
the tables. In addition, since the actual Mortgage Loans in the Trust have
characteristics which differ from those assumed in preparing the tables set
forth below, the distributions of principal on the Class A Certificates may be
made earlier or later than as indicated in the tables.
For the purpose of the tables below, it is assumed that: (i) each
Mortgage Loan Group consists of Mortgage Loans with the characteristics set
forth in the table below, (ii) the Closing Date for the Certificates occurs on
__________, 199__, (iii) distributions on the Certificates are made on the 25th
day of each month regardless of the day on which the Payment Date actually
occurs, commencing in ________ 199__ in accordance with the priorities described
herein, (iv) the difference between the Gross Coupon Rate and the Net Coupon
Rate is equal to the Servicing Fee and the Net Coupon Rate is further reduced by
the Premium Amount and the Trustee Fee, (v) prepayments include 30 day's
interest thereon, (vi) no Auction Sale or Servicer Clean-Up Call occurs for
Group I and an Auction Sale occurs on the Auction Sale Bid Date for Group II,
(vii) the "Specified Subordinated Amount" (as defined under "Description of the
Class A Certificates -- Overcollateralization Provisions") for each Mortgage
Loan Group is set initially as specified in the Pooling and Servicing Agreement
and thereafter decreases in accordance with the provisions of the Pooling and
Servicing Agreement, (viii) all of the Pre-Funded Amount is used to acquire
Subsequent Mortgage Loans on __________, 199__ and prior to such date, each
Subsequent Mortgage Loan accrues interest at the related Net Coupon Rates
indicated in the table below, (ix) the Coupon Rate for each Mortgage Loan in
Group II is adjusted on its next rate adjustment date (and on subsequent rate
adjustment dates, if necessary) to equal the sum of (a) an assumed final
constant level of the applicable index of _____% per annum, with respect to
Six-Month LIBOR and _____% per annum with respect to One-Year CMT and (b) the
respective gross margin (such sum being subject to the applicable periodic
adjustment cap, maximum interest rate and minimum interest rate (which minimum
interest rate will equal the initial coupon)), (x) One-Month LIBOR remains
constant at a rate of % per annum, (xi) the Class A-1 and Class A-8 Pass-
Through Rates remain constant at _____% and _____% per annum, respectively,
(xii) all Mortgage Loans pay on their respective due dates in accordance with
their respective terms, (xiii) the Initial Certificate Principal Balance of each
Class of Certificates is as set forth and under "Summary of Terms --
Certificates Offered" herein.
S-39
<PAGE>
<TABLE>
<CAPTION>
Initial Group I Mortgage Loans
Original Remaining
Term to Term to
Principal Gross Coupon Net Coupon Maturity Maturity
Balance Rate Rate (in months) (in months)
- -------------- ----------------- ------------------ ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
Subsequent Group I Mortgage Loans
Original Remaining
Term to Term to
Principal Gross Coupon Net Coupon Maturity Maturity
Balance Rate Rate (in months) (in months)
- -------------- ----------------- ------------------ ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
Initial Group II Mortgage Loans
Gross Periodic
Principal Coupon Net Gross Net Rate Months to Rate Change
Balance Rate Coupon Rate Margin Life Cap Cap Next Reset Frequency
- ------------ ----------------- ------------------------------------------ ----------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Original Remaining
Term to Term to
Maturity Maturity
(in months) (in months) Index
- ---------------- ---------- ----------------
<S> <C> <C>
Six-Month LIBOR
Six-Month LIBOR
Six-Month LIBOR
Six-Month LIBOR
Six-Month LIBOR
Six-Month LIBOR
<CAPTION>
Subsequent Group II Mortgage Loans
Gross Periodic
Principal Coupon Net Gross Net Rate Months to Rate Change
Balance Rate Coupon Rate Margin Life Cap Cap Next Reset Frequency
- ---------- ----------------- ---------------------------- --------- ---------- ------------ ---------- ------------- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Remaining
Term to Term to Maturity
Maturity (in months)
(in months) Index
- ----------------------------- ----------------
Six-Month LIBOR
One Year CMT
</TABLE>
S-40
<PAGE>
The following tables set forth the percentages of the initial principal
amount of the Class A Certificates that would be outstanding after each of the
dates shown, assuming (1) for the Fixed Rate Certificates, the Group I Mortgage
Loans prepay according to the indicated percentages of the Prepayment Assumption
under each Fixed Rate Certificate below and the Group II Mortgage Loans prepay
at 21% of the Prepayment Assumption and (2) for the Adjustable Rate
Certificates, the Group I Mortgage Loans prepay at 21% of the Prepayment
Assumption and the Group II Mortgage Loans prepay according to the indicated
percentages of the Prepayment Assumption under the Adjustable Rate Certificate
below, except that under the 0% Prepayment Assumption for all Certificates, the
Group I Mortgage Loans and the Group II Mortgage Loans prepay at 0% of the
Prepayment Assumption.
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-1 Class A-2
Payment Date 0% 15% 18% 20% 22% 24% 28% 0% 15% 18% 20% 22% 24% 28%
-- --- --- --- --- --- --- -- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance
June 25, 1997
June 25, 1998
June 25, 1999
June 25, 2000
June 25, 2001
June 25, 2002
June 25, 2003
June 25, 2004
June 25, 2005
June 25, 2006
June 25, 2007
June 25, 2008
June 25, 2009
June 25, 2010
June 25, 2011
June 25, 2012
June 25, 2013
June 25, 2014
June 25, 2015
June 25, 2016
June 25, 2017
June 25, 2018
June 25, 2019
June 25, 2020
June 25, 2021
June 25, 2022
June 25, 2023
June 25, 2024
June 25, 2025
June 25, 2026
June 25, 2027
Weighted Avg Life(1)
<CAPTION>
Class A-3 Class A-4
Payment Date 0% 15% 18% 20% 22% 24% 28% 0% 15% 18% 20% 22% 24% 28%
-- --- --- --- --- --- --- -- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance
June 25, 1997
June 25, 1998
June 25, 1999
June 25, 2000
June 25, 2001
June 25, 2002
June 25, 2003
June 25, 2004
June 25, 2005
June 25, 2006
June 25, 2007
June 25, 2008
June 25, 2009
June 25, 2010
June 25, 2011
June 25, 2012
June 25, 2013
June 25, 2014
June 25, 2015
June 25, 2016
June 25, 2017
June 25, 2018
June 25, 2019
June 25, 2020
June 25, 2021
June 25, 2022
June 25, 2023
June 25, 2024
June 25, 2025
June 25, 2026
June 25, 2027
Weighted Avg Life(1)
</TABLE>
- -----------------------------
(1) The weighted average life of the Class A Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial
respective Certificate Principal Balance for such Class of Class A
Certificate.
S-41
<PAGE>
The following tables set forth the percentages of the initial principal
amount of the Class A Certificates that would be outstanding after each of the
dates shown, assuming (1) for the Fixed Rate Certificates, the Group I Mortgage
Loans prepay according to the indicated percentages of the Prepayment Assumption
under each Fixed Rate Certificate below and the Group II Mortgage Loans prepay
at 21% of the Prepayment Assumption and (2) for the Adjustable Rate
Certificates, the Group I Mortgage Loans prepay at 21% of the Prepayment
Assumption and the Group II Mortgage Loans prepay according to the indicated
percentages of the Prepayment Assumption under the Adjustable Rate Certificate
below, except that under the 0% Prepayment Assumption for all Certificates, the
Group I Mortgage Loans and the Group II Mortgage Loans prepay at 0% of the
Prepayment Assumption.
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-5 Class A-6
Payment Date 0% 15% 18% 20% 22% 24% 28% 0% 15% 18% 20% 22% 24% 28%
-- --- --- --- --- --- --- -- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance
June 25, 1997
June 25, 1998
June 25, 1999
June 25, 2000
June 25, 2001
June 25, 2002
June 25, 2003
June 25, 2004
June 25, 2005
June 25, 2006
June 25, 2007
June 25, 2008
June 25, 2009
June 25, 2010
June 25, 2011
June 25, 2012
June 25, 2013
June 25, 2014
June 25, 2015
June 25, 2016
June 25, 2017
June 25, 2018
June 25, 2019
June 25, 2020
June 25, 2021
June 25, 2022
June 25, 2023
June 25, 2024
June 25, 2025
June 25, 2026
June 25, 2027
Weighted Avg Life(1)
<CAPTION>
Class A-7 Class A-8
Payment Date 0% 15% 18% 20% 22% 24% 28% 0% 15% 18% 20% 22% 24% 28%
-- --- --- --- --- --- --- -- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance
June 25, 1997
June 25, 1998
June 25, 1999
June 25, 2000
June 25, 2001
June 25, 2002
June 25, 2003
June 25, 2004
June 25, 2005
June 25, 2006
June 25, 2007
June 25, 2008
June 25, 2009
June 25, 2010
June 25, 2011
June 25, 2012
June 25, 2013
June 25, 2014
June 25, 2015
June 25, 2016
June 25, 2017
June 25, 2018
June 25, 2019
June 25, 2020
June 25, 2021
June 25, 2022
June 25, 2023
June 25, 2024
June 25, 2025
June 25, 2026
June 25, 2027
Weighted Avg Life(1)
</TABLE>
- -----------------------------
(1) The weighted average life of the Class A Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
years from the date of issuance to the related Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial
respective Certificate Principal Balance for such Class of Class A
Certificate.
S-42
<PAGE>
Payment Lag Feature of Certain Fixed Rate Group Certificates
Pursuant to the Pooling and Servicing Agreement, an amount equal to
Mortgagor payments with respect to each Mortgage Loan in Group I (net of the
Servicing Fee) received by the Servicer during each Remittance Period is to be
remitted to the Trustee on or prior to the related Monthly Remittance Date;
however, the Trustee will not be required to distribute any such amounts to the
Owners until the next succeeding Payment Date. As a result, the monthly
distributions to the Owners of the Fixed Rate Group Certificates (other than the
Class A-1 Certificates) generally reflect an Accrual Period reflecting Mortgagor
payments during the prior calendar month, and the first Payment Date will not
occur until __________, 199__. Thus, the effective yield to the Owners of the
Fixed Rate Group Certificates (other than the Class A-1 Certificates) will be
below that otherwise produced by the related Pass-Through Rate because the
distribution of the related Class A Distribution Amount in respect of any given
month will not be made until on or about the 25th day of the following month.
THE ORIGINATORS
The Mortgage Loan Pool consists of Mortgage Loans purchased or
originated by three originators (the "Originators") with aggregate outstanding
Loan Balances of $___________. The largest Originator of such loans is , which
originated _____% of the Initial Mortgage Loans in Group I and _____% of the
Initial Mortgage Loans in Group II. The other Originator is , which originated
_____% of the Initial Mortgage Loans in Group I and _____% of the Initial
Mortgage Loans in Group II. The Seller has purchased approximately $___________
of mortgage loans from , approximately $__________ of which are expected to be
used to satisfy the Pre-Funding Account purchase requirement for Group I and
approximately $__________ of which are expected to be used to satisfy the
Pre-Funding Account purchase requirement for Group II.
FORMATION OF THE TRUST AND TRUST PROPERTY
AMRESCO Residential Securities Corporation Mortgage Loan Trust 199__-__
(the "Trust") will be created and established pursuant to the Pooling and
Servicing Agreement. The Depositor will convey without recourse the Mortgage
Loans to the Trust and the Trust will issue the Class A Certificates and the
Subordinate Certificates.
The property of the Trust will include (a) the Mortgage Loans (other
than payments due on the Mortgage Loans on or prior to the Cut-Off Date with
respect to those Mortgage Loans that were current as of the Cut-Off Date)
together with the related Mortgage Loan documents and the Seller's interest in
any Mortgaged Property which secures a Mortgage Loan and all payments thereon
and proceeds of the conversion, voluntary or involuntary, of the foregoing, (b)
such amounts as may be held by the Trustee in the Certificate Account, the
Pre-Funding Account, the Capitalized Interest Account and any other accounts
held by the Trustee for the Trust together with investment earnings on such
amounts and such amounts as may be held in the name of the Trustee in the
Principal and Interest Account, if any, exclusive of investment earnings thereon
(except as otherwise provided in the Pooling and Servicing Agreement) whether in
the form of cash, instruments, securities or other properties, (c) the
Certificate Insurance Policies, (d) proceeds of all the foregoing (including,
but not by way of limitation, all proceeds of any hazard insurance and title
insurance policy relating to the Mortgage Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Certificates as
specified in the Pooling and Servicing Agreement and (e) certain rights of the
Seller under the Transfer Agreements (collectively, the "Trust Estate").
The Class A Certificates will not represent an interest in or an
obligation of, nor will the Mortgage Loans be guaranteed by, the Depositor, the
Trustee, the Seller, the Servicers, the Originators or any of their affiliates.
Prior to its formation, the Trust will have had no assets or
obligations. Upon formation, the Trust will not engage in any business activity
other than acquiring, holding and collecting payments on the Mortgage Loans,
issuing the Certificates and distributing payments thereon. The Trust will not
acquire any receivables or assets other than the Mortgage Loans and the rights
appurtenant thereto and will not have any need for additional capital resources.
To the extent that mortgagors make scheduled payments under the Mortgage Loans,
the Trust will have sufficient liquidity to make distributions on the
Certificates. As the Trust does not have any operating history and will not
engage in any business activity other than issuing the Certificates and making
distributions thereon, there has not been included any historical or pro forma
ratio of earnings to fixed charges with respect to the Trust.
S-43
<PAGE>
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Initial Mortgage
Loans and the Mortgaged Properties is based upon the pool as constituted at the
close of business on the Cut-Off Date, as adjusted (with respect to all Initial
Mortgage Loans that were current as of the Cut-Off Date) for the scheduled
principal payments due on or before such date. Prior to the issuance of the
Class A Certificates, Initial Mortgage Loans may be removed from the pool as a
result of incomplete documentation or non-compliance with representations and
warranties set forth in the Pooling and Servicing Agreement, if the Depositor
deems such removal necessary or appropriate. A limited number of other Initial
Mortgage Loans may be included in the pool prior to the issuance of the
Certificates.
A current report on Form 8-K will be available to purchasers of the
Class A Certificates and will be filed and incorporated by reference into the
Registration Statement together with the Pooling and Servicing Agreement with
the Securities and Exchange Commission within fifteen days after the initial
issuance of the Class A Certificates. In the event Initial Mortgage Loans are
removed from or added to the pool as set forth in the preceding paragraph, such
removal or addition will be noted in the current report on Form 8-K. A current
report on Form 8-K will also be filed within fifteen days of the end of the
Funding Period reflecting the additions to the Trust.
DESCRIPTION OF THE CLASS A CERTIFICATES
General
Each Certificate will represent certain undivided, fractional ownership
interests in the Trust Estate created and held pursuant to the Pooling and
Servicing Agreement, subject to the limits and the priority of distribution
described therein.
As described in "The Mortgage Loan Pool" herein, the Mortgage Loan Pool
is divided into two Groups, Group I, which contains only fixed rate Mortgage
Loans, and Group II, which contains only adjustable rate Mortgage Loans. For
each Mortgage Loan Group, the related Class of Class A Certificates will
evidence the right to receive on each Payment Date the Class A Distribution
Amount for such Class of Class A Certificates, in each case until the related
Class A Certificate Principal Balance is reduced to zero.
Payment Dates
On each Payment Date, the Owners of each Class of the Class A
Certificates will be entitled to receive, from amounts then on deposit in the
certificate account established and maintained by the Trustee in accordance with
the Pooling and Servicing Agreement (the "Certificate Account") and until the
Certificate Principal Balance of such Class of Class A Certificates is reduced
to zero, the Class A Distribution Amount as of such Payment Date, as described
below. Distributions will be made in immediately available funds to Owners of
Class A Certificates by wire transfer or otherwise, to the account of such Owner
at a domestic bank or other entity having appropriate facilities therefor, if
such Owner has so notified the Trustee, or by check mailed to the address of the
person entitled thereto as it appears on the register (the "Register")
maintained by the Trustee as registrar (the "Registrar"). Beneficial Owners may
experience some delay in the receipt of their payments due to the operations of
DTC. See "Risk Factors--Book Entry Registration" in the Prospectus, "Description
of the Class A Certificates--Book Entry Registration of the Class A
Certificates" herein and "Description of the Certificates--Book Entry
Registration" in the Prospectus.
The Pooling and Servicing Agreement will provide that an Owner will be
required to send its Certificate to the Trustee prior to receiving the final
distribution on such Owner's Certificate. The Pooling and Servicing Agreement
additionally will provide that, in any event, any Certificate as to which the
final distribution thereon has been made shall be deemed canceled for all
purposes under or pursuant to the Pooling and Servicing Agreement and the
Certificate Insurance Policy.
Each Owner of record of the related Class of the Class A Certificates
will be entitled to receive such Owner's Percentage Interest in the amounts due
such Class on such Payment Date. The "Percentage Interest" of a Class A
Certificate as of any date of determination will be equal to the percentage
obtained by dividing the principal balance of such Certificate as of the Cut-Off
Date by the Certificate Principal Balance for the related Class of the Class A
Certificates as of the Cut-Off Date.
S-44
<PAGE>
Distributions
Upon receipt, the Trustee will be required to deposit into the
Certificate Account, (i) the total of the principal and interest collections on
the Mortgage Loans, including any Net Liquidation Proceeds, required to be
remitted by the Servicers, together with any Substitution Amount and any Loan
Purchase Price, (ii) the related Capitalized Interest Requirement and any
Pre-Funding Account Earnings, (iii) any Insured Payment, and (iv) the proceeds
of any liquidation of the Trust Estate. The Trustee will also be required to
deposit into the Certificate Account any Pre-Funded Amounts to be distributed as
a prepayment at the end of the Funding Period.
The Pooling and Servicing Agreement establishes a pass-through rate on
each Class of the Class A Certificates (each, a "Pass-Through Rate") as set
forth in the Summary herein under "Certificates Offered." The Pass-Through Rate
of Fixed Rate Group Certificates will be as set forth on the cover hereof;
provided, that, (i) the Pass-Through Rate with respect to the Class A-1
Certificates will equal the lesser of (a) the London interbank offered rate for
one-month United States dollar deposits (calculated as described under "--
Calculation of One-Month LIBOR" below) as of the second to last business day
prior to the immediately preceding Payment Date (or as of the second to last
business day prior to the Closing Date with respect to the ________ 199__
Payment Date) (the "One-Month LIBOR Determination Date") plus _____% per annum
and (b) the Fixed Rate Group Available Funds Cap and (ii) on each Payment Date
after the Clean-Up Call Date, the Class A-7 Pass-Through Rate will be equal to
the lesser of (a) _____% per annum and (b) the Fixed Rate Group Available Funds
Cap. The Pass-Through Rate with respect to the Class A-8 Certificates will equal
the lesser of (i) with respect to any Payment Date which occurs on or prior to
the Clean-Up Call Date, One-Month LIBOR as of the One-Month LIBOR Determination
Date plus _____% per annum (and for any Payment Date after the Clean-Up Call
Date, One-Month LIBOR plus _____% per annum), and (ii) the Adjustable Rate Group
Available Funds Cap.
On each Payment Date, the Trustee is required to make the following
disbursements and transfers from moneys then on deposit in the Certificate
Account as specified below in the following order of priority of each such
transfer and disbursement:
(i) First, out of Total Monthly Excess Spread, the Trustee shall
disburse the Premium Amount to the Certificate Insurer;
(ii) Second, to the Trustee, the Trustee Fees and reimbursable
expenses with respect to such Mortgage Loan Group then due;
(iii) Third, the Trustee shall allocate an amount equal to the sum
of (x) the Total Monthly Excess Spread with respect to such
Mortgage Loan Group and Payment Date plus (y) any
Subordination Reduction Amount with respect to such Mortgage
Loan Group and Payment Date (net of the Trustee Fees with
respect to such Mortgage Loan Group and the amounts payable to
the Certificate Insurer with respect to such Mortgage Loan
Group (the "Premium Amount") as described in clauses (i) and
(ii) above) (such net sum being the "Total Monthly Excess
Cashflow" with respect to such Mortgage Loan Group and Payment
Date) in the following order of priority:
(A) first, such Total Monthly Excess Cashflow shall be
allocated to the payment of the Class A Distribution
Amount pursuant to clauses (v)(A) and (B) below on
such Payment Date with respect to the related
Mortgage Loan Group in an amount equal to the amount,
if any, by which (x) the sum of (i) the related
Current Interest and (ii) the Subordination Deficit,
if any, for such Payment Date exceeds (y) the
Available Funds with respect to such Mortgage Loan
Group for such Payment Date (the amount of such
difference with respect to a Mortgage Loan Group
being an "Available Funds Shortfall" for such
Mortgage Loan Group);
(B) second, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the application described in clause
(A) above shall be allocated against any Available
Funds Shortfall with respect to the other Mortgage
Loan Group;
(C) third, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the allocations described in clauses
(A) and (B) above shall be paid to the Certificate
Insurer in respect of amounts owed on account of any
Reimbursement Amount owed to the Certificate Insurer
with respect to the related Mortgage Loan Group; and
S-45
<PAGE>
(D) fourth, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the allocations described in clauses
(A), (B) and (C) above shall be paid to the
Certificate Insurer in respect of any Reimbursement
Amount with respect to the other Mortgage Loan Group;
(iv) Fourth, the amount, if any, of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group on a Payment
Date remaining after the allocations described in clause (iii)
above (the "Net Monthly Excess Cashflow" with respect to such
Mortgage Loan Group for such Payment Date) is required to be
applied in the following order or priority:
(A) first, such Net Monthly Excess Cashflow shall be used
to reduce to zero, through the allocation of a
Subordination Increase Amount to the payment of the
Class A Distribution Amount pursuant to clause (v)
below, any Subordination Deficiency Amount (as
defined in the Pooling and Servicing Agreement) with
respect to such Mortgage Loan Group as of such
Payment Date;
(B) second, any Net Monthly Excess Cashflow remaining
after the application described in clause (A) above
shall be used to reduce to zero, through the payment
of a Subordination Increase Amount, the Subordination
Deficiency Amount, if any, with respect to the other
Mortgage Loan Group; and
(C) third, any Net Monthly Excess Cashflow remaining
after the application described in clauses (A) and
(B) above shall be paid to the Servicers to the
extent of any unreimbursed Delinquency Advances and
Servicing Advances to the extent deemed by the
Servicer to be nonrecoverable and unreimbursed
Servicing Fees; and
(v) Fifth, following the making by the Trustee of all allocations,
transfers and disbursements described above from amounts then
on deposit in the Certificate Account with respect to the
related Mortgage Loan Group, the Trustee shall distribute:
(A) To the Owners of the Class A Certificates of the
related Group, the related Current Interest, on a pro
rata basis without any priority among such Class A
Certificates;
(B) To the Owners of the related Class of Class A
Certificates, (i) the Principal Distribution Amount
applicable to Group I shall be distributed as
follows: (a) first, to the Owners of the Class A-1
Certificates until the Class A-1 Certificate
Principal Balance is reduced to zero; (b) second, to
the Owners of the Class A-2 Certificates, until the
Class A-2 Certificate Principal Balance is reduced to
zero; (c) third, to the Owners of the Class A-3
Certificates, until the Class A-3 Certificate
Principal Balance is reduced to zero; (d) fourth, to
the Owners of the Class A-4 Certificates, until the
Class A-4 Certificate Principal Balance is reduced to
zero; (e) fifth, to the Owners of the Class A-5
Certificates until the Class A-5 Certificate
Principal Balance is reduced to zero; (f) sixth, to
the Owners of the Class A-6 Certificates, until the
Class A-6 Certificate Principal Balance is reduced to
zero; and (g) seventh, to the Owners of the Class A-7
Certificates, until the Class A-7 Certificate
Principal Balance is reduced to zero; and (ii) the
Principal Distribution Amount applicable to Group II
shall be distributed to the Owners of the Class A-8
Certificates until the Class A-8 Certificate
Principal Balance is reduced to zero; and
(C) To the Owners of the Subordinate Certificates, all
remaining distributable amounts as specified in the
Pooling and Servicing Agreement.
"Total Net Monthly Excess Spread" as to either Mortgage Loan Group and
any Payment Date equals the excess, if any, of (x) the interest which is
collected on the Mortgage Loans during a Remittance Period (net of the related
Servicing Fee, the related Premium Amount and of certain miscellaneous
administrative amounts) plus the interest portion of any Delinquency Advances
and any Compensating Interest over (y) the sum of the Class A Current Interest.
"Available Funds" as to any Mortgage Loan Group and Payment Date is the
amount on deposit in the Certificate Account on such Payment Date (net of Total
Monthly Excess Cashflow and disregarding the amounts of any Insured Payments
with respect to a Mortgage Loan Group to be made on such Payment Date).
S-46
<PAGE>
"Total Available Funds" as to any Mortgage Loan Group and Payment Date
is (x) the amount on deposit in the Certificate Account (net of Total Monthly
Excess Cashflow) on such Payment Date plus (y) any amounts of Total Monthly
Excess Cashflow with respect to a Mortgage Loan Group to be applied on such
Payment Date (disregarding the amount of any Insured Payment with respect to a
Mortgage Loan Group to be made on such Payment Date) plus, (z) any deposit to
the Certificate Account from the Pre-Funding Account and Capitalized Interest
Account expected to be made in accordance with the Pooling and Servicing
Agreement.
The Trustee or Paying Agent shall (i) receive as attorney-in-fact of
each Owner of Class A Certificates any Insured Payment from the Certificate
Insurer and (ii) disburse the same to each Owner of Class A Certificates. The
Pooling and Servicing Agreement will provide that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee or Paying Agent), to the Owners of such Class A
Certificates, if any, the Certificate Insurer will be subrogated to the rights
of such Owners of Class A Certificates with respect to such Insured Payments,
and shall receive reimbursement for such Insured Payments as provided in the
Pooling and Servicing Agreement, but only from the sources and in the manner
provided in the Pooling and Servicing Agreement for the payment of the Class A
Distribution Amount to Owners of Class A Certificates, if any; such subrogation
and reimbursement will have no effect on the Certificate Insurer's obligations
under the Certificate Insurance Policy.
The Pooling and Servicing Agreement provides that the term "Available
Funds" does not include Insured Payments and does not include any amounts that
cannot be distributed to the Owners of Class A Certificates, if any, by the
Trustee as a result of proceedings under the United States Bankruptcy Code.
Each Owner of a Class A Certificate will be required promptly to notify
the Trustee in writing upon the receipt of a court order relating to a
Preference Amount and will be required to enclose a copy of such order with such
notice to the Trustee.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, on each Payment Date, Net Monthly Excess
Cashflow (as defined above) be applied with respect to each Mortgage Loan Group
on such Payment Date as an accelerated payment of principal on the related Class
A Certificates, but only to the limited extent hereafter described.
This has the effect of accelerating the amortization of the Class A
Certificates relative to the amortization of the related Mortgage Loans. To the
extent that any Net Monthly Excess Cashflow is not so used for either Mortgage
Loan Group, the Pooling and Servicing Agreement provides that it will be used to
reimburse the Servicers with respect to certain amounts owing to them, and,
thereafter, paid to the Owners of the Class R Certificates.
Pursuant to the Pooling and Servicing Agreement, Net Monthly Excess
Cashflow will be applied as an accelerated payment of principal on the Class A
Certificates until the Subordinated Amount has increased to the level required.
"Subordinated Amount" means, with respect to each Payment Date and each Mortgage
Loan Group, the excess, if any, of (x) the sum of (i) the aggregate Loan
Balances of the related Mortgage Loans [in such Mortgage Loan Group] as of the
close of business on the last day of the preceding Remittance Period and (ii)
any amount on deposit in the Pre-Funding Account with respect to such Mortgage
Loan Group at such time exclusive of any Pre-Funding Account Earnings (as
defined in the Pooling and Servicing Agreement) over (y) the related Certificate
Principal Balance as of such Payment Date (after taking into account the payment
of the related Class A Principal Distribution Amount (except for any
Subordination Deficit or Subordination Increase Amount) on such Payment Date).
Any amount of Net Monthly Excess Cashflow actually applied as an accelerated
payment of principal with respect to a Mortgage Loan Group is a "Subordination
Increase Amount." The required level of the Subordinated Amount with respect to
a Mortgage Loan Group and Payment Date is the related "Specified Subordinated
Amount." The Pooling and Servicing Agreement generally provides that the
Specified Subordinated Amount with respect to a Mortgage Loan Group may, over
time, decrease, or increase, subject to certain floors, caps and triggers,
including triggers that allow the related Specified Subordinated Amount to
decrease or "step down" based on the performance on the related Mortgage Loans
with respect to certain tests specified in the Pooling and Servicing Agreement
based on delinquency rates and cumulative losses. If certain delinquency and/or
loss levels set forth in the Pooling and Servicing Agreement are exceeded, the
"Specified Subordinated Amount" may become unlimited. Net Monthly Excess
Cashflow will then be applied to the payment in reduction of principal of the
related Class A Certificates during the period that the related Mortgage Loan
Group is unable to meet certain tests specified in the Pooling and Servicing
Agreement based on delinquency rates and cumulative losses.
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In the event that the Specified Subordinated Amount is permitted to
decrease or "step down" on a Payment Date in the future or in the event that an
Excess Subordinated Amount otherwise exists, the Pooling and Servicing Agreement
provides that some or all of the principal which would otherwise be distributed
to the Owners of the Class A Certificates on such Payment Date shall be
available to satisfy other cash flow priorities of the Trust, including
distributions to the Owners of the Class R Certificates over the period
specified in the Pooling and Servicing Agreement until the Excess Subordinated
Amount is reduced to zero. This has the effect of decelerating the amortization
of related Class A Certificates relative to the amortization of the related
Mortgage Loans and of reducing the related Subordinated Amount. With respect to
any Payment Date, the excess, if any, of (x) the related Subordinated Amount on
such Payment Date after taking into account all distributions to be made on such
Payment Date (except for any distributions of related Subordination Reduction
Amounts as described in the next sentence) over (y) the related Specified
Subordinated Amount is the "Excess Subordinated Amount" for such Payment Date.
If, on any Payment Date, the Excess Subordinated Amount is, or, after taking
into account all other distributions to be made on such Payment Date would be,
greater than zero (i.e., the related Subordinated Amount is or would be greater
than the related Specified Subordinated Amount), then any amounts relating to
principal which would otherwise be distributed to the Owners of the Class A
Certificates on such Payment Date shall instead be distributed to the Owners of
the Class R Certificates (to the extent available therefor) in an amount equal
to the lesser of (x) the related Excess Subordinated Amount and (y) the amount
available for distribution on account of principal with respect to the related
Class A Certificates on such Payment Date; such amount being a "Subordination
Reduction Amount." As a result of the cash flow structure of the Trust,
Subordination Reduction Amounts may result even prior to the occurrence of any
decrease or "step down" in the related Specified Subordinated Amount. This is
because the Owners of the Class A Certificates will generally be entitled to
receive 100% of collected principal, even though the Class A Certificate
Principal Balance will, following the accelerated amortization resulting from
the application of the Net Monthly Excess Cashflow, represent less than 100% of
the aggregate Loan Balance. Accordingly, with respect to a Mortgage Loan Group,
in the absence of the provisions relating to Subordination Reduction Amounts,
the Subordinated Amount would increase above the Specified Subordinated Amount
requirements even without the further application of any Net Monthly Excess
Cashflow.
The Pooling and Servicing Agreement provides generally that, on any
Payment Date, all amounts collected on account of scheduled principal with
respect to the related Remittance Period and unscheduled principal with respect
to the related Prepayment Period (other than any such amount applied to the
payment of a Subordination Reduction Amount) will be distributed to the Owners
of the related Class A Certificates on such Payment Date. If any Mortgage Loan
became a Liquidated Loan during such prior Remittance Period, the Net
Liquidation Proceeds related thereto and allocated to principal may be less than
the principal balance of the related Mortgage Loan; the amount of any such
insufficiency is a "Realized Loss." In addition, the Pooling and Servicing
Agreement provides that the principal balance of any Mortgage Loan which becomes
a Liquidated Loan shall thenceforth equal zero. The Pooling and Servicing
Agreement does not contain any requirement that the amount of any Realized Loss
be distributed to the Owners of the related Class A Certificates on the Payment
Date which immediately follows the event of loss; i.e., the Pooling and
Servicing Agreement does not require the current recovery of losses. However,
the occurrence of a Realized Loss will reduce the related Subordinated Amount
(and may result in a Subordination Deficit as described below under "--
Overcollateralization and the Certificate Insurance Policies"), which to the
extent that such reduction causes such Subordinated Amount to be less than the
related Specified Subordinated Amount applicable to the related Payment Date,
will require the payment of a Subordination Increase Amount on such Payment Date
(or, if insufficient funds are available on such Payment Dates, on subsequent
Payment Dates, until the Subordinated Amount equals the related Specified
Subordinated Amount). The effect of the foregoing is to allocate losses to the
Owners of the Subordinate Certificates by reducing, or eliminating entirely,
payments of Total Monthly Excess Spread and of Subordination Reduction Amounts
which such Owners would otherwise receive.
Overcollateralization and the Certificate Insurance Policies. The
Pooling and Servicing Agreement defines a "Subordination Deficit" with respect
to a Payment Date as the amount, if any, by which (x) the related Certificate
Principal Balance with respect to a Payment Date, after taking into account all
distributions to be made on such Payment Date (except for any Subordination
Deficit and Subordination Increase Amount), exceeds (y) the sum of (a) the
aggregate Loan Balances of the related Mortgage Loans as of the close of
business on the last day of the related Prepayment Period and (b) the amount, if
any, on deposit in the Pre-Funding Account on such Payment Date and allocable to
the related Mortgage Loan Group, exclusive of Pre-Funding Account Earnings. The
Pooling and Servicing Agreement requires the Trustee to make a claim for an
Insured Payment under the related Certificate Insurance Policy not later than
the second Business Day prior to any Payment Date as to which the Trustee has
determined that a Subordination Deficit will occur for the purpose of applying
the proceeds of such Insured Payment as a payment of principal to the Owners of
the related Class A Certificates on such Payment Date. No payments in respect of
principal will be made under such Certificate Insurance Policy unless a
Subordination Deficit occurs. Each Certificate Insurance
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Policy is thus similar to the subordination provisions described above insofar
as such Certificate Insurance Policy guarantees ultimate, rather than current,
payment of the amounts of any Realized Losses to the Owners of the Class A
Certificates. Investors in the Class A Certificates should realize that, under
extreme loss or delinquency scenarios applicable to the related Mortgage Loan
Group that occur when no Subordination Deficit exists, they may temporarily
receive no distributions of principal when they would otherwise be entitled
thereto under the principal allocation provisions described herein.
Nevertheless, the exposure to risk of loss of principal to the Owners of the
Class A Certificates depends in part on the ability of the Certificate Insurer
to satisfy its obligations under the relevant Certificate Insurance Policy.
Crosscollateralization Provisions
In addition to the use of Total Monthly Excess Cashflow with respect to
a Mortgage Loan Group to pay related Available Funds Shortfalls, such Total
Monthly Excess Cashflow will be available to pay Available Funds Shortfalls for
the other Mortgage Loan Group as described in clauses (iii)(A) and (iii)(B)
under the caption "-- Distributions" above. Furthermore, in addition to the use
of Net Monthly Excess Cashflow with respect to a Mortgage Loan Group to
distribute related Subordination Increase Amounts in reduction of related
Subordination Deficits, such Net Monthly Excess Cashflow will be available to
distribute Subordination Increase Amounts in reduction of Subordination
Deficiency Amounts related to the other Mortgage Loan Group as described in
clauses (iv) (A) and (iv) (B) under the caption "-- Distributions" above. The
occurrence of a disproportionate amount of Available Funds Shortfalls with
respect to one of the Mortgage Loan Groups may result in the continuation of
Subordination Deficiencies with respect to the other Mortgage Loan Group to the
extent that Net Monthly Excess Cashflow with respect to the better-performing
Mortgage Loan Group is diminished due to the allocation of Total Monthly Excess
Cashflow from such Mortgage Loan Group to cover Available Funds Shortfalls
occurring in the other Mortgage Loan Group.
Pre-Funding Account
On the Closing Date, the Original Pre-Funded Amount will be deposited
in the Pre-Funding Account, which account shall be in the name of and maintained
by the Trustee and shall be part of the Trust Estate. During the Funding Period,
the Pre-Funded Amount will be maintained in the Pre-Funding Account. The
Original Pre-Funded Amount will be reduced during the Funding Period by the
amount thereof used to purchase Subsequent Mortgage Loans in accordance with the
Pooling and Servicing Agreement. Any Pre-Funded Amount remaining at the end of
the Funding Period for the related Group will be distributed to the Owners of
the related Class of Class A Certificates then entitled to receive payments of
interest on the Payment Date that immediately follows the end of such Funding
Period in reduction of the Certificate Principal Balance of such Owner's
Certificates, thus resulting in a principal prepayment of such Class of Class A
Certificates.
Amounts on deposit in the Pre-Funding Account will be invested in the
investments permitted by the Pooling and Servicing Agreement (the "Eligible
Investments"). All interest and any other investment earnings on amounts on
deposit in the Pre-Funding Account will be deposited in the Capitalized Interest
Account prior to each Payment Date during the Funding Period. The Pre-Funding
Account will not be an asset of the REMIC.
Capitalized Interest Account
On the Closing Date cash will be deposited in the Capitalized Interest
Account, which account shall be in the name of and maintained by the Trustee and
shall be part of the Trust. The amount on deposit in the Capitalized Interest
Account, including reinvestment income thereon and amounts deposited thereto
from the Pre-Funding Account, will be used by the Trustee to fund the excess, if
any, of (i) the sum of the amount of interest accruing at the weighted average
Pass-Through Rate in the case of the Fixed Rate Group Certificates and the
applicable Pass-Through Rate on the Adjustable Rate Group Certificates on the
amount by which the aggregate Certificate Principal Balance of the related
Class(es) of Class A Certificates exceeds the aggregate Loan Balance of the
Mortgage Loans in the related Group plus the related Premium Amount accruing on
such excess balance over (ii) the amount of any reinvestment income on monies on
deposit in the Pre-Funding Account; such amounts on deposit will be so applied
by the Trustee on each Payment Date in the Funding Period to fund such excess,
if any. Any amounts remaining in the Capitalized Interest Account at the end of
the Funding Period and not needed for such purpose will be paid to the Depositor
and will not thereafter be available for distribution to the Owners of the Class
A Certificates.
Amounts on deposit in the Capitalized Interest Account will be invested
in Eligible Investments. The Capitalized Interest Account will not be an asset
of the REMIC.
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Calculation of One-Month LIBOR
On each One-Month LIBOR Determination Date (as defined above), the
Trustee will determine One-Month LIBOR for the next Accrual Period for the Class
A-1 and Class A-8 Certificates.
"One-Month LIBOR" means, as of any One-Month LIBOR Determination Date,
the rate for deposits in United States dollars for a period equal to the
relevant Accrual Period (commencing on the first day of such Accrual Period)
which appears in the Telerate Page 3750 as of 11:00 a.m., London time, on such
date. If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on that day to prime banks in the London interbank market for a period
equal to the relevant Accrual Period (commencing on the first day of such
Accrual Period). 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 such
quotations are provided, the rate for that day will be the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested, the rate
for that day will be the arithmetic mean of the rates quoted by major banks in
New York City, selected by the Trustee, at approximately 11:00 a.m., New York
City time, on that day for loans in United States dollars to leading European
banks for a period equal to the relevant Accrual Period (commencing on the first
day of such Accrual Period).
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices) and
"Reference Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market.
Book Entry Registration of the Class A Certificates
The Class A Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
such Book-Entry Certificates ("Beneficial Owners") may elect to hold their
Book-Entry Certificates directly through DTC in the United States, or CEDEL or
Euroclear (in Europe) if they are Participants of such systems ("Participants")
, or indirectly through organizations which are Participants. The Book-Entry
Certificates will be issued in one or more certificates per class of Class A
Certificates which in the aggregate equal the principal balance of such Class A
Certificates 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 will act as depositary for CEDEL and Morgan
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000 and in integral multiples
in excess thereof. Except as described below, no Beneficial Owner will be
entitled to receive a physical certificate representing such Certificate (a
"Definitive Certificate"). Unless and until Definitive Certificates are issued,
it is anticipated that the only "Owner" of such Book-Entry Certificates will be
Cede & Co., as nominee of DTC. Beneficial Owners will not be Owners as that term
is used in the Pooling and Servicing Agreement. Beneficial Owners are only
permitted to exercise their rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate 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 Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of CEDEL or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates 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 such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates. Participants
and indirect Participants with whom Beneficial Owners have accounts with respect
to Book- Entry Certificates are similarly required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Beneficial Owners. Accordingly, although Beneficial Owners will not possess
certificates,
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the Rules provide a mechanism by which Beneficial Owners will receive
distributions and will be able to transfer their interest.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Class A
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Class A Certificates only through
Participants and indirect Participants by instructing such Participants and
indirect Participants to transfer such Class A Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Class A
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Class A Certificates 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 Beneficial 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 below) or Euroclear Participant (as defined below) 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 settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Certain Federal
Income Tax Consequences -- Taxation of Certain Foreign Investors" and "-- Backup
Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures--Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
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.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant 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.
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Euroclear was created in 1968 to hold securities for Participants of
Euroclear ("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 now 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
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, 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.
The Euroclear Operator 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 the Euroclear
Operator 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.
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the Beneficial Owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect to
Certificates 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. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust provided by the Trustee to
Cede, as nominee of DTC, may be made available 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 Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
Owners of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing 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
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actions on its behalf through DTC. DTC may take actions, at the direction of the
related Participants, with respect to some Class A Certificates which conflict
with actions taken with respect to other Class A Certificates.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a nominee and
depository with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, elects to terminate a book-entry system through DTC or (c) DTC, at
the direction of the Beneficial Owners representing a majority of the
outstanding Percentage Interests of the Class A Certificates, advises the
Trustee in writing that the continuation of a book-entry system through DTC (or
a successor thereto) is no longer in the best interests of Beneficial Owners.
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 Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates 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.
Assignment of Rights
An Owner may pledge, encumber, hypothecate or assign all or any part of
its right to receive distributions under any Certificate, but such pledge,
encumbrance, hypothecation or assignment shall not constitute a transfer of an
ownership interest sufficient to render the transferee an Owner of the Trust
without compliance with the provisions of the Pooling and Servicing Agreement
described above. Notwithstanding the foregoing, the Pooling and Servicing
Agreement provides that the Certificate Insurer may, in connection with a
subrogation of the Certificate Insurer to the rights of the Owners of the Class
A Certificates to an amount equal to Insured Payments for which the Certificate
Insurer has not received reimbursement, be considered to be an "Owner" to the
extent (but only to the extent) of such rights.
THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER
The following information has been supplied by the Certificate Insurer
for inclusion in this Prospectus Supplement. No representation is made by the
Underwriters, the Seller, the Servicers, the Depositor or any of their
affiliates as to the accuracy or completeness of such information.
The Certificate Insurer, in consideration of the payment of the
premiums and subject to the terms of the Certificate Insurance Policies, will
unconditionally and irrevocably guarantee to any Owner that an amount equal to
each full and complete Insured Payment will be received by the Trustee or its
successor, as trustee for the Owners, on behalf of the Owners from the
Certificate Insurer, for distribution by the Trustee to each Owner of each
Owner's proportionate share of the Insured Payment. The Certificate Insurer's
obligations under the Certificate Insurance Policies with respect to a
particular Insured Payment shall be discharged to the extent funds equal to the
applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in such Certificate Insurance Policy and no accelerated
Insured Payments shall be made regardless of any acceleration of the Offered
Certificates, unless such acceleration is at the sole option of the Certificate
Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance
Policies do not cover shortfalls, if any, attributable to the liability of the
Trust, any REMIC created within the Trust or the Trustee for withholding taxes,
if any (including interest and penalties in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the second Business Day following receipt on a Business Day
by the Fiscal Agent (as described below) of (i) a certified copy of the order
requiring the return of such Preference Amount, (ii) an opinion of counsel
satisfactory to the Certificate Insurer that such order is final and not subject
to appeal, (iii) an assignment in such form as is reasonably required by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all rights
and claims of the Owner relating to or arising under the Offered Certificates
against the debtor which made such preference payment or otherwise with respect
to such
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Preference Amount, (iv) appropriate instruments to effect the appointment of the
Certificate Insurer as agent for such Owner in any legal proceeding related to
such preference payment, such instruments being in a form satisfactory to the
Certificate Insurer and (v) a Notice (as described below); provided, that if
such documents are received after 5:00 p.m. New York City time on such Business
Day, they will be deemed to be received on the following Business Day. Such
payments shall be disbursed to the receiver or trustee in bankruptcy named in
the final order of the court exercising jurisdiction on behalf of the Owner and
not to any Owner directly unless such Owner has returned principal or interest
paid on the Offered Certificates to such receiver or trustee in bankruptcy, in
which case such payment shall be disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under a
Certificate Insurance Policy no later than 12:00 noon, New York City time, on
the later of the Payment Date on which the Deficiency Amount is due or the
second Business Day following receipt in New York, New York, on a Business Day
by _______________________________________________________, as Fiscal Agent for
the Certificate Insurer or any successor fiscal agent appointed by the
Certificate Insurer (the "Fiscal Agent") of a Notice (as described below);
provided that if such Notice is received after 5:00 p.m. New York City time on
such Business Day, it will be deemed to be received on the following Business
Day. If any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making a claim under a Certificate
Insurance Policy, it shall be deemed not to have been received by the Fiscal
Agent for purposes of this paragraph, and the Certificate Insurer or the Fiscal
Agent, as the case may be, shall promptly so advise the Trustee and the Trustee
may submit an amended Notice.
Insured Payments due under a Certificate Insurance Policy, unless
otherwise stated therein, will be disbursed by the Fiscal Agent to the Trustee
on behalf of Owners by wire transfer of immediately available funds in the
amount of the Insured Payment less, in respect of Insured Payments related to
Preference Amounts, any amount held by the Trustee for the payment of such
Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the related Certificate
Insurance Policy.
As used in the related Certificate Insurance Policy, the following
terms shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as
of __________, 199__ among AMRESCO Residential Securities Corporation,
as Depositor, AMRESCO Residential Securities Corporation, as Seller
__________, and __________, as Servicers, and the Trustee, as Trustee,
without regard to any amendment or supplement thereto, unless the
Certificate Insurer shall have consented in writing thereto.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in California, New York City or
in the city in which the corporate trust office of the Trustee under
the Agreement is located are authorized or obligated by law or
executive order to close.
"Deficiency Amount" means with respect to the related Mortgage
Loan Group and Payment Date, the excess of (i) the sum of the related
Current Interest and the then existing Subordination Deficit for the
related Mortgage Loan Group, if any, over (ii) the Total Available
Funds (net of the Premium Amount for such Mortgage Loan Group) for such
Mortgage Loan Group.
"Insured Payment" means (i) as of any Payment Date an amount
equal to the Deficiency Amount plus (ii) any Preference Amount then due
and owing under the Certificate Insurance Policy.
"Mortgage Loan Group" means Group I or Group II, as the case
may be.
"Notice" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A
attached to the Certificate Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the
Trustee specifying the Insured Payment which shall be due and owing on
the applicable Payment Date.
"Owner" means each Owner (as defined in the Agreement) who, on
the applicable Payment Date, is entitled under the terms of the
applicable Offered Certificate to payment under the Certificate
Insurance Policy.
"Preference Amount" means any amount previously distributed to
an Owner on a Offered Certificate that is recoverable and sought to be
recovered as a voidable preference by a trustee in bankruptcy pursuant
to
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the United States Bankruptcy Code (11 U.S.C.) as amended from time to
time, in accordance with a final nonappealable order of a court having
competent jurisdiction.
Capitalized terms used in each Certificate Insurance Policy and not
otherwise defined therein will have the respective meanings set forth in the
Agreement as of the date of execution of such Certificate Insurance Policy,
without giving effect to any subsequent amendment to or modification of the
Agreement unless such amendment or modification has been approved in writing by
the Certificate Insurer.
Any notice under a Certificate Insurance Policy or service of process
on the Fiscal Agent of the Certificate Insurer may be made at the address listed
below for the Fiscal Agent of the Certificate Insurer or such other address as
the Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is __________, Attention:
___________, or such other address as the Fiscal Agent shall specify to the
Trustee in writing.
Each Certificate Insurance Policy is being issued under and pursuant
to, and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
The insurance provided by each Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in Article 76
of the New York Insurance Law.
The Certificate Insurance Policies are not cancelable for any reason.
The premium on a Certificate Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to the maturity of
the Offered Certificates.
The Certificate Insurer, formerly known as [Surety Name], is the
principal operating subsidiary of [Surety Name], a New York Stock Exchange
listed company. [Surety Name] is not obligated to pay the debts of or claims
against the Certificate Insurer. The Certificate Insurer is domiciled in the
State of New York and licensed to do business in all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands of the United States and the Territory of
Guam. The Certificate Insurer has one European branch in the Republic of France.
All information regarding the Certificate Insurer, a wholly owned
subsidiary of [Surety Name], including the financial statements of the
Certificate Insurer for the year ended December 31, 199 , prepared in accordance
with generally accepted accounting principles, included in the Annual Report on
Form 10-K of [Surety Name] for the year ended December 31, 1995, is hereby
incorporated by reference into this Prospectus Supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated by
reference herein shall be modified or superseded for purposes of this Prospectus
Supplement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus Supplement.
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The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
SAP
-----------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------- ---------- ----------
(Audited) (Audited) (Unaudited)
(In millions)
Admitted Assets
Liabilities
Capital and Surplus
GAAP
----------------------------------------------
December 31, December 31, December 31,
1994 1995 1996
------ -------- --------
(Audited) (Audited) (Unaudited)
(In millions)
Assets
Liabilities
Shareholder's Equity
--------------------
Audited financial statements of the Certificate Insurer as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995 are included herein as Appendix B. Unaudited financial statements of
the Certificate Insurer as of the three month period ended March 31, 1996 are
included herein as Appendix C. Such financial statements have been prepared on
the basis of generally accepted accounting principles. Copies of the Certificate
Insurer's 1995 year-end audited financial statements prepared in accordance with
statutory accounting practices are available from the Certificate Insurer. The
address of the Certificate Insurer is ____________________________________.
A copy of the Annual Report on Form 10-K of [Surety Name] is available
from the Certificate Insurer or the Securities and Exchange Commission. The
address of the Certificate Insurer is ______________________________________.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Certificate Insurance Policies and the
Certificate Insurer under the heading "THE CERTIFICATE INSURANCE POLICIES AND
THE CERTIFICATE INSURER" and in Appendix B and Appendix C.
Moody's rates the claims paying ability of the Certificate Insurer
"Aaa".
Standard & Poor's rates the claims paying ability of the Certificate
Insurer "AAA".
Fitch Investors Service, L.P. rates the claims paying ability of the
Certificate Insurer "AAA".
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its ability to
pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
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The above ratings are not recommendations to buy, sell or hold the
Offered Certificates, and such ratings may be subject to revision or withdrawal
at any time by the rating agencies. Any downward revision or withdrawal of any
of the above ratings may have an adverse effect on the market price of the
Offered Certificates. The Certificate Insurer does not guaranty the market price
of the Offered Certificates nor does it guaranty that the ratings on the Offered
Certificates will not be reversed or withdrawn.
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in the Prospectus and this Prospectus Supplement, there is
set forth below a summary of certain other provisions of the Pooling and
Servicing Agreement.
Covenant of the Seller to Take Certain Actions with Respect to the
Mortgage Loans in Certain Situations
Pursuant to the Pooling and Servicing Agreement, upon the discovery by
the Depositor, Seller, a Servicer, the Certificate Insurer, the Trustee or the
Custodian that any representations and warranties contained in a Transfer
Agreement with respect to the Mortgage Loans that were assigned to the Trust
were untrue in any material respect as of the Closing Date with the result that
the interests of the Owners or of the Certificate Insurer are materially and
adversely affected, or the value of the related Mortgage Loan is materially and
adversely affected, the party discovering such breach is required to give prompt
written notice to certain other parties thereto.
Upon the earliest to occur of the Seller's discovery of or its receipt
of notice of a breach described above from any of the other parties pursuant to
the related Transfer Agreement, the related Originator will be required promptly
to (i) cure such breach in all material respects or, within the time period
specified in the related Transfer Agreement, to (ii) substitute in lieu of each
affected Mortgage Loan a Qualified Replacement Mortgage (as such term is defined
in the Pooling and Servicing Agreement) and deliver any Substitution Amount to
the related Servicer for deposit into its Principal and Interest Account on
behalf of the Trust as part of the Monthly Remittance remitted by such Servicer
on the related Monthly Remittance Date or (iii) purchase such Mortgage Loan from
the Trust at a purchase price equal to the Loan Purchase Price (as defined
below) thereof. Notwithstanding any provision of the Pooling and Servicing
Agreement to the contrary, with respect to any Mortgage Loan which is not in
default or as to which no default is imminent, no such repurchase or
substitution will be made unless the Originator obtains for the Trustee and the
Certificate Insurer an opinion of counsel experienced in federal income tax
matters and acceptable to the Certificate Insurer to the effect that such a
repurchase or substitution would not constitute a Prohibited Transaction for the
Trust or otherwise subject the Trust to tax and would not jeopardize the status
of the REMIC Pool as a REMIC (a "REMIC Opinion"), addressed to the Trustee and
the Certificate Insurer and acceptable to the Trustee and the Certificate
Insurer. Any Mortgage Loan as to which repurchase or substitution was delayed
pursuant to the Pooling and Servicing Agreement shall be repurchased or
substituted for (subject to compliance with the provisions of the Pooling and
Servicing Agreement) upon the earlier of (a) the occurrence of a default or
imminent default with respect to such Mortgage Loan and (b) receipt by the
Trustee and the Certificate Insurer of a REMIC Opinion. In connection with any
breach of a representation, warranty or covenant or defect in documentation
giving rise to such repurchase or substitution obligation, the Seller may
request the Originator, to cause to be delivered to the Trustee and the
Certificate Insurer a REMIC Opinion, if a favorable opinion can be rendered, as
a result of any such repurchase or substitution. The obligation of the
Originator so to cure, substitute or purchase any such Mortgage Loan in respect
of a breach that has not been remedied constitutes the sole remedy available to
the Owners, the Seller, the Trustee and the Certificate Insurer.
"Loan Purchase Price" means generally the outstanding principal balance
of the related Mortgage Loan on the Cut-Off Date, less any principal amounts
previously distributed to the Owners relating to such Mortgage Loan (such
amount, the "Loan Balance" of such Mortgage Loan) as of the date of purchase
(assuming that the Monthly Remittance remitted by the Servicer on such Monthly
Remittance Date has already been remitted), plus one month's interest at the Net
Coupon Rate.
Assignment of Mortgage Loans
Pursuant to the Pooling and Servicing Agreement, the Seller on the
Closing Date will transfer, assign, set over and otherwise convey without
recourse to the Depositor and the Depositor will transfer, assign, set over and
otherwise convey without recourse to the Trustee in trust all of its respective
right, title and interest in and to each Mortgage Loan and all its respective
right, title and interest in and to principal and interest due on each such
Mortgage Loan on or after the Cut-Off Date; provided, however, that the
Depositor will reserve and retain all its right, title and interest in and to
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principal (including Prepayments) and interest due on each Initial Mortgage Loan
on or prior to the Cut-Off Date (except with respect to Initial Mortgage Loans
that were delinquent on the Cut-Off Date, which payments are not being retained
by the Depositor). Purely as a protective measure and not to be construed as
contrary to the parties' intent that the transfer on the Closing Date is a sale,
the Seller has also been deemed to have granted to the Depositor and the
Depositor has also been deemed to have granted to the Trustee a security
interest in the Trust Estate in the event that the transfer of the Trust Estate
is deemed to be a loan and not a sale.
In connection with the transfer and assignment of the Initial Mortgage
Loans on the Closing Date and the Subsequent Mortgage Loans on each Subsequent
Transfer Date, the Depositor will be required to:
(i) deliver without recourse to the Trustee on the Closing
Date with respect to each Initial Mortgage Loan or on each Subsequent
Transfer Date with respect to each Subsequent Mortgage Loan identified
in the related schedule of Mortgage Loans (A) the original Notes,
endorsed in blank or to the order of the Trustee, (B) the original
title insurance policy or any one of an original title binder, an
original preliminary title report, or an original title commitment, or
a copy certified by the issuer of any of the foregoing, or the
attorney's opinion of title, (C) originals or certified copies of all
intervening recorded assignments, showing a complete chain of title
from origination to the Trustee, if any, including warehousing
assignments, with evidence of recording thereon, (D) originals of all
assumption, modification, written assurance or substitution agreements,
if any and (E) either: (1) the original Mortgage, with evidence of
recording thereon, (2) a certified copy if such original Mortgage has
not been received from the applicable recording office by the Seller
and returned to the custodian or (3) a copy of the Mortgage certified
by the public recording office in those instances where the original
recorded Mortgage has been lost;
(ii) cause the Originator (if the Originator is ) or the
Seller within 60 days following the Closing Date with respect to the
Initial Mortgage Loans, or the Subsequent Transfer Date with respect to
the Subsequent Mortgage Loans, to submit for recording in the
appropriate jurisdictions, assignments of the Mortgages to
"________________, as Trustee of AMRESCO Residential Securities
Corporation Mortgage Loan Trust 199__-__ under the Pooling and
Servicing Agreement dated as of __________, 199__" provided, however,
that the Depositor shall not be required to cause to be recorded any
assignment of Mortgage for a Mortgage with respect to which the
Mortgaged Property is located in California or the original recording
information is lacking;
(iii) if not delivered on the Closing Date, deliver the title
insurance policy or title searches, the original Mortgages and such
recorded assignments, together with originals or duly certified copies
of any and all prior assignments, to the Trustee within 15 days of
receipt thereof by the Depositor (but in any event, with respect to any
Mortgage as to which original recording information has been made
available to the Depositor within two years after the Closing Date with
respect to the Initial Mortgage Loans, or Subsequent Transfer Date with
respect to the Subsequent Mortgage Loans); and
(iv) furnish to the Trustee and the Certificate Insurer, at
the Depositor's expense, a tax opinion and an opinion of counsel with
respect to the sale and perfection of all Subsequent Mortgage Loans
delivered to the Trust in form and substance satisfactory to the
Trustee and the Certificate Insurer.
The Trustee will agree, for the benefit of the Owners, to review the
documents contained in each Mortgage Loan File held by the Trustee ("File")
within 45 days after the Closing Date or Subsequent Transfer Date (or the date
of receipt of any documents delivered to the Trustee after such date) to
ascertain that all required documents (or certified copies of documents) have
been executed and received.
If the Trustee during such 45-day period finds any document
constituting a part of a File which is not properly executed, has not been
received, or is unrelated to the Mortgage Loans, or that any Mortgage Loan does
not conform in a material respect to the description thereof as set forth in the
Schedule of Mortgage Loans, the Trustee will be required to promptly notify the
Depositor, the Seller, the Owners and the Certificate Insurer. The Seller will
agree in the Pooling and Servicing Agreement to request that the related
Originator use reasonable efforts to remedy a material defect in a document
constituting part of a File of which it is so notified by the Trustee. If,
however, within the time period set forth in the related Transfer Agreement
after the Trustee's notice to it respecting such defect the related Originator
or other party to a Transfer Agreement shall not have remedied the defect and
the defect materially and adversely affects the interest in the related Mortgage
Loan of the Owners or of the Certificate Insurer, the Seller will request the
related Originator within the time period specified in the related Transfer
Agreement to (i) substitute in lieu of such Mortgage Loan another Mortgage Loan
of like kind (a "Qualified Replacement Mortgage," as such term is
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defined in the Pooling and Servicing Agreement) and deliver any "Substitution
Amount" (the excess, if any, of the Loan Balance of a Mortgage Loan being
replaced over the outstanding principal balance of a replacement Mortgage Loan
plus accrued and unpaid interest) to the related Servicer for deposit into its
Principal and Interest Account on behalf of the Trust as part of the Monthly
Remittance remitted by the Servicer on such Monthly Remittance Date or (ii)
purchase such Mortgage Loan at a purchase price equal to the Loan Purchase Price
thereof, which purchase price shall be delivered to the related Servicer for
deposit in the related Principal and Interest Account along with the Monthly
Remittance remitted by such Servicer on such Monthly Remittance Date.
In addition to the foregoing, the Trustee has agreed to provide an
updated exception report during the 12th month after the Closing Date indicating
the current status of the exceptions previously noted by the Trustee (the "Final
Certification"). After delivery of the Final Certification, the Trustee shall
provide to the Certificate Insurer and the related Servicer no less frequently
than monthly updated certifications indicating the then current status of
exceptions, until all such exceptions have been eliminated.
Servicing
Each Servicer will be obligated under the Pooling and Servicing
Agreement to service and administer the Mortgage Loans identified as being
serviced by it as described therein and with reasonable care, and using that
degree of skill and attention that such Servicer exercises with respect to
comparable mortgage loans that it services for itself or others, and shall have
full power and authority, acting alone, to do or cause to be done any and all
things in connection with such servicing and administration which it may deem
necessary or desirable. Consistent with the foregoing, each Servicer will be
permitted to, in its discretion, (i) waive any assumption fees, late payment
charges, charges for checks returned for insufficient funds or other fees which
may be collected in the ordinary course of servicing the Mortgage Loans, (ii) if
a Mortgagor is in default or about to be in default because of a Mortgagor's
financial condition, arrange with the Mortgagor a schedule for the payment of
delinquent payments due on the related Mortgage Loan, or (iii) modify payments
of monthly principal and interest on any Mortgage Loan becoming subject to the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, in
accordance with such Servicer's general policies with respect to comparable
mortgage loans subject to such Act.
Each Servicer will be paid a monthly fee from interest collected with
respect to each Mortgage Loan serviced by it (as well as from any Liquidation
Proceeds from a Liquidated Mortgage Loan ("Liquidation Proceeds") that are
applied to accrued and unpaid interest) equal to the Loan Balance thereof
multiplied by the applicable Servicing Fee Rate (such product, the "Servicing
Fee"). The "Servicing Fee Rate" for each Mortgage Loan will be the rate provided
in the Pooling and Servicing Agreement, not to exceed % per annum. The amount of
the monthly Servicing Fee is subject to adjustment with respect to prepaid
Mortgage Loans, as described below. Each Servicer is also entitled to receive,
as additional servicing compensation, amounts in respect of interest paid on
Prepayments received from the 2nd day through the 15th day of a month
("Prepayment Interest Excess"), all late payment fees, assumption fees and other
similar charges and all reinvestment income earned on amounts on deposit in the
related Principal and Interest Account. In addition, each Servicer will be
entitled to retain additional servicing compensation in the form of release
fees, bad check charges, assumption fees, late payment charges, or any other
servicing-related fees, Net Liquidation Proceeds not required to be deposited in
the related Principal and Interest Account pursuant to the Pooling and Servicing
Agreement, and similar items. Prepayment penalties may also be retained as
additional servicing compensation to the extent set forth in the Pooling and
Servicing Agreement.
Each Servicer is required to establish, or cause to be established, in
the name of the Trustee at one or more depository institutions, a principal and
interest account maintained as a trust account in the trust department of such
institution (each, a "Principal and Interest Account"). All funds in the
Principal and Interest Accounts are required to be held (i) uninvested or (ii)
invested in Eligible Investments (as defined in the Pooling and Servicing
Agreement). Any investment of funds in the Principal and Interest Accounts must
mature on or prior to the immediately succeeding Monthly Remittance Date. Any
investment earnings on funds held in the Principal and Interest Accounts are for
the account of, and any losses therein are also for the account of and must be
promptly replenished by, the respective Servicer.
Each Servicer is required to deposit in the related Principal and
Interest Account, on a daily basis (but in no event later than the second
Business Day following receipt) all principal and interest due on the related
Mortgage Loans, other than "Balloon Payments" (i.e., the final payment of
principal due with respect to a Balloon Mortgage Loan), after the Cut-Off Date
and past due interest and principal on any Mortgage Loan, other than Balloon
Payments, that was delinquent as of the Cut-Off Date, including any Prepayments,
the proceeds of any liquidation of a Mortgage Loan (including any insurance
proceeds) net of expenses and unreimbursed Delinquency Advances and Servicing
Advances
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("Net Liquidation Proceeds"), any income from REO Properties received thereafter
(net of unreimbursed Servicing Advances and Delinquency Advances), but net of
(i) the Servicing Fee with respect to each Mortgage Loan and other servicing
compensation, (ii) principal collected and interest accrued on any Mortgage Loan
prior to the Cut-Off Date if such Mortgage Loan was current as of the Cut-Off
Date, which amounts shall be delivered to the Seller, (iii) late payments
received on any Mortgage Loan in respect of unreimbursed Servicing Advances and
Delinquency Advances and (iv) reimbursements for past Delinquency Advances which
the Servicer has determined in its good faith business judgment are not
recoverable from the related Mortgagor or Mortgage Loan proceeds (all such net
amounts being referred to herein as the "Daily Collections").
Each Servicer may make withdrawals for its own account (or for the
account of the Seller in the case of clause (i) below) from the amounts on
deposit in the related Principal and Interest Account with respect to the
related Mortgage Loan Group, only for the following purposes:
(i) to withdraw interest paid with respect to any Mortgage
Loans that had accrued for periods on or prior to the Cut-Off Date and
principal due on all current Mortgage Loans on the Cut-Off Date, which
shall be paid to the Seller;
(ii) to withdraw investment earnings on amounts on deposit in
its respective Principal and Interest Account;
(iii) to reimburse itself for unrecovered Delinquency Advances
and Servicing Advances to the extent permitted in the Pooling and
Servicing Agreement;
(iv) to withdraw amounts that have been deposited to its
respective Principal and Interest Account in error; and
(v) to clear and terminate its respective Principal and
Interest Account following the termination of the Trust Estate.
Each Servicer will remit to the Trustee for deposit in the Certificate
Account the Monthly Remittance Amount not later than the related Monthly
Remittance Date.
Subject to the following limitations, each Servicer will be required to
advance on any Mortgage Loan serviced by it prior to each Payment Date its own
funds or other funds made available to it under the Pooling and Servicing
Agreement as set forth in the next paragraph, for such Payment Date, in an
amount equal to the aggregate of payments of principal and interest on the
Mortgage Loans serviced by it in the related Mortgage Loan Group (adjusted to
the applicable Net Coupon Rate) that became due during the related Remittance
Period and delinquent on the related Determination Date, together with an amount
equivalent to interest on the principal balance of the Mortgage Loan related to
each Mortgaged Property (each, an "REO Property") acquired by the Trust through
liquidation (any such advance, a "Delinquency Advance"). The Net Coupon Rate is
the rate equal to the excess of the Coupon Rate over the applicable Servicing
Fee Rate.
Delinquency Advances are intended to maintain a regular flow of
scheduled interest and principal payments on the Certificates rather than to
guarantee or insure against losses. Each Servicer is obligated to make
Delinquency Advances with respect to delinquent payments of principal of or
interest on each Mortgage Loan, other than delinquent Balloon Payments on
"Balloon Mortgage Loans" (i.e., Mortgage Loans with respect to which the
principal balance, by its original terms, does not fully amortize at final
maturity), serviced by it (with such payments of interest adjusted to the
related Net Coupon Rate) to the extent that such Delinquency Advances are, in
its good faith business judgment, recoverable from future payments and
collections or insurance payments or proceeds of liquidation of the related
Mortgage Loan. With respect to a delinquent Balloon Payment, the Servicer is not
required to make a Delinquency Advance of such delinquent Balloon Payment. The
Servicer will, however, make monthly Delinquency Advances with respect to
Balloon Mortgage Loans with delinquent Balloon Payments, in each case in an
amount equal to the assumed monthly principal and interest payment that would
have been due on the related Due Date based on the original principal
amortization schedule for the applicable Balloon Mortgage Loan. Such Delinquency
Advances shall be required only to the extent that the Servicer, in its good
faith business judgment, determines that such Delinquency Advance will be
recoverable from future payments and collections or insurance payments or
proceeds of liquidation of the related Mortgage Loan. Each Servicer shall be
permitted to fund its payment of Delinquency Advances on any Business Day, or to
reimburse itself for any Delinquency Advances paid from such Servicer's own
funds, from collections on the related Mortgage Loan deposited to the related
Principal and Interest Account subsequent to the related Remittance Period
(including "Prepaid Installments" (i.e., early payments of scheduled principal
and interest intended by the
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borrower to be treated as such)) and shall deposit into the related Principal
and Interest Account with respect thereto (i) collections from the Mortgagor
whose delinquency gave rise to the shortfall which resulted in such Delinquency
Advance net of any such Delinquency Advance and (ii) Net Liquidation Proceeds
recovered on account of the related Mortgage Loan to the extent of the amount of
aggregate Delinquency Advances related thereto. Previously unreimbursed
Delinquency Advances that the Servicer determines to be unrecoverable may be
reimbursed to the Servicer out of any Mortgagor payments prior to their deposit
to the related Principal and Interest Account or from funds on deposit in the
related Principal and Interest Account. All Delinquency Advances will be
included with the distribution to Owners of the Certificates of the related
Group of Certificates on the related Payment Date. Any failure by a Servicer to
make a Delinquency Advance as required under the Pooling and Servicing Agreement
with respect to the Certificates will constitute an event of default thereunder
for such Servicer, in which case the Trustee, as successor servicer, or the
successor servicer will be obligated to make any such Delinquency Advance, in
accordance with the terms of the Pooling and Servicing Agreement.
Each Servicer will be required to pay all customary, reasonable and
necessary "out of pocket" costs and expenses incurred in the performance of its
servicing obligations, including, but not limited to, (i) expenditures in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation ("Preservation
Expenses"), (ii) the cost of any enforcement or judicial proceedings, including
foreclosures and (iii) the cost of the management and liquidation of Property
acquired in satisfaction of the related Mortgage, to the extent such expenses
are, in its good faith business judgment, recoverable. Such costs will
constitute "Servicing Advances." Each Servicer may recover a Servicing Advance
(x) to the extent permitted by the Mortgage Loans or, if not theretofore
recovered from the Mortgagor on whose behalf such Servicing Advance was made,
from Liquidation Proceeds realized upon the liquidation of the related Mortgage
Loan or (y), to the extent that such Servicing Advance is determined by the
Servicer in its good faith business judgment to be non-recoverable from such
proceeds from Net Monthly Excess Cashflow and certain other Mortgage Loan
proceeds as specified in the Pooling and Servicing Agreement.
A full month's interest at the related Net Coupon Rate will be due to
the Trust on the outstanding Loan Balance of each Mortgage Loan as of the
beginning of each Remittance Period. If a Prepayment in full of a Mortgage Loan
occurs during any calendar month, any difference between the interest collected
from the Mortgagor in connection with such prepayment and the full month's
interest at the Net Coupon Rate ("Compensating Interest") (but not in excess of
the aggregate Servicing Fee, and any Prepayment Interest Excess for such period)
will be required to be deposited to the Principal and Interest Account on the
Monthly Remittance Date by the related Servicer and shall be included in the
Monthly Remittance to be made available to the Trustee on the next succeeding
Monthly Remittance Date.
When a Mortgagor prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates ("Due Dates"), the Mortgagor pays interest on
the amount prepaid only to the date of prepayment. Prepayments received from the
2nd day through the 15th day of a month are included in the distribution on the
25th day of the same month, and accordingly no shortfall in interest distributed
to the Owners of the Certificates results. Conversely, Prepayments received from
the 16th day to the last day of a month are not distributed until the 25th day
of the following month, and accordingly an interest shortfall (a "Prepayment
Interest Shortfall") would result. In order to mitigate the effect of any such
shortfall in interest distributions to the Owners of the Certificates on any
Payment Date, the amount of the Servicing Fee otherwise payable to the related
Servicer for such month shall, to the extent of such shortfall, be deposited by
the Servicer in the Group I Certificate Account (as defined below) (if the
Prepayment Interest Shortfall occurred with respect to a Group I Mortgage Loan)
or in the Group II Certificate Account (as defined below) (if the Prepayment
Interest Shortfall occurred with respect to a Group II Mortgage Loan) for
distribution to the Owners of the Fixed Rate Group Certificates or Adjustable
Rate Group Certificates as applicable, on such Payment Date. However, any such
reduction in the Servicing Fee will be made only to the extent of the Servicing
Fee otherwise payable to such Servicer with respect to Scheduled Payments having
the Due Date to which such Payment Date relates. Any such deposit by the related
Servicer will be reflected in the distributions to the Owners of the
Certificates made on the Payment Date on which the Prepayment received would be
distributed. Subject to the availability thereof to fund Compensating Interest
requirements referred to in the previous paragraph, the Servicers will be
permitted to retain any Prepayment Interest Excess due to prepayments received
in the month in which they are distributed.
Each Servicer will have the right and the option, but not the
obligation, to purchase for its own account any Mortgage Loan serviced by it
which becomes delinquent, in whole or in part, as to four consecutive monthly
installments or any Mortgage Loan as to which enforcement proceedings have been
brought by such Servicer. The purchase price for any such Mortgage Loan is equal
to the Loan Purchase Price thereof, which purchase price shall be deposited in
the related Principal and Interest Account.
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Each Servicer, with respect to Mortgage Loans serviced by it, shall
foreclose upon or otherwise comparably convert the ownership on behalf of the
Trust of Mortgaged Properties relating to defaulted Mortgage Loans as to which
no satisfactory arrangements can be made for collection of delinquent payments
and which the related Servicer has not purchased from the Trust. Each Servicer
will be required to sell any REO Property managed by it within 23 months of its
acquisition by the Trust, unless an appropriate extension is obtained, or an
opinion of counsel is obtained to the effect that the holding by the Trust of
such REO Property for any greater period will not result in the imposition of
taxes on "Prohibited Transactions" of the Trust as defined in Section 860F of
the Code or cause the Trust to fail to qualify as a REMIC under the REMIC
Provisions at any time that any Certificates are outstanding, in which case such
Servicer shall sell any REO Property by the end of any extended period specified
in any such opinion or such extension as applicable.
Notwithstanding the generality of the foregoing provisions, each
Servicer will be required to manage, conserve, protect and operate each REO
Property managed by it for the Owners solely for the purpose of its prompt
disposition and sale in a manner which does not cause such REO Property to fail
to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or result in the receipt by the Trust of any "income from non-permitted
assets" within the meaning of Section 860F(a)(2)(B) of the Code or any "net
income from foreclosure property" which is subject to taxation under the REMIC
Provisions. Pursuant to its efforts to sell such REO Property, the related
Servicer will be required to either itself or through an agent selected by such
Servicer protect and conserve such REO Property in the same manner and to such
extent as is customary in the locality where such REO Property is located and
may, incident to its conservation and protection of the interests of the Owners
and after consultation with the holder of a majority in interest of the Class R
Certificates, rent the same, or any part thereof, as such Servicer deems to be
in the best interest of the Owners and the Certificate Insurer for the period
prior to the sale of such REO Property.
If so required by the terms of any Mortgage Loan, the related Servicer
will be required to cause hazard insurance to be maintained with respect to the
related Mortgaged Property and to advance sums (such Advances to be treated as
Servicing Advances) on account of the premiums therefor if not paid by the
Mortgagor if permitted by the terms of such Mortgage Loan.
Each Servicer will have the right under the Pooling and Servicing
Agreement to accept applications of Mortgagors for consent to (i) partial
releases of Mortgages, (ii) alterations and (iii) removal, demolition or
division of Mortgaged Properties. No application for approval may be considered
by such Servicer unless: (i) the provisions of the related Note and Mortgage
have been complied with; (ii) the loan-to-value ratio and debt-to-income ratio
after any release does not exceed the maximum loan-to-value ratio and
debt-to-income ratio established in accordance with the Guidelines set forth
herein to be applicable to such Mortgage Loan; and (iii) the lien priority of
the related Mortgage is not affected.
Each Servicer will be permitted under the Pooling and Servicing
Agreement to enter into subservicing agreements for any servicing and
administration of Mortgage Loans with any institution which is acceptable to the
Certificate Insurer and a majority of Percentage Interests of the Class R Owners
and meeting the requirements of the Pooling and Servicing Agreement.
Notwithstanding any subservicing agreement, each Servicer will not be
relieved of its obligations under the Pooling and Servicing Agreement and such
Servicer will be obligated to the same extent and under the same terms and
conditions as if it alone were servicing and administering the Mortgage Loans.
Each Servicer shall be entitled to enter into any agreement with a subservicer
for indemnification of such Servicer by such subservicer and nothing contained
in such subservicing agreement shall be deemed to limit or modify the Pooling
and Servicing Agreement.
Each Servicer (except the Trustee if it is required to succeed any
Servicer under the Pooling and Servicing Agreement) will agree to indemnify and
hold the Trustee, the Certificate Insurer, the Seller and the Depositor harmless
against any and all claims, losses, penalties, fines, forfeitures, legal fees
and related costs, judgments, and any other costs, fees and expenses that the
Trustee, the Certificate Insurer, the Seller and the Depositor may sustain in
any way related to the failure of such Servicer to perform its duties and
service the Mortgage Loans in compliance with the terms of the Pooling and
Servicing Agreement. A party against whom any such claim is brought shall
immediately notify the other parties and the Rating Agencies if a claim is made
by a third party with respect to the Pooling and Servicing Agreement, and such
Servicer may assume the defense of any such claim and, upon a determination that
the claim results from the Servicer's failure to perform in accordance with the
Pooling and Servicing Agreement, pay all expenses in connection therewith,
including reasonable counsel fees, and promptly pay, discharge and satisfy any
judgment or decree which may be entered against such Servicer, the Trustee, the
Certificate Insurer, the Seller or the Depositor in respect of such claim.
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Each Servicer will be required to deliver to the Trustee, the
Certificate Insurer, the Seller, the Depositor and the Rating Agencies: (1) on
or before April 15 of each year, commencing in 1997, an officers' certificate
stating, as to each signer thereof, that (i) a review of the activities of such
Servicer during such preceding calendar year and of performance under the
Pooling and Servicing Agreement has been made under such officers' supervision,
and (ii) to the best of such officers' knowledge, based on such review, such
Servicer has fulfilled all its obligations under the Pooling and Servicing
Agreement for such year, or, if there has been a default in the fulfillment of
all such obligation, specifying each such default known to such officers and the
nature and status thereof including the steps being taken by such Servicer to
remedy such default; and (2) on or before April 15 of any year commencing in
1997, a letter or letters of a firm of independent, nationally recognized
certified public accountants reasonably acceptable to the Certificate Insurer
dated as of the date of the Servicer's fiscal audit for each subsequent letter
stating that such firm has examined the Servicer's overall servicing operations
in accordance with the requirements of the Uniform Single Attestation Program
for Mortgage Bankers, and stating such firm's conclusions relating thereto.
Removal and Resignation of a Servicer
The Certificate Insurer or the Owners, the Trustee or the Seller (in
each case with the consent of the Certificate Insurer), will have the right
pursuant to the Pooling and Servicing Agreement, to remove any Servicer upon the
occurrence of, and in certain cases after notice and expiration of the related
cure period: (a) certain acts of bankruptcy or insolvency on the part of such
Servicer; (b) certain failures on the part of such Servicer to perform its
obligations under the Pooling and Servicing Agreement; (c) the failure to cure
material breaches of such Servicer's obligations in the Pooling and Servicing
Agreement; or (d) if the loss and/or delinquency levels of the related Mortgage
Loans are at certain specified levels.
No Servicer is permitted to resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement except (i) upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of such Servicer so
causing such conflict being of a type and nature carried on by such Servicer on
the date of the Pooling and Servicing Agreement or (ii) upon written consent of
the Certificate Insurer, the Seller and the Trustee and confirmation from the
Rating Agencies that the Class A Certificate ratings (absent the Certificate
Insurance Policies) are not reduced. Any such determination permitting the
resignation of such Servicer pursuant to clause (i) above is required to be
evidenced by an opinion of counsel to such effect which shall be delivered to
the Trustee and the Certificate Insurer.
Upon removal or resignation of a Servicer, the Trustee (x) shall
solicit bids for a successor Servicer and (y) pending the appointment of a
successor Servicer as a result of soliciting such bids, shall serve as Servicer.
The Trustee, if it is unable to obtain a qualifying bid and is prevented by law
from acting as servicer, will be required to appoint, or petition a court of
competent jurisdiction to appoint, any housing and home finance institution,
bank or mortgage servicing institution designated as an approved servicer
meeting the requirements of the Pooling and Servicing Agreement, and acceptable
to the Certificate Insurer and the Owners of the Class R Certificates (provided
that if the Certificate Insurer and such Owners cannot agree as to the
acceptability of such successor Servicer, the decision of the Certificate
Insurer shall control) as the successor to such Servicer in the assumption of
all or any part of the responsibilities, duties or liabilities of such Servicer.
No removal or resignation of a Servicer will become effective until the
Trustee or a successor Servicer shall have assumed a Servicer's responsibilities
and obligations in accordance with the Pooling and Servicing Agreement.
Reporting Requirements
On each Payment Date the Trustee is required to report in writing to
each Owner and the Certificate Insurer:
(i) the amount of the distribution with respect to the related
Class of the Class A Certificates and the Subordinate Certificates
(based on a Certificate in the original principal amount of $1000);
(ii) the amount of such distribution allocable to principal on
the Mortgage Loans in each Group, separately identifying the aggregate
amount of any Prepayments or other recoveries of principal included
therein, any Pre-Funded Amounts distributed as a Prepayment at the end
of the Funding Period (based on a Certificate in the original principal
amount of $1000) and any Subordination Increase Amount with respect to
each such Group;
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(iii) the amount of such distribution allocable to interest on the
related Mortgage Loans in each Group (based on a Certificate in the
original principal amount of $1000);
(iv) if the distribution (net of any Insured Payment) to the
Owners of any Class of the Class A Certificates on such Payment Date
was less than the related Class A Distribution Amount on such Payment
Date, the Carry-Forward Amount and the allocation thereof to the
related Classes of the Class A Certificates resulting therefrom;
(v) the amount of any Insured Payment included in the amounts
distributed to the Owners of each Class of the Class A Certificates on
such Payment Date;
(vi) the principal amount of each Class of the Class A
Certificate (based on a Certificate in the original principal amount of
$1000) which will be outstanding after giving effect to any payment of
principal on such Payment Date;
(vii) the aggregate Loan Balance of all Mortgage Loans, the
aggregate Loan Balance of the Mortgage Loans in each Group and, the
aggregate Loan Balance of the Initial Mortgage Loans and the Subsequent
Mortgage Loans, in each case after giving effect to any payment of
principal on such Payment Date;
(viii) the Subordinated Amount and Subordination Deficit for each
Group, if any, remaining after giving effect to all distributions and
transfers on such Payment Date;
(ix) based upon information furnished by the Depositor such
information as may be required by Section 6049(d)(7)(C) of the Code and
the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(x) the total of any Substitution Amounts or Loan Purchase Price
amounts included in such distribution with respect to each Group;
(xi) the weighted average Coupon Rate of the Mortgage Loans with
respect to each Group;
(xii) such other information as the Certificate Insurer may
reasonably request with respect to delinquent Mortgage Loans;
(xiii) the largest Mortgage Loan balance outstanding;
(xiv) for Payment Dates during the Funding Period, the remaining
Pre-Funded Amount allocable to each Mortgage Loan Group; and
(xv) the Servicing Fees, Trustee Fees and Premium Amount
allocable to each Group.
Certain obligations of the Trustee to provide information to the Owners
are conditioned upon such information being received from the Servicers.
In addition, on each Payment Date the Trustee will be required to
distribute to the Depositor, the Underwriters, the Rating Agencies, each Owner
and the Certificate Insurer, together with the information described above, the
following information prepared by the related Servicer and furnished to the
Trustee for such purpose and with respect to each Mortgage Loan Group:
(a) the number and aggregate principal balances of Mortgage
Loans (i) 30-59 days delinquent, (ii) 60-89 days delinquent and (ii) 90
or more days delinquent, as of the close of business on the last day of
the Remittance Period (taking into account any payments received from
Mortgages on or prior to the related Determination Date) and the Class
A Certificate Principal Balance as of such Payment Date and the number
and aggregate Loan Balances of all Mortgage Loans and related data;
(b) the status and the number and dollar amounts of all
Mortgage Loans in foreclosure proceedings as of the related
Determination Date;
(c) the number of Mortgagors and the Loan Balances of the
related Mortgages involved in bankruptcy proceedings as of the related
Determination Date;
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(d) the existence and status of any Mortgaged Properties as to
which title has been taken in the name of, or on behalf of the Trustee,
as of the related Determination Date;
(e) the book value of any real estate acquired through
foreclosure or grant of a deed-in-lieu of foreclosure as of the related
Determination Date; and
(f) the amount of cumulative Realized Losses.
Removal of Trustee for Cause
The Trustee may be removed upon the occurrence of any one of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Trustee: (1) failure to
make distributions of available amounts; (2) certain breaches of covenants and
representations by the Trustee; (3) certain acts of bankruptcy or insolvency on
the part of the Trustee; and (4) failure to meet the standards of Trustee
eligibility as set forth in the Pooling and Servicing Agreement.
If any such event occurs and is continuing, then and in every such case
(i) the Certificate Insurer or (ii) with the prior written consent of the
Certificate Insurer (which is required not to be unreasonably withheld) (x) the
Depositor or (y) the Owners of a majority of the Percentage Interests
represented by the Class A Certificates or, if there are no Class A Certificates
then outstanding, by a majority of the Percentage Interests represented by the
Subordinate Certificates, may appoint a successor trustee.
Governing Law
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
Amendments
The Trustee, the Depositor, the Seller and the Servicers with the
consent of the Certificate Insurer may, at any time and from time to time and
without notice to or the consent of the Owners, amend the Pooling and Servicing
Agreement, and the Trustee will be required to consent to such amendment, for
the purposes of (i) if accompanied by a favorable opinion of counsel experienced
in federal income tax matters, removing the restriction against the transfer of
a Class R Certificate to a Disqualified Organization (as such term is defined in
the Code), (ii) complying with the requirements of the Code including any
amendments necessary to maintain REMIC status, (iii) curing any ambiguity, (iv)
correcting or supplementing any provisions therein which are inconsistent with
any other provisions therein or (v) for any other purpose, provided that in the
case of clause (v), (A) the Seller delivers an opinion of counsel acceptable to
the Trustee that such amendment will not adversely affect in any material
respect the interest of the Owners and (B) such amendment will not result in a
withdrawal or reduction of the rating of the Class A Certificates without regard
to the Certificate Insurance Policy. Notwithstanding anything to the contrary,
no such amendment shall (a) change in any manner the amount of, or delay the
timing of, payments which are required to be distributed to any Owner without
the consent of the Owner of such Certificate, (b) reduce the percentages of
Percentage Interest which are required to consent to any such amendments,
without the consent of the Owners of all Certificates of the Class or Classes
affected then outstanding or (c) which affects in any manner the terms or
provisions of the Certificate Insurance Policy.
The Trustee will be required to furnish written notification of the
substance of any such amendment to each Owner in the manner set forth in the
Pooling and Servicing Agreement.
Termination of the Trust
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Certificates and the Certificate
Insurer from amounts other than those available under the Certificate Insurance
Policy of all amounts required to be paid to such Owners and the Certificate
Insurer upon the last to occur of (a) the final payment or other liquidation (or
any advance made with respect thereto) of the last Mortgage Loan, (b) the
disposition of all property acquired in respect of any Mortgage Loan remaining
in the Trust Estate and (c) at any time when a Qualified Liquidation of the
Trust Estate is effected as described below. To effect a termination pursuant to
clause (c) above, the Owners of all Certificates then outstanding will be
required (i) unanimously to direct the Trustee on behalf of the REMIC to adopt a
plan of complete liquidation, as contemplated by Section 860F(a)(4) of the Code
and (ii) to
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furnish to the Trustee an opinion of counsel experienced in federal income tax
matters acceptable to the Certificate Insurer and the Trustee to the effect that
such liquidation constitutes a Qualified Liquidation.
Auction Sale; Step Up on Certain Pass-Through Rates; Termination
Auction Sale. The Pooling and Servicing Agreement requires that, within
90 days of the Auction Sale Bid Date, with respect to a Mortgage Loan Group, the
Trustee shall solicit bids for the purchase of all Mortgage Loans remaining in
such Mortgage Loan Group. In the event that satisfactory bids are received as
described in the Pooling and Servicing Agreement, the net sale proceeds will be
distributed to the Owners of the Certificates related to such Mortgage Loan
Group, in the same order of priority as interest and principal distributions. If
satisfactory bids are not received, the Trustee shall decline to sell the
Mortgage loans and shall not be under any obligation to solicit any further bids
or otherwise negotiate any further sale of the Mortgage Loans in such Mortgage
Loan Group. The Auction Sale must constitute a "qualified liquidation" of the
Classes of Certificates related to such Mortgage Loan Group under Section 860F
of the Code, including, without limitation, the requirement that the qualified
liquidation takes place over a period not to exceed 90 days.
Step Up on Certain Pass-Through Rates. If an Auction Sale with respect
to the Adjustable Rate Group has not occurred by the Step Up Date, the
Pass-Through Rate on each Class of the Adjustable Rate Group Certificates will
be increased as provided in "Summary of Terms--Certificates Offered" herein, for
each Payment Date occurring thereafter.
Optional Termination By Servicers. If an Auction Sale with respect to a
Mortgage Loan Group does not occur, the Servicers will also have the right,
collectively, to purchase all of the Mortgage Loans in such Mortgage Loan Group
they are servicing on any Monthly Remittance Date when the outstanding
Certificate Principal Balance related to such Mortgage Loan Group has declined
to 5% of the Original Certificate Principal Balance of such Mortgage Loan Group.
Mandatory Purchase. In the event that an Auction Sale has not occurred
with respect to both Mortgage Loan Groups, and the Servicers fail to exercise
their respective option to purchase all of the Mortgage Loans in both Mortgage
Loan Groups, the Owners of the Class R Certificates will be required to purchase
all of the Mortgage Loans in both Mortgage loan Groups on the Monthly Remittance
Date in June 2027.
Termination Upon Loss of REMIC Status. Following a final determination
by the Internal Revenue Service or by a court of competent jurisdiction, in
either case from which no appeal is taken within the permitted time for such
appeal, or if any appeal is taken, following a final determination of such
appeal from which no further appeal can be taken, to the effect that the REMIC
does not and will no longer qualify as a "REMIC" pursuant to Section 860D of the
Code (the "Final Determination"), at any time on or after the date which is 30
calendar days following such Final Determination the Certificate Insurer or the
Owners of a majority in Percentage Interests represented by the Class A
Certificates then outstanding with the consent of the Certificate Insurer may
direct the Trustee on behalf of the Trust to adopt a plan of complete
liquidation, as contemplated by Section 860F(a)(4) of the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the Class
A Certificates is to be considered only in connection with "Certain Federal
Income Tax Consequences" in the Prospectus. The discussion herein and in the
Prospectus is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below and in the Prospectus
does not purport to deal with all federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Class A Certificates.
REMIC Election
Pursuant to the Pooling and Servicing Agreement, the Trustee will elect
to treat the Trust Estate (other than the Pre-Funding Account and the
Capitalized Interest Account) as a REMIC for federal income tax purposes. The
REMIC will issue the Class A Certificates and the Subordinate Certificates
(other than the Class R Certificates) which will be designated as regular
interests in the REMIC and the Class R Certificates which will be designated as
the residual interest in the REMIC. See "Formation of the Trust and Trust
Property" herein.
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Qualification as a REMIC requires ongoing compliance with certain
conditions. Arter & Hadden, special tax counsel, will advise that, in its
opinion, for federal income tax purposes, assuming (i) the REMIC election is
made and (ii) compliance with the Pooling and Servicing Agreement, the REMIC
will be treated as a REMIC, the Class A Certificates will be treated as "regular
interests" in the REMIC and the Class R Certificates will be the sole "residual
interest" in the REMIC. Except as indicated below and in the Prospectus, for
federal income tax purposes, regular interests in a REMIC are treated as debt
instruments issued by the REMIC on the date on which those interests are
created, and not as ownership interests in the REMIC or its assets. Owners of
the Class A Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to such Class A
Certificates under an accrual method.
The prepayment assumption for each Class of the Class A Certificates
for calculating original issue discount is 21% HEP for the Fixed Rate Group
Certificates and 21% HEP for the Adjustable Group Certificates. See "Prepayment
and Yield Considerations -- Projected Prepayment and Yield for Class A
Certificates" herein.
As a result of the qualification of certain specified assets of the
Trust as a REMIC, the Trust will not be subject to federal income tax except
with respect to (i) income from prohibited transactions, (ii) "net income from
foreclosure property" and (iii) certain contributions to the Trust after the
Closing Date (see "Certain Federal Income Tax Consequences" in the Prospectus).
The total income of the Trust (exclusive of any income that is taxed at the
REMIC level) will be taxable to the Beneficial Owners of the Certificates.
Under the laws of New York State and New York City, an entity that is
treated for federal income tax purposes as a REMIC generally is exempt from
entity level taxes imposed by those jurisdictions. This exemption does not
apply, however, to the income on the Class A Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans and
individual retirement arrangements to which it applies ("Plan") and on those
persons who are fiduciaries with respect to such Plans. Any Plan fiduciary which
proposes to cause a Plan to acquire any of the Class A Certificates should
consult with counsel with respect to the consequences under ERISA and the Code
of the Plan's acquisition and ownership of such Certificates. See "ERISA
Considerations" in the Prospectus.
The Department of Labor has issued to the Underwriters individual
prohibited transaction exemptions (the "Exemptions"); which generally exempt
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1) and Section 406(b)(2) of ERISA and the excise taxes imposed
pursuant to Sections 4975(a) and (b) 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 Exemptions. The
loans covered by the Exemptions include mortgage loans such as the Mortgage
Loans.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
(1) the acquisition of the Class A 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 Class A
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other Certificates of the Trust Estate;
(3) the Class A 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 either Standard & Poor's,
Moody's, Duff & Phelps Credit Rating Co. ("D&P") or Fitch;
(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 any
Underwriter in connection with the distribution of the Class A
Certificates represents not more than reasonable compensation for
underwriting the Class A Certificates; the sum of all payments made to
and retained by the Seller pursuant to the assignment of the Mortgage
Loans to the Trust Estate represents not more than the fair market
value of such loans; the sum
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of all payments made to and retained by any Servicer represents not
more than reasonable compensation for such person's services under the
Agreement 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 Estate must also meet the following requirements:
(i) the corpus of the Trust Estate must consist solely of a
fixed pool 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 rating categories of Standard &
Poor's, Moody's, Fitch or D&P for at least one year prior to the Plan's
acquisition of Class A 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 the Plan's acquisition of the Class A
Certificates.
Moreover, the Exemptions provide 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 in which the
fiduciary (or its affiliate) is a mortgagor on the receivables held in the
trust; provided that, among other requirements, (i) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is a
mortgagor with respect to five percent or less of the fair market value of the
obligations contained in the trust; (iii) the Plan's investment in certificates
of any class does not exceed twenty-five percent 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 of the assets of the
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 Exemptions do not apply to Plans
sponsored by the Depositor, the Certificate Insurer, the Underwriters, the
Trustee, the related Servicer, any mortgagor with respect to Mortgage Loans
included in the Trust Estate constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Estate, or
any affiliate of such parties (the "Restricted Group"). As of the date hereof,
there is no single Mortgage Loan included in the Trust Estate that constitutes
more than five percent of the aggregate unamortized principal balance of the
assets of the Trust Estate.
It is believed that the Exemptions will apply to the acquisition and
holding of Certificates by Plans and that all conditions of the Exemptions as
they relate to the acquisition and holding by Plans of the Certificates other
than those within the control of the investors will be met after such time.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the possible applicability of the
Exemptions, or other exemptive relief, and all of the potential consequences in
their specific circumstances, prior to making an investment in the Class A
Certificates. Each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Class A 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.
RATINGS
It is a condition of the issuance of the Class A Certificates that the
Class A Certificates receive ratings of "AAA" by Standard & Poor's, "Aaa" by
Moody's and "AAA" by Fitch. The ratings assigned to the Class A Certificates
will be based primarily on the claims-paying ability of the Certificate Insurer.
Explanations of the significance of such ratings may be obtained from Moody's,
99 Church Street, New York, New York 10007, Standard & Poor's, 25 Broadway, New
York, New York 10004 and Fitch Investors Services, One State Street Plaza, 33rd
Floor, New York, New York 10004. Such ratings will be the views only of such
rating agencies. There is no assurance that any such ratings will continue for
any period of time or that such ratings will not be revised or withdrawn. Any
such revision or withdrawal of such ratings may have an adverse effect on the
market price of the Class A Certificates. A security rating is not a
recommendation to buy, sell or hold securities.
S-68
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will constitute "mortgage related securities"
for purposes of SMMEA for so long as they are rated in one of the two highest
rating categories by one or more nationally recognized statistical rating
organizations. As such, such Classes of Certificates will be legal investments
for certain entities to the extent provided in SMMEA, subject to state laws
overriding SMMEA. In addition, institutions whose investment activities are
subject to review by federal or state regulatory authorities may be or may
become subject to restrictions, which may be retroactively imposed by such
regulatory authorities, on the investment by such institutions in certain forms
of mortgage related securities. Furthermore, certain states have enacted
legislation overriding the legal investment provisions of SMMEA.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Certificates (the "Underwriting Agreement"), the
Depositor has agreed to cause the Trust to sell to each of the Underwriters
named below (the "Underwriters"), and each of the Underwriters has severally
agreed to purchase, the principal amount or Percentage Interest of the Class A
Certificates set forth opposite its name below:
Class A-1 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
Class A-2 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
Class A-3 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
Class A-4 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
S-69
<PAGE>
Class A-5 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
Class A-6 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
Class A-7 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
Class A-8 Certificates
Underwriters Percentage Interest
[Underwriter]
-----%
[Underwriter]
-----%
[Underwriter]
-----%
The Underwriters are collectively committed to purchase all of the
Class A Certificates if any Class A Certificates are purchased. The Underwriters
intend to act as market makers in the Class A Certificates, subject to
applicable provisions of federal and state securities laws and other regulatory
requirements, but are under no obligation to do so. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the Class
A Certificates may be deemed to be underwriters, and any discounts or
commissions received by them and any profit on the resale of the Class A
Certificates by them may be deemed to be underwriting discounts or commissions,
under the Securities Act.
The Depositor has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
S-70
<PAGE>
REPORT OF EXPERTS
The consolidated balance sheets of the Certificate Insurer, [Surety
Name] (formerly known as [Surety Name]) as of December 31, 1995 and 1994 and the
related consolidated statements of income, changes in shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1995,
appearing in Appendix B of this Prospectus Supplement, have been audited by
______________________________, independent accountants, as set forth in their
report included therein, and are included in reliance upon such report and upon
the authority of such firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Seller by __________ and by L. Keith
Blackwell, Esquire, General Counsel for the Depositor. Certain legal matters
relating to insolvency issues and certain federal income tax matters concerning
the Certificates will be passed upon for the Depositor by __________. Certain
legal matters relating to the validity of the issuance of the Certificates will
be passed upon for the Underwriters by __________. Legal matters relating to the
Policy will be passed upon for the Certificate Insurer by
______________________________.
S-71
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered AMRESCO
Residential Securities Corporation Mortgage Loan Trust 199__-__ Mortgage Loan
Pass-Through Certificates, Class A (the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of DTC, CEDEL or Euroclear. The Global Securities will be
tradeable 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 through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL 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, CEDEL and
Euroclear will hold positions on behalf of their Participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. 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 CEDEL 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 generally applicable to
mortgage loan asset-backed certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant 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
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the
I-1
<PAGE>
month, payment will include interest accrued to and excluding the first day of
the following month. Payment will then be made by the Relevant Depositary to the
DTC Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL 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 CEDEL or Euroclear cash debt will be valued instead as of
the actual settlement date.
CEDEL 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 CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL 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 the result will depend on each CEDEL
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 crediting Global
Securities to the respective European Depositary for the benefit of CEDEL
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 CEDEL or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, CEDEL 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 CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depositary, as appropriate, to credit
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 accrual period and a year assumed to consist to
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 CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL 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 CEDEL 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 CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL 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 CEDEL or Euroclear account
in order to settle the sale side of the trade; or
I-2
<PAGE>
(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 CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
CEDEL 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 (as defined below), 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). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), 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).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons 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). 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 Certificate Owners or their agent.
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 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
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is not a
U.S. Person. 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.
I-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or by the Underwriters. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction in which the person making
such offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that information herein (including
information incorporated by reference herein) or therein is correct as of any
time subsequent to the date of this Prospectus Supplement or the Prospectus.
----------
TABLE OF CONTENTS
Page
-----
PROSPECTUS SUPPLEMENT
Summary of Terms...........................................................S-1
Risk Factors ..............................................................S-15
The Portfolio of Mortgage Loans............................................S-18
Use of Proceeds............................................................S-35
The Depositor..............................................................S-35
The Seller.................................................................S-35
The Mortgage Loan Pools....................................................S-35
Prepayment and Yield Considerations........................................S-47
The Originators............................................................S-53
Formation of the Trust and Trust Property..................................S-53
Additional Information.....................................................S-54
Description of the Class A Certificates....................................S-54
The Certificate Insurance Policies and the Certificate
Insurer....................................................................S-64
The Pooling and Servicing Agreement........................................S-67
Certain Federal Income Tax Consequences....................................S-77
ERISA Considerations.......................................................S-78
Ratings....................................................................S-79
Legal Investment Considerations............................................S-79
Underwriting...............................................................S-80
Report of Experts..........................................................S-81
Certain Legal Matters......................................................S-81
Global Clearance, Settlement and Tax
Documentation Procedures.......................................Annex I
Index to Location of Principal Defined Terms................................A-1
Audited Financial Statements for the
Certificate Insurer................................................B-1
Unaudited Financial Statements for the
Certificate Insurer................................................C-1
PROSPECTUS
Summary of Prospectus.........................................................1
Risk Factors..................................................................7
Description of the Certificates..............................................10
The Trusts...................................................................15
Credit Enhancement...........................................................18
Servicing of the Mortgage Loans and Contracts................................22
Administration...............................................................28
Use of Proceeds..............................................................35
The Depositor................................................................35
Certain Legal Aspects of the Mortgage Assets.................................35
Legal Investment Matters.....................................................44
ERISA Considerations.........................................................45
Certain Federal Income Tax Consequences......................................47
Plan of Distribution.........................................................71
Legal Matters................................................................71
Financial Information........................................................71
Index to Location of Principal Defined Terms................................A-1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMRESCO Residential
Securities Corporation Mortgage
Loan Trust 199__-__
$-----------
Mortgage Loan Pass-Through
Certificates, Series 199__-__
$-----------
Class A-1 Certificates
$-----------
Class A-2 Certificates
$-----------
Class A-3 Certificates
$-----------
Class A-4 Certificates
$-----------
Class A-5 Certificates
$-----------
Class A-6 Certificates
$-----------
Class A-7 Certificates
$-----------
Class A-8 Adjustable Rate Group
Certificates
-----------
PROSPECTUS SUPPLEMENT
-----------
[Underwriter]
[Underwriters]
___________, 199__
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
------
Accrual Period S-5
Actuarial Loans S-25
Adjustable Rate Certificates S-1
Adjustable Rate Group Available Funds Cap S-1
Appraised Values S-25
Available Funds S-46
Balloon Mortgage Loans S-60
Balloon Payments S-59
Beneficial Owners S-12
Book-Entry Certificates S-50
Business Day S-5
Capitalized Interest Account S-11
Carry Forward Amount S-6
CEDEL S-12
CEDEL Participants S-51
Cede S-12
Certificate Account S-44
Certificate Insurance Policy S-9
Certificate Insurer S-9
Certificate Principal Balance S-38
Certificates S-2
Citibank S-12
Class S-1
Class A Certificate Principal Balance S-38
Class A Certificates S-1
Class A Distribution Amount S-5
Class A-1 Certificates S-1
Class A-2 Certificates S-1
Class A-3 Certificates S-1
Class A-4 Certificates S-1
Class A-5 Certificates S-1
Class A-6 Certificates S-1
Class A-7 Certificates S-1
Class A-8 Certificates S-1
Class R Certificates S-2
Clean-Up Call Date S-1
Closing Date S-2
Code S-13
Compensating Interest S-61
Cooperative S-52
Coupon Rates S-3
Current Interest S-6
Cut-Off Date S-1
D&P S-67
Daily Collections S-60
Definitive Certificate S-50
Deleted Mortgage Loan S-24
Depositor S-1
DTC S-12
DTC Participants S-51
Due Dates S-61
ERISA S-67
Euroclear S-12
Euroclear Operator S-52
Euroclear Participants S-52
European Depositaries S-12
Excess Subordinated Amount S-48
Exemption S-67
File S-58
Final Certification S-59
Final Scheduled Payment Dates S-38
Financial Intermediary S-50
Fiscal Agent S-54
Fitch S-67
Fixed Rate Certificates S-1
Fixed Rate Group Available Funds Cap S-1
Funding Period S-10
GAAP S-56
Initial Certificate Principal Balance S-38
Initial Mortgage Loans S-2
Insurance Policy S-9
Insured Payment S-10
Liquidated Mortgage Loan S-8
Liquidation Proceeds S-59
Loan Balance S-57
Loan Purchase Price S-24
Loan-to-Value Ratios S-27
Monthly Remittance Date S-7
Moody's S-12
Morgan S-12
Mortgage Loan Group 1
Mortgage Loans S-25
Mortgaged Properties S-2
Mortgages S-2
Net Coupon Rate S-24
Net Liquidation Proceeds S-60
Net Monthly Excess Cashflow S-46
Notes S-2
One-Month LIBOR S-1
Page
------
Original Aggregate Loan Balance S-2
Original Pre-Funded Amount S-2
Originators S-43
Owners S-2
Participants S-50
Pass-Through Rate S-45
Payment Date S-5
Percentage Interest S-44
Plan S-67
Preference Amount S-8
Premium Amount S-45
Prepaid Installments S-60
Prepayment Interest Excess S-59
Prepayment Interest Shortfall S-61
Prepayments S-15
Preservation Expenses S-61
Pre-Funded Amount S-10
Pre-Funding Account S-2
Principal and Interest Account S-59
Principal Distribution Amount S-6
Qualified Replacement Mortgage S-24
Rating Agencies S-12
REMIC S-13
REMIC Opinion S-57
REO Property S-60
Realized Loss S-48
Record Date S-5
Reference Banks S-50
Register S-44
Registrar S-44
Relevant Depositary S-50
Remittance Period S-7
Restricted Group S-68
Rules S-50
SAP S-56
Seller S-1
Servicer S-1
Servicers S-1
Servicing Advance S-61
Servicing Fee Rate S-59
Six-Month LIBOR Loan S-4
Specified Subordinated Amount S-47
Standard & Poor's S-12
Subordinate Certificates S-2
Subordinated Amount S-47
Subordination Deficit S-8
Subordination Increase Amount S-47
Subordination Reduction Amount S-48
Subsequent Cut-Off Date S-16
Subsequent Mortgage Loans S-2
Subsequent Transfer Agreement S-16
Subsequent Transfer Date S-10
Substitution Amount S-59
sequential pay S-6
Telerate Page 3750 S-50
Terms and Conditions S-52
Total Available Funds S-47
Total Monthly Excess Cashflow S-45
Transfer Agreement S-23
Trust S-43
Trust Estate S-43
Underwriters S-69
Weighted average life S-38
A-1
<PAGE>
APPENDIX B
AUDITED FINANCIAL STATEMENTS FOR THE CERTIFICATE INSURER
[Surety Name]
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1995 and 1994
and for the years ended
December 31, 1995, 1994 and 1993
B-1
<PAGE>
APPENDIX C
UNAUDITED FINANCIAL STATEMENTS FOR THE CERTIFICATE INSURER
C-1
Exhibit 99.2
PROSPECTUS SUPPLEMENT CERTIFICATES --
(To Prospectus Dated ___________ __, 199__) SENIOR/SUBORDINATE
- --------------------------------------------------------------------------------
$--------------
AMRESCO Residential Securities Corporation Mortgage Loan Trust 199__-__
AMRESCO RESIDENTIAL SECURITIES CORPORATION
Depositor
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
Seller and Master Servicer
----------
Servicers
----------
LOGO
AMRESCO
AMRESCO Residential Securities Corporation
The AMRESCO Residential Securities Corporation Mortgage Loan
Pass-Through Certificates, Series 199__-__ (the "Certificates") will consist of
(i) the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates,
Class A-4 Certificates, Class A-5 Certificates, Class A-6 Certificates, Class
A-7 Certificates and Class A-8 Certificates (collectively, the "Class A
Certificates"); (ii) the Class M-1F Certificates and the Class M-1A Certificates
(collectively, the "Class M-1 Certificates"); (iii) the Class M-2F Certificates
and the Class M-2A Certificates (collectively, the "Class M-2 Certificates" and,
collectively with the Class M-1 Certificates, the "Mezzanine Certificates");
(iv) the Class B-1F Certificates and the Class B-1A Certificates (collectively,
the "Class B-1 Certificates"; (v) the Class C-FIO and Class C-AIO Certificates
(collectively, the "Class C-IO Certificates" and, collectively with the
Mezzanine Certificates and the Class B-1 Certificates, the "Subordinate
Certificates"); (vi) the Class S Certificates; (vii) the Class D Certificates;
and (viii) the residual class with respect to each REMIC held by the Trust (the
"Class R Certificates," and together with the Class C-IO Certificates, the Class
D Certificates and the Class S Certificates, the "Private Certificates"). Only
the Class A Certificates, the Mezzanine Certificates and the Class B-1
Certificates (collectively, the "Offered Certificates") are offered hereby.
For a discussion of significant matters affecting investment in the
Certificates, see "Risk Factors" beginning on page S-__ and "Prepayment and
Yield Considerations" beginning on page S-__ herein and "Risk Factors" beginning
on page 7 in the Prospectus. (Cover continued on next page)
----------
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST
ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE
SELLER, THE MASTER SERVICER, THE SERVICERS, THE TRUSTEE OR ANY OF THEIR
AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Initial Certificate Pass-Through Price to Underwriting Proceeds to
Principal Balance Rate Public Discount Depositor
----------------- ---- ------ -------- ---------
<S> <C> <C> <C> <C> <C>
Class A-1 Certificate $ % % % $
Class A-2 Certificate
Class A-3 Certificate
Class A-4 Certificate
Class A-5 Certificate
Class A-6 Certificate
Class A-7 Certificate
Class A-8 Certificate
Class M-1F Certificate
Class M-1A Certificate
Class M-2F Certificate
Class M-2A Certificate
Class B-1F Certificate
Class B-1A Certificate
</TABLE>
- ----------
----------
The Offered Certificates are offered subject to prior sale, when, as,
and if accepted by the Underwriters and subject to the Underwriters' right to
reject orders in whole or in part. It is expected that delivery of the Offered
Certificates will be made in book-entry form through the facilities of The
Depository Trust Company ("DTC"), Cedel Bank, S.A. and the Euroclear System on
or about ______________ ___, 199__. The Offered Certificates will be offered in
Europe and the United States of America.
- ----------
[UNDERWRITER]
[UNDERWRITER]
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is _____________ __, 199__.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
<PAGE>
(Cover continued from previous page)
The Certificates represent undivided ownership interests in two pools
(each, a "Mortgage Loan Group") of fixed and adjustable rate mortgage loans (the
"Mortgage Loans") held by AMRESCO Residential Securities Corporation Mortgage
Loan Trust 199__-__ (the "Trust"). The Class A-1 through Class A-6, Class M-1F,
Class M-2F, Class B-1F and Class C-FIO Certificates (collectively, the "Fixed
Rate Group Certificates") will represent undivided ownership interests in the
Mortgage Loans in the Fixed Rate Group and the respective Pre-Funding Account
(as defined herein). The Class A-7, Class A-8, Class M-1A, Class M-2A, Class
B-1A and Class C-AIO Certificates (collectively, the "Adjustable Rate Group
Certificates") will represent undivided ownership interests in the Mortgage
Loans in the Adjustable Rate Group and the respective Pre-Funding Account (as
defined herein). The Mortgage Loans are secured by first and second lien
mortgages or deeds of trust. The Offered Certificates also represent an
undivided ownership interest in all monies due under the respective Mortgage
Loans after ______________ ___, 199__ (the "Cut-Off Date"), security interests
in the properties which secure the Mortgage Loans (the "Mortgaged Properties"),
funds on deposit in certain trust accounts, and certain other property.
The Class M-1 Certificates issued with respect to a Mortgage Loan Group
are subordinate in right of distribution to the related Class A Certificates to
the extent described herein. The Class M-2 Certificates issued with respect to a
Mortgage Loan Group are subordinate in right of distribution to the related
Class A Certificates and the related Class M-1 Certificates to the extent
described herein. The Class B-1 Certificates issued with respect to a Mortgage
Loan Group are subordinate in right of distribution to the related Class A
Certificates and the related Mezzanine Certificates to the extent described
herein. The Class C-IO Certificates issued with respect to a Mortgage Loan Group
are subordinate in right of distribution to the related Class A Certificates,
the related Mezzanine Certificates and the related Class B-1 Certificates to the
extent described herein. The initial aggregate Certificate Principal Balance of
the Subordinate Certificates related to the Fixed Rate Group will equal _____%
of the initial aggregate Certificate Principal Balance of the Fixed Rate Group
Certificates and the initial aggregate Certificate Principal Balance of the
Subordinate Certificates related to the Adjustable Rate Group will equal _____%
of the initial aggregate Certificate Principal Balance of the Adjustable Rate
Group Certificates.
The Trust will be created pursuant to a Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement") to be dated as of ______________,
199___, among the Depositor, AMRESCO Residential Capital Markets, Inc., as
Seller and Master Servicer, the Servicers and ________________________________,
as Trustee (the "Trustee").
The Loan Balance of the Mortgage Loans as of the close of business on
_______________ ___, 199___ (the "Statistical Calculation Date") will be
$_____________. In addition to the Mortgage Loans as of the Statistical
Calculation Date, additional Mortgage Loans will be purchased by the Trust from
the Depositor on the Closing Date. All of the Mortgage Loans as of the Closing
Date (the "Initial Mortgage Loans") will have a Cut-Off Date as of the close of
business on ____________ ___, 199__ and the Depositor expects that the Loan
Balance of the Initial Mortgage Loans will total approximately $______________
as of the Closing Date. See "The Mortgage Loan Pool" herein.
The Pooling and Servicing Agreement provides that additional Mortgage
Loans (the "Subsequent Mortgage Loans") may be purchased by the Trust from the
Depositor from time to time on or before ____________ ___, 199___ from funds on
deposit in the Pre-Funding Account. Each Subsequent Mortgage Loan so acquired by
the Trust will be assigned to one of the Mortgage Loan Groups. On the Closing
Date aggregate cash amounts of approximately $___________ and $___________ will
be deposited with the Trustee in the Pre-Funding Account to be used to acquire
Subsequent Mortgage Loans for the Fixed Rate Group and the Adjustable Rate
Group, respectively.
The Offered Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), as further described herein. The interests of beneficial owners of the
Offered Certificates will be represented by book entries on the records of
participating members of DTC. Definitive certificates will be available for the
Offered Certificates only under the limited circumstances described herein. See
"Description of the Offered Certificates-Book-Entry Registration of the Offered
Certificates" herein.
Distributions of interest will be made to the Owners of the
Certificates on the 25th day of each month (or, if such day is not a business
day, the next business day) beginning ________ 25, 199__ (each such date, a
"Payment Date"). To the extent available, interest will be passed through on
each Payment Date to the Owners of the Offered Certificates based on the related
Certificate Principal Balance (as defined herein), and at the rate applicable to
the related Class of the Offered Certificates (each, a "Pass-Through Rate"). The
Pass-Through Rate for each Class of the Adjustable Rate Group Certificates
adjusts monthly based upon One-Month LIBOR (as defined herein) or as otherwise
described herein. Distributions of principal in reduction of the Certificate
Principal Balances will be made on each Payment Date in the manner and the
amounts described herein.
Except as described further herein, only the Class A Certificates may
be acquired by Plans (as defined herein). See "ERISA Considerations" herein.
The yield to investors on the Offered Certificates sold at prices other
than par, may be sensitive to the rate and timing of principal payments
(including prepayments, repurchases, defaults and liquidations) on the Mortgage
Loans in the related Mortgage Loan Group, which may vary over time. See "Risk
Factors" and "Prepayment and Yield Considerations" herein and "Risk Factors" in
the Prospectus.
The Trust will make one or more elections to treat certain assets
thereof as a "real estate mortgage investment conduit" (a "REMIC") for federal
income tax purposes. As described more fully herein, all Classes of the Offered
Certificates will constitute "regular interests" in a REMIC. See "Certain
Federal Income Tax Consequences" herein and in the Prospectus.
Prior to their issuance there has been no market for the Offered
Certificates nor can there be any assurance that one will develop or if
it does develop, that it will provide the Owners of the Offered Certificates
with liquidity or will continue for the life of the Certificates. The
Underwriters intend, but are not obligated, to make a market in the Offered
Certificates.
---------------
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Certificates offered by this Prospectus Supplement will be part of
a separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated ______________ ___, 199___, of which this Prospectus Supplement
is a part and which accompanies this Prospectus Supplement. The Prospectus
contains important information regarding this offering which is not contained
herein, and prospective investors are urged to read the Prospectus and this
Prospectus Supplement in full.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement under the Securities Act of 1933
with respect to the Certificates. This Prospectus Supplement and the related
Prospectus, which form a part of the Registration Statement, omit certain
information contained in such Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement can be inspected and
copied at the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C., and the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and electronically
through the Commission's Electronic Data Gathering Analysis and Retrieval system
at the Commission's Web site (http:\\www.sec.gov).
REPORTS TO OWNERS
Monthly and annual reports concerning the Certificates and the Trust
will be sent by the Trustee to the Owners of Offered Certificates. So long as
any Offered Certificate is in book-entry form, such reports will be sent to Cede
& Co., as the nominee of DTC and as Owner of such Offered Certificates pursuant
to the Pooling and Servicing Agreement. DTC will supply such reports to Owners
of any such Offered Certificates in accordance with its procedures. The
Depositor will file or cause to be filed with the Commission such periodic
reports with respect to the Trust as are required under the Securities Exchange
Act of 1934 and the rules and regulations of the Commission thereunder. It is
the Depositor's intent to suspend the filing of such reports as soon as such
reports are no longer statutorily required.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF TERMS...........................................................................................................S-1
RISK FACTORS..............................................................................................................S-22
THE PORTFOLIO OF MORTGAGE LOANS...........................................................................................S-25
General..............................................................................................................S-25
Underwriting Guidelines..............................................................................................S-26
Prepayment Penalties.................................................................................................S-28
Representations Relating to the Mortgage Loans.......................................................................S-29
Responsibilities of the Master Servicer..............................................................................S-29
The Servicers........................................................................................................S-30
USE OF PROCEEDS...........................................................................................................S-30
THE DEPOSITOR.............................................................................................................S-30
THE MORTGAGE LOAN POOLS...................................................................................................S-30
General..............................................................................................................S-30
Initial Mortgage Loans -- Fixed Rate Group...........................................................................S-31
Initial Mortgage Loans -- Adjustable Rate Group......................................................................S-37
Conveyance of Subsequent Mortgage Loans..............................................................................S-46
PREPAYMENT AND YIELD CONSIDERATIONS.......................................................................................S-47
General..............................................................................................................S-47
Mandatory Prepayment.................................................................................................S-48
Prepayment and Yield Scenarios for Offered Certificates..............................................................S-48
Payment Lag Feature of Fixed Rate Group Certificates.................................................................S-50
THE ORIGINATORS...........................................................................................................S-50
FORMATION OF THE TRUST AND TRUST PROPERTY.................................................................................S-50
ADDITIONAL INFORMATION....................................................................................................S-51
DESCRIPTION OF THE OFFERED CERTIFICATES...................................................................................S-51
General..............................................................................................................S-51
Payment Dates........................................................................................................S-51
Distributions........................................................................................................S-52
Pre-Funding Account..................................................................................................S-54
Capitalized Interest Account.........................................................................................S-54
Calculation of One-Month LIBOR.......................................................................................S-54
Book Entry Registration of the Offered Certificates..................................................................S-55
Assignment of Rights.................................................................................................S-57
CREDIT ENHANCEMENT........................................................................................................S-57
Subordination of Subordinate Certificates and Certain of the
Private Certificates.............................................................................................S-58
Application of Realized Losses.......................................................................................S-58
Application of Monthly Excess Cash Flow Amounts......................................................................S-59
THE POOLING AND SERVICING AGREEMENT.......................................................................................S-61
Covenant of the Seller to Take Certain Actions with Respect to the
Mortgage Loans in Certain Situations.............................................................................S-61
Assignment of Mortgage Loans.........................................................................................S-62
Servicing............................................................................................................S-63
Removal and Resignation of a Servicer................................................................................S-67
Subservicer..........................................................................................................S-67
Reporting Requirements...............................................................................................S-67
Removal of Trustee for Cause.........................................................................................S-68
Governing Law........................................................................................................S-69
Amendments...........................................................................................................S-69
Termination of the Trust.............................................................................................S-69
Auction Sale; Step Up on Certain Pass-Through Rates;
Termination......................................................................................................S-69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................................................................S-70
REMIC Elections......................................................................................................S-70
ERISA CONSIDERATIONS......................................................................................................S-71
RATINGS...................................................................................................................S-73
LEGAL INVESTMENT MATTERS..................................................................................................S-73
UNDERWRITING..............................................................................................................S-74
CERTAIN LEGAL MATTERS.....................................................................................................S-75
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES..............................................................................................I-1
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS...............................................................................A-1
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF PROSPECTUS...................................................................................................... 1
RISK FACTORS............................................................................................................... 7
DESCRIPTION OF THE SECURITIES.............................................................................................. 10
General................................................................................................................. 11
Classes of Securities................................................................................................... 11
Distributions of Principal and Interest................................................................................. 12
Book Entry Registration................................................................................................. 14
List of Owners of Securities............................................................................................ 14
THE TRUSTS................................................................................................................. 14
Mortgage Loans.......................................................................................................... 15
Contracts............................................................................................................... 17
Mortgage-Backed Securities.............................................................................................. 17
Other Mortgage Securities............................................................................................... 17
CREDIT ENHANCEMENT......................................................................................................... 17
SERVICING OF MORTGAGE LOANS AND CONTRACTS.................................................................................. 21
Payments on Mortgage Loans.............................................................................................. 22
Advances................................................................................................................ 22
Collection and Other Servicing Procedures............................................................................... 23
Primary Mortgage Insurance.............................................................................................. 25
Standard Hazard Insurance............................................................................................... 25
Title Insurance Policies................................................................................................ 26
Claims Under Primary Mortgage Insurance Policies and
Standard Hazard Insurance Policies; Other Realization
Upon Defaulted Loan................................................................................................ 26
Servicing Compensation and Payment of Expenses.......................................................................... 27
Master Servicer......................................................................................................... 27
ADMINISTRATION............................................................................................................. 27
Assignment of Mortgage Assets........................................................................................... 27
Evidence as to Compliance............................................................................................... 29
The Trustee............................................................................................................. 30
Administration of the Security Account.................................................................................. 30
Reports................................................................................................................. 31
Forward Commitments; Pre-Funding........................................................................................ 32
Servicer Events of Default.............................................................................................. 32
Rights Upon Servicer Event of Default................................................................................... 32
Amendment............................................................................................................... 33
Termination............................................................................................................. 33
USE OF PROCEEDS............................................................................................................ 33
THE DEPOSITOR.............................................................................................................. 33
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS............................................................................... 34
General................................................................................................................. 34
Foreclosure............................................................................................................. 35
Soldiers' and Sailors' Civil Relief Act................................................................................. 39
The Contracts........................................................................................................... 40
The Title I Program..................................................................................................... 42
LEGAL INVESTMENT MATTERS................................................................................................... 42
ERISA CONSIDERATIONS....................................................................................................... 43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................................... 45
Federal Income Tax Consequences For REMIC Securities.................................................................... 45
Taxation of Regular Securities.......................................................................................... 46
Taxation of Residual Securities......................................................................................... 51
Treatment of Certain Items of REMIC Income
and Expense........................................................................................................ 53
Tax-Related Restrictions on Transfer of
Residual Securities................................................................................................ 55
Sale or Exchange of a Residual Security................................................................................. 57
Taxes That May Be Imposed on the REMIC Pool............................................................................. 57
Liquidation of the REMIC Pool........................................................................................... 58
Administrative Matters.................................................................................................. 58
Limitations on Deduction of Certain Expenses............................................................................ 58
Taxation of Certain Foreign Investors................................................................................... 59
Backup Withholding...................................................................................................... 59
Reporting Requirements.................................................................................................. 60
Federal Income Tax Consequences for Securities as to Which
No REMIC Election Is Made.......................................................................................... 60
Standard Securities......................................................................................................60
Premium and Discount.................................................................................................... 62
Stripped Securities..................................................................................................... 63
Reporting Requirements and Backup Withholding........................................................................... 65
Taxation of Certain Foreign Investors................................................................................... 66
Debt Securities..........................................................................................................66
Taxation of Securities Classified as Partnership Interests.............................................................. 67
PLAN OF DISTRIBUTION....................................................................................................... 67
RATINGS.....................................................................................................................68
LEGAL MATTERS.............................................................................................................. 68
FINANCIAL INFORMATION...................................................................................................... 68
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.............................................................................. A-1
</TABLE>
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Index to Location of Principal
Defined Terms for the location of certain capitalized terms.
Issuer: AMRESCO Residential Securities Corporation Mortgage Loan Trust
199__-2__(the "Trust").
Certificates
Offered: $_____________ Mortgage Loan Pass-Through Certificates, Series
199__-__ to be issued in the following Classes (each, a
"Class") and original Certificate Principal Balances (each, an
"Original Certificate Principal Balance") set forth below:
Original Certificate Pass-Through
Principal Balance Rate Class
----------------- ---- -----
$ % Class A-1 Certificates
Class A-2 Certificates
Class A-3 Certificates
Class A-4 Certificates
Class A-5 Certificates
Class A-6 Certificates
Class A-7 Certificates
Class A-8 Certificates
Class M-1F Certificates
Class M-1A Certificates
Class M-2F Certificates
Class M-2A Certificates
Class B-1F Certificates
Class B-1A Certificates
The Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates, Class A-5 Certificates,
Class A-6 Certificates, Class A-7 Certificates and Class A-8
Certificates are collectively referred to herein as the "Class
A Certificates." The Class M-1F Certificates and the Class
M-1A Certificates are collectively referred to as the "Class
M-1 Certificates." The Class M-2F Certificates and the Class
M-2A Certificates are collectively referred to as the "Class
M-2 Certificates." The Class M-1 Certificates and the Class
M-2 Certificates are collectively referred to as the
"Mezzanine Certificates." The Class B-1F Certificates and the
Class B-1A Certificates are collectively referred to as the
"Class B-1 Certificates." The Class C-FIO Certificates and the
Class C-AIO Certificates are collectively referred to as the
"Class C-IO Certificates." The Mezzanine Certificates, the
Class B-1 Certificates and the Class C-IO Certificates are
collectively referred to as the "Subordinate Certificates."
The Class A Certificates, the Mezzanine Certificates and the
Class B-1 Certificates are collectively referred to as the
"Offered Certificates."
In addition, the Class A Certificates (other than the Class
A-7 Certificates and Class A-8 Certificates), the Class M-1F
Certificates, the Class M-2F Certificates, the Class B-1F
Certificates and the Class C-FIO Certificates are collectively
referred to as the "Fixed Rate Group Certificates" and the
Class A-7 Certificates, the Class A-8 Certificates, the Class
M-1A Certificates, the Class M-2A Certificates, the Class B-1A
Certificates and the Class C-AIO Certificates are collectively
referred to herein as the "Adjustable Rate Group
Certificates."
S-1
<PAGE>
The initial aggregate Certificate Principal Balance of the
Subordinate Certificates related to the Fixed Rate Group will
equal ____% of the initial aggregate Certificate Principal
Balance of the Fixed Rate Group Certificates and the initial
aggregate Certificate Principal Balance of the Subordinate
Certificates related to the Adjustable Rate Group will equal
____% of the initial aggregate Certificate Principal Balance
of the Adjustable Rate Group Certificates.
The Subordinate Certificates are subordinate in right of
distribution to the related Class A Certificates to the extent
described herein. The Class M-1 Certificates are subordinate
to the related Class A Certificates to the extent described
herein. The Class M-2 Certificates are subordinate to the
related Class A Certificates and the related Class M-1
Certificates to the extent described herein. The Class B-1
Certificates are subordinate to the related Class A
Certificates and the related Mezzanine Certificates to the
extent described herein. The Class C-IO Certificates issued
with respect to a Mortgage Loan Group are subordinate in right
of distribution to the related Class A Certificates, the
related Mezzanine Certificates and the related Class B-1
Certificates to the extent described herein.
On any date after the Closing Date, the "Aggregate Certificate
Principal Balance" is the sum of the Certificate Principal
Balance of all Classes of the Class A Certificates and the
Subordinate Certificates (other than the Class C-IO
Certificates) and the Aggregate Certificate Principal Balance
for a particular Mortgage Loan Group is the sum of the
Certificate Principal Balances of all Classes of the Class A
Certificates and the Subordinate Certificates (other than the
Class C-IO Certificates) relating to such Group.
Depositor: AMRESCO Residential Securities Corporation (the "Depositor"),
a Delaware corporation.
Seller and Master
Servicer: AMRESCO Residential Capital Markets, Inc. (the "Seller" or
"Master Servicer" as the context may require), a Delaware
corporation.
Servicers: [To be named]
Trustee: [To be named]
Cut-Off Date: As of the close of business on _____________ ___, 199___.
Closing Date: On or about _____________ ___, 199___.
Description of
the Certificates: The Mortgage Loan Pass-Through Certificates, Series 199__-__
(the "Certificates") will consist of the Offered Certificates,
the Class C-IO Certificates, a Class of interest-only
Certificates (the "Class S Certificates"), the Class D
Certificates and a residual class (the "Class R Certificates"
and together with the Class C-IO Certificates, the Class S
Certificates and the Class D Certificates, the "Private
Certificates"). The Certificates will be issued pursuant to a
Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") to be dated as of _____________ ___, 199___, among
the Depositor, the Seller, Master Servicer, the Servicers and
the Trustee. Only the Offered Certificates will be offered
hereby.
On the Closing Date, an aggregate cash amount of not more than
approximately $___________ (approximately $__________ and
$___________ of which shall be allocated to the Fixed Rate
Group and the Adjustable Rate Group, respectively) (the
"Original Pre-Funded Amount") will be deposited in a trust
account in the name of the Trustee (the "Pre-Funding
Account"). It is intended that additional fixed rate and
adjustable rate Mortgage Loans satisfying the criteria
specified in the Pooling and Servicing Agreement (the
"Subsequent Mortgage Loans") will be purchased by the Trust
from the Depositor from time to time during the Funding Period
(as defined below) from funds on deposit in the Pre-Funding
Account. Each Subsequent Mortgage Loan so acquired by the
Trust will be assigned to one
S-2
<PAGE>
of the Mortgage Loan Groups. As a result, the aggregate
principal balance of the Mortgage Loans in each Mortgage Loan
Group will increase by an amount equal to the aggregate
principal balance of the related Subsequent Mortgage Loans so
purchased and the amount in the Pre-Funding Account will
decrease by the same amount.
As described below, on the Closing Date, cash will be
deposited in the Capitalized Interest Account (as defined
herein) held by the Trustee. Funds in the Capitalized Interest
Account will be applied by the Trustee to cover shortfalls in
interest on the Certificates attributable to the provisions
allowing for purchases of Subsequent Mortgage Loans during the
Funding Period (as described under "Pre-Funding Account").
Denominations: The Offered Certificates are issuable in book entry form in
minimum original principal amounts of $1,000 and integral
multiples thereof; provided, that one Certificate of each
Class may be issued in a principal amount that is not an
integral multiple of $1,000.
The Mortgage
Loans: Unless otherwise noted, all statistical percentages in this
Prospectus Supplement are approximate and are measured by the
aggregate Loan Balance of the related Mortgage Loans in the
applicable Mortgage Loan Group or of the Mortgage Loans in
both Mortgage Loan Groups, in each case, as of the Statistical
Calculation Date. Similarly, unless otherwise noted, any
references to Loan Balances represent scheduled Loan Balances
as of the Statistical Calculation Date. The statistical
characteristics of the Mortgage Loans will vary upon the
transfer into the Trust of (x) the additional Initial Mortgage
Loans on the Closing Date and (y) the Subsequent Mortgage
Loans during the Funding Period. See "Additional Information"
herein.
The Mortgage Loans to be conveyed to the Trust by the
Depositor on the Closing Date (the "Initial Mortgage Loans")
consist of fixed and adjustable rate conventional mortgage
loans evidenced by promissory notes (the "Notes") secured by
first and second lien deeds of trust, security deeds or
mortgages (the "Mortgages"), which, as of the Statistical
Calculation Date, were located in 50 states and the District
of Columbia. The properties securing the Mortgage Loans (the
"Mortgaged Properties") consist primarily of single-family
residences (which may be attached or detached), two- to four-
family dwellings, condominium units, units in planned unit
developments, manufactured homes and townhouses. The Mortgaged
Properties may be either owner-occupied or non-owner-occupied
investment properties. No Combined Loan-to-Value Ratio (as
defined below) (based upon appraisals made at the time of
origination) exceeded 90% as of the Statistical Calculation
Date. The Mortgage Loans are not insured by either primary or
pool mortgage insurance policies. See "Credit Enhancement"
herein. The Mortgage Loans are not guaranteed by the Seller,
the Depositor, the Master Servicer, the Servicers, the Trustee
or any affiliate thereof.
Fixed Rate Group. As of the Statistical Calculation Date, the
average Loan Balance of the Initial Mortgage Loans in the
Fixed Rate Group was $_________; the interest rates (the
"Coupon Rates") of such Initial Mortgage Loans ranged from
_____% per annum to ______% per annum; the weighted average
Coupon Rate of such Initial Mortgage Loans was _____% per
annum; the weighted average combined loan-to-value ratio of
such Initial Mortgage Loans (based on the lower of sales
prices and appraisals made at the time of origination) and in
the case of second lien mortgages, the Loan Balance of the
first lien mortgage added to the original loan balance (the
"Combined Loan-to-Value Ratio") was _____%; and the weighted
average remaining term to maturity of such Initial Mortgage
Loans was approximately ____ months. The remaining terms to
maturity as of the Statistical Calculation Date of the Initial
Mortgage Loans in the Fixed Rate Group ranged from ____ months
to ____ months. The maximum Loan Balance of the Initial
Mortgage Loans in the Fixed Rate Group as of the Statistical
Calculation
S-3
<PAGE>
Date was $__________. Not more than ____% of the aggregate
Loan Balance of the Initial Mortgage Loans in the Fixed Rate
Group, as of the Statistical Calculation Date, require
"balloon" payments. No Initial Mortgage Loan in the Fixed Rate
Group as of the Statistical Calculation Date will mature later
than ____________ ____, 202___. As of the Statistical
Calculation Date, approximately _____% of the Initial Mortgage
Loans in the Fixed Rate Group are secured by first lien
mortgages or deeds of trust. As a percentage of the aggregate
Loan Balance of the Initial Mortgage Loans in the Fixed Rate
Group as of the Statistical Calculation Date, _____% were
secured by mortgages on single-family dwellings, ____% by
mortgages on two- to four-family dwellings, ____% by mortgages
on condominiums, ____% by mortgages on planned unit
developments, ____% by mortgages on manufactured homes and
____% by mortgages on townhouses. See "The Initial Mortgage
Loan Pools - Initial Mortgage Loans - Fixed Rate Group"
herein.
_____% of the Initial Mortgage Loans in the Fixed Rate Group
as of the Statistical Calculation Date (the "Fixed Rate
Loans"), bear interest at a fixed rate for the life of such
Initial Mortgage Loans. ____% of the Initial Mortgage Loans in
the Fixed Rate Group as of the Statistical Calculation Date
(the "5/25 Loans"), bear interest at a fixed rate for a period
of five years after origination and thereafter have
semi-annual interest rate and payment adjustments at
frequencies and in the same manner as the Six-Month LIBOR
Loans (defined below). Substantially all of such 5/25 Loans
are subject to a 1.0% periodic rate adjustment cap and have a
lifetime reset cap of 7.00%.
Adjustable Rate Group. As of the Statistical Calculation Date,
the average Loan Balance of the Initial Mortgage Loans in the
Adjustable Rate Group was $__________; the Coupon Rates of
such Initial Mortgage Loans ranged from _____% per annum to
______% per annum; the weighted average Coupon Rate of such
Initial Mortgage Loans was _____% per annum; the weighted
average Loan-to-Value Ratio of such Initial Mortgage Loans was
_____%; and the weighted average remaining term to maturity of
such Initial Mortgage Loans was approximately ____ months. The
remaining terms to maturity as of the Statistical Calculation
Date of the Initial Mortgage Loans in the Adjustable Rate
Group ranged from ____ months to ____ months. The maximum Loan
Balance of the Initial Mortgage Loans in the Adjustable Rate
Group as of the Statistical Calculation Date was $__________.
No Initial Mortgage Loan in the Adjustable Rate Group as of
the Statistical Calculation Date will mature later than
_______________ ____, 202__. As a percentage of the aggregate
Loan Balance of the Initial Mortgage Loans in the Adjustable
Rate Group as of the Statistical Calculation Date, _____% were
secured by mortgages on single-family dwellings, ____% by
mortgages on two- to four-family dwellings, ____% by mortgages
on condominiums, ____% by mortgages on planned unit
developments, ____% by mortgages on manufactured homes and
____% by mortgages on townhouses. See "The Mortgage Loan Pools
- Initial Mortgage Loans - Adjustable Rate Group" herein.
All of the Initial Mortgage Loans in the Adjustable Rate Group
have maximum Coupon Rates. As of the Statistical Calculation
Date, the weighted average maximum Coupon Rate of the Initial
Mortgage Loans in the Adjustable Rate Group is ______% per
annum, with maximum Coupon Rates that range from approximately
______% per annum to ______% per annum. As of the Statistical
Calculation Date, the Initial Mortgage Loans in the Adjustable
Rate Group have a weighted average gross margin of _____%. The
gross margin for the Initial Mortgage Loans in the Adjustable
Rate Group as of the Statistical Calculation Date, ranges from
_____% to _____%. The minimum Coupon Rates for the Initial
Mortgage Loans in the Adjustable Rate Group as of the
Statistical Calculation Date, range from _____% per annum to
______% per annum.
S-4
<PAGE>
_____% of the Initial Mortgage Loans in the Adjustable Rate
Group as of the Statistical Calculation Date (the "Six-Month
LIBOR Loans"), bear interest at rates that adjust, along with
the related monthly payments, semiannually based on Six-Month
LIBOR. As of the Statistical Calculation Date, _____% of the
Six-Month LIBOR Loans have a semiannual reset cap of 1.0%,
substantially all of which have a lifetime reset cap ranging
from 6.0% to 7.0%. The Six-Month LIBOR Loans consist of
Initial Mortgage Loans as of the Statistical Calculation Date
aggregating $_______________________.
_____% of the Initial Mortgage Loans in the Adjustable Rate
Group as of the Statistical Calculation Date (the "2/28
Loans"), bear interest at a fixed rate of interest for a
period of two years after origination and thereafter have
semiannual interest rate and payment adjustments at
frequencies and in the same manner as the Six-Month LIBOR
Loans. As of the Statistical Calculation Date, _____% of the
2/28 Loans have a periodic rate adjustment cap of 1.0%,
substantially all of which have a lifetime reset cap ranging
from 3.0% to 7.0%; ____% of the 2/28 Loans have a periodic
rate adjustment cap of 1.5% and generally have a lifetime
reset cap of 7.0%. The 2/28 Loans consist of Initial Mortgage
Loans as of the Statistical Calculation Date aggregating
$_____________.
_____% of the Initial Mortgage Loans in the Adjustable Rate
Group as of the Statistical Calculation Date (the "3/27
Loans"), bear interest at a fixed rate of interest for a
period of three years after origination and thereafter have
semiannual interest rate and payment adjustments at
frequencies and in the same manner as the Six-Month LIBOR
Loans with all of such Initial Mortgage Loans being subject to
a 1.0% periodic rate adjustment cap. Substantially all of the
3/27 Loans have a lifetime reset cap ranging from 6.0% to
7.0%. The 3/27 Loans consist of Initial Mortgage Loans as of
the Statistical Calculation Date, aggregating $__________.
Final Scheduled
Payment Dates: The Final Scheduled Payment Dates for each of the respective
Classes of Offered Certificates are as follows, although it is
anticipated that the actual final Payment Date for each Class
may occur earlier than the Final Scheduled Payment Date. See
"Prepayment and Yield Considerations" herein.
Month and Year of Final
Scheduled Payment Date
----------------------
Class A-1 Certificates:
Class A-2 Certificates:
Class A-3 Certificates:
Class A-4 Certificates:
Class A-5 Certificates:
Class A-6 Certificates:
Class A-7 Certificates:
Class A-8 Certificates:
Class M-1F Certificates:
Class M-2F Certificates:
Class M-1A Certificates:
Class M-2A Certificates:
Class B-1F Certificates:
Class B-1A Certificates:
Distributions --
General: On the 25th day of each month, or if such day is not a
Business Day, then the next succeeding Business Day,
commencing ___________ 25, 199__ (each such day being a
"Payment Date"), the Trustee will be required, subject to the
availability of amounts therefor, pursuant to the cash flow
priority hereinafter described, to distribute to the Owners of
the Fixed Rate Group Certificates of record as of the last day
of the calendar month immediately preceding the calendar month
in which such Payment Date occurs and to the Owners of the
Adjustable Rate Group
S-5
<PAGE>
Certificates of record as of the day immediately preceding
such Payment Date (each such date, the "Record Date") the
applicable "Class Distribution Amount" which shall be the sum
of (x) related Current Interest, (y) the related Interest
Carry Forward Amount and (z) the related Principal
Distribution Amount (each as defined below).
For each Payment Date, interest due with respect to the Fixed
Rate Group Certificates will be interest which has accrued
thereon during the calendar month immediately preceding the
month in which such Payment Date occurs; the interest due with
respect to the Adjustable Rate Group Certificates will be the
interest which has accrued thereon at the applicable
Pass-Through Rate from the preceding Payment Date (or from the
Closing Date in the case of the first Payment Date) to and
including the day prior to the current Payment Date. Each
period referred to in the prior sentence relating to the
accrual of interest is the "Accrual Period" for the related
Class of Offered Certificates. All calculations of interest on
the Fixed Rate Group Certificates will be made on the basis of
a 360-day year assumed to consist of twelve 30-day months.
Calculations of interest on the Adjustable Rate Group
Certificates that are Offered Certificates will be made on the
basis of the actual number of days elapsed in the related
Accrual Period and a year of 360 days.
A "Business Day" is any day other than a Saturday, Sunday or a
day on which banking institutions in California or in the city
in which the corporate trust office of the Trustee is located
are authorized or obligated by law or executive order to
close.
Interest: On each Payment Date the Interest Remittance Amount with
respect to each Mortgage Loan Group will be distributed in the
following order of priority:
First, to the Trustee, the Trustee Fee, and to the Master
Servicer, the Master Servicer Fee;
Second, to the Owners of the Class A Certificates related to
such Mortgage Loan Group, the related Current Interest plus
the Interest Carry Forward Amount with respect to each Class
of Class A Certificates without any priority among such Class
A Certificates; provided, that if the Interest Remittance
Amount less the amount paid to the Trustee as the Trustee Fee
and to the Master Servicer as the Master Servicer Fee (such
amount, the "Interest Amount Available") is not sufficient to
make a full distribution of interest with respect to all
Classes of the related Class A Certificates, the Interest
Amount Available will be distributed among the outstanding
related Classes of Class A Certificates pro rata based on the
aggregate amount of interest due on each such Class, and the
amount of the shortfall will be carried forward with accrued
interest at the related Pass-Through Rate;
Third, to the extent of the Interest Amount Available with
respect to such Mortgage Loan Group then remaining, to the
Owners of the Class M-1 Certificates related to such Mortgage
Loan Group, the related Current Interest;
Fourth, to the extent of the Interest Amount Available with
respect to such Mortgage Loan Group then remaining, to the
Owners of the Class M-2 Certificates related to such Mortgage
Loan Group, the related Current Interest;
Fifth, to the extent of the Interest Amount Available with
respect to such Mortgage Loan Group then remaining, to the
Owners of the Class B-1 Certificates related to such Mortgage
Loan Group, the related Current Interest;
Sixth, to the extent of the Interest Amount Available with
respect to such Mortgage Loan Group then remaining, to the
Owners of the Class C-IO Certificates related to such Mortgage
Loan Group, the related Current Interest; and
S-6
<PAGE>
Seventh, the amount, if any, of the Interest Amount Available
remaining in the Certificate Account with respect to such
Mortgage Loan Group after application with respect to the
priorities set forth above is defined for such Mortgage Loan
Group, as the "Monthly Excess Interest Amount" for such
Payment Date and shall be applied as described below under
"Credit Enhancement - Application of Monthly Excess Cash Flow
Amounts" in this Summary of Terms.
"Current Interest" with respect to each Class of Certificates
means, with respect to any Payment Date (i) the aggregate
amount of interest accrued during the preceding Accrual Period
on the Certificate Principal Balance (or the Notional
Principal Amount (as defined below) with respect to the Class
C-IO Certificates) of the related Class of Certificates plus
(ii) the Preference Amount as it relates to interest
previously paid on such Class of Certificates prior to such
Payment Date.
"Interest Remittance Amount" means, with respect to each
Mortgage Loan Group and as of any Monthly Remittance Date, the
sum, without duplication, of (i) all interest collected or
required to be advanced during the related Remittance Period
on the Mortgage Loans in such Mortgage Loan Group (less the
Servicing Fee), (ii) all Compensating Interest paid by the
Servicers on such Monthly Remittance Date with respect to such
Mortgage Loan Group, (iii) the portion of any Substitution
Amount relating to interest with respect to such Mortgage Loan
Group and (iv) all Net Liquidation Proceeds relating to
interest not previously advanced with respect to the Mortgage
Loans in such Mortgage Loan Group.
The "Interest Carry Forward Amount" with respect to any Class
of Certificates for any Payment Date is the sum of (x) the
amount, if any, by which (i) the Current Interest for such
Class as of the immediately preceding Payment Date (and
including all prior Payment Dates) exceeded (ii) the amount of
the actual distribution with respect to interest made to the
Owners of such Class of Certificates on such immediately
preceding Payment Date (and including all prior Payment Dates)
plus (y) interest on such amount calculated for the related
Accrual Period at the related Pass-Through Rate in effect with
respect to such Class of Certificates.
"Master Servicer Fee" is the fee payable to the Master
Servicer as determined in the manner set forth in the Pooling
and Servicing Agreement.
"Trustee Fee" is the fee payable to the Trustee as determined
in the manner set forth in the Pooling and Servicing
Agreement.
Principal: With respect to each Mortgage Loan Group and on each Payment
Date (a) before the Stepdown Date or (b) with respect to which
a Trigger Event is in effect with respect to such Mortgage
Loan Group, Owners of the Class A Certificates will be
entitled to receive payment of 100% of the Principal
Distribution Amount with respect to such Mortgage Loan Group
for such Payment Date as follows: in the case of the Fixed
Rate Group, first, to the Owners of the Class A-6
Certificates, the Class A-6 Lockout Distribution Amount and
then sequentially to the Owners of each Class of the Class A
Certificates related to the Fixed Rate Group in the order of
their numerical Class designations beginning with the Class
A-1 Certificates until the Certificate Principal Balance of
each Class of Class A Certificates related to the Fixed Rate
Group has been reduced to zero and in the case of the
Adjustable Rate Group, 50% of the Principal Distribution
Amount with respect to such Mortgage Loan Group to the Owners
of the Class A-7 Certificates and 50% of the Principal
Distribution Amount with respect to such Mortgage Loan Group
to the Owners of Class A-8 Certificates until the Class A-7
Certificate Principal Balance has been reduced to zero and
thereafter the Owners of the Class A-8 Certificates will be
entitled to receive payment of 100% of the Principal
Distribution Amount with respect to such Mortgage Loan Group
until the Class A-8 Certificate Principal Balance has been
reduced to zero.
S-7
<PAGE>
With respect to each Mortgage Loan Group and on each Payment
Date (a) on or after the related Stepdown Date and (b) as long
as a Trigger Event is not in effect, the Owners of the Class A
Certificates and the Subordinate Certificates (other than the
Class C-IO Certificates) will be entitled to receive payments
of principal, in the order of priority, in the amounts set
forth below and to the extent of the Principal Distribution
Amount with respect to such Mortgage Loan Group as follows:
First, in the case of the Fixed Rate Group, the lesser of (x)
the Principal Distribution Amount with respect to such
Mortgage Loan Group and (y) the Class A Principal Distribution
Amount with respect to such Mortgage Loan Group shall be
distributed to the Owners of the Class A-6 Certificates, in an
amount equal to the Class A-6 Lockout Distribution Amount,
with the remainder paid sequentially to the Owners of each
Class of the Class A Certificates related to the Fixed Rate
Group in the order of their numerical Class designations
beginning with the Class A-1 Certificates until the
Certificate Principal Balance of each Class of Class A
Certificates related to the Fixed Rate Group has been reduced
to zero; and in the case of the Adjustable Rate Group, the
lesser of (x) the Principal Distribution Amount with respect
to such Mortgage Loan Group and (y) the Class A Principal
Distribution Amount with respect to such Mortgage Loan Group
shall be distributed as follows: 50% of such amount shall be
distributed to the Owners of the Class A-7 Certificates and
50% of such amount shall be distributed to the Owners of the
Class A-8 Certificates until the Class A-7 Certificate
Principal Balance has been reduced to zero and thereafter the
Owners of the Class A-8 Certificates will be entitled to
receive payment of 100% of such amount until the Class A-8
Certificate Principal Balance has been reduced to zero;
Second, the lesser of (x) the excess of (i) the Principal
Distribution Amount with respect to such Mortgage Loan Group
over (ii) the amount distributed to the Owners of the related
Class A Certificates in clause First above and (y) the Class
M-1 Principal Distribution Amount with respect to such
Mortgage Loan Group shall be distributed to the Owners of the
related Class M-1 Certificates, until the related Class M-1
Certificate Principal Balance has been reduced to zero;
Third, the lesser of (x) the excess of (i) the Principal
Distribution Amount with respect to such Mortgage Loan Group
over (ii) the sum of the amount distributed to the Owners of
the related Class A Certificates in clause First above and the
amount distributed to the Owners of the related Class M-1
Certificates in clause Second above and (y) the Class M-2
Principal Distribution Amount with respect to such Mortgage
Loan Group, shall be distributed to the Owners of the related
Class M-2 Certificates, until the related Class M-2
Certificate Principal Balance has been reduced to zero;
Fourth, the lesser of (x) the excess of (i) the Principal
Distribution Amount with respect to such Mortgage Loan Group
over (ii) the sum of the amount distributed to the Owners of
the related Class A Certificates pursuant to clause First
above, the amount distributed to the Owners of the related
Class M-1 Certificates pursuant to clause Second above and the
amount distributed to the Owners of the related Class M-2
Certificates pursuant to clause Third above and (y) the Class
B-1 Principal Distribution Amount with respect to such
Mortgage Loan Group, shall be distributed to the Owners of the
related Class B-1 Certificates until the related Class B-1
Certificate Principal Balance has been reduced to zero; and
Fifth, any amount of the Principal Remittance Amount with
respect to such Mortgage Loan Group remaining after making all
of the distributions in clauses First, Second, Third and
Fourth above shall be included as part of the Monthly Excess
Cash Flow Amount with respect to such Mortgage Loan Group and
shall be applied as described below under "Credit
Enhancement - Application of Monthly Excess Cash Flow Amounts"
in this Summary of Terms.
S-8
<PAGE>
Notwithstanding the foregoing, in the event that the
Certificate Principal Balances of all of the Class A
Certificates relating to a Group have been reduced to zero
prior to the Stepdown Date, all amounts of principal that
would have been distributed to such Class A Certificates will
be distributed to the related Subordinate Certificates of such
Group sequentially in the following order: Class M-1, Class
M-2 and Class B-1 Certificates. Similarly, if the Certificate
Principal Balance of the Class M-1 Certificates has been
reduced to zero, all amounts of principal that would have been
distributed to such Class M-1 Certificates will be distributed
to the related Class M-2 and Class B-1 Certificates, in that
order. If the Certificate Principal Balance of the Class M-2
Certificates has been reduced to zero, all amounts of
principal that would have been distributed on such Class M-2
Certificates will be distributed to the related Class B-1
Certificates.
The Class A Certificates in the Fixed Rate Group (other than
the Class A-6 Certificates) are "sequential pay" classes such
that the Owners of the Class A-5 Certificates will receive no
payments of principal until the Class A-4 Certificate
Principal Balance has been reduced to zero, the Owners of the
Class A-4 Certificates will receive no payments of principal
until the Class A-3 Certificate Principal Balance has been
reduced to zero, the Owners of the Class A-3 Certificates will
receive no payments of principal until the Class A-2
Certificate Principal Balance has been reduced to zero, and
the Owners of the Class A-2 Certificates will receive no
payments of principal until the Class A-1 Certificate
Principal Balance has been reduced to zero; provided, however,
that on any Payment Date on which the sum of the Certificate
Principal Balance of the Subordinate Certificates in the Fixed
Rate Group and the Overcollateralization Amount is zero, any
amounts of principal payable to the Owners of the Class A
Certificates in the Fixed Rate Group on such Payment Date
shall be distributed pro rata and not sequentially.
The Owners of the Class A-6 Certificates are entitled to
receive payments of the Class A-6 Lockout Distribution Amount
specified herein; provided, that if on any Payment Date the
Class A-5 Certificate Principal Balance is zero, the Owners of
the Class A-6 Certificates will be entitled to receive the
entire Class A Principal Distribution Amount with respect to
the Fixed Rate Group for such Payment Date.
In addition to the following definitions, the above discussion
makes use of a number of defined terms which are defined under
"Description of the Offered Certificates - Distributions"
herein.
"Principal Distribution Amount" means, with respect to either
Mortgage Loan Group and as of any Payment Date, the sum of (i)
the Principal Remittance Amount with respect to such Mortgage
Loan Group (minus, for Payment Dates occurring on and after
the related Stepdown Date, and with respect to which a Trigger
Event is not existing, the Overcollateralization Release
Amount with respect to such Mortgage Loan Group, if any), and
(ii) the Extra Principal Distribution Amount with respect to
such Mortgage Loan Group, if any.
The "Class A-6 Lockout Distribution Amount" for any Payment
Date will be the product of (i) the applicable Class A-6
Lockout Percentage for such Payment Date and (ii) the Class
A-6 Lockout Pro Rata Distribution Amount for such Payment
Date.
S-9
<PAGE>
The "Class A-6 Lockout Percentage" for each Payment Date shall
be as follows:
Payment Dates Lockout Percentage
------------- ------------------
%
The "Class A-6 Lockout Pro Rata Distribution Amount" for any
Payment Date will be an amount equal to the product of (x) a
fraction, the numerator of which is the Certificate Principal
Balance of the Class A-6 Certificates immediately prior to
such Payment Date and the denominator of which is the
aggregate Certificate Principal Balance of all Classes of the
Class A Certificates in the Fixed Rate Group immediately prior
to such Payment Date and (y) the Class A Principal
Distribution Amount with respect to the Fixed Rate Group for
such Payment Date.
The "Collection Period" with respect to any Monthly Remittance
Date is the calendar month preceding the month in which the
Monthly Remittance Date occurs.
The "Remittance Period" with respect to any Monthly Remittance
Date is the period from and including the second day of the
calendar month preceding the month in which the Monthly
Remittance Date occurs to and including the first day of the
calendar month in which the Monthly Remittance Date occurs. A
"Monthly Remittance Date" is any date on which funds on
deposit in the Principal and Interest Account are required to
be remitted by the Servicers to the Certificate Account, which
is the 20th day of each month, or if such day is not a
Business Day, the next succeeding Business Day, commencing in
_____________ 199__.
A "Liquidated Mortgage Loan" is, in general, a defaulted
Mortgage Loan as to which the Servicer has determined that all
amounts that it expects to recover on such Mortgage Loan with
respect to the related Mortgaged Property have been recovered
(exclusive of any possibility of a deficiency judgment).
"Principal Remittance Amount" means for a Mortgage Loan Group
and as of any Monthly Remittance Date, the sum, without
duplication, of (i) the principal collected or required to be
advanced by the Servicers with respect to Mortgage Loans in
such Mortgage Loan Group during the related Remittance Period,
as well as unscheduled principal collected during the related
Collection Period, (ii) the Loan Balance of each Mortgage Loan
in such Mortgage Loan Group that was repurchased from the
Trust during the related Remittance Period, (iii) any
Substitution Amount relating to principal delivered to the
Trust in connection with a substitution of a Mortgage Loan in
such Mortgage Loan Group during the related Remittance Period,
and (iv) all Net Liquidation Proceeds actually collected by
the related Servicers during the related Remittance Period
with respect to Mortgage Loans in such Mortgage Loan Group (to
the extent such Net Liquidation Proceeds relate to principal).
A "Trigger Event" has occurred with respect to a Mortgage Loan
Group on a Payment Date if the percentage obtained by dividing
(x) the principal amount of 60+ Day Delinquent Loans in such
Mortgage Loan Group by (y) the aggregate outstanding Loan
Balance of the Mortgage Loans in such Mortgage Loan Group, in
each case, as of the last day of the immediately preceding
Remittance Period equals or exceeds (A) in the case of the
Fixed Rate Group, [___]% of the related Senior Enhancement
Percentage as of the last day of the immediately preceding
S-10
<PAGE>
Remittance Period or (B) in the case of the Adjustable Rate
Group, [___]% of the related Senior Enhancement Percentage.
"Stepdown Date" means, with respect to a Mortgage Loan Group,
the later to occur of (x) the Payment Date in ___________
200__ and (y) the first Payment Date on which the Senior
Enhancement Percentage (calculated for this purpose only after
taking into account distributions of principal on the related
Mortgage Loans on such Payment Date, but prior to any
applications of Principal Distribution Amounts to the
Certificates) is greater than or equal to the related Senior
Specified Enhancement Percentage.
"Class A Principal Distribution Amount" means, with respect to
a Mortgage Loan Group and as of any Payment Date (a) prior to
the related Stepdown Date or on or after the related Stepdown
Date if a Trigger Event is in effect for such Mortgage Loan
Group, 100% of the Principal Distribution Amount for such
Mortgage Loan Group or (b) on or after the related Stepdown
Date and as long as a Trigger Event has not occurred the
excess, if any, of (x) the Certificate Principal Balance of
the Class A Certificates related to such Mortgage Loan Group
immediately prior to such Payment Date over (y) the lesser of
(A) the product of (i) approximately ____% in the case of the
Fixed Rate Group and approximately ____% in the case of the
Adjustable Rate Group and (ii) the outstanding Loan Balance of
the Mortgage Loans in such Mortgage Loan Group as of the last
day of the related Remittance Period and (B) the aggregate
outstanding Loan Balance of the Mortgage Loans in such
Mortgage Loan Group as of the last day of the related
Remittance Period minus $__________ for the Fixed Rate Group
and $_________ for the Adjustable Rate Group.
"Class M-1 Principal Distribution Amount" means, with respect
to a Mortgage Loan Group and as of any Payment Date on or
after the related Stepdown Date and as long as a Trigger Event
is not in effect for such Mortgage Loan Group, the excess, if
any, of (x) the sum of (i) the Certificate Principal Balance
of the Class A Certificates related to such Mortgage Loan
Group (after taking into account the payment of the related
Class A Principal Distribution Amount on such Payment Date)
and (ii) the related Class M-1 Certificate Principal Balance
immediately prior to such Payment Date over (y) the lesser of
(A) the product of (i) approximately ____% in the case of the
Fixed Rate Group and approximately ____% in the case of the
Adjustable Rate Group and (ii) the outstanding Loan Balance of
the Mortgage Loans in such Mortgage Loan Group as of the last
day of the related Remittance Period and (B) the aggregate
outstanding Loan Balance of the Mortgage Loans in such
Mortgage Loan Group as of the last day of the related
Remittance Period minus $_________ for the Fixed Rate Group
and $_________ for the Adjustable Rate Group.
"Class M-2 Principal Distribution Amount" means, with respect
to a Mortgage Loan Group and as of any Payment Date on or
after the related Stepdown Date and as long as a Trigger Event
is not in effect for such Mortgage Loan Group, the excess, if
any, of (x) the sum of (i) the Certificate Principal Balance
of the Class A Certificates related to such Mortgage Loan
Group (after taking into account the payment of the related
Class A Principal Distribution Amount on such Payment Date),
(ii) the related Class M-1 Certificate Principal Balance
(after taking into account the payment of the related Class
M-1 Principal Distribution Amount on such Payment Date) and
(iii) the related Class M-2 Certificate Principal Balance
immediately prior to such Payment Date over (y) the lesser of
(A) the product of (i) approximately ____% in the case of the
Fixed Rate Group and approximately ____% in the case of the
Adjustable Rate Group and (ii) the outstanding aggregate Loan
Balance of the Mortgage Loans in such Mortgage Loan Group as
of the last day of the related Remittance Period and (B) the
aggregate outstanding Loan Balance of the Mortgage Loans in
such Mortgage Loan Group as of the last day of the related
Remittance Period minus $_________ for the Fixed Rate Group
and $__________ for the Adjustable Rate Group.
S-11
<PAGE>
"Class B-1 Principal Distribution Amount" means, with respect
to a Mortgage Loan Group and as of any Payment Date on or
after the related Stepdown Date and as long as a Trigger Event
is not in effect for such Mortgage Loan Group, the excess, if
any, of (x) the sum of (i) the Certificate Principal Balance
of the Class A Certificates related to such Mortgage Loan
Group (after taking into account the payment of the related
Class A Principal Distribution Amount on such Payment Date),
(ii) the related Class M-1 Certificate Principal Balance
(after taking into account the payment of the related Class
M-1 Principal Distribution Amount on such Payment Date), (iii)
the related Class M-2 Certificate Principal Balance (after
taking into account the payment of the related Class M-2
Principal Distribution Amount on such Payment Date) and (iv)
the related Class B-1 Certificate Principal Balance
immediately prior to such Payment Date over (y) the lesser of
(A) the product of (i) approximately ____% in the case of the
Fixed Rate Group and approximately ____% in the case of the
Adjustable Rate Group and (ii) the outstanding aggregate Loan
Balance of the Mortgage Loans in such Mortgage Loan Group as
of the last day of the related Remittance Period and (B) the
aggregate outstanding Loan Balance of the Mortgage Loans in
such Mortgage Loan Group as of the last day of the related
Remittance Period minus $_________ for the Fixed Rate Group
and $_________ for the Adjustable Rate Group.
"Overcollateralization Amount" means with respect to a
Mortgage Loan Group and as of any Payment Date the excess, if
any, of (x) the Loan Balance of the Mortgage Loans in such
Mortgage Loan Group as of the last day of the immediately
preceding Remittance Period over (y) the Certificate Principal
Balance of the Class A Certificates and the Subordinate
Certificates (other than the Class C-IO Certificates) related
to such Mortgage Loan Group (after giving effect to all
principal distributions for such Payment Date).
"Senior Enhancement Percentage" with respect to a Mortgage
Loan Group and for any Payment Date is the percentage obtained
by dividing (x) the sum of (i) the aggregate Certificate
Principal Balance of the Subordinate Certificates related to
such Mortgage Loan Group and (ii) the related
Overcollateralization Amount in each case after taking into
account the distribution of the related Principal Distribution
Amount on such Payment Date by (y) the aggregate Loan Balance
of the Mortgage Loans in such Mortgage Loan Group as of the
last day of the related Remittance Period.
"Senior Specified Enhancement Percentage" on any date of
determination thereof is approximately _____% with respect to
the Fixed Rate Group and approximately _____% with respect to
the Adjustable Rate Group.
"Extra Principal Distribution Amount" means, for a Mortgage
Loan Group and as of any Payment Date, the lesser of (x) the
Monthly Excess Interest Amount for such Mortgage Loan Group
and Payment Date and (y) the Overcollateralization Deficiency
for such Mortgage Loan Group and Payment Date.
"Overcollateralization Deficiency" means, for a Mortgage Loan
Group and as of any Payment Date, the excess, if any, of (x)
the Targeted Overcollateralization Amount for such Mortgage
Loan Group and Payment Date over (y) the Overcollateralization
Amount for such Mortgage Loan Group and Payment Date,
calculated for this purpose after taking into account the
reduction on such Payment Date of the Certificate Principal
Balance of the Class A Certificates and the Subordinate
Certificates (other than the Class C-IO Certificates) related
to such Mortgage Loan Group resulting from the distribution of
the related Principal Remittance Amount (but not the related
Extra Principal Distribution Amount) on such Payment Date, but
prior to taking into account any related Applied Realized Loss
Amount on such Payment Date.
S-12
<PAGE>
"Overcollateralization Release Amount" means, for a Mortgage
Loan Group and as of any Payment Date, the lesser of (x) the
related Principal Remittance Amount for such Payment Date and
(y) the excess, if any, of (i) the related
Overcollateralization Amount for such Payment Date, assuming
that 100% of the related Principal Remittance Amount is
applied on such Payment Date to the payment of principal on
the Class A Certificates and the Subordinate Certificates
related to such Mortgage Loan Group over (ii) the Targeted
Overcollateralization Amount for such Mortgage Loan Group and
Payment Date. Notwithstanding the foregoing, if a Subordinated
Trigger Event (as defined below) is in effect on any Payment
Date in respect of a Mortgage Loan Group, the related amount
of any Overcollateralization Release Amount that would
otherwise be distributed to the Class D Certificates will
instead be distributed as follows: first, to the Owners of the
related Class B-1 Certificates until the related Class B-1
Certificate Principal Balance has been reduced to zero;
second, to the Owners of the related Class M-2 Certificates
until the related Class M-2 Certificate Principal Balance has
been reduced to zero; third, to the Owners of the related
Class M-1 Certificates until the related Class M-1 Certificate
Principal Balance has been reduced to zero; and fourth, to the
Owners of the Class D Certificates.
"Subordinated Trigger Event" will be deemed to have occurred
with respect to a Mortgage Loan Group on any Payment Date if
(i) Realized Losses (as defined below) equal or exceed a
specified percentage during the relevant time frame and (ii)
the aggregate outstanding principal balance of Mortgage Loans
in the related Mortgage Loan Group more than 60 days
delinquent stated as a percentage of the aggregate outstanding
principal balances of all Mortgage Loans in the related
Mortgage Loan Group equals or exceeds a specified percentage
for such time period.
"Targeted Overcollateralization Amount" means, (A) for the
Fixed Rate Group and as of any Payment Date, (x) prior to the
related Stepdown Date, ____% of the Original Certificate
Principal Balance of the Fixed Rate Group Certificates and (y)
on and after the Stepdown Date, the greater of (i) ____% of
the aggregate outstanding Loan Balance of the Mortgage Loans
in the Fixed Rate Group as of the last day of the related
Remittance Period and (ii) $_________; and (B) for the
Adjustable Rate Group and as of any Payment Date, (x) prior to
the related Stepdown Date, ____% of the Original Certificate
Principal Balance of the Adjustable Rate Group Certificates
and (y) on or after the related Stepdown Date, the greater of
(i) ____% of the aggregate outstanding Loan Balance of the
Mortgage Loans in the Adjustable Rate Group as of the last day
of the related Remittance Period and (ii) $_________.
"Preference Amount" means any amount previously distributed to
an Owner on a Certificate that is recoverable and sought to be
recovered as a voidable preference by a trustee in bankruptcy
under the United States Bankruptcy Code (11 U.S.C.) as amended
from time to time, in accordance with a final nonappealable
order of a court having competent jurisdiction.
Servicing: The Master Servicer will be responsible for reviewing each
Servicer's monthly servicing report, identifying
inconsistencies in such reports and compiling a monthly report
for the Trustee which reflects the information contained in
each Servicer's monthly report on both an aggregate and a
Servicer-by-Servicer basis. Except as set forth in the Pooling
and Servicing Agreement, the Master Servicer is not liable for
the performance or obligations of the Servicers. In the event
any Servicer is terminated or resigns and pending the
appointment of a successor Servicer, the Trustee will perform
servicing for such Servicer. See "The Pooling and Servicing
Agreement - Servicing" herein.
Each Servicer will be responsible for the servicing of the
related Mortgage Loans and will receive from interest
collected on the applicable Mortgage Loans a monthly servicing
fee on each such Mortgage Loan equal to the Loan Balance as
S-13
<PAGE>
of the beginning of the related Remittance Period multiplied
by the applicable Servicing Fee Rate (such product, the
"Servicing Fee"). See "The Pooling and Servicing Agreement -
Servicing" herein.
Each Servicer is obligated to make cash advances ("Advances")
with respect to delinquent payments of principal of and
interest on any Mortgage Loan, other than Balloon Payments
with respect to Balloon Mortgage Loans, serviced by it to the
extent described in "The Pooling and Servicing Agreement -
Servicing" herein. The Trustee will be obligated as a
successor servicer to make any such Advance if a Servicer
fails in its obligation to do so, to the extent provided in
the Pooling and Servicing Agreement. The Master Servicer is
not obligated to make Advances if any Servicer or the Trustee
fails in its obligation to do so.
Credit
Enhancement: The Credit Enhancement provided for the benefit of the Owners
of the Offered Certificates consists of the subordination of
the related Subordinate Certificates and certain classes of
the Private Certificates to the related Class A Certificates,
the further subordination within the Subordinate Certificates,
the priority of application of Realized Losses, the
application of Monthly Excess Cash Flow Amounts and the
crosscollateralization feature of the Trust.
Subordination of Subordinate Certificates and certain of the
Private Certificates. The rights of the Owners of the
Subordinate Certificates (other than the Class C-IO
Certificates) and certain of the Private Certificates to
receive distributions with respect to the Mortgage Loans in a
particular Mortgage Loan Group will be subordinated, to the
extent described herein, to such rights of the Owners of the
Class A Certificates related to such Mortgage Loan Group. This
subordination is intended to enhance the likelihood of regular
receipt by the Owners of the related Class A Certificates of
the full amount of their scheduled monthly payment of interest
and principal and to afford such Owners protection against
Realized Losses allocated against such Mortgage Loan Group.
The protection afforded to the Owners of the Class A
Certificates by means of the subordination of the related
Subordinate Certificates and certain of the Private
Certificates will be accomplished by the preferential right of
the Owners of the Class A Certificates to receive, prior to
any distribution being made on a Payment Date in respect of
such Subordinate Certificates and such Private Certificates,
the amounts of interest due them and principal available for
distribution on such Payment Date, and, if necessary, by the
right of the Owners of the Class A Certificates to receive
future distributions of amounts that would otherwise be
payable to the Owners of such Subordinate Certificates and
such Private Certificates.
In addition, the rights of the Owners of the Class M-2, Class
B-1 and certain of the Private Certificates issued with
respect to a Mortgage Loan Group to receive distributions will
be subordinated, to the extent described herein, to such
rights of the Owners of the related Class A and Class M-1
Certificates. This subordination is intended to enhance the
likelihood of regular receipt by the Owners of the related
Class A and Class M-1 Certificates of the amount of interest
due them and principal available for distribution and to
afford such Owners with protection against Realized Losses.
The rights of the Owners of the Class B-1 and certain of the
Private Certificates issued with respect to a Mortgage Loan
Group to receive distributions will be subordinated in the
same manner to such rights of the Owners of the related Class
A, Class M-1 and Class M-2 Certificates.
Application of Realized Losses. The Pooling and Servicing
Agreement provides that if a Mortgage Loan becomes a
Liquidated Loan during a Remittance Period, the Net
Liquidation Proceeds relating thereto and allocated to
principal may be less than the Loan Balance of such Mortgage
Loan. The amount of such insufficiency
S-14
<PAGE>
is a "Realized Loss." Realized Losses which occur in a
Mortgage Loan Group will, in effect, be absorbed first, by the
related Private Certificates (other than the Class C-IO
Certificates and the Class S Certificates) as a result of the
application of the Monthly Excess Interest Amount to fund such
deficiency and through a reduction in the related
Overcollateralization Amount, second, by the Owners of the
related Class B-1 Certificates, third, by the Owners of the
related Class M-2 Certificates, and fourth, by the Owners of
the related Class M-1 Certificates.
To the extent that a Mortgage Loan Group experiences Realized
Losses, such Realized Losses will reduce the aggregate
outstanding Loan Balance of the Mortgage Loans in such
Mortgage Loan Group (i.e., a reduction in the collateral
balance will occur). Since the Overcollateralization Amount
with respect to a Mortgage Loan Group is the excess, if any,
of the related collateral balance over the related Aggregate
Certificate Principal Balance, Realized Losses, to the extent
experienced, will in the first instance reduce the related
Overcollateralization Amount.
The Pooling and Servicing Agreement requires that the
Overcollateralization Amount with respect to a Mortgage Loan
Group be initially increased to, and thereafter maintained at,
the related Targeted Overcollateralization Amount. This
increase and subsequent maintenance is intended to be
accomplished by the application of related Monthly Excess
Interest Amounts to the funding of the related Extra Principal
Distribution Amount. Such Extra Principal Distribution
Amounts, since they are funded from interest collections on
the collateral but are distributed as principal on the related
Class A Certificates and Subordinate Certificates (other than
the Class C-IO Certificates), will increase the related
Overcollateralization Amount.
If, on any Payment Date after taking into account all Realized
Losses experienced during the prior Remittance Period and
after taking into account the distribution of principal
(including the Extra Principal Distribution Amount) with
respect to the related Class A Certificates and the
Subordinate Certificates (other than the Class C-IO
Certificates) on such Payment Date, the Aggregate Certificate
Principal Balance with respect to a Mortgage Loan Group
exceeds the aggregate Loan Balance of the Mortgage Loans in
such Mortgage Loan Group as of the end of the related
Remittance Period (i.e., if the level of overcollateralization
is negative), then the Certificate Principal Balance of the
related Subordinate Certificates (other than the Class C-IO
Certificates) will be reduced (in effect, "written down") such
that the level of overcollateralization is zero, rather than
negative. Such a negative level of overcollateralization is an
"Applied Realized Loss Amount", which will be applied as a
reduction in the Certificate Principal Balance of the related
Subordinate Certificates (other than the Class C-IO
Certificates) in reverse order of seniority (i.e., first,
against the related Class B-1 Certificate Principal Balance
until it is reduced to zero, then against the related Class
M-2 Certificate Principal Balance until it is reduced to zero
and then against the related Class M-1 Certificate Principal
Balance until it is reduced to zero). The Pooling and
Servicing Agreement does not permit the "write down" of the
Certificate Principal Balance of any Class A Certificate.
Once the Certificate Principal Balance of a Class of
Subordinate Certificates (other than the Class C-IO
Certificates) has been "written down," the amount of such
write down will no longer bear interest, nor will such amount
thereafter be "reinstated" or "written up," although the
amount of such write down may, on future Payment Dates, be
paid to Owners of the Subordinate Certificates which
experienced the write down, in direct order of seniority
(i.e., first, the related Class M-1 Certificates, second, the
related Class M-2 Certificates, and third, the related Class
B-1 Certificates). The source of funding of such payments will
be the amount, if any, of the Monthly Excess Cash Flow Amount
remaining on such future Payment Dates after the funding of
the Extra Principal Distribution Amount
S-15
<PAGE>
and after the payment of Interest Carry Forward Amounts with
respect to the related Subordinate Certificates on such
Payment Date.
Application of Monthly Excess Cash Flow Amounts. The weighted
average net Coupon Rate for the Mortgage Loans in each
Mortgage Loan Group is generally expected to be higher than
the weighted average of the Pass-Through Rates on the Class A
Certificates and Subordinated Certificates related to such
Mortgage Loan Group, thus generating certain excess interest
collections which, in the absence of losses will not be
necessary to fund interest distributions on the Class A
Certificates and Subordinated Certificates. The Pooling and
Servicing Agreement provides that this excess interest be
applied to the extent available to make accelerated payments
of principal (i.e., the Extra Principal Distribution Amount)
to the Class or Classes then entitled to receive distributions
of principal; such application will cause the Aggregate
Certificate Principal Balance with respect to a Mortgage Loan
Group to amortize more rapidly than the Mortgage Loans in such
Mortgage Loan Group, resulting in overcollateralization.
The required level of overcollateralization for any Mortgage
Loan Group and Payment Date is the Targeted
Overcollateralization Amount for such Mortgage Loan Group and
Payment Date. The Targeted Overcollateralization Amount is
initially (i.e., prior to the related Stepdown Date) ____% of
the Original Certificate Principal Balance with respect to the
Fixed Rate Group and ____% of the Original Certificate
Principal Balance with respect to the Adjustable Rate Group.
Since the actual Overcollateralization Amount with respect to
each Mortgage Loan Group is essentially zero as of the Closing
Date, in the early months of the transaction, subject to the
availability of Monthly Excess Interest Amounts, Extra
Principal Distribution Amounts will be paid, with the result
that the Overcollateralization Amount with respect to each
Mortgage Loan Group is expected to increase to the level of
the related Targeted Overcollateralization Amount.
If, once the Targeted Overcollateralization Amount with
respect to each Mortgage Loan Group has been reached, Realized
Losses occur in such Mortgage Loan Group, such Realized Losses
will result in an Overcollateralization Deficiency (since such
Realized Losses reduce the Loan Balance of the related
Mortgage Loans without giving rise to a corresponding
reduction of the related Aggregate Certificate Principal
Balance). The cash flow priorities of the Trust require that,
in this situation, an Extra Principal Distribution Amount be
paid (subject to the availability of any Monthly Excess
Interest Amount) for the purpose of re-establishing the
Overcollateralization Amount at the then-required Targeted
Overcollateralization Amount.
On and after the Stepdown Date, and as long as no Trigger
Event is in effect, the Targeted Overcollateralization Amount
with respect to the Fixed Rate Group and the Adjustable Rate
Group, respectively, is permitted to decrease or "step-down"
below ____% and ____% of the respective Original Certificate
Principal Balance to levels equal to ____% and ____% of the
then current aggregate outstanding Loan Balance of the related
Mortgage Loan Group (subject to a floor of $_________ and
$_________, respectively). If the Targeted
Overcollateralization Amount with respect to each Mortgage
Loan Group is permitted to "step-down" on a Payment Date, the
Pooling and Servicing Agreement permits a portion of the
related Principal Remittance Amount for such Payment Date not
to be passed through as a distribution of principal on such
Payment Date. This has the effect of decelerating the
amortization of the Offered Certificates with respect to each
Mortgage Loan Group relative to the aggregate outstanding Loan
Balance of the Mortgage Loans, thereby reducing the actual
level of the related Overcollateralization Amount. This
portion of the Principal Remittance Amount not distributed as
principal on the related Certificates therefore releases
overcollateralization from the Trust with respect to the
related Mortgage Loan Group. The amount of such releases are
the Overcollateralization Release Amounts.
S-16
<PAGE>
On any Payment Date, the sum of the Monthly Excess Interest
Amount (plus any interest on the Overcollateralization Amount)
and the Overcollateralization Release Amount, if any, with
respect to a Mortgage Loan Group is the "Monthly Excess Cash
Flow Amount", which is required to be applied in the following
order of priority on such Payment Date:
(1) to fund the Class A Interest Carry Forward Amount, if
any, with respect to the related Mortgage Loan Group;
(2) to fund the Extra Principal Distribution Amount for
such Payment Date with respect to the related
Mortgage Loan Group;
(3) to fund the Class M-1 Interest Carry Forward Amount,
if any, with respect to the related Mortgage Loan
Group;
(4) to fund the Class M-1 Realized Loss Amortization
Amount for such Payment Date, with respect to the
related Mortgage Loan Group;
(5) to fund the Class M-2 Interest Carry Forward Amount,
if any, with respect to the related Mortgage Loan
Group;
(6) to fund the Class M-2 Realized Loss Amortization
Amount for such Payment Date, with respect to the
related Mortgage Loan Group;
(7) to fund the Class B-1 Interest Carry Forward Amount,
if any, with respect to the related Mortgage Loan
Group;
(8) to fund the Class B-1 Realized Loss Amortization
Amount for such Payment Date, with respect to the
related Mortgage Loan Group;
(9) to fund the Class C-IO Interest Carry Forward Amount,
if any, with respect to the related Mortgage Loan
Group;
(10) to fund any amounts listed in clauses (1) through (9)
above for such Payment Date with respect to the other
Mortgage Loan Group to the extent that such amounts
have not been funded in full through the application
of such Mortgage Loan Group's Monthly Excess Cash
Flow Amount on such Payment Date;
(11) to the Servicer to the extent of any unreimbursed
Delinquency Advances or Servicing Advances;
(12) to pay an Available Funds Cap Shortfall Amount
(defined below), if any, to the Owners of the
Adjustable Rate Group Certificates on a pro rata
basis among such Owners;
(13) to fund a distribution to Owners of the Class D
Certificates, provided that, if a Subordinated
Trigger Event is in effect on such Payment Date in
respect of a Mortgage Loan Group, the related amount
of any Overcollateralization Release Amount that
would otherwise be distributed to the Owners of Class
D Certificates will instead be distributed as
follows: first, to the Owners of the related Class
B-1 Certificates until the related Class B-1
Certificate Principal Balance has been reduced to
zero; second, to the Owners of the related Class M-2
Certificates until the related Class M-2 Certificate
Principal Balance has been reduced to zero; third, to
the Owners of the related Class M-1 Certificates
until the related Class M-1 Certificate Principal
Balance has been reduced to zero; and fourth, to the
Owners of the Class D Certificates; and
(14) to fund a distribution to Owners of the Class R
Certificates.
S-17
<PAGE>
The Pooling and Servicing Agreement provides that if, on any
Payment Date, the Adjustable Rate Group Available Funds Cap
limits the Pass-Through Rate on any Class of the Adjustable
Rate Group Certificates (i.e., the rate set by the Adjustable
Rate Group Available Funds Cap is less than the Formula
Pass-Through Rate for a Class of Adjustable Rate Group
Certificates) the amount of any such shortfall will be carried
forward and be due and payable on future Payment Dates and
shall accrue interest at the applicable Formula Pass-Through
Rate, until paid (the amount of such shortfall, together with
such accrued interest is the "Available Funds Cap Shortfall
Amount").
Pre-Funding
Account: On the Closing Date, the Original Pre-Funded Amount will be
deposited in the Pre-Funding Account which account will be in
the name of, and maintained by, the Trustee on behalf of the
Trust and used to acquire Subsequent Mortgage Loans for
addition to the Fixed Rate Group and the Adjustable Rate
Group. With respect to each Mortgage Loan Group, during the
period (the "Funding Period") from and including the Closing
Date until the earlier of (i) the date on which the amount on
deposit in the Pre-Funding Account with respect to the related
Mortgage Loan Group is less than $100,000, and (ii)
_____________ ___, 199__ the Pre-Funded Amount will be
maintained in the Pre-Funding Account. The Original Pre-Funded
Amount will be reduced during the Funding Period by the amount
thereof used to purchase Subsequent Mortgage Loans in
accordance with the Pooling and Servicing Agreement. The
amount on deposit in the Pre-Funding Account at any time is
the "Pre-Funded Amount." Subsequent Mortgage Loans purchased
by and added to the Trust on any date (each, a "Subsequent
Transfer Date") must satisfy the criteria set forth in the
Pooling and Servicing Agreement. Any Pre-Funded Amount
remaining at the end of the Funding Period for the related
Mortgage Loan Group will be distributed to the Owners of the
related Class(es) of Class A Certificates then entitled to
receive distributions of principal on the next regular Payment
Date, in reduction of the Certificate Principal Balance of
such Owners' Certificates, thus resulting in a partial
principal prepayment of such Class(es) of Class A Certificates
as specified herein under "Description of the Offered
Certificates - Distributions." All interest and other
investment earnings on amounts on deposit in the Pre-Funding
Account will be deposited in the Capitalized Interest Account.
The Pre-Funding Account will not be an asset of either the
Upper-Tier REMIC or the Lower-Tier REMIC.
Although no assurance can be given, it is intended that the
principal amount of Subsequent Mortgage Loans sold to the
Trust and added to the Trust will require application of
substantially all of the Original Pre-Funded Amount and it is
not intended that there will be any material amount of
principal prepaid to the Owners of any Class of Certificates
from the Pre-Funding Account. In the event that the Depositor
is unable to sell Subsequent Mortgage Loans to the Trust in an
amount equal to the Original Pre-Funded Amount, principal
prepayments to Owners of the related Class of Certificates
will occur no later than the next regular Payment Date in an
amount equal to the Pre-Funded Amount with respect to the
related Mortgage Loan Group remaining at the end of the
applicable Funding Period.
Capitalized
Interest Account: On the Closing Date, cash will be deposited in a trust account
(the "Capitalized Interest Account") in the name of, and
maintained by, the Trustee on behalf of the Trust. The amount
on deposit in the Capitalized Interest Account, including
reinvestment income thereon, will be used by the Trustee to
fund the excess, if any, of (i) the sum of the amount of
interest accruing at the weighted average Pass-Through Rate of
the Fixed Rate Group Certificates and the weighted average
Pass-Through Rate of the Adjustable Rate Group Certificates on
the amount by which the aggregate Certificate Principal
Balance of the related Class(es) of Certificates exceeds the
aggregate Loan Balance of the Mortgage Loans in the related
Mortgage Loan Group plus the Trustee Fee accruing on such
excess balance over (ii) the amount of any reinvestment income
on monies on deposit in the Pre-Funding Account. Such amounts
on deposit will be so applied by the Trustee
S-18
<PAGE>
on the Payment Date in ________ 199__ to fund such excess, if
any. Any amounts remaining in the Capitalized Interest Account
not needed for such purpose will be paid to the Depositor at
the end of the applicable Funding Period. The Capitalized
Interest Account will not be an asset of either the Upper-Tier
REMIC or the Lower-Tier REMIC.
Mandatory
Prepayment of
Certificates: In the event that at the end of the applicable Funding Period,
not all of the Original Pre-Funded Amount has been used to
acquire Subsequent Mortgage Loans, then the Owners of the
related Class(es) of Class A Certificates then entitled to
receive distributions of principal will receive a prepayment
no later than the Payment Date in _______ 199__ in an amount
equal to the portion of the Original Pre-Funded Amount
remaining and allocable to the related Mortgage Loan Group.
Auction Sale; Step
Up on Certain
Pass-Through
Rates;
Termination: The Pooling and Servicing Agreement requires that, within
ninety days following the date on which the Outstanding
Certificate Principal Balance related to a Mortgage Loan Group
has declined to less than 10% of the Original Certificate
Principal Balance of such Mortgage Loan Group (such date, with
respect to such Mortgage Loan Group, the "Auction Sale Bid
Date"), the Trustee shall solicit bids for the purchase of all
Mortgage Loans remaining in such Mortgage Loan Group. In the
event that satisfactory bids are received as described in the
Pooling and Servicing Agreement, the net sale proceeds will be
distributed to the Owners of the Certificates of such Mortgage
Loan Group in the same order of priority as interest and
principal distributions. If satisfactory bids are not
received, the Trustee shall decline to sell the Mortgage Loans
and shall not be under any obligation to solicit any further
bids or otherwise negotiate any further sale of the Mortgage
Loans, in such Mortgage Loan Group. Such sale and consequent
termination of a Mortgage Loan Group (an "Auction Sale") must
constitute a "qualified liquidation" of the Classes of
Certificates related to such Mortgage Loan Group under Section
860F of the Code, including, without limitation, the
requirement that the qualified liquidation take place over a
period not to exceed 90 days. If an Auction Sale with respect
to the Adjustable Rate Group has not occurred by the 90th day
following the related Auction Sale Bid Date (such date, the
"Step Up Date"), the Pass-Through Rate of each Class of the
Adjustable Rate Group Certificates will be increased as
provided under "Certificates Offered" in this Summary of Terms
for each Payment Date occurring thereafter. If an Auction Sale
does not occur, the Servicers will have the right,
collectively, to purchase all of the Mortgage Loans in a
Mortgage Loan Group they are servicing on any Monthly
Remittance Date when the Outstanding Certificate Principal
Balance has declined to 5% or less of the Original Certificate
Principal Balance of such Mortgage Loan Group. Any such
purchase by the Servicers will be required to be made on the
same Monthly Remittance Date, so that such Mortgage Loan Group
would be liquidated on the next succeeding Payment Date. In
addition, in the event that an Auction Sale has not occurred
with respect to both Mortgage Loan Groups and the Servicers
have not exercised their right to purchase all of the Mortgage
Loans, the Owners of the Class R Certificates will have the
obligation to purchase all the Mortgage Loans on the Monthly
Remittance Date in _______ 20___. See "The Pooling and
Servicing Agreement - Auction Sale; Step Up on Certain
Pass-Through Rates; Termination" herein.
Book-Entry
Registration
of the Offered
Certificates: The Offered Certificates will initially be issued in
book-entry form. Persons acquiring beneficial ownership
interests in such Offered Certificates ("Beneficial Owners")
may elect to hold their interests through The Depository Trust
Company ("DTC"), in the United States, or Cedel Bank, S.A.
("Cedel") or the Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, Cedel or Euroclear, as the case may be,
will be in accordance with the usual rules and operating
procedures of the relevant system. So long as the Offered
Certificates are Book-Entry Certificates (as defined herein),
such Certificates will be evidenced by one or more
Certificates registered in the name of Cede & Co. ("Cede"), as
the nominee of DTC or one of the European Depositaries (as
defined herein). Cross market transfers between persons
holding directly or indirectly through DTC, on the one hand,
and
S-19
<PAGE>
counterparties holding directly or indirectly through Cedel or
Euroclear, on the other, will be effected by DTC through
Citibank N.A. ("Citibank") or The Chase Manhattan Bank
("Chase", and together with Citibank, the "European
Depositaries"), the relevant depositaries of Cedel and
Euroclear, respectively, and each a participating member of
DTC. The Offered Certificates will initially be registered in
the name of Cede. The interests of the Owners of such
Certificates will be represented by book-entries on the
records of DTC and participating members thereof. No
Beneficial Owner will be entitled to receive a definitive
certificate representing such person's interest, except in the
event that Definitive Certificates (as defined herein) are
issued under the limited circumstances described herein. All
references in this Prospectus Supplement to any Offered
Certificates reflect the rights of Beneficial Owners only as
such rights may be exercised through DTC and its participating
organizations for so long as such Offered Certificates are
held by DTC. See "Description of the Offered Certificates -
Book-Entry Registration of the Offered Certificates" herein,
and Annex I hereto, and "Description of the Securities -
Book-Entry Registration" in the Prospectus.
Ratings: It is a condition of issuance of the Offered Certificates that
each Class of the Offered Certificates receive ratings from as
set out below:
_________________ and _________________ are referred to herein
collectively as 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 entity. See "Prepayment and Yield
Considerations" and "Ratings" herein. No person is obligated
to maintain any rating on any Certificate, and, accordingly,
there can be no assurance that the ratings assigned to any
Class of Certificates upon initial issuance thereof will not
be lowered or withdrawn at any time thereafter.
Federal Tax
Aspects: For federal income tax purposes, the Trust Estate (exclusive
of the Pre-Funding Account and the Capitalized Interest
Account) created by the Pooling and Servicing Agreement will
consist of two segregated asset pools (the "Upper-Tier REMIC"
and the "Lower-Tier REMIC") with respect to which elections
will be made to treat each as a "real estate mortgage
investment conduit" ("REMIC"). Each Class of Certificates
(other than the Class R Certificates) will constitute "regular
interests" in a REMIC. The Class R Certificates will be
designated as the "residual interest" in the Upper-Tier REMIC.
Owners of the Offered Certificates, including Owners that
generally report income on the cash method of accounting, will
be required to include interest on the Offered Certificates in
income in accordance with the accrual method of accounting.
The Offered Certificates may be considered to have been issued
with original issue discount or at a premium. Any such
original issue discount will be includable in the income of
the Owner as it accrues under a method taking into account the
compounding of interest and using the Prepayment Assumption.
See "Prepayment and Yield Considerations" and "Certain Federal
Income Tax Consequences" herein. Premium may be deductible by
the Owner either as it accrues or when principal is received.
No representation is made as to whether the Mortgage Loans
will prepay in accordance with the Prepayment Assumption, or
any other rate. In general, as a result of the qualification
of the Offered Certificates as regular interests in a REMIC,
the Offered Certificates will be treated as "regular . . .
interest(s) in a REMIC" under Section 7701(a)(19)(C) of the
Internal Revenue Code of 1986, as amended (the "Code") and
"real estate assets" under Section 856(c) of the Code in the
same proportion that the assets in the Upper-Tier
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REMIC consist of qualifying assets under such sections. In
addition, interest on the Offered Certificates will be treated
as "interest on obligations secured by mortgages on real
property" under Section 856(c) of the Code to the extent that
such Certificates are treated as "real estate assets" under
Section 856(c) of the Code.
ERISA
Considerations: A fiduciary of any employee benefit plan or other retirement
arrangement subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
(a "Plan") should review carefully with its legal advisors
whether the purchase or holding of the Class A Certificates
offered hereby could give rise to a transaction that is
prohibited or is not otherwise permitted either under ERISA or
Section 4975 of the Code or whether there exists any statutory
or administrative exemption applicable to an investment
therein. The U.S. Department of Labor has issued to the
Underwriters individual prohibited transaction exemptions
which generally exempt from the application of certain of the
prohibited transaction provisions of Section 406 of ERISA and
the excise taxes imposed on such prohibited transactions by
Sections 4975(a) and (b) of the Code relating to the purchase,
sale and holding of pass-through certificates underwritten by
the Underwriters and the servicing and operation of related
asset pools, provided that certain conditions are satisfied.
Only Class A Certificates may be purchased by Plans that are
subject to ERISA except as provided herein.
A fiduciary of a Plan should review the sections entitled
"ERISA Considerations" in the Prospectus and this Prospectus
Supplement and consider the issues discussed therein, and
should consult with its legal advisors prior to making an
investment in the Offered Certificates.
Legal Investment
Considerations: The Offered Certificates (other than the Class A-7
Certificates, the Class A-8 Certificates and the Class M-1A
Certificates) will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). The appropriate
characterization of the Offered Certificates (other than the
Class A-7 Certificates, the Class A-8 Certificates and the
Class M-1A Certificates) under various legal investment
restrictions applicable to the investment activities of
certain institutions, and thus the ability of investors
subject to these restrictions to purchase the Offered
Certificates (other than the Class A-7 Certificates, the Class
A-8 Certificates and the Class M-1A Certificates), may be
subject to significant interpretive uncertainties.
The Class A-7 Certificates, the Class A-8 Certificates and the
Class M-1A Certificates will constitute "mortgage related
securities" for purposes of SMMEA for so long as they are
rated in one of the two highest rating categories by one or
more nationally recognized statistical rating organizations.
As such, the Class A-7 Certificates, the Class A-8
Certificates and the Class M-1A Certificates will be legal
investments for certain entities to the extent provided in
SMMEA, subject to state laws overriding SMMEA. In addition,
institutions whose investment activities are subject to review
by federal or state regulatory authorities may be or may
become subject to restrictions, which may be retroactively
imposed by such regulatory authorities, on the investment by
such institutions in certain forms of mortgage related
securities. Furthermore, certain states have enacted
legislation overriding the legal investment provisions of
SMMEA. In addition, institutions whose activities are subject
to review by federal or state regulatory authorities may be or
may become subject to restrictions, which may be retroactively
imposed by such regulatory authorities, on the investment by
such institutions in certain forms of mortgage related
securities.
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RISK FACTORS
Prospective investors in the Offered Certificates should consider the
following risk factors (as well as the risk factors set forth under "Risk
Factors" in the Prospectus) in connection with the purchase of the Offered
Certificates.
Sensitivity to Prepayments. The Mortgage Loans may be prepaid by the
related mortgagor in whole or in part at any time. However, approximately,
_____% of the Initial Mortgage Loans as of the Statistical Calculation Date
require the payment of a fee in connection with certain prepayments. See "The
Portfolio of Mortgage Loans - Prepayment Penalties" herein for a description of
prepayment penalty provisions applicable to the Mortgage Loans. In addition, all
of the Mortgage Loans contain due-on-sale provisions which, to the extent
enforced by the related Servicer, will result in prepayment of such Mortgage
Loans. Furthermore, the Seller may initiate a refinance policy as described in
"The Portfolio of Mortgage Loans - Prepayment Penalties" herein which could have
an impact on prepayments of the Mortgage Loans. See "Prepayment and Yield
Considerations" herein and "Certain Legal Aspects of the Mortgage Assets" in the
Prospectus. The rate of prepayments on fixed rate mortgage loans (including the
5/25 Loans), such as the Mortgage Loans in the Fixed Rate Group, and 2/28 Loans
and 3/27 Loans, which are or will be a part of the Adjustable Rate Group, are
sensitive to prevailing interest rates. Generally, if prevailing interest rates
fall significantly below the interest rates on the Mortgage Loans in the Fixed
Rate Group or the applicable rates on the 2/28 Loans and 3/27 Loans, such loans
are likely to be subject to higher prepayment rates than if prevailing rates
remain at or above the interest rates on the Mortgage Loans in the Fixed Rate
Group or the applicable rates on the 2/28 Loans and 3/27 Loans. Conversely, if
prevailing interest rates rise significantly above the interest rates on the
Mortgage Loans in the Fixed Rate Group or the applicable rates on the 2/28 Loans
and the 3/27 Loans, the rate of prepayments is likely to decrease.
The average life of the Offered Certificates, and, if purchased at
other than par, the yields realized by Owners of the Offered Certificates, will
be sensitive to levels of payment (including prepayments relating to the
Mortgage Loans (the "Prepayments")) on the Mortgage Loans and the method of
allocating such payments among the Offered Certificates. In general, the yield
on an Offered Certificate that is purchased at a premium from the outstanding
principal amount thereof will be adversely affected by a higher than anticipated
level of Prepayments of the Mortgage Loans and enhanced by a lower than
anticipated level. Conversely, the yield on an Offered Certificate that is
purchased at a discount from the outstanding principal amount thereof will be
enhanced by a higher than anticipated level of Prepayments and adversely
affected by a lower than anticipated level. The Servicers have agreed in the
Pooling and Servicing Agreement not to target Mortgagors in solicitations to
borrowers to refinance their mortgages, unless such solicitation is consistent
with the Seller's refinance policy. See "Prepayment and Yield Considerations"
herein.
Trust Assets are the Only Source of Credit Enhancement. The
subordination of the Subordinate Certificates and the Private Certificates
(other than the Class S Certificates) to the Class A Certificates, the further
subordination within the Subordinate Certificates, and the overcollateralization
provisions of the Trust are the sole sources of protection against losses on the
Mortgage Loans and other shortfalls in available funds. If losses or other
shortfalls exceed the protection afforded by such mechanism, Owners of the
Offered Certificates will bear their proportionate share of such losses and
shortfalls. The Certificates represent interests only in the Trust and do not
represent interests in, or obligations of the Depositor, the Seller, the Master
Servicer, the Servicers, the Trustee or any of their respective affiliates. The
assets of the Trust are the sole source of funds for distributions on the
Certificates.
Subordination - Limited Protection Afforded to Class A Certificates.
The rights of the Owners of the Class M-1 Certificates to receive distributions
with respect to the Mortgage Loans will be subordinate to the rights of the
holders of the related Class A Certificates to receive such distributions. The
rights of Owners of the Class M-2 Certificates to receive distributions with
respect to the Mortgage Loans will be subordinate to the rights of the Owners of
the related Class A and the related Class M-1 Certificates to receive such
distributions. The rights of the Owners of the Class B-1 Certificates to receive
distributions with respect to the Mortgage Loans will be subordinate to the
rights of the Owners of the related Class A, related Class M-1 and related Class
M-2 Certificates to receive such distributions. The rights of the owners of the
Class C-IO Certificates to receive distributions with respect to the Mortgage
Loans will be subordinate to the rights of the holders of the related Class A
Certificates, the related Class M-1 Certificates, the related Class M-2
Certificates, the related Class B-1 Certificates. The subordination of the
Subordinate Certificates relative to the Class A Certificates (and of the more
lower-ranking Classes of the Subordinate Certificates to the higher-ranking
Classes thereof) is intended to enhance the likelihood of regular receipt by the
Owners of the Class A Certificates (and such higher-ranking Classes) of the full
amount of the monthly distributions allocable to them, and to afford such Owners
protection against losses.
Subordination - Allocation of Losses to Mezzanine Certificates and
Class B-1 Certificates. The rights of the Owners of each Class of Mezzanine
Certificates and Class B-1 Certificates to receive distributions of principal
with respect to the related Mortgage Loan Group will be subordinate to the
rights of the Owners of the related Class A Certificates to receive such
distributions and to the rights of the Owners of each higher-ranking related
Class of Subordinate Certificates to receive such distributions. See "Credit
Enhancement - Subordination of Subordinate Certificates and Certain of the
Private Certificates" herein.
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The yields to maturity on the Mezzanine Certificates and the Class B-1
Certificates will be sensitive, in varying degrees, to defaults on the Mortgage
Loans (and the timing thereof). Investors should fully consider the risks
associated with an investment in the Mezzanine Certificates and the Class B-1
Certificates, including the possibility that such investors may not fully
recover their initial investment as a result of Realized Losses on the Mortgage
Loans. See "Credit Enhancement - Application of Realized Losses" and "Prepayment
and Yield Considerations - Payment and Yield Scenarios for Offered Certificates"
herein.
The Mezzanine Certificates and Class B-1 Certificates will not be
entitled to any principal distributions until at least the related Stepdown Date
and during the continuation of a Trigger Event (unless the aggregate Certificate
Principal Balance of the related Class A Certificates has been reduced to zero).
As a result, the weighted average lives of the Mezzanine Certificates and Class
B-1 Certificates will be longer than would be the case if distributions of
principal were to be allocated on a pro rata basis among the Class A and
Mezzanine Certificates and Class B-1 Certificates. As a result of the longer
weighted average lives of the Mezzanine Certificates and Class B-1 Certificates,
the Owners of such Certificates have a greater risk of suffering a loss on their
investments.
The Subsequent Mortgage Loans and the Pre-Funding Account. If the
principal amount of eligible Subsequent Mortgage Loans available during the
applicable Funding Period and sold by the Depositor to the Trust is less than
100% of the Original Pre-Funded Amount, a prepayment of principal to Owners of
the related Class of the Class A Certificates then entitled to receive payments
of principal will occur as described herein. In addition, any conveyance of
Subsequent Mortgage Loans is subject to the following conditions, among others:
(i) each such Subsequent Mortgage Loan must satisfy the representations and
warranties specified in the agreement pursuant to which such Subsequent Mortgage
Loans are transferred to the Trust (each a "Subsequent Transfer Agreement") and
in the Pooling and Servicing Agreement; (ii) the Depositor will not select such
Subsequent Mortgage Loans in a manner that it believes is adverse to the
interest of the Owners of the Certificates; (iii) the Depositor will deliver
certain opinions of counsel with respect to the validity of the conveyance of
such Subsequent Mortgage Loans; and (iv) as of each cut-off date (each, a
"Subsequent Cut-Off Date") applicable thereto, the Mortgage Loans, including the
Subsequent Mortgage Loans to be conveyed by the Depositor as of such Subsequent
Cut-Off Date, will satisfy the criteria set forth in the Pooling and Servicing
Agreement, as described herein under "The Mortgage Loan Pools - Conveyance of
Subsequent Mortgage Loans."
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Mortgage Loans by the Trust
for inclusion in the related Mortgage Loan Group by the end of the applicable
Funding Period, the Owners of the related Class of the Class A Certificates then
entitled to receive payments of principal will receive a prepayment of principal
in an amount equal to the related Pre-Funded Amount remaining in the Pre-Funding
Account on the Pre-Funding Payment Date. Although no assurances can be given,
the Depositor expects that the principal amount of Subsequent Mortgage Loans
sold to the Trust will require the application of substantially all amounts on
deposit in the Pre-Funding Account and that there will be no material principal
prepayment to the Owners of the Class A Certificates from the Pre-Funding
Account.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. Following the transfer of
Subsequent Mortgage Loans, it is anticipated that the aggregate characteristics
of the Mortgage Loans then held in the related Mortgage Loan Group will not vary
significantly from those of the Initial Mortgage Loans. See "The Mortgage Loan
Pools - Conveyance of Subsequent Mortgage Loans" herein.
Risk of Higher Delinquencies Associated with Guidelines. The
Underwriting Guidelines (as described herein under "The Portfolio of Mortgage
Loans - Guidelines") are intended to assess the credit quality of a mortgagor
and the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. The Originators provide loans
primarily to mortgagors who do not qualify for loans conforming to Fannie Mae
and FHLMC guidelines but who have substantial equity in their property.
Furthermore, the Underwriting Guidelines do not prohibit a borrower from
obtaining secondary financing at the time of origination of the Originator's
first lien, which financing would reduce the equity the borrower would otherwise
have in the related mortgaged property from that indicated in the Originators'
loan-to-value determination.
As a result of the Underwriting Guidelines, the Mortgage Loans are
likely to experience rates of delinquency, foreclosure and bankruptcy that are
higher, and that may be substantially higher, than those experienced by mortgage
loans underwritten to Fannie Mae and FHLMC conforming guidelines. Furthermore,
changes in the values of Mortgaged Properties may have a greater effect on the
delinquency, foreclosure, bankruptcy and loss experience of the Mortgage Loans
than on mortgage loans originated in a more traditional manner. No assurance can
be given that the values of the Mortgaged Properties have remained or will
remain at the levels in effect on the dates of origination of the related
Mortgage Loans.
Effect of Mortgage Loan Yield on Adjustable Rate Group Certificates
Pass-Through Rate; Basis Risk. The calculation of the Pass-Through Rate on each
Class of the Adjustable Rate Group Certificates is based upon the value of an
index (One-Month LIBOR) which is different from the value of the index
applicable to substantially all the Initial Mortgage Loans in the Adjustable
Rate Group (primarily Six-Month LIBOR) as described under "The Mortgage Loan
Pools - Initial Mortgage Loans - Adjustable Rate Group" herein and is subject
to the Adjustable Rate Group
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Available Funds Cap. The Adjustable Rate Group Available Funds Cap effectively
limits the amount of interest accrued on each Class of the Adjustable Rate Group
Certificates to the weighted average of the Coupon Rates on the Mortgage Loans
in the Adjustable Rate Group, less 0.50% per annum. _____% of the Initial
Mortgage Loans in the Adjustable Rate Group as of the Statistical Calculation
Date, and ____% of the Initial Mortgage Loans in the Fixed Rate Group as of the
Statistical Calculation Date, adjust semi-annually based upon the London
interbank offered rate for Six-Month United States dollar deposits ("Six-Month
LIBOR"), whereas the Pass-Through Rate on each Class of the Adjustable Rate
Group Certificates adjusts monthly based upon One-Month LIBOR as described under
"Description of the Certificates - Calculation of One-Month LIBOR" herein,
subject to the Adjustable Rate Group Available Funds Cap. Consequently, the
Pass-Through Rate on each Class of the Adjustable Rate Group Certificates for
any Payment Date may not equal the related Formula Pass-Through Rate for such
Class of the Adjustable Rate Group Certificates during the related Accrual
Period. _____% of the Initial Mortgage Loans in the Adjustable Rate Group as of
the Statistical Calculation Date are 2/28 Loans that provide for a fixed
interest rate for a period of approximately two years following origination.
____% of the Initial Mortgage Loans in the Adjustable Rate Group as of the
Statistical Calculation Date, are 3/27 Loans that provide for a fixed interest
rate for a period of approximately three years following origination.
Thereafter, such Mortgage Loans provide for interest rate and payment
adjustments in a manner similar to the Six-Month LIBOR Loans. One-Month LIBOR
and Six-Month LIBOR may respond to different economic and market factors, and
there is not necessarily a correlation between them. Thus, it is possible, for
example, that One-Month LIBOR may rise during periods in which Six-Month LIBOR
is stable or is falling or that, even if both One-Month LIBOR and Six-Month
LIBOR rise during the same period, One-Month LIBOR may rise more rapidly than
Six-Month LIBOR. Furthermore, even if One-Month LIBOR and Six-Month LIBOR were
at the same level, various factors may cause the Adjustable Rate Group Available
Funds Cap to limit the amount of interest that would otherwise accrue on each
Class of the Adjustable Rate Group Certificates. In particular, the Pass-Through
Rate on each Class of the Adjustable Rate Group Certificates adjusts monthly,
while the interest rates of the Mortgage Loans in the Adjustable Rate Group
adjust less frequently, with the result that the Adjustable Rate Group Available
Funds Cap may be lower than the Formula Pass-Through Rate for such Class of the
Adjustable Rate Group Certificates for extended periods in a rising interest
rate environment. In addition, the Mortgage Loans in the Adjustable Rate Group
are subject to periodic (i.e., semiannual) adjustment caps and maximum rate
caps, and the weighted average margin is subject to change based upon prepayment
experience, which also may result in the Adjustable Rate Group Available Funds
Cap limiting increases in the Pass-Through Rate for such Class of the Adjustable
Rate Group Certificates. Finally, the Mortgage Loans in the Adjustable Rate
Group accrue interest on the basis of a 360-day year assumed to consist of
twelve 30-day months, while calculations of interest on each Class of the
Adjustable Rate Group Certificates which are Offered Certificates will be made
on the basis of the actual number of days elapsed in the related Accrual Period
and a year of 360 days. This may result in the Adjustable Rate Group Available
Funds Cap limiting the Pass-Through Rate for such Class of the Adjustable Rate
Group Certificates in Accrual Periods that have more than 30 days. Consequently,
the interest which becomes due on the Mortgage Loans in the Adjustable Rate
Group (net of the sum of the Servicing Fee, the Master Servicer Fee, the Trustee
Fee and certain required reductions related to the Adjustable Rate Group) during
any Remittance Period may not equal the amount of interest that would accrue at
One-Month LIBOR plus the margin on each Class of the Adjustable Rate Group
Certificates during the related Accrual Period. Furthermore, if the Available
Funds Cap determines the Pass-Through Rate for a Class of the Adjustable Rate
Group Certificates for a Payment Date, the market value of such Class of the
Adjustable Rate Group Certificates may be temporarily or permanently reduced. It
is anticipated that Subsequent Mortgage Loans in the Adjustable Rate Group will
have features similar to the Initial Mortgage Loans in the Adjustable Rate
Group, resulting in the same limitations on the Pass-Through Rate of the
Adjustable Rate Group Certificates as are described above.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosure, and require
licensing of the Originators. In addition, other state laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the Mortgage Loans. The related Originator will be
required to repurchase any Mortgage Loans which, at the time of origination,
fail to comply with applicable federal and state laws and regulations, which
failure results in a material adverse effect on the Trust or the parties to the
Pooling and Servicing Agreement. 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 Servicers to collect all or
part of the principal of or interest on the Mortgage Loans, may entitle the
Mortgagor to a refund of amounts previously paid and, in addition, could subject
the Seller, the Master Servicer, the Servicers or the related Originator to
damages and administrative enforcement. See "Certain Legal Aspects of Mortgage
Assets" in the Prospectus.
The Mortgage Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
Mortgagors regarding the terms of the Mortgage Loans;
(ii) the Equal Credit 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
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(iii) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the Mortgagor's credit
experience.
Violations of certain provisions of these federal laws may limit the ability of
the related Servicer to collect all or part of the principal of or interest on
the Mortgage Loans and in addition could subject the Originators, the Seller,
the Master Servicer or the Servicers to damages and administrative enforcement.
The Originators will be required to repurchase any Mortgage Loans which, at the
time of origination, did not comply with such federal laws or regulations. See
"Certain Legal Aspects of the Mortgage Assets" in the Prospectus.
The federal Soldiers' and Sailors' Civil Relief Act of 1940 may affect
the ability of the related Servicer to collect full amounts of interest on
certain Mortgage Loans and could interfere with the ability of the related
Servicer to foreclose on certain properties. See "Certain Legal Aspects of the
Mortgage Assets - Soldiers' and Sailors' Civil Relief Act" in the Prospectus.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act") which incorporates the Home Ownership and Equity Protection Act of 1994.
The Riegle Act adds certain additional provisions to Regulation Z, the
implementing regulation of the Truth-In-Lending Act. 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. In general, mortgage loans within the purview of the Riegle Act
have annual percentage rates over 10% greater than the yield on Treasury
Securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $400. 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 their 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, without limitation, the right to rescind
the mortgage loan.
Risk of Seller Insolvency. The Seller believes that the transfer of the
Mortgage Loans to the Depositor and by the Depositor to the Trust constitutes a
sale by the Seller to the Depositor and by the Depositor to the Trust and,
accordingly, that such Mortgage Loans will not be part of the assets of the
Seller in the event of the insolvency of the Seller and will not be available to
the creditors of the Seller. However, in the event of an insolvency of the
Seller, it is possible that a bankruptcy trustee or a creditor of the Seller may
argue that the transaction between the Seller and the Depositor was a pledge of
such Mortgage Loans in connection with a borrowing by the Seller rather than a
true sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Certificates.
On the Closing Date with respect to the Initial Mortgage Loans and on
each Subsequent Transfer Date with respect to the Subsequent Mortgage Loans, the
Trustee and the Seller will have received an opinion of Arter & Hadden LLP,
counsel to the Seller and the Depositor, with respect to the true sale of
Mortgage Loans from the Seller to the Depositor and from the Depositor to the
Trustee, in form and substance satisfactory to the Trustee and the Rating
Agencies.
Risk of Higher Default Rates Associated with California Real Property.
Because _____% by principal amount of the Mortgaged Properties relating to
Initial Mortgage Loans as of the Statistical Calculation Date, are located in
the State of California, an overall decline in the related residential real
estate markets could adversely affect the values of the Mortgaged Properties
securing such Initial Mortgage Loans causing the Loan Balances of the related
Initial Mortgage Loans to equal or exceed the value of such Mortgaged
Properties.
The standard hazard insurance policy required to be maintained under
the terms of each Mortgage Loan does not insure against physical damage arising
from earth movement (including earthquakes, landslides and mud flows). See
"Servicing of Mortgage Loans and Contracts - Standard Hazard Insurance" in the
Prospectus.
THE PORTFOLIO OF MORTGAGE LOANS
General
The Mortgage Loan Pool primarily includes newly originated loans which
were purchased by the Depositor from the Seller, which acquired such loans from
the related Originators.
Each Originator has made certain representations and warranties with
respect to Mortgage Loans originated or sold by it, as specified below, and,
upon a breach of such representations and warranties may be required to
repurchase such Mortgage Loan from the Trust.
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Underwriting Guidelines
The Mortgage Loans have been originated by the Originators in
accordance with the underwriting guidelines established by each of them and
reviewed and approved by the Seller (the "Underwriting Guidelines"). The
Underwriting Guidelines are primarily intended to evaluate the value and
adequacy of the mortgaged property as collateral and are also intended to
consider the mortgagor's credit standing and repayment ability. On a
case-by-case basis, the Originator may determine that, based upon compensating
factors, a prospective mortgagor not strictly qualifying under the Underwriting
Guidelines warrants an underwriting exception. Compensating factors may include,
but are not limited to, low loan-to-value ratio, low debt-to-income ratio, good
credit history, stable employment, pride of ownership and time in residence at
the applicant's current address. It is expected that a substantial number of the
Mortgage Loans to be included in the Mortgage Pools will represent such
underwriting exceptions.
Under the Underwriting Guidelines, the Originators review and verify
the loan applicant's sources of income (except under the stated income
programs), calculate the amount of income from all such sources indicated on the
loan application, review the credit history of the applicant and calculate the
debt-to-income ratio to determine the applicant's ability to repay the loan, and
review the mortgaged property for compliance with their Underwriting Guidelines.
The Underwriting Guidelines are applied in accordance with a procedure which
complies with applicable federal and state laws and regulations and requires (i)
an appraisal of the mortgaged property which conforms to FHLMC and Fannie Mae
standards and (ii) a review of such appraisal, which review may be conducted by
the Originator's staff appraiser or representative and, depending upon the
original principal balance and loan-to-value ratio of the mortgaged property may
include a desk review of the original appraisal or a drive-by review appraisal
of the mortgaged property. The Underwriting Guidelines generally permit
single-family loans with loan-to-value ratios at origination of up to 90% for
the highest credit grading category (80% under the stated income programs),
depending on the type and use of the property, the creditworthiness of the
mortgagor and the debt-to-income ratio. Under the Underwriting Guidelines, the
maximum combined loan-to-value ratio for purchase money mortgage loans may
differ from those applicable to refinancings.
All of the Mortgage Loans are based on loan application packages
submitted through mortgage brokerage companies or at the related Originator's
retail branches or are purchased from originators approved by the Originators.
Loan application packages submitted through mortgage brokerage companies,
containing in each case relevant credit, property and underwriting information
on the loan request, are compiled by the applicable mortgage brokerage company
and submitted to the Originator for approval and funding. The mortgage brokerage
companies receive a portion of the loan origination fee charged to the mortgagor
at the time the loan is made.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's liabilities, income, credit history
and employment history, as well as certain other personal information. Each
Originator requires a credit report on each applicant from a credit reporting
company. The applicant must provide to the related Originator or the originator
a letter explaining all late payments on mortgage debt and, generally, consumer
(i.e., non-mortgage) debt. The report typically contains information relating to
such matters as credit history with local and national merchants and lenders,
installment debt payments and any record of defaults, bankruptcy, repossession,
suits or judgments. Self-employed individuals are generally required to submit
their two most recent federal income tax returns. As part of their quality
control systems, each Originator generally reverifies information with respect
to the foregoing matters that has been provided by the mortgage brokerage
company prior to funding a loan and periodically audits files based on a random
sample of closed loans. In the course of their pre-funding audit, each
Originator generally reverifies the income of each mortgagor or, for a
self-employed individual, reviews the income documentation obtained pursuant to
the Underwriting Guidelines (except under stated income programs). If the
loan-to-value ratio is greater than a predetermined level, the Originators
generally verify the source of funds for the down payment; however, the related
Originator may not verify the source of funds if the loan-to-value ratio is less
than such level.
Mortgaged properties that are to secure mortgage loans are generally
appraised by qualified independent appraisers who are approved by the related
Originator. In most cases, below-average properties (including properties
requiring major deferred maintenance) are not acceptable as security for
mortgage loans under the Underwriting Guidelines. Each appraisal includes a
market data analysis based on recent sales of comparable homes in the area and,
where deemed appropriate, replacement cost analysis based on the current cost of
constructing a similar home. Except with respect to purchase money mortgage
loans, every independent appraisal is generally reviewed by the related
Originators before the loan is funded, and a drive-by review or appraisal is
generally performed in connection with loan amounts over a certain predetermined
dollar amount established for each State. With respect to purchase money
mortgage loans, an independent appraisal may be reviewed by the Originator.
The Underwriting Guidelines are less stringent than the standards
generally acceptable to Fannie Mae and FHLMC with regard to the mortgagor's
credit standing and repayment ability. Mortgagors who qualify under the
Underwriting Guidelines generally have payment histories and debt ratios which
would not satisfy Fannie Mae and FHLMC underwriting guidelines and may have a
record of major derogatory credit items such as outstanding judgments or prior
bankruptcies. The Underwriting Guidelines establish the maximum permitted
loan-to-value ratio for each loan type based upon these and other risk factors.
S-26
<PAGE>
The Mortgage Loans were originated consistent with and generally
conform to "Full Documentation", "Limited Documentation", or "Stated Income
Documentation" residential loan programs. Under each of the programs, the
related Originator generally reviews the applicant's source of income,
calculates the amount of income from sources indicated on the loan application
or similar documentation, reviews the credit history of the applicant,
calculates the debt service-to-income ratio to determine the applicant's ability
to repay the loan, reviews the type and use of the property being financed, and
reviews the property. In determining the ability of the applicant to repay the
loan, a rate is established that generally is equal to the lesser of the fully
indexed interest rate on the loan being applied for or one percent above the
initial interest rate on such loan. The Underwriting Guidelines require that
mortgage loans be underwritten in a standardized procedure which complies with
applicable federal and state laws and regulations and requires the Originator's
underwriters to be satisfied that the value of the property being financed, as
indicated by an appraisal and a review of the appraisal, currently supports the
outstanding loan balance. In general, the maximum loan amount for mortgage loans
originated under the programs is $350,000. Mortgage loans may, however, be
originated generally up to $500,000, provided the loan-to-value ratio is at
least 5% below the applicable residential loan program maximum that would
otherwise apply. The Underwriting Guidelines permit one- to four-family loans to
have loan-to-value ratios at origination of generally up to 90%, depending on,
among other things, the purpose of the mortgage loan, the mortgagor's credit
history, repayment ability and debt service-to-income ratio, as well as the type
and use of the property. With respect to mortgage loans secured by mortgaged
properties acquired by a mortgagor under a "lease option purchase," the
loan-to-value ratio of the related mortgage loan is generally based on the
appraised value at the time of origination of such mortgage loan.
The Underwriting Guidelines require that income be verified for each
applicant and that the source of funds (if any) required to be deposited by the
applicant into escrow under its various programs be as follows: Under the Full
Documentation programs, applicants generally are required to submit two written
forms of verification of stable income for 24 months (or, if the loan-to-value
ratio is less than or equal to 65%, for 12 months). Under the Limited
Documentation programs, generally one such form of verification is required for
12 months. Under the Stated Income Documentation programs, generally an
applicant may be qualified based upon monthly income as stated on the mortgage
loan application if the applicant meets certain criteria. All the foregoing
programs typically require that with respect to each applicant, there be a
telephone verification of the applicant's employment. Verification of the source
of funds (if any) required to be deposited by the applicant into escrow in the
case of a purchase money loan is generally required under the Full Documentation
program guidelines. No such verification is required under the other programs.
The Underwriting Guidelines require title insurance on all mortgage
loans secured by liens on real property. The Underwriting Guidelines also
require that fire and extended coverage casualty insurance be maintained on the
secured property in an amount at least equal to the principal balance of the
related single-family loan or the replacement cost of the property, whichever is
less.
Under the Underwriting Guidelines, various risk categories are used to
grade the likelihood that the mortgagor will satisfy the repayment conditions of
the mortgage loan. These risk categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor's credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the Underwriting
Guidelines establish lower maximum loan-to-value ratios and maximum loan amounts
for loans graded in such categories.
ARCC Performance Assumption Grouping
The Seller, through its manager AMRESCO Residential Credit Corporation
("ARCC"), performs due diligence on all mortgage loan portfolios which it
acquires, including the Mortgage Loans included in the Trust Estate. Part of
ARCC's review includes a review of the credit-grading process of the related
Originators. ARCC has developed Performance Assumption Groupings ("PAGs") which
are similar to a credit-grading criteria. ARCC determines which PAG the
Originators' related credit grade most closely matches, and all loans which the
Originator has placed in that credit grade are placed in the related PAG
category. Because there are multiple factors in both the credit grades
identified by the Originators and the PAG categories, it is unlikely that any
credit grade designation will match up exactly to any PAG category. ARCC uses
its best efforts to match the categories based upon its projection of asset
performance for the related credit grade and PAG. It should be noted that while
the Originators have specific criteria for credit grades, they have the
discretion to place a loan in a credit grade for which it does not meet all of
the criteria, based upon consideration of all relevant factors. It should
further be noted that ARCC does not make any attempt to determine how individual
loans would fall under the PAG criteria described below, but only associates the
existing credit grades of the Originator to the various PAG categories.
Seller's PAG I
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 90% or less. The
maximum back-end debt ratio should not exceed 50%. The prospective mortgagor
should have approximately five years of established credit with five trade
lines. In the last 12 months, mortgage credit should show no delinquencies in
excess of 30 days, and in the last 24 months, should show
S-27
<PAGE>
delinquencies only for 30 days or less. The credit history should reveal no
foreclosures. In the last 12 months, installment and revolving accounts should
indicate no delinquencies for major credit, and a maximum of 30 days for minor
credit. In the last 24 months, both major and minor credit should be a maximum
of 30 days delinquent. There should be no evidence of judgments, charge offs,
collections or bankruptcies affecting the mortgagor. In last 36 months, the
prospective mortgagor should have had only minor collection actions totaling
less than $500.
Seller's PAG II
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 85% or less. The
maximum back end debt ratio should not exceed 50%. The prospective mortgagor
should have approximately three years of established credit with three trade
lines. In the last 12 months, mortgage credit should show no more than two
30-day delinquencies and no 60-day delinquencies, and all credits should be
current at the time of origination; in the last 24 months, the credit history
should show a maximum of 30 day delinquencies. In the last 12 months,
installment and revolving accounts should include no more than two 30-day
delinquencies for major credit and a maximum of 60 day delinquency for minor
credit. In the last 24 months, the maximum delinquency should be 60 days for
both major and minor credit. In the last 12 months, there should be no
collection action taken against the prospective mortgagor. In the last 24
months, there should be no judgments or charge offs against the prospective
mortgagor, and discharged bankruptcies should have reestablished credit with no
delinquencies. In the last 36 months, mortgagor should be subject to only minor
collection actions totaling less than $1,000.
Seller's PAG III
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 80% or less. The
maximum back end debt ratio should not exceed 50%. The prospective mortgagor
should have approximately two years of established credit with two trade lines.
In the last 12 months, mortgage credit should show no more than three 30-day
delinquencies and one 60-day delinquency. Mortgage credit should be a maximum 30
days delinquent at the time of origination, and in the last 24 months, a maximum
of 60 days delinquent. In the last 12 months, installment and revolving accounts
should show no more than two 60-day delinquencies for major credit and a maximum
delinquency of 90 days for minor credit. In the last 24 months, installment and
revolving accounts should be a maximum 90 days delinquent for both major and
minor credit. In the last 12 months, there should be no judgments or charge
offs, and only minor collection actions totaling less than $500 against the
prospective mortgagor. In the last 24 months, the prospective mortgagor is
permitted to have judgments or charge offs totaling less than $500, and
discharged bankruptcies with a maximum 30-day delinquency on reestablished
credit. In the last 36 months, collection actions totaling less than $2,500 are
permitted.
Seller's PAG IV
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 75% or less. The
maximum back-end debt ratio should not exceed 55%. There is no requirement for
an established credit history. In the last 12 months, mortgage credit should
include no more than four 30-day delinquencies and two 60-day delinquencies, and
mortgage credit should be a maximum of 90 days delinquent at the time of
origination. In the last 12 months, installment and revolving accounts should
show no more than two 90-day delinquencies for major credit and a maximum
delinquency of 90 days for minor credit. In the last 24 months, installment and
revolving accounts should be a maximum 90 days delinquent for both major and
minor credit. In the last 12 months, mortgagor may have discharged bankruptcies
with maximum 30 day delinquency on reestablished credit, and collection actions
totaling less than $2,500 are permitted. In the last 24 months, total judgments
and charge offs should be less than $2,500.
Seller's PAG V
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 65% or less. The
maximum back-end debt ratio should not exceed 55%. There is no requirement for
an established credit history. In the last 12 months, mortgage credit should be
a maximum of 120 days delinquent, and no foreclosure may be pending at the time
of origination. In the last 24 months, mortgage credit should be a maximum of
120 days delinquent. There are no stipulations regarding other derogatory
information other than that bankruptcies should have been discharged.
Prepayment Penalties
Any Mortgage Loan may be prepaid in full or in part at any time;
however, approximately _____% of the Initial Mortgage Loans in the Fixed Rate
Group and _____% of the Initial Mortgage Loans in the Adjustable Rate Group, in
each case, as of the Statistical Calculation Date, provide for the payment by
the Mortgagor of a prepayment charge in limited circumstances on certain full or
partial prepayments made generally up to five years from the date of execution
of the related Note. The amount of the prepayment charge is as provided in the
related Note. In general, the Note provides that a prepayment charge will apply
if, in any twelve-month period generally up to the first five years
S-28
<PAGE>
from the date of origination of such Mortgage Loan, the Mortgagor prepays an
aggregate amount exceeding 20% of the original principal balance of such
Mortgage Loan. The amount of the prepayment charge will generally be equal to
six months' advance interest calculated on the basis of the rate in effect at
the time of such prepayment on the amount prepaid in excess of 20% of the
original balance of such Mortgage Loan.
The Seller may initiate a refinance policy with the Originators who
originated Mortgage Loans for the Trust and for other trusts in which the Seller
or an affiliate of the Seller owns a residual interest in an effort to retain
borrowers who the Seller or the Originators believe are likely to refinance
their loans due to interest rate changes or other reasons. Although the policy
is expected to permit the Originators to solicit such borrowers in accordance
with the Seller's policy, the Depositor believes that this practice will not
likely result in a material change in the prepayment experience of the Trust
because the solicited borrowers would have been expected to refinance through
other originators in any event.
Representations Relating to the Mortgage Loans
In the Pooling and Servicing Agreement, the Seller will make
representations and warranties in respect of the Mortgage Loans that generally
include, among other things, that: (i) the information with respect to each
Mortgage Loan set forth in the related Schedule of Mortgage Loans is true and
correct as of the specified date; (ii) each Mortgaged Property is improved by a
one- to four-family residential dwelling, which may include condominiums,
townhouses and manufactured housing permanently attached to foundations; (iii)
each Mortgage Loan had, at the time of origination, either an attorney's
certification of title or a title search or title policy; (iv) as of the Cut-Off
Date each Mortgage Loan was secured by a valid and subsisting first (or, if
applicable, second) lien of record on the Mortgaged Property subject in all
cases only to the exceptions to title set forth in the title insurance policy,
if any, with respect to the related Mortgage Loan; (v) as of the Closing Date it
held good and indefeasible title to, and was the sole owner of, each Mortgage
Loan; and (vi) each Mortgage Loan was originated in accordance with applicable
law and is the valid, legal and binding obligation of the related Mortgagor.
If the Seller cannot cure a breach of any representation or warranty
made by it in respect of a Mortgage Loan that materially and adversely affects
the interests of the Owners in such Mortgage Loan within a time period specified
in the Pooling and Servicing Agreement, the Seller will be obligated under the
Pooling and Servicing Agreement to purchase from the Trust such Mortgage Loan at
a price (the "Loan Purchase Price") which will be no less than the principal
balance thereof as of the date of purchase plus one month's interest at the
Coupon Rate (net of the applicable Servicing Fee) (the "Net Coupon Rate").
As to any such Mortgage Loan required to be repurchased by the Seller
as provided above, rather than repurchase the Mortgage Loan, the Seller may, at
its sole option, remove such Mortgage Loan (a "Deleted Mortgage Loan") from the
Trust and cause the substitution in its place of another Mortgage Loan of like
kind (a "Qualified Replacement Mortgage" as such term is defined in the Pooling
and Servicing Agreement); however, such substitution of a defective Mortgage
Loan may not be made if such substitution would cause the REMIC created by the
Pooling and Servicing Agreement not to qualify as a REMIC or result in a
prohibited transaction tax under the Code (generally after two years from the
Closing Date).
Upon receipt of notice by the Master Servicer or by a Servicer or upon
the Master Servicer or a Servicer becoming aware that a representation and
warranty made by the Seller in the Pooling and Servicing Agreement has been
breached, the Master Servicer or such Servicer will be required to promptly
notify the Trustee and the Seller of such breach and request that the Seller
cure such breach or honor its repurchase or substitution obligations for the
benefit of the Trust. Notwithstanding the foregoing, the Pooling and Servicing
Agreement provides that with respect to the Mortgage Loans originated by
Ameriquest, Ameriquest will have the repurchase or substitution obligation. The
foregoing will constitute the sole remedy available to the Trust for a breach of
representation by an Originator.
Responsibilities of the Master Servicer
The Master Servicer is obligated to review each Servicer's monthly
servicing report for any inconsistencies between such report and information
available to the Master Servicer. In addition, the Master Servicer is obligated
to notify the Servicers of the Monthly Remittance Amount to be remitted by them
on each Monthly Remittance Date broken out by principal and interest. Further,
on the basis of the reconciled monthly servicing reports, the Master Servicer is
obligated to provide to the Trustee a report which will provide on an individual
basis for each Servicer and on an aggregate basis for all Servicers the
information required to be reported by each Servicer in its monthly servicing
report. The Master Servicer is also required to review a reconciliation report
prepared by each Servicer with respect to its Principal and Interest Account for
each Remittance Period which includes a test of the expected principal and
interest balance. To the extent the Master Servicer and a Servicer have not
rectified inconsistencies and disagree as to the amount to be remitted by such
Servicer, the Servicer shall defer to the Master Servicer; provided that the
Servicer may withdraw any amounts over-advanced from the Principal and Interest
Account prior to any future distribution to Owners of the Certificates in
accordance with the terms of the Pooling and Servicing Agreement.
S-29
<PAGE>
The Master Servicer is not liable for the performance of the Servicers
except to the limited extent expressly provided for in the Pooling and Servicing
Agreement. Specifically, the Master Servicer is not obligated to make cash
advances with respect to delinquent payments of principal and interest on any
Mortgage Loans notwithstanding that the Servicer with the primary obligation to
make such cash advance or the Trustee as a successor Servicer has failed to do
so. In addition, the Master Servicer has not made (and will not make) any
representations as to the validity or sufficiency of the Pooling and Servicing
Agreement or of the Certificates or of any Mortgage Loan or related document.
Further, the Master Servicer is not accountable for the use or application by
the Seller or the Depositor of any of the Certificates or of the proceeds of the
Certificates, or for the use or application of any funds paid to the Servicers
in respect of the Mortgage Loans or deposited in or withdrawn from the Principal
or Interest Account by any Servicer.
The Master Servicer will agree to indemnify the Trustee, the Servicers
and certain other parties to the extent set forth in the Pooling and Servicing
Agreement.
The Servicers
The information set forth below concerning the Servicers has been
provided to the Depositor by the related Servicer. Neither the Depositor, the
Seller, the Master Servicer, the Trustee, the Underwriters nor any of their
respective affiliates have made any independent investigation of such
information, nor has any Servicer made any such investigation with respect to
information about the other Servicer.
[To be provided]
USE OF PROCEEDS
The Depositor will sell the Initial Mortgage Loans to the Trust
concurrently with delivery of the Certificates. Net proceeds from the sale of
the Offered Certificates will be applied by the Depositor to the purchase of the
Initial Mortgage Loans from the Seller, to the deposit of the Original
Pre-Funded Amount in the Pre-Funding Account and to the deposit of certain
amounts to the Capitalized Interest Account. Such net proceeds less the Original
Pre-Funded Amount and the amount deposited in the Capitalized Interest Account
will (together with the Private Certificates) represent the purchase price to be
paid by the Trust to the Depositor for the Initial Mortgage Loans. The net
proceeds, after funding transaction costs, will be used to pay down the Seller's
warehouse facilities with certain affiliates of the Underwriters, and any
remaining proceeds will be added to the Seller's general funds and will be
available for general corporate purposes.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on November 9,
1995 and is a wholly-owned subsidiary of AMRESCO, INC. The Depositor maintains
its principal offices at 700 N. Pearl, Suite 2400, Dallas, Texas 75201. Neither
the Depositor nor any of its affiliates will insure or guarantee distributions
on the Certificates.
THE MORTGAGE LOAN POOLS
General
The statistical information presented in this Prospectus Supplement
concerning the pool of Mortgage Loans is based on the pool of Initial Mortgage
Loans as of the Statistical Calculation Date. The pool of Mortgage Loans
aggregated $______________ as of the Statistical Calculation Date. Additional
Mortgage Loans will be purchased by the Trust for inclusion in the Trust from
the Depositor on the Closing Date. Such additional Initial Mortgage Loans will
represent Initial Mortgage Loans acquired or to be acquired by the Depositor on
or prior to the Closing Date. The Depositor expects that the actual pool of
Initial Mortgage Loans as of the Closing Date will aggregate approximately
$___________. In addition, with respect to the pool of Mortgage Loans as of the
Statistical Calculation Date as to which statistical information is presented
herein, some amortization of the pool will occur prior to the Closing Date.
Moreover, certain loans included in the pool of Mortgage Loans as of the
Statistical Calculation Date may prepay in full, or may be determined not to
meet the eligibility requirements for the final pool, and may not be included in
the final pool. As a result of the foregoing, the statistical distribution of
characteristics for the Initial Mortgage Loan pool as of the Closing Date will
vary from the statistical distribution of such characteristics for the Mortgage
Loans as of the Statistical Calculation Date as presented in this Prospectus
Supplement. Unless otherwise noted, all statistical percentages in this
Prospectus Supplement are measured by the aggregate principal balance of the
Mortgage Loans as of the Statistical Calculation Date.
Subsequent Mortgage Loans are intended to be purchased by the Trust
from the Depositor for inclusion in the Trust from time to time on or before
_________ ___, 1998 from funds on deposit in the Pre-Funding Account. The
Initial Mortgage Loans, any Qualified Replacement Mortgages and the Subsequent
Mortgage Loans are referred to
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<PAGE>
herein collectively as the "Mortgage Loans." The Subsequent Mortgage Loans, if
available, to be purchased by the Trust will be sold by the Originators to the
Seller, by the Seller to the Depositor and then by the Depositor to the Trust.
This subsection describes generally certain characteristics of the
Initial Mortgage Loans. Unless otherwise specified herein, references herein to
percentages of loan principal balances relating to the Initial Mortgage Loans
refer in each case to the approximate percentage of the aggregate principal
balance of the Initial Mortgage Loans as of the Statistical Calculation Date,
based on the scheduled principal balances of the Initial Mortgage Loans or the
Initial Mortgage Loans in the applicable Mortgage Loan Group, in each case as of
the Statistical Calculation Date, after giving effect to all principal payments
due on or prior to the Cut-Off Date. The pool of Initial Mortgage Loans consists
of fixed rate and adjustable rate Mortgage Loans with remaining terms to
maturity of not more than ____ months (including both fully amortizing Mortgage
Loans and Balloon Mortgage Loans). The Initial Mortgage Loans have the
characteristics set forth below as of the Statistical Calculation Date.
Percentages expressed herein based on Loan Balances and number of Initial
Mortgage Loans have been rounded, and in the tables set forth herein the sum of
the percentages may not equal the respective totals due to such rounding.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups consisting of Mortgage Loans which bear fixed rates only (other than
the 5/25 Loans which bear fixed rates for five years from origination and then
bear adjustable interest rates), in the case of the Fixed Rate Group, and
Mortgage Loans which bear adjustable interest rates (including 2/28 Loans and
3/27 Loans), in the case of the Adjustable Rate Group. The Fixed Rate Group
Certificates represent undivided ownership interests in all Mortgage Loans
contained in the Fixed Rate Group, and distributions on the Fixed Rate Group
Certificates will be based primarily on amounts available for distribution in
respect of Mortgage Loans in the Fixed Rate Group. The Adjustable Rate Group
Certificates represent undivided ownership interests in all Mortgage Loans
contained in the Adjustable Rate Group, and distributions on the Adjustable Rate
Group Certificates will be based primarily on amounts available for distribution
in respect of Mortgage Loans in the Adjustable Rate Group.
The Loan-to-Value Ratios shown below were calculated based upon the
lower of the sales prices and the appraised values of the Mortgaged Properties
at the time of origination (the "Appraised Values"). No assurance can be given
that values of the Mortgaged Properties have remained or will remain at their
levels on the dates of origination of the related Mortgage Loans. If the
residential real estate market has experienced or should experience an overall
decline in property values such that the outstanding balance of any Mortgage
Loan becomes equal to or greater than the value of the Mortgaged Property, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
All of the Mortgage Loans are "Actuarial Loans", which provide that
interest is charged to the Mortgagors thereunder, and payments are due from such
Mortgagors, as of a scheduled day of each month which is fixed at the time of
origination. Scheduled monthly payments made by the Mortgagors on the Actuarial
Loans either earlier or later than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest.
Initial Mortgage Loans -- Fixed Rate Group
The information set forth with respect to the Fixed Rate Group is based
upon data provided to the Depositor by each of the related Originators and has
been compiled by the Depositor. Neither the Depositor, the Seller, the Master
Servicer, the Servicers, the Underwriters, the Originators nor any of their
respective affiliates have made or will have made any representation as to the
accuracy or completeness of such compiled information.
As of the Statistical Calculation Date, the average Loan Balance of the
Initial Mortgage Loans in the Fixed Rate Group was $_________; the weighted
average Combined Loan-to-Value Ratio of the Initial Mortgage Loans in the Fixed
Rate Group was ______%; the weighted average remaining term to maturity was ____
months; the weighted average original term to maturity was ____ months. The
remaining terms to maturity as of the Statistical Calculation Date of the
Initial Mortgage Loans in the Fixed Rate Group ranged from ____ months to ____
months. The minimum and maximum Loan Balances of Initial Mortgage Loans in the
Fixed Rate Group as of the Statistical Calculation Date were $________ and
$__________, respectively. Balloon Mortgage Loans represent not more than ____%
of the aggregate Loan Balance of the Initial Mortgage Loans in the Fixed Rate
Group as of the Statistical Calculation Date. _____% of the Initial Mortgage
Loans in the Fixed Rate Group as of the Statistical Calculation Date are secured
by first lien mortgages or deeds of trust. No Initial Mortgage Loan in the Fixed
Rate Group as of the Statistical Calculation Date will mature later than
____________ ___, 202__.
_____% of the Initial Mortgage Loans in the Fixed Rate Group as of the
Statistical Calculation Date, bear interest at a fixed rate for the life of the
related Mortgage Loans. The Initial Mortgage Loans in the Fixed Rate Group as of
the Statistical Calculation Date consist of Mortgage Loans aggregating
$______________. The Coupon Rates of the Initial Mortgage Loans in the Fixed
Rate Group as of the Statistical Calculation Date, ranged from _____% per annum
to ______% per annum. The weighted average Coupon Rate of the Initial Mortgage
Loans in the Fixed Rate Group was _____% per annum as of the Statistical
Calculation Date.
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<PAGE>
____% of the Initial Mortgage Loans in the Fixed Rate Group as of the
Statistical Calculation Date are 5/25 Loans. Substantially all of the 5/25 Loans
are subject to a 1.0% periodic rate adjustment cap and have a maximum rate cap
ranging from ______% to ______%. The 5/25 Loans consist of Initial Mortgage
Loans as of the Statistical Calculation Date aggregating $__________.
S-32
<PAGE>
Geographic Distribution of Mortgaged Properties -- Initial Fixed Rate
Group Mortgage Loans
The geographic distribution of Initial Mortgage Loans in the Fixed Rate
Group by state, as of the Statistical Calculation Date, was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate Fixed
Fixed Rate Group Fixed Rate Group Rate Group
Geographic Area Mortgage Loans Loan Balance Loan Balance
- --------------- -------------- ------------ ------------
<S> <C> <C> <C>
Alabama $ %
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total $ 100.00%
========== ======
</TABLE>
S-33
<PAGE>
Original Combined Loan-to-Value Ratios -- Initial Fixed Rate Group
Mortgage Loans
The original Combined Loan-to-Value Ratios of the Initial Mortgage
Loans in the Fixed Rate Group as of the Statistical Calculation Date were
distributed as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Fixed Rate Group Fixed Rate Group Fixed Rate Group
Range of CLTVs (%) Mortgage Loans Loan Balance Loan Balance
- ------------------ -------------- ------------ ------------
<S> <C> <C>
5.01 to 10.00 $ %
10.01 to 15.00
15.01 to 20.00
20.01 to 25.00
25.01 to 30.00
30.01 to 35.00
35.01 to 40.00
40.01 to 45.00
45.01 to 50.00
50.01 to 55.00
55.01 to 60.00
60.01 to 65.00
65.01 to 70.00
70.01 to 75.00
75.01 to 80.00
80.01 to 85.00
85.01 to 90.00
Total $ 100.00%
========== ======
</TABLE>
S-34
<PAGE>
Statistical Calculation Date Coupon Rates -- Initial Fixed Rate
Group Mortgage Loans
The Coupon Rates of the Notes relating to the Initial Mortgage Loans in
the Fixed Rate Group as of the Statistical Calculation Date were distributed as
follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Range of Fixed Rate Group Fixed Rate Group Fixed Rate Group
Coupon Rates (%) Mortgage Loans Loan Balance Loan Balance
---------------- -------------- ------------ ------------
<S> <C> <C> <C>
5.501 to 6.000 $ %
6.001 to 6.500
6.501 to 7.000
7.001 to 7.500
7.501 to 7.750
7.751 to 8.000
8.001 to 8.250
8.251 to 8.500
8.501 to 8.750
8.751 to 9.000
9.001 to 9.250
9.251 to 9.500
9.501 to 9.750
9.751 to 10.000
10.001 to 10.250
10.251 to 10.500
10.501 to 10.750
10.751 to 11.000
11.001 to 11.250
11.251 to 11.500
11.501 to 11.750
11.751 to 12.000
12.001 to 12.250
12.251 to 12.500
12.501 to 12.750
12.751 to 13.000
13.001 to 13.250
13.251 to 13.500
13.501 to 13.750
13.751 to 14.000
14.001 to 14.250
14.251 to 14.500
14.501 to 14.750
14.751 to 15.000
15.001 to 15.250
15.251 to 15.500
15.751 to 16.000
16.001 to 16.250
16.251 to 16.500
16.501 to 16.750
17.251 to 17.500
18.001 to 18.500
Total $ 100.00%
========== ======
</TABLE>
S-35
<PAGE>
Statistical Calculation Date Loan Balances -- Initial Fixed Rate Group
Mortgage Loans
The distribution of the scheduled principal balances of the Initial
Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date
was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Fixed Rate Group Fixed Rate Group Fixed Rate Group
Range of Loan Balances ($) Mortgage Loans Loan Balance Loan Balance
-------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
5,000.01 to 10,000.00 $ %
10,000.01 to 15,000.00
15,000.01 to 20,000.00
20,000.01 to 25,000.00
25,000.01 to 30,000.00
30,000.01 to 35,000.00
35,000.01 to 40,000.00
40,000.01 to 45,000.00
45,000.01 to 50,000.00
50,000.01 to 55,000.00
55,000.01 to 60,000.00
60,000.01 to 65,000.00
65,000.01 to 70,000.00
70,000.01 to 75,000.00
75,000.01 to 80,000.00
80,000.01 to 85,000.00
85,000.01 to 90,000.00
90,000.01 to 95,000.00
95,000.01 to 100,000.00
100,000.01 to 105,000.00
105,000.01 to 110,000.00
110,000.01 to 115,000.00
115,000.01 to 120,000.00
120,000.01 to 125,000.00
125,000.01 to 130,000.00
130,000.01 to 135,000.00
135,000.01 to 140,000.00
140,000.01 to 145,000.00
145,000.01 to 150,000.00
150,000.01 to 200,000.00
200,000.01 to 250,000.00
250,000.01 to 300,000.00
300,000.01 to 350,000.00
350,000.01 to 400,000.00
400,000.01 to 450,000.00
450,000.01 to 500,000.00
500,000.01 to 550,000.00
Total $ 100.00%
========= ======
</TABLE>
Types of Mortgaged Properties -- Initial Fixed Rate Group Mortgage
Loans
The Mortgaged Properties securing the Initial Mortgage Loans in the
Fixed Rate Group as of the Statistical Calculation Date had the following
property types:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Fixed Rate Group Fixed Rate Group Fixed Rate Group
Property Types Mortgage Loans Loan Balance Loan Balance
- -------------- -------------- ------------ ------------
<S> <C> <C> <C>
Single Family Residence $ %
Two-to-Four Family
Condominium
PUD
Manufactured Housing
Townhouse
Total $ 100.00%
========= ======
</TABLE>
S-36
<PAGE>
Months Elapsed Since Origination -- Initial Fixed Rate Group
Mortgage Loans
The distribution of the number of months since the date of origination
of the Initial Mortgage Loans in the Fixed Rate Group as of the Statistical
Calculation Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Months Elapsed Fixed Rate Group Fixed Rate Group Fixed Rate Group
Since Origination Mortgage Loans Loan Balance Loan Balance
----------------- -------------- ------------ ------------
<S> <C> <C> <C>
0 to 12 $ %
13 to 24
25 to 36
Total $ 100.00%
========== =======
</TABLE>
Remaining Term to Maturity -- Initial Fixed Rate Group Mortgage Loans
The distribution of the number of months remaining to maturity of the
Initial Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation
Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Months Remaining Fixed Rate Group Fixed Rate Group Fixed Rate Group
to Maturity Mortgage Loans Loan Balance Loan Balance
----------- -------------- ------------ ------------
<S> <C> <C> <C>
109 to 120 $ %
157 to 168
169 to 180
229 to 240
325 to 336
337 to 348
349 to 360
Total $ 100.00%
========= =======
</TABLE>
Occupancy Status -- Initial Fixed Rate Group Mortgage Loans
The occupancy status of the Mortgaged Properties securing the Initial
Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date
based on representations by the Mortgagors at the time of origination of such
Mortgage Loans was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Fixed Rate Group Fixed Rate Group Fixed Rate Group
Occupancy Status Mortgage Loans Loan Balance Loan Balance
- ---------------- -------------- ------------ ------------
<S> <C> <C> <C>
Owner Occupied $ %
Non Owner Occupied
Total $ 100.00%
======== =======
</TABLE>
Initial Mortgage Loans -- Adjustable Rate Group
The information set forth with respect to the Adjustable Rate Group is
based upon data provided to the Depositor by each of the related Originators and
has been compiled by the Depositor. Neither the Depositor, the Seller, the
Master Servicer, the Servicers, the Underwriters, the Originators nor any of
their respective affiliates have made or will have made any representation as to
the accuracy or completeness of such compiled information.
As of the Statistical Calculation Date, the average scheduled Loan
Balance of the Initial Mortgage Loans in the Adjustable Rate Group was
$_________; the Coupon Rates of the Initial Mortgage Loans in the Adjustable
Rate Group ranged from _____% per annum to ______ per annum; the weighted
average Coupon Rate of the Initial Mortgage Loans in the Adjustable Rate Group
was _____% per annum; the weighted average original Loan-to-Value Ratio of the
Initial Mortgage Loans in the Adjustable Rate Group determined as of the date of
origination was ______%; the weighted average remaining term to maturity was
approximately ____ months; and the weighted average original term to maturity
was approximately ____ months. The remaining terms to maturity as of the
Statistical Calculation Date of the Initial Mortgage Loans in the Adjustable
Rate Group ranged from ____ months to ____ months. The minimum and maximum Loan
Balances of the Initial Mortgage Loans in the Adjustable Rate Group as of the
Statistical
S-37
<PAGE>
Calculation Date were $_________ and $__________, respectively. No Initial
Mortgage Loan in the Adjustable Rate Group as of the Statistical Calculation
Date will mature later than ________ ___, 202__.
All of the Initial Mortgage Loans in the Adjustable Rate Group have
maximum Coupon Rates. The weighted average maximum Coupon Rate of the Initial
Mortgage Loans in the Adjustable Rate Group as of the Statistical Calculation
Date was ______% per annum, with maximum Coupon Rates that range from _______%
per annum to ______% per annum. As of the Statistical Calculation Date, the
weighted average minimum Coupon Rate of the Initial Mortgage Loans in the
Adjustable Rate Group was _____% per annum, with minimum Coupon Rates that range
from _____% per annum to ______% per annum. The Initial Mortgage Loans in the
Adjustable Rate Group have a weighted average gross margin as of the Statistical
Calculation Date of _____%. The gross margin for the Initial Mortgage Loans in
the Adjustable Rate Group as of the Statistical Calculation Date ranges from
_____% to _____%.
_____% of the Initial Mortgage Loans in the Adjustable Rate Group as of
the Statistical Calculation Date are Six-Month LIBOR Loans that bear interest at
rates that adjust, along with the related monthly payments, semiannually based
on Six-Month LIBOR. _____% of the Six-Month LIBOR Loans as of the Statistical
Calculation Date have a semiannual reset cap of 1.0%, substantially all of which
have a lifetime reset cap ranging from 6.0% to 7.0%. The Six-Month LIBOR Loans
consist of Initial Mortgage Loans aggregating $______________ as of the
Statistical Calculation Date.
_____% of the Initial Mortgage Loans in the Adjustable Rate Group as of
the Statistical Calculation Date are 2/28 Loans that bear interest at a fixed
rate of interest for a period of approximately two years after origination and
thereafter have semiannual interest rate and payment adjustments at the same
frequencies and in the same manner as the Six-Month LIBOR Loans. _____% of the
2/28 Loans as of the Statistical Calculation Date have a periodic rate
adjustment cap of 1.0%, and generally have a lifetime reset cap ranging from
3.0% to 7.0%. ___% of the 2/28 Loans have a periodic rate adjustment cap of 1.5%
and generally have a lifetime reset cap of 7.0%. The 2/28 Loans consist of
Initial Mortgage Loans aggregating $___________ as of the Statistical
Calculation Date.
____% of the Initial Mortgage Loans in the Adjustable Rate Group as of
the Statistical Calculation Date are 3/27 Loans that bear interest at a fixed
rate of interest for a period of approximately three years after origination and
thereafter have semiannual interest rate and payment adjustments at the same
frequencies and in the same manner as the Six-Month LIBOR Loans. As of the
Statistical Calculation Date, all of the 3/27 Loans are subject to a 1.0%
periodic rate adjustment cap. Substantially all of the 3/27 Loans have a
lifetime reset cap ranging from 6.0% to 7.0%. The 3/27 Loans consist of Initial
Mortgage Loans aggregating $____________ as of the Statistical Calculation Date.
S-38
<PAGE>
Geographic Distribution of Mortgaged Properties -- Initial Adjustable
Rate Group Mortgage Loans
The geographic distribution of Initial Mortgage Loans in the Adjustable
Rate Group by state, as of the Statistical Calculation Date, was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Geographic Area Mortgage Loans Loan Balance Loan Balance
- --------------- -------------- ------------ ------------
<S> <C> <C> <C>
Alabama $ %
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total $ 100.00%
======= ======
</TABLE>
S-39
<PAGE>
Original Loan-to-Value Ratios -- Initial Adjustable Rate Group Mortgage
Loans
The original Loan-to-Value Ratios of the Initial Mortgage Loans in the
Adjustable Rate Group as of the Statistical Calculation Date were distributed as
follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Range of Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Original LTVs (%) Mortgage Loans Loan Balance Loan Balance
----------------- -------------- ------------ ------------
<S> <C> <C> <C>
5.01 to 10.00 $ %
10.01 to 15.00
15.01 to 20.00
20.01 to 25.00
25.01 to 30.00
30.01 to 35.00
35.01 to 40.00
40.01 to 45.00
45.01 to 50.00
50.01 to 55.00
55.01 to 60.00
60.01 to 65.00
65.01 to 70.00
70.01 to 75.00
75.01 to 80.00
80.01 to 85.00
85.01 to 90.00
Total $ 100.00%
========= ======
</TABLE>
S-40
<PAGE>
Statistical Calculation Date Coupon Rates -- Initial Adjustable
Rate Group Mortgage Loans
The Coupon Rates of the Notes relating to the Initial Mortgage Loans in
the Adjustable Rate Group as of the Statistical Calculation Date were
distributed as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Range of Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Coupon Rates (%) Mortgage Loans Loan Balance Loan Balance
---------------- -------------- ------------ ------------
<S> <C> <C> <C>
6.000 to 6.500 $ %
6.501 to 7.000
7.001 to 7.500
7.501 to 7.750
7.751 to 8.000
8.001 to 8.250
8.251 to 8.500
8.501 to 8.750
8.751 to 9.000
9.001 to 9.250
9.251 to 9.500
9.501 to 9.750
9.751 to 10.000
10.001 to 10.250
10.251 to 10.500
10.501 to 10.750
10.751 to 11.000
11.001 to 11.250
11.251 to 11.500
11.501 to 11.750
11.751 to 12.000
12.001 to 12.250
12.251 to 12.500
12.501 to 12.750
12.751 to 13.000
13.001 to 13.250
13.251 to 13.500
13.501 to 13.750
13.751 to 14.000
14.001 to 14.250
14.251 to 14.500
14.501 to 14.750
14.751 to 15.000
15.251 to 15.500
15.501 to 15.750
16.001 to 16.250
16.251 to 16.500
Total $ 100.00%
========= ======
</TABLE>
S-41
<PAGE>
Statistical Calculation Date Loan Balances -- Initial Adjustable
Rate Group Mortgage Loans
The distribution of the scheduled principal balances of the Initial
Mortgage Loans in the Adjustable Rate Group as of the Statistical Calculation
Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Range of Loan Balances ($) Mortgage Loans Loan Balance Loan Balance
-------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
10,000.01 to 15,000.00 $ %
15,000.01 to 20,000.00
20,000.01 to 25,000.00
25,000.01 to 30,000.00
30,000.01 to 35,000.00
35,000.01 to 40,000.00
40,000.01 to 45,000.00
45,000.01 to 50,000.00
50,000.01 to 55,000.00
55,000.01 to 60,000.00
60,000.01 to 65,000.00
65,000.01 to 70,000.00
70,000.01 to 75,000.00
75,000.01 to 80,000.00
80,000.01 to 85,000.00
85,000.01 to 90,000.00
90,000.01 to 95,000.00
95,000.01 to 100,000.00
100,000.01 to 105,000.00
105,000.01 to 110,000.00
110,000.01 to 115,000.00
115,000.01 to 120,000.00
120,000.01 to 125,000.00
125,000.01 to 130,000.00
130,000.01 to 135,000.00
135,000.01 to 140,000.00
140,000.01 to 145,000.00
145,000.01 to 150,000.00
150,000.01 to 200,000.00
200,000.01 to 250,000.00
250,000.01 to 300,000.00
300,000.01 to 350,000.00
350,000.01 to 400,000.00
400,000.01 to 450,000.00
450,000.01 to 500,000.00
500,000.01 to 550,000.00
550,000.01 to 600,000.00
700,000.01 to 750,000.00
Total $ 100.00%
======== ======
</TABLE>
S-42
<PAGE>
Types of Mortgaged Properties -- Initial Adjustable Rate Group
Mortgage Loans
The Mortgaged Properties securing the Initial Mortgage Loans in
the Adjustable Rate Group as of the Statistical Calculation Date had the
following property types:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Property Types Mortgage Loans Loan Balance Loan Balance
- -------------- -------------- ------------ ------------
<S> <C> <C> <C>
Single Family Residence $ %
Two-to-Four Family
Condominium
PUD
Manufactured Housing
Townhouse
Total $ 100.00%
======== ======
</TABLE>
Months Since Origination -- Initial Adjustable Rate Group Mortgage
Loans
The distribution of the number of months since the date of origination
of the Initial Mortgage Loans in the Adjustable Rate Group as of the Statistical
Calculation Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Months Elapsed Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Since Origination Mortgage Loans Loan Balance Loan Balance
- ----------------- -------------- ------------ ------------
<S> <C> <C> <C>
1 to 12 $ %
13 to 24
25 to 36
Total $ 100.00%
========= =======
</TABLE>
Remaining Term to Maturity -- Initial Adjustable Rate Group Mortgage
Loans
The distribution of the number of months remaining to maturity of the
Initial Mortgage Loans in the Adjustable Rate Group as of the Statistical
Calculation Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Months Remaining Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
to Maturity Mortgage Loans Loan Balance Loan Balance
----------- -------------- ------------ ------------
<S> <C> <C> <C>
109 to 120 $ %
169 to 180
229 to 240
325 to 336
337 to 348
349 to 360
Total $ 100.00%
========= =======
</TABLE>
S-43
<PAGE>
Occupancy Status -- Initial Adjustable Rate Group Mortgage Loans
The occupancy status of the Mortgaged Properties securing the Initial
Mortgage Loans in the Adjustable Rate Group as of the Statistical Calculation
Date based on representations by the mortgagors at the time of origination of
such Mortgage Loans was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Occupancy Status Mortgage Loans Loan Balance Loan Balance
- ---------------- -------------- ------------ ------------
<S> <C> <C> <C>
Owner Occupied $ %
Non Owner Occupied
Total $ 100.00%
========= ======
</TABLE>
Margins -- Initial Adjustable Rate Group Mortgage Loans
The margins borne by the Notes relating to the Initial Mortgage Loans
in the Adjustable Rate Group as of the Statistical Calculation Date were as
follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Margins (%) Mortgage Loans Loan Balance Loan Balance
----------- -------------- ------------ ------------
<S> <C> <C> <C>
3.001 to 3.500 $ %
3.501 to 4.000
4.001 to 4.500
4.501 to 5.000
5.001 to 5.500
5.501 to 6.000
6.001 to 6.500
6.501 to 7.000
7.001 to 7.500
7.501 to 8.000
8.001 to 8.500
8.501 to 9.000
9.001 to 9.500
9.501 to 10.000
Total $ 100.00%
========= =======
</TABLE>
S-44
<PAGE>
Maximum Coupon Rates -- Initial Adjustable Rate Group Mortgage Loans
The maximum Coupon Rates borne by the Notes relating to the Initial
Mortgage Loans in the Adjustable Rate Group as of the Statistical Calculation
Date were as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Maximum Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Coupon Rates (%) Mortgage Loans Loan Balance Loan Balance
---------------- -------------- ------------ ------------
<S> <C> <C> <C>
12.001 to 12.500 $ %
12.501 to 13.000
13.001 to 13.500
13.501 to 14.000
14.001 to 14.500
14.501 to 15.000
15.001 to 15.500
15.501 to 16.000
16.001 to 16.500
16.501 to 17.000
17.001 to 17.500
17.501 to 18.000
18.001 to 18.500
18.501 to 19.000
19.001 to 19.500
19.501 to 20.000
20.001 to 20.500
20.501 to 21.000
21.001 to 21.500
21.501 to 22.000
22.001 to 22.500
23.001 to 23.500
Total $ 100.00%
======== ======
</TABLE>
S-45
<PAGE>
Next Rate Adjustment Date -- Initial Adjustable Rate Group Mortgage
Loans
Next rate adjustment date for each of the Notes relating to the Initial
Mortgage Loans in the Adjustable Rate Group as of the Statistical Calculation
Date was as follows:
<TABLE>
<CAPTION>
Number of Aggregate % of Aggregate
Date of Next Adjustable Rate Group Adjustable Rate Group Adjustable Rate Group
Rate Adjustment Date Mortgage Loans Loan Balance Loan Balance
-------------------- -------------- ------------ ------------
<S> <C> <C> <C>
$ %
Total $ 100.00%
======== =======
</TABLE>
Conveyance of Subsequent Mortgage Loans
During the Funding Period, the Pooling and Servicing Agreement permits
the Trust to acquire approximately $_________ and $___________ in aggregate
principal balance of Subsequent Mortgage Loans for addition to the Fixed Rate
Group and the Adjustable Rate Group, respectively. Accordingly, the statistical
characteristics of the Mortgage Loan Pool and each Mortgage Loan Group will vary
as of any Subsequent Cut-Off Date upon the acquisition of Subsequent Mortgage
Loans.
The obligation of the Trust to purchase Subsequent Mortgage Loans on a
Subsequent Transfer Date is subject to the following requirements, among others:
(i) the ratings on the Offered Certificates shall not have been downgraded by
any Rating Agency; (ii) such Subsequent Mortgage Loan may not be 30 or more days
contractually delinquent as of the related Subsequent Cut-Off Date; (iii) the
remaining term to maturity of such Subsequent Mortgage Loan may not exceed 360
months; and (iv) following the purchase of all of the Subsequent Mortgage Loans
by the Trust, the Subsequent Mortgage Loans, as a whole, (a) will have a
weighted average Combined Loan-to-Value Ratio of not more than _____% for the
Fixed Rate Group and a weighted average Loan-to-Value Ratio of _____% for the
Adjustable Rate Group; (b) will have a weighted average gross margin for each
Mortgage Loan Group that is not more than 25 basis points less than the weighted
average gross margin for such Mortgage Loan Group as of the Cut-Off Date; (c)
will have no more than _____% in the case of the Fixed Rate Group of such
Subsequent Mortgage Loans with Combined Loan-to-Value Ratios and _____% in the
case of the Adjustable Rate Group of such Subsequent Mortgage Loans with
Loan-to-Value Ratios, in each case, in excess of _____%; (d) will have no more
than _____% in the case of the Fixed Rate Group and _____% in the case of the
Adjustable Rate Group with cash out refinancings; (e) in the case of the
Adjustable Rate Group only, when combined with the Initial Mortgage Loans in
such group, will not result in the combined percentage of 2/28 Loans and 3/27
Loans to be in excess of ___%; (f) will have weighted average PAG codes of less
than ____% in the case of the Fixed Rate Group and the Adjustable Rate Group;
(g) will have Mortgage Loans that are not more than _____%, in the case of the
Fixed Rate Group, and _____% in the case of the Adjustable Rate Group, that are
in PAG IV and PAG V; and (h) will have no more than _____% of the Fixed Rate
Group and ____% of the Adjustable Rate Group that are non-owner occupied
properties.
S-46
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par
(disregarding, for purposes of this discussion, the effect on an investor's
yield resulting from the timing of the settlement date and those considerations
discussed below under "Payment Lag Feature of Fixed Rate Group Certificates"),
the yield to maturity on the Offered Certificates will be affected by the rate
of payment of principal of the Mortgage Loans in the related Mortgage Loan
Group, including for this purpose Prepayments, liquidations due to defaults,
casualties and condemnations, and repurchases by the Originators of Mortgage
Loans. Approximately _____% of the Initial Mortgage Loans (by Loan Balance) as
of the Statistical Calculation Date require the payment of a fee in connection
with certain prepayments which may affect the rate of principal payment. For a
discussion of such provisions, see "The Portfolio of Mortgage Loans - Prepayment
Penalties" herein. In addition, the actual rate of principal prepayments on
pools of mortgage loans is influenced by a variety of economic, tax, geographic,
demographic, social, legal and other factors and has fluctuated considerably in
recent years. In addition, the rate of principal prepayments may differ among
pools of mortgage loans at any time because of specific factors relating to the
mortgage loans in the particular pool, including, among other things, the age of
the mortgage loans, the geographic locations of the properties securing the
loans and the extent of the mortgagors' equity in such properties, changes in
the mortgagors' housing needs, job transfers and unemployment.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the Mortgage Loans in the Fixed
Rate Group (other than the 5/25 Loans) are affected by prevailing market rates
for mortgage loans of a comparable term and risk level. When the market interest
rate is below the mortgage coupon, mortgagors may have an increased incentive to
refinance their mortgage loans. Depending on prevailing market rates, the future
outlook for market rates and economic conditions generally, some mortgagors may
sell or refinance mortgaged properties in order to realize their equity in the
mortgaged properties, to meet cash flow needs or to make other investments.
The Mortgage Loans in the Adjustable Rate Group are adjustable rate
mortgage loans. As is the case with conventional 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 loan to "lock in" a lower fixed interest rate. However, no assurance
can be given as to the level of prepayments that the Mortgage Loans will
experience.
The prepayment behavior of the 2/28 Loans and 3/27 Loans may differ
from that of the other Mortgage Loans in the Adjustable Rate Group and the
prepayment behavior of the 5/25 Loans may differ from that of the other Mortgage
Loans in the Fixed Rate Group. As a 2/28 Loan, 3/27 Loan or 5/25 Loan approaches
its initial adjustment date, the borrower may become more likely to refinance
such loan to avoid an increase in the Coupon Rate, even if fixed rate loans are
only available at rates that are slightly lower or higher than the Coupon Rate
before adjustment. The existence of the applicable periodic rate cap, lifetime
cap and lifetime floor also may affect the likelihood of prepayments resulting
from refinancings. In addition, the delinquency and loss experience on the
Mortgage Loans in the Adjustable Rate Group may differ from that on the Mortgage
Loans in the Fixed Rate Group because the amount of the monthly payments on the
Mortgage Loans in the Adjustable Rate Group are subject to adjustment on each
adjustment date.
The prepayment experience on non-conventional mortgage loans may differ
from that on conventional first mortgage loans, primarily due to the credit
quality of the typical borrower. Because the credit histories of many
non-conventional borrowers may preclude them from other traditional sources of
financing, such borrowers may be less likely to refinance due to a decline in
market interest rates. Non-conventional mortgage loans may experience more
prepayments in a rising interest rate environment as the borrowers' finances are
stressed to the point of default. Prepayments may also affect the yield to the
Owners of the Adjustable Rate Group Certificates, if the weighted average
margins are reduced.
In addition to the foregoing factors affecting the weighted average
life of each Class of the Offered Certificates, the overcollateralization
provisions of the Trust result in an additional reduction of the Certificate
Principal Balances of the related Class A Certificates relative to the
amortization of the related Mortgage Loans in the early months of the
transaction. The accelerated amortization is achieved by the application of the
related Monthly Excess Interest Amount to the payment of the Certificate
Principal Balance of the related Classes of the Offered Certificates. This
creates overcollateralization which results from the excess of the aggregate
Loan Balances of the Mortgage Loans over the Aggregate Certificate Principal
Balance. Once the Targeted Overcollateralization Amount is reached, the
application of the Monthly Excess Interest Amount to pay down principal will
cease, unless necessary to maintain the Overcollateralization Amount at the
Targeted Overcollateralization Amount.
S-47
<PAGE>
Balloon Loans. The ability of mortgagors to make payments of Balloon
Payments will normally depend on the mortgagor's ability to obtain refinancing
of their Balloon Loans. The ability to obtain refinancing will depend on a
number of factors prevailing at the time refinancing is required, including,
without limitation, real estate values, the mortgagor's financial situation and
prevailing mortgage loan interest rates. Although the Originators sometimes
provide refinancing of Balloon Loans and may refinance any Mortgage Loan, they
are under no obligation to do so, and make no representation or warranty that
they will do so in the case of any Mortgage Loan. Delinquencies, if any, in the
payment of Balloon Payments may delay the date on which the Certificate
Principal Balance of one or more Classes of the Fixed Rate Group Certificates is
reduced to zero, and may increase the weighted average lives of such
Certificates. Although a low interest rate environment may facilitate the
refinancing of a Balloon Loan, the receipt and reinvestment by Owners of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Balloon Loan. Conversely, a high interest
rate environment may make it more difficult for the mortgagor to accomplish a
refinancing and may result in delinquencies or defaults.
Mandatory Prepayment
In the event that at the end of the Funding Period, not all of the
Original Pre-Funded Amount has been used to acquire Subsequent Mortgage Loans
for either the Fixed Rate Group or the Adjustable Rate Group then the related
Class(es) of Class A Certificates then entitled to receive payments of principal
will receive a partial prepayment in an amount equal to the portion of the
Original Pre-Funded Amount remaining and allocable to the related Mortgage Loan
Group.
Although no assurances can be given, the Depositor expects that the
principal amount of Subsequent Mortgage Loans sold to the Trust will require the
application of substantially all the amount on deposit in the Pre-Funding
Account and that there should be no material principal prepaid to the Owners of
the Certificates in respect of the Original Pre-Funded Amount.
Prepayment and Yield Scenarios for Offered Certificates
As indicated above, if purchased at other than par, the yield to
maturity on an Offered Certificate will be affected by the rate of the payment
of principal of the Mortgage Loans. If the actual rate of payments on the
Mortgage Loans is slower than the rate anticipated by an investor who purchases
an Offered Certificate at a discount, the actual yield to such investor will be
lower than such investor's anticipated yield. If the actual rate of payments on
the Mortgage Loans is faster than the rate anticipated by an investor who
purchases an Offered Certificate at a premium, the actual yield to such investor
will be lower than such investor's anticipated yield.
The "Final Scheduled Payment Date" for each Class of the Offered
Certificates is set forth in the Summary of Terms hereof. For the Class A-1
through Class A-8 Certificates such dates are the dates on which the Original
Certificate Principal Balance set forth in the Summary of Terms hereof for the
related Class of Offered Certificates would be reduced to zero assuming, among
other things, that no Prepayments are received on the Mortgage Loans, that no
Monthly Excess Interest Amount will be used to make accelerated payments of
principal to holders of the related Class A Certificates, that scheduled monthly
payments of principal and interest on the Mortgage Loans are timely received and
that the Auction Sale with respect to the related Mortgage Loan Group is not
completed. The Final Scheduled Payment Date for each Class of Subordinate
Certificates is the Payment Date in ________ 202__. The weighted average life of
each Class of the 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 Payment Date with respect to each Class of the
Offered Certificates could occur significantly earlier than the related Final
Scheduled Payment Date because (i) Prepayments are likely to occur, (ii) Monthly
Excess Interest Amounts are likely to be used to make accelerated payments of
principal to holders of the related Class A Certificates, (iii) the Owners of
the Class R Certificates may cause a termination of the Classes of Certificates
related to a Mortgage Loan Group when the outstanding Certificate Principal
Balance of the Certificates related to such Mortgage Loan Group is less than 10%
of the Original Certificate Principal Balance of the Certificates related to
such Mortgage Loan Group and (iv) the Servicers may each purchase all Mortgage
Loans serviced by them and either one or more of the Servicers may purchase all
of the Mortgage Loans, thereby causing a termination of the Trust, when the
outstanding Aggregate Certificate Principal Balance is less than 5% of the
original Aggregate Certificate Principal Balance.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of any
Class of the Offered Certificates will be influenced by the rate at which
principal of the Mortgage Loans in the related Mortgage Loan Group is paid,
which may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes Prepayments and liquidations due to
default).
Each Accrual Period for the Adjustable Rate Group Certificates which
are Offered Certificates will consist of the actual number of days elapsed from
the 25th day of the month preceding the month of the applicable Payment Date
(or, in the case of the first Accrual Period, from the Closing Date) through the
24th day of the month of such Payment Date. After the initial Accrual Period,
the Pass-Through Rate of each Class of the Adjustable Rate Group Certificates
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will be adjusted by reference to changes in the level of One-Month LIBOR,
subject to the effects of the applicable limitation described herein.
The Pass-Through Rate of each Class of the Adjustable Rate Group
Certificates may be calculated by reference to the Coupon Rates on the Mortgage
Loans in the Adjustable Rate Group. Although the Coupon Rates on the Mortgage
Loans in the Adjustable Rate Group are subject to adjustment, the Coupon Rates
adjust less frequently than the Pass-Through Rate of each Class of the
Adjustable Rate Group Certificates which adjust by reference to One-Month LIBOR.
Changes in One-Month LIBOR may not correlate with changes in Six-Month LIBOR 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, thereby reducing the weighted average life of the Adjustable Rate
Group Certificates.
Certain of the Mortgage Loans in the Adjustable Rate Group, including
the 2/28 Loans and the 3/27 Loans, were originated with initial Coupon Rates
that were based on competitive conditions. As a result, the Coupon Rates on such
Mortgage Loans in the Adjustable Rate Group are more likely to adjust on their
first, and possibly subsequent adjustment dates subject to the effects of the
applicable periodic rate cap and lifetime cap. Because the Pass-Through Rate of
each Class of the Adjustable Rate Group Certificates is limited by the
Adjustable Rate Group Available Funds Cap on each Payment Date, limits on
changes in the Coupon Rates of the Mortgage Loans in the Adjustable Rate Group
may limit changes in the Pass-Through Rate of each Class of the Adjustable Rate
Group Certificates. In addition, the Coupon Rates for the 2/28 Loans will not
adjust until approximately the date on which the 24th scheduled monthly payment
is due and the Coupon Rates for the 3/27 Loans will not adjust until
approximately the date on which the 36th scheduled monthly payment is due.
The Adjustable Rate Group Available Funds Cap on a Payment Date will
depend, in part, on the weighted average of the then-current Coupon Rates of the
outstanding Mortgage Loans in the Adjustable Rate Group. If the Mortgage Loans
in the Adjustable Rate Group bearing higher Coupon Rates were to prepay, the
weighted average Coupon Rate of the Mortgage Loans in the Adjustable Rate Group,
and consequently the Adjustable Rate Group Available Funds Cap, would be lower
than otherwise would be the case.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this Prospectus Supplement with
respect to the Fixed Rate Group is the Home Equity Prepayment assumption
("HEP"). HEP assumes that a pool of loans prepays in the first month of the life
of such loans at a constant prepayment rate that corresponds in CPR (as defined
below) to one-tenth the given HEP percentage and increases by an additional
one-tenth each month thereafter until the tenth month, where it remains at a CPR
equal to the given HEP percentage. The CPR represents an assumed constant rate
of prepayment each month, expressed as an annual rate, relative to the then
outstanding principal balance on a pool of mortgage loans for the life of such
loans. For example, a 24% HEP assumes a CPR of 2.4% for the Mortgage Loans in
the Fixed Rate Group in the first month of the life of such Mortgage Loans and
an additional 2.4% CPR each month thereafter until the tenth month. Beginning in
the tenth month and in each month thereafter during the life of such Mortgage
Loans, 24% HEP assumes a CPR of 24% each month. The model used in this
Prospectus Supplement with respect to the Adjustable Rate Group is the
prepayment assumption (the "Prepayment Assumption"). A 100% Prepayment
Assumption represents an assumed CPR of 27% for the Mortgage Loans in the
Adjustable Rate Group for the life of such Mortgage Loans. Neither model
purports to be a 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 Depositor believes that no existing statistics of which
it is aware provide a reliable basis for Owners of Offered Certificates to
predict the amount or the timing of receipt of prepayments on the Mortgage
Loans.
It is very unlikely that the Mortgage Loans will prepay at rates
consistent with the assumptions made in this Prospectus Supplement until
maturity or that all of the Mortgage Loans in the related Mortgage Loan Group
will prepay at the same rate. There will be discrepancies between the actual
characteristics of the Mortgage Loans included in the Trust and the assumed
characteristics used in preparing the following tables. Any discrepancy may have
an effect upon the percentages of Initial Certificate Principal Balance
outstanding set forth in the table and the weighted average lives of the Offered
Certificates. Since the tables were prepared on the basis of the assumptions in
the following paragraph, there will likely be discrepancies between the
characteristics of the actual Mortgage Loans and the characteristics of the
Mortgage Loans assumed in preparing the tables. Any such discrepancy will likely
have an effect upon the percentages of the Certificate Principal Balances
outstanding and weighted average lives of the Offered Certificates set forth in
the tables. In addition, since the actual Mortgage Loans in the Trust have
characteristics which differ from those assumed in preparing the tables set
forth below, the distributions of principal on the Class A Certificates may be
made earlier or later than as indicated in the tables.
For the purpose of the tables below, it is assumed that: (i) each
Mortgage Loan Group consists of Mortgage Loans with the characteristics set
forth in the tables below, (ii) the Closing Date for the Certificates occurs on
_________ __, 199__, (iii) distributions on the Certificates are made on the
25th day of each month regardless of the day on which the Payment Date actually
occurs, commencing in ______ 199__ in accordance with the priorities described
herein, (iv) prepayments include 30 day's interest thereon, (v) the Targeted
Overcollateralization Amount for
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each Mortgage Loan Group is set initially as specified herein and thereafter
decreases in accordance with the provisions of the Pooling and Servicing
Agreement, without regard to any delinquency and loss triggers, (vi) no Auction
Sale or Servicer Clean-Up Call occurs for the Fixed Rate Group and an Auction
Sale occurs on the Auction Sale Bid Date for the Adjustable Rate Group (for
purposes of the Class A-5 Certificates table only, it is assumed an Auction Sale
occurs on the Auction Sale Bid Date for both the Fixed Rate Group and the
Adjustable Rate Group), (vii) the Class A-5 Pass-Through Rate steps up on the
Payment Date following the Auction Sale Bid Date, (viii) the Coupon Rate for
each Mortgage Loan in the Adjustable Rate Group is adjusted on its next rate
adjustment date (and on subsequent rate adjustment dates, if necessary) to equal
the sum of (a) an assumed final constant level of the applicable index of
______% per annum, with respect to Six-Month LIBOR and (b) the respective gross
margin (such sum being subject to the applicable periodic adjustment cap,
maximum interest rate and minimum interest rate (which minimum interest rate
will generally equal the initial coupon)), (ix) One-Month LIBOR remains constant
at a rate of _______% per annum, (x) all Mortgage Loans pay on their respective
due dates in accordance with their respective terms, (xi) the Initial
Certificate Principal Balance and Pass-Through Rate of each Class of
Certificates is as set forth under "Summary of Terms - Certificates Offered"
herein, (xii) that the Master Servicer Fee and the Trustee Fee are equal to 0%,
(xiii) the Pre-funded Amount is used to acquire Subsequent Mortgage Loans on
________ ___, 199___ and prior to such date, the Pre-funded Amount accrues
interest at a rate equal to the Net Coupon Rate as set forth in the table below,
and (xiv) with respect to the Adjustable Rate Certificates, for the first
Payment Date, interest will be calculated on the Class C-AI0 Certificates on the
basis of a notional principal balance equal to the Class B-1A Certificate
Principal Balance.
The following tables set forth the percentages of the initial principal balance
of the Offered Certificates that would be outstanding after each of the dates
shown, assuming (1) for the Fixed Rate Group Certificates, the Fixed Rate Group
Mortgage Loans prepay according to the indicated percentages of HEP under each
Fixed Rate Group Certificate below and the Adjustable Rate Group Mortgage Loans
prepay at 100% of the Prepayment Assumption and (2) for the Adjustable Rate
Group Certificates, the Fixed Rate Group Mortgage Loans prepay at 24% HEP and
the Adjustable Rate Group Mortgage Loans prepay according to the indicated
percentages of the Prepayment Assumption under each Adjustable Rate Group
Certificate below except that under the 0% scenario for all Certificates, the
Mortgage Loans prepay at 0% HEP for the Fixed Rate Group Mortgage Loans and 0%
of the Prepayment Assumption for the Adjustable Rate Mortgage Loans.
Payment Lag Feature of Fixed Rate Group Certificates
Pursuant to the Pooling and Servicing Agreement, an amount equal to
Mortgagor payments with respect to each Mortgage Loan in the Fixed Rate Group
(net of the Servicing Fee) received by the Servicer during each Remittance
Period is to be remitted to the Trustee on or prior to the related Monthly
Remittance Date, which does not occur until the month following the month of
receipt. As a result, the monthly distributions to the Owners of the Fixed Rate
Group Certificates generally reflect an Accrual Period reflecting Mortgagor
payments during the prior Remittance Period, and the first Payment Date will not
occur until _________ ___, 199__. Thus, the effective yield to the Owners of the
Fixed Rate Group Certificates will be below that otherwise produced by the
related Pass-Through Rate and purchase price because distributions to Owners of
the Fixed Rate Group Certificates in respect of any given month will not be made
until on or after the 25th day of the following month.
THE ORIGINATORS
The Mortgage Loan Pool consists of Initial Mortgage Loans purchased or
originated by in excess of _________________ originators (the "Originators")
with aggregate outstanding Loan Balances of $_______________________.
FORMATION OF THE TRUST AND TRUST PROPERTY
AMRESCO Residential Securities Corporation Mortgage Loan Trust 199__-__
(the "Trust") will be created and established pursuant to the Pooling and
Servicing Agreement. The Depositor will convey without recourse the Mortgage
Loans to the Trust and the Trust will issue the Certificates.
The property of the Trust will include (a) the Mortgage Loans (other
than payments due on the Mortgage Loans on or prior to the Cut-Off Date with
respect to the Initial Mortgage Loans and on or prior to the related Subsequent
Cut-Off Date with respect to the Subsequent Mortgage Loans) together with the
related Mortgage Loan documents and the Seller's interest in any Mortgaged
Property which secures a Mortgage Loan and all payments thereon and proceeds of
the conversion, voluntary or involuntary, of the foregoing, (b) such amounts as
may be held by the Trustee in the Certificate Account, the Pre-Funding Account,
the Capitalized Interest Account, the Upper-Tier Distribution Accounts (as
defined in the Pooling and Servicing Agreement) and any other accounts held by
the Trustee for the Trust together with investment earnings on such amounts and
such amounts as may be held in the name of the Trustee in the Principal and
Interest Account, if any, exclusive of investment earnings thereon (except as
otherwise provided in the Pooling and Servicing Agreement) whether in the form
of cash, instruments, securities or other properties, (c) proceeds of all the
foregoing (including, but not by way of limitation, all proceeds of any hazard
insurance and title insurance policy relating to the Mortgage Loans, cash
proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel
paper, checks, deposit accounts, rights to payment of any and every kind, and
other forms of obligations and receivables which
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at any time constitute all or part of or are included in the proceeds of any of
the foregoing) to pay the Certificates as specified in the Pooling and Servicing
Agreement and (d) certain rights of the Seller under the Ameriquest Transfer
Agreement (as defined in the Pooling and Servicing Agreement) (collectively, the
"Trust Estate").
The Offered Certificates will not represent an interest in or an
obligation of, nor will the Mortgage Loans be guaranteed by, the Depositor, the
Trustee, the Seller, the Master Servicer, the Servicers, the Originators or any
of their affiliates.
Prior to its formation, the Trust will have had no assets or
obligations. Upon formation, the Trust will not engage in any business activity
other than acquiring, holding and collecting payments on the Mortgage Loans,
issuing the Certificates and distributing payments thereon. The Trust will not
acquire any receivables or assets other than the Mortgage Loans and the rights
appurtenant thereto and will not have any need for additional capital resources.
To the extent that mortgagors make scheduled payments under the Mortgage Loans,
the Trust will have sufficient liquidity to make distributions on the
Certificates. As the Trust does not have any operating history and will not
engage in any business activity other than issuing the Certificates and making
distributions thereon, there has not been included any historical or pro forma
ratio of earnings to fixed charges with respect to the Trust.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Initial Mortgage
Loans and the Mortgaged Properties is based upon the pool as constituted at the
close of business on the Statistical Calculation Date, as adjusted (with respect
to all Initial Mortgage Loans that were current as of the Cut-Off Date) for the
scheduled principal payments due on or before such date. Prior to the issuance
of the Offered Certificates, Initial Mortgage Loans may be removed from the pool
as a result of incomplete documentation or non-compliance with representations
and warranties set forth in the Pooling and Servicing Agreement, if the
Depositor deems such removal necessary or appropriate. Approximately
$___________ of Initial Mortgage Loans will also be included in the pool prior
to the issuance of the Certificates and the Subsequent Mortgage Loans will be
added to the pool during the Funding Period.
A current report on Form 8-K will be available to purchasers of the
Offered Certificates and will be filed and incorporated by reference into the
Registration Statement together with the Pooling and Servicing Agreement with
the Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event Mortgage Loans are removed
from or added to the pool as set forth in the preceding paragraph, such removal
or addition will be noted in the current report on Form 8-K. A description of
the pool of Mortgage Loans, as of the Closing Date, including such additional
Mortgage Loans, will be filed in a current report on Form 8-K within fifteen
days after the initial issuance of the Offered Certificates. A current report on
Form 8-K will also be filed within fifteen days after the end of the Funding
Period reflecting the additions to the Trust.
DESCRIPTION OF THE OFFERED CERTIFICATES
General
Each Certificate will represent certain undivided, fractional ownership
interests in the Trust Estate created and held pursuant to the Pooling and
Servicing Agreement, subject to the limits and the priority of distribution
described therein.
As described in "The Mortgage Loan Pools" herein, the Mortgage Loan
Pool is divided into two Mortgage Loan Groups (each a "Mortgage Loan Group"),
the Fixed Rate Group, which contains fixed rate Mortgage Loans and 5/25 Loans,
and the Adjustable Rate Group, which contains only adjustable rate Mortgage
Loans (including the 2/28 Loans and the 3/27 Loans).
Payment Dates
On each Payment Date, the Owners of each Class of the Offered
Certificates will be entitled to receive, from amounts then on deposit in the
certificate account established and maintained by the Trustee in accordance with
the Pooling and Servicing Agreement (the "Certificate Account") and until the
Certificate Principal Balance of such Class of Offered Certificates is reduced
to zero, and to the extent funds are available therefor, the related Current
Interest and Interest Carry Forward Amount and the portion of the Principal
Distribution Amount, if any, allocated therefor as of such Payment Date,
allocated among the Classes of Certificates as described below. Distributions
will be made in immediately available funds to Owners of Offered Certificates by
wire transfer or otherwise, to the account of such Owner at a domestic bank or
other entity having appropriate facilities therefor, if such Owner has so
notified the Trustee, or by check mailed to the address of the person entitled
thereto as it appears on the register (the "Register") maintained by the Trustee
as registrar (the "Registrar"). Beneficial Owners may experience some delay in
the receipt of their payments due to the operations of DTC. See "Risk Factors -
Book Entry Registration" in the Prospectus, "Description of the Offered
Certificates - Book Entry Registration of the Offered Certificates" herein and
"Description of the Certificates - Book Entry Registration" in the Prospectus.
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The Pooling and Servicing Agreement will provide that an Owner will be
required to send its Certificate to the Trustee prior to receiving the final
distribution on such Owner's Certificate. The Pooling and Servicing Agreement
additionally will provide that, in any event, any Certificate as to which the
final distribution thereon has been made shall be deemed canceled for all
purposes under or pursuant to the Pooling and Servicing Agreement.
Each Owner of record of a Class of the Offered Certificates will be
entitled to receive such Owner's Percentage Interest in the amounts due such
Class on such Payment Date. The "Percentage Interest" of an Offered Certificate
as of any date of determination will be equal to the percentage obtained by
dividing the principal balance of such Certificate as of the Closing Date by the
Certificate Principal Balance for the related Class of the Offered Certificates
as of the Closing Date.
Distributions
Upon receipt, the Trustee will be required to deposit into the
Certificate Account, (i) the total of the principal and interest collections on
the Mortgage Loans, including any Net Liquidation Proceeds, required to be
remitted by the Servicer, together with any Substitution Amount and any Loan
Purchase Price Amount, (ii) the related Capitalized Interest Requirement and any
Pre-Funding Account Earnings and (iii) the proceeds of any liquidation of the
Trust Estate. The Trustee will also be required to deposit into the Certificate
Account any Pre-Funded Amounts to be distributed as a prepayment on the
Pre-Funding Payment Date.
The Pooling and Servicing Agreement establishes a pass-through rate on
each Class of the Certificates (each, a "Pass-Through Rate") as set forth in the
Summary of Terms herein.
Interest: On each Payment Date the Interest Remittance Amount with
respect to each Mortgage Loan Group will be distributed in the following order
of priority:
First, to the Trustee, the Trustee Fee, and to the Master Servicer, the
Master Servicer Fee;
Second, to the Owners of the Class A Certificates related to such
Mortgage Loan Group, the related Current Interest plus the Interest
Carry Forward Amount with respect to each Class of Class A Certificates
without any priority among such Class A Certificates; provided, that if
the Interest Amount Available is not sufficient to make a full
distribution of interest with respect to all Classes of the related
Class A Certificates, the Interest Amount Available will be distributed
among the outstanding related Classes of Class A Certificates pro rata
based on the aggregate amount of interest due on each such Class, and
the amount of the shortfall will be carried forward with accrued
interest at the related Pass-Through Rate;
Third, to the extent of the Interest Amount Available with respect to
such Mortgage Loan Group then remaining, to the Owners of the Class M-1
Certificates related to such Mortgage Loan Group, the related Current
Interest;
Fourth, to the extent of the Interest Amount Available with respect to
such Mortgage Loan Group then remaining, to the Owners of the Class M-2
Certificates related to such Mortgage Loan Group, the related Current
Interest;
Fifth, to the extent of the Interest Amount Available with respect to
such Mortgage Loan Group then remaining, to the Owners of the Class B-1
Certificates related to such Mortgage Loan Group, the related Current
Interest;
Sixth, to the extent of the Interest Amount Available with respect to
such Mortgage Loan Group then remaining, to the Owners of the Class
C-IO Certificates related to such Mortgage Loan Group, the related
Current Interest; and
Seventh, the Monthly Excess Interest Amount with respect to such
Mortgage Loan Group shall be applied as described below under "Credit
Enhancement - Application of Monthly Excess Cash Flow Amounts."
Principal: With respect to each Mortgage Loan Group and on each Payment
Date (a) before the Stepdown Date or (b) with respect to which a Trigger Event
is in effect, Owners of the Class A Certificates will be entitled to receive
payment of 100% of the Principal Distribution Amount with respect to such
Mortgage Loan Group for such Payment Date as follows: in the case of the Fixed
Rate Group, first, to the Owners of the Class A-6 Certificates, the Class A-6
Lockout Distribution Amount and then sequentially to the Owners of each Class of
the Class A Certificates related to the Fixed Rate Group in the order of their
numerical Class designation beginning with the Class A-1 Certificates until the
Certificate Principal Balance of each Class of Class A Certificates related to
the Fixed Rate Group has been reduced to zero and in the case of the Adjustable
Rate Group, 50% of the Principal Distribution Amount with respect to such
Mortgage Loan Group to the Owners of the Class A-7 Certificates and 50% of the
Principal Distribution Amount with respect to such Mortgage Loan Group to the
Owners of the Class A-8 Certificates until the Class A-7 Certificate Principal
Balance has been reduced to zero and thereafter the Owners of the Class A-8
Certificates will be entitled to receive payment of 100% of the Principal
Distribution with respect to such Mortgage Loan Group until the Class A-8
Certificate Principal Balance has been reduced to zero.
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With respect to each Mortgage Loan Group and on each Payment Date (a)
on or after the related Stepdown Date and (b) as long as a Trigger Event is not
in effect, the Owners of the Class A Certificates and the Subordinate
Certificates (other than the Class C-IO Certificates) will be entitled to
receive payments of principal, in the order of priority, in the amounts set
forth below and to the extent of the Principal Distribution Amount with respect
to such Mortgage Loan Group as follows:
First, in the case of the Fixed Rate Group, the lesser of (x) the
Principal Distribution Amount with respect to such Mortgage Loan Group
and (y) the Class A Principal Distribution Amount with respect to such
Mortgage Loan Group shall be distributed to the Owners of the Class A-6
Certificates, in an amount equal to the Class A-6 Lockout Distribution
Amount, with the remainder paid sequentially to the Owners of each
Class of the Class A Certificates related to the Fixed Rate Group in
the order of their numerical Class designation beginning with the Class
A-1 Certificates until the Certificate Principal Balance of each Class
of Class A Certificates related to the Fixed Rate Group has been
reduced to zero; and in the case of the Adjustable Rate Group, the
lesser of (x) the Principal Distribution Amount with respect to such
Mortgage Loan Group and (y) the Class A Principal Distribution Amount
with respect to such Mortgage Loan Group shall be distributed as
follows: 50% of such amount shall be distributed to the Owners of the
Class A-7 Certificates and 50% of such amount shall be distributed to
the Owners of the Class A-8 Certificates until the Class A-7
Certificate Principal Balance has been reduced to zero and thereafter
the Owners of the Class A-8 Certificates will be entitled to receive
payment of 100% of such amount until the Class A-8 Certificate
Principal Balance has been reduced to zero;
Second, the lesser of (x) the excess of (i) the Principal Distribution
Amount with respect to such Mortgage Loan Group over (ii) the amount
distributed to the Owners of the related Class A Certificates in clause
First above and (y) the Class M-1 Principal Distribution Amount with
respect to such Mortgage Loan Group shall be distributed to the Owners
of the related Class M-1 Certificates, until the related Class M-1
Certificate Principal Balance has been reduced to zero;
Third, the lesser of (x) the excess of (i) the Principal Distribution
Amount with respect to such Mortgage Loan Group over (ii) the sum of
the amount distributed to the Owners of the related Class A
Certificates in clause First above and the amount distributed to the
Owners of the related Class M-1 Certificates in clause Second above and
(y) the Class M-2 Principal Distribution Amount with respect to such
Mortgage Loan Group, shall be distributed to the Owners of the related
Class M-2 Certificates, until the related Class M-2 Certificate
Principal Balance has been reduced to zero;
Fourth, the lesser of (x) the excess of (i) the Principal Distribution
Amount with respect to such Mortgage Loan Group over (ii) the sum of
the amount distributed to the Owners of the related Class A
Certificates pursuant to clause First above, the amount distributed to
the Owners of the related Class M-1 Certificates pursuant to clause
Second above and the amount distributed to the Owners of the related
Class M-2 Certificates pursuant to clause Third above and (y) the Class
B-1 Principal Distribution Amount with respect to such Mortgage Loan
Group, shall be distributed to the Owners of the related Class B-1
Certificates, until the related Class B-1 Certificate Principal Balance
has been reduced to zero; and
Fifth, any amount of the Principal Remittance Amount with respect to
such Mortgage Loan Group remaining after making all of the
distributions in clauses First, Second, Third and Fourth above shall be
included as part of the Monthly Excess Cash Flow Amount with respect to
such Mortgage Loan Group and shall be applied as described below under
"Credit Enhancement - Application of Monthly Excess Cash Flow Amounts."
Notwithstanding the foregoing, in the event that the Certificate
Principal Balance of all of the Class A Certificates relating to a Group have
been reduced to zero prior to the Stepdown Date, all amounts of principal that
would have been distributed to such Class A Certificates will be distributed to
the related Subordinate Certificates of such Group sequentially in the following
order: Class M-1, Class M-2 and Class B-1 Certificates. Similarly, if the
Certificate Principal Balance of the Class M-1 Certificates has been reduced to
zero, all amounts of principal that would have been distributed to such Class
M-1 Certificates will be distributed to the related Class M-2 and Class B-1
Certificates, in that order. If the Certificate Principal Balance of the Class
M-2 Certificates has been reduced to zero, all amounts of principal that would
have been distributed on such Class M-2 Certificates will be distributed to the
related Class B-1 Certificates.
The Class A Certificates in the Fixed Rate Group (other than the Class
A-6 Certificates) are "sequential pay" classes such that the Owners of the Class
A-5 Certificates will receive no payments of principal until the Class A-4
Certificate Principal Balance has been reduced to zero, the Owners of the Class
A-4 Certificates will receive no payments of principal until the Class A-3
Certificate Principal Balance has been reduced to zero, the Owners of the Class
A-3 Certificates will receive no payments of principal until the Class A-2
Certificate Principal Balance has been reduced to zero, and the Owners of the
Class A-2 Certificates will receive no payments of principal until the Class A-1
Certificate Principal Balance has been reduced to zero; provided, however, that
on any Payment Date on which the sum of the Certificate Principal Balance of the
Subordinate Certificates in the Fixed Rate Group and the Overcollateralization
Amount is zero, any amounts of principal payable to the Owners of the Class A
Certificates in the Fixed Rate Group on such Payment Date shall be distributed
pro rata and not sequentially.
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With respect to the Adjustable Rate Group, the Owners of the Class A-7
Certificates will receive 50% of the payments of principal and the Owners of the
Class A-8 Certificates will receive 50% of the payments of principal until the
Class A-7 Certificate Principal Balance has been reduced to zero, thereafter,
the Owners of the Class A-8 Certificates will be entitled to receive 100% of the
payments of principal until the Class A-8 Certificate Principal Balance is
reduced to zero.
The Class C-IO Certificates are interest-only Certificates and are not
entitled to receive distributions of principal.
The Owners of the Class A-6 Certificates are entitled to receive
payments of the Class A-6 Lockout Distribution Amount specified herein;
provided, that if on any Payment Date the Class A-5 Certificate Principal
Balance is zero, the Owners of the Class A-6 Certificates will be entitled to
receive the entire Class A Principal Distribution Amount for such Payment Date.
Each Owner of Class A Certificates and Subordinated Certificates will
be required promptly to notify the Trustee in writing upon the receipt of a
court order relating to a Preference Amount and will be required to enclose a
copy of such order with such notice to the Trustee.
Pre-Funding Account
On the Closing Date, the Original Pre-Funded Amount will be deposited
in the Pre-Funding Account, which account shall be in the name of and maintained
by the Trustee and shall be part of the Trust Estate. During the Funding Period,
the Pre-Funded Amount will be maintained in the Pre-Funding Account. The
Original Pre-Funded Amount will be reduced during the Funding Period by the
amount thereof used to purchase Subsequent Mortgage Loans in accordance with the
Pooling and Servicing Agreement. Any Pre-Funded Amount remaining at the end of
the Funding Period for the related Mortgage Loan Group will be distributed to
the Owners of the related Class(es) of Class A Certificates then entitled to
receive payments of principal on the Payment Date in _________ 199__ in
reduction of the Class A Certificate Principal Balance of such Owner's
Certificates, thus resulting in a principal prepayment of such Class of Class A
Certificates.
Amounts on deposit in the Pre-Funding Account will be invested in the
investments permitted by the Pooling and Servicing Agreement (the "Eligible
Investments"). All interest and any other investment earnings on amounts on
deposit in the Pre-Funding Account will be deposited in the Capitalized Interest
Account prior to each Payment Date during the related Funding Period. The
Pre-Funding Account will not be an asset of either the Upper-Tier REMIC or the
Lower-Tier REMIC.
Capitalized Interest Account
On the Closing Date cash will be deposited in the Capitalized Interest
Account, which account shall be in the name of and maintained by the Trustee and
shall be part of the Trust Estate. The amount on deposit in the Capitalized
Interest Account, including reinvestment income thereon and amounts deposited
thereto from the Pre-Funding Account, will be used by the Trustee to fund the
excess, if any, of (i) the sum of the amount of interest accruing at the
weighted average Pass-Through Rate in the case of the Fixed Rate Group
Certificates and the applicable Pass-Through Rate on the Adjustable Rate Group
Certificates on the amount by which the aggregate Certificate Principal Balance
of the related Class(es) of Offered Certificates exceeds the aggregate Loan
Balance of the Mortgage Loans in the related Mortgage Loan Group plus the
Trustee Fee and the Master Servicer Fee accruing on such excess balance over
(ii) the amount of any reinvestment income on monies on deposit in the
Pre-Funding Account; such amounts on deposit will be so applied by the Trustee
on the Payment Date in ________ 199__ to fund such excess, if any. Any amounts
remaining in the Capitalized Interest Account at the end of the applicable
Funding Period and not needed for such purpose will be paid to the Depositor and
will not thereafter be available for distribution to the Owners of the Class A
Certificates.
Amounts on deposit in the Capitalized Interest Account will be invested
in Eligible Investments. The Capitalized Interest Account will not be an asset
of either the Upper-Tier REMIC or the Lower-Tier REMIC.
Calculation of One-Month LIBOR
For the ________ 199__ Payment Date, the Trustee will determine
One-Month LIBOR on the second Business Day prior to the Closing Date.
Thereafter, beginning with the Payment Date in _________ 199__, on the second
Business Day prior to each Payment Date (each a "One-Month LIBOR Determination
Date"), the Trustee will determine One-Month LIBOR for the next Accrual Period
for each Class of the Adjustable Rate Group Certificates.
"One-Month LIBOR" means, as of any One-Month LIBOR Determination Date,
the rate for deposits in United States dollars for a period equal to the
relevant Accrual Period (commencing on the first day of such Accrual Period)
which appears in the Telerate Page 3750 as of 11:00 a.m., London time, on such
date. If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on that day to prime banks in the London interbank market for a period
equal to the relevant Accrual Period (commencing on the first day of such
Accrual Period). The Trustee will request the principal London office of each of
the Reference Banks to provide
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a quotation of its rate. If at least two such quotations are provided, the rate
for that day will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Trustee, at approximately 11:00 a.m., New York City time, on that day for
loans in United States dollars to leading European banks for a period equal to
the relevant Accrual Period (commencing on the first day of such Accrual
Period).
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices) and
"Reference Banks" means leading banks selected by the Seller and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market.
Book Entry Registration of the Offered Certificates
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
such Book-Entry Certificates ("Beneficial Owners") may elect to hold their
Book-Entry Certificates directly through DTC in the United States, or Cedel or
Euroclear (in Europe) if they are Participants of such systems ("Participants"),
or indirectly through organizations which are Participants. The Book-Entry
Certificates will be issued in one or more certificates per Class of Offered
Certificates which in the aggregate equal the principal balance of such Offered
Certificates 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 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"). Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing principal amounts of $1,000
and in integral multiples in excess thereof. Except as described below, no
Beneficial Owner will be entitled to receive a physical certificate representing
such Certificate (a "Definitive Certificate"). Unless and until Definitive
Certificates are issued, it is anticipated that the only "Owner" of such
Book-Entry Certificates will be Cede & Co., as nominee of DTC. Beneficial Owners
will not be Owners as that term is used in the Pooling and Servicing Agreement.
Beneficial Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate 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 Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of Cedel or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates 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 such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates. Participants
and indirect Participants with whom Beneficial Owners have accounts with respect
to Book-Entry Certificates are similarly required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Beneficial Owners. Accordingly, although Beneficial Owners will not possess
certificates, the Rules provide a mechanism by which Beneficial Owners will
receive distributions and will be able to transfer their interest.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect Participants by instructing such Participants and
indirect Participants to transfer such Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Offered Certificates 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 Beneficial 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 below) or Euroclear Participant (as defined below) 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 settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Certain Federal
Income Tax Consequences - Taxation
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of Certain Foreign Investors" and "- Backup Withholding" in the Prospectus and
"Global Clearance, Settlement and Tax Documentation Procedures - Certain U.S.
Federal Income Tax Documentation Requirements" in Annex I hereto.
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.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United States
financial institutions or their subsidiaries. No single entity may own more than
five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institute Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its participant 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 Participants of
Euroclear ("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 now 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
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, 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.
The Euroclear Operator 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 the Euroclear
Operator 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.
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Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the Beneficial Owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect to
Certificates 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. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust provided by the Trustee to
Cede, as nominee of DTC, may be made available 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 Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
Owners of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. Cedel or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing 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 Offered Certificates which conflict with actions taken with
respect to other Offered Certificates.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a nominee and
depository with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, elects to terminate a book-entry system through DTC or (c) DTC, at
the direction of the Beneficial Owners representing a majority of the
outstanding Percentage Interests of the Offered Certificates, advises the
Trustee in writing that the continuation of a book-entry system through DTC (or
a successor thereto) is no longer in the best interests of Beneficial Owners.
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 Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates 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.
Assignment of Rights
An Owner may pledge, encumber, hypothecate or assign all or any part of
its right to receive distributions under any Certificate, but such pledge,
encumbrance, hypothecation or assignment shall not constitute a transfer of an
ownership interest sufficient to render the transferee an Owner of the Trust
without compliance with the provisions of the Pooling and Servicing Agreement
described above.
CREDIT ENHANCEMENT
The Credit Enhancement provided for the benefit of the Owners of the
Class A Certificates consists of the subordination of the related Subordinate
Certificates and the Private Certificates (other than the Class S Certificates),
the priority of application of Realized Losses, the application of Monthly
Excess Cash Flow Amounts and the crosscollateralization feature of the Trust.
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Subordination of Subordinate Certificates and Certain of the Private
Certificates
The rights of the Owners of the Subordinate Certificates and certain of
the Private Certificates to receive distributions with respect to the Mortgage
Loans in a particular Mortgage Loan Group will be subordinated, to the extent
described herein, to such rights of the Owners of the Class A Certificates
related to such Mortgage Loan Group. This subordination is intended to enhance
the likelihood of regular receipt by the Owners of the Class A Certificates of
the full amount of their scheduled monthly payment of interest and principal and
to afford such Owners protection against Realized Losses allocated against such
Mortgage Loan Group.
The protection afforded to the Owners of the Class A Certificates by
means of the subordination of the related Subordinate Certificates and the
Private Certificates (other than the Class S Certificates) will be accomplished
by the preferential right of the Owners of the Class A Certificates to receive,
prior to any distribution being made on a Payment Date in respect of such
Subordinate Certificates and such Private Certificates (other than the Class S
Certificates), the amounts of interest due them and principal available for
distribution on such Payment Date, and, if necessary, by the right of the Owners
of the Class A Certificates to receive future distributions of amounts that
would otherwise be payable to the Owners of such Subordinate Certificates and
such Private Certificates.
In addition, the rights of the Owners of the Class M-2, Class B-1 and
Private Certificates (other than the Class S Certificates) issued with respect
to a Mortgage Loan Group to receive distributions will be subordinated, to the
extent described herein, to such rights of the Owners of the related Class A and
Class M-1 Certificates. This subordination is intended to enhance the likelihood
of regular receipt by the Owners of the related Class A and Class M-1
Certificates of the amount of interest due them and principal available for
distribution and to afford such Owners with protection against Realized Losses.
The rights of the Owners of the Class B-1 and Private Certificates
(other than the Class S Certificates) issued with respect to a Mortgage Loan
Group to receive distributions will be subordinated in the same manner to such
rights of the Owners of the related Class A, Class M-1 and Class M-2
Certificates and the rights of Owners of the Private Certificates (other than
the Class S Certificates) to receive distributions will be subordinated in the
same manner to such rights of the Owners of the Offered Certificates.
Application of Realized Losses
The Pooling and Servicing Agreement provides that if a Mortgage Loan
becomes a Liquidated Loan during a Remittance Period, the Net Liquidation
Proceeds relating thereto and allocated to principal may be less than the Loan
Balance of such Mortgage Loan. The amount of such insufficiency is a "Realized
Loss." Realized Losses which occur in a Mortgage Loan Group will, in effect, be
absorbed first, by the related Private Certificates (other than the Class C-IO
Certificates and the Class S Certificates) as a result of the application of the
Monthly Excess Interest Amount to fund such deficiency and through a reduction
in the related Overcollateralization Amount, second, by the Owners of the
related Class B-1 Certificates, third, by the Owners of the related Class M-2
Certificates, and, fourth, by the Owners of the related Class M-1 Certificates.
To the extent that a Mortgage Loan Group experiences Realized Losses,
such Realized Losses will reduce the aggregate outstanding Loan Balance of the
Mortgage Loans in such Mortgage Loan Group (i.e., a reduction in the collateral
balance will occur). Since the Overcollateralization Amount with respect to a
Mortgage Loan Group is the excess, if any, of the related collateral balance
over the related Aggregate Certificate Principal Balance, Realized Losses, to
the extent experienced, will in the first instance reduce the related
Overcollateralization Amount.
The Pooling and Servicing Agreement requires that the
Overcollateralization Amount with respect to a Mortgage Loan Group be initially
increased to, and thereafter maintained at, the related Targeted
Overcollateralization Amount. This increase and subsequent maintenance is
intended to be accomplished by the application of related Monthly Excess
Interest Amounts to the funding of the related Extra Principal Distribution
Amount. Such Extra Principal Distribution Amounts, since they are funded from
interest collections on the collateral but are distributed as principal on the
related Class A Certificates and Subordinate Certificates (other than the Class
C-IO Certificates), will increase the related Overcollateralization Amount.
If, on any Payment Date after taking into account all Realized Losses
experienced during the prior Remittance Period and after taking into account the
distribution of principal (including the Extra Principal Distribution Amount)
with respect to the related Class A Certificates and Subordinate Certificates on
such Payment Date, the Aggregate Certificate Principal Balance with respect to a
Mortgage Loan Group exceeds the aggregate Loan Balance of the Mortgage Loans in
such Mortgage Loan Group as of the end of the related Remittance Period (i.e.,
if the level of overcollateralization is negative), then the Certificate
Principal Balance of the related Subordinate Certificates (other than Class C-IO
Certificates) will be reduced (in effect, "written down") such that the level of
overcollateralization is zero, rather than negative. Such a negative level of
overcollateralization is an "Applied Realized Loss Amount", which will be
applied as a reduction in the Certificate Principal Balance of the related
Subordinate Certificates (other than the Class C-IO Certificates) in reverse
order of seniority (i.e., first, against the related Class B-1 Certificate
Principal Balance until it is reduced to zero, then against the related Class
M-2 Certificate Principal Balance until it is reduced to zero and then against
the related Class M-1 Certificate Principal Balance until it is reduced to
zero). The Pooling
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and Servicing Agreement does not permit the "write down" of the Certificate
Principal Balance of any Class A Certificate.
Once the Certificate Principal Balance of a Class of Subordinate
Certificates (other than the Class C-IO Certificates) has been "written down,"
the amount of such write down will no longer bear interest, nor will such amount
thereafter be "reinstated" or "written up," although the amount of such write
down may, on future Payment Dates, be paid to Owners of the Subordinate
Certificates (other than Class C-IO Certificates) which experienced the write
down, in direct order of seniority (i.e., first, the related Class M-1
Certificates, second, the related Class M-2 Certificates and, third, the related
Class B-1 Certificates). The source of funding of such payments will be the
amount, if any, of the Monthly Excess Cash Flow Amount remaining on such future
Payment Dates after the funding of the Extra Principal Distribution Amount and
after the payment of Interest Carry Forward Amounts with respect to the related
Subordinate Certificates on such Payment Date.
Application of Monthly Excess Cash Flow Amounts
The weighted average net Coupon Rate for the Mortgage Loans in each
Mortgage Loan Group is generally expected to be higher than the weighted average
of the Pass-Through Rates on the Class A Certificates and Subordinate
Certificates related to such Mortgage Loan Group, thus generating certain excess
interest collections which, in the absence of losses will not be necessary to
fund interest distributions on the Class A Certificates and Subordinate
Certificates. The Pooling and Servicing Agreement provides that this excess
interest be applied to the extent available, to make accelerated payments of
principal (i.e., the Extra Principal Distribution Amount) to the Class or
Classes then entitled to receive distributions of principal; such application
will cause the Aggregate Certificate Principal Balance with respect to a
Mortgage Loan Group to amortize more rapidly than the Mortgage Loans in such
Mortgage Loan Group, resulting in overcollateralization. This excess interest
for a Remittance Period and with respect to a Mortgage Loan Group on the related
Payment Date is the Monthly Excess Interest Amount for such Payment Date and
Mortgage Loan Group.
The required level of overcollateralization for any Mortgage Loan Group
and Payment Date is the Targeted Overcollateralization Amount for such Mortgage
Loan Group and Payment Date. The Targeted Overcollateralization Amount is
initially (i.e., prior to the related Stepdown Date) ____% of the Original
Certificate Principal Balance with respect to the Fixed Rate Group and ____% of
the Original Certificate Principal Balance with respect to the Adjustable Rate
Group. Since the actual level of the Overcollateralization Amount with respect
to each Mortgage Loan Group is essentially zero as of the Closing Date, in the
early months of the transaction, subject to the availability of Monthly Excess
Interest Amounts, Extra Principal Distribution Amounts will be paid, with the
result that the Overcollateralization Amount with respect to each Mortgage Loan
Group will increase to the level of the related Targeted Overcollateralization
Amount.
If, once the Targeted Overcollateralization Amount with respect to each
Mortgage Loan Group has been reached, Realized Losses occur in such Mortgage
Loan Group, such Realized Losses will result in an Overcollateralization
Deficiency (since such Realized Losses reduce the Loan Balance of the related
Mortgage Loans without giving rise to a corresponding reduction of the related
Aggregate Certificate Principal Balance). The cash flow priorities of the Trust
require that, in this situation, an Extra Principal Distribution Amount be paid
(subject to the availability of any Monthly Excess Interest Amount) for the
purpose of re-establishing the Overcollateralization Amount at the then-required
Targeted Overcollateralization Amount.
On and after the Stepdown Date, and as long as no Trigger Event is in
effect, the Targeted Overcollateralization Amount with respect to the Fixed Rate
Group and the Adjustable Rate Group, respectively, is permitted to decrease or
"step-down" below the ____% and ____% of the respective Original Certificate
Principal Balance to levels equal to ____% and ____% of the then current
aggregate outstanding Loan Balance of the related Mortgage Loan Group (subject
to a floor of $_________ and $_________, respectively). If the Targeted
Overcollateralization Amount with respect to each Mortgage Loan Group is
permitted to "step-down" on a Payment Date, the Pooling and Servicing Agreement
permits a portion of the related Principal Remittance Amount for such Payment
Date not to be passed through as a distribution of principal on such Payment
Date. This has the effect of decelerating the amortization of the Offered
Certificates with respect to each Mortgage Loan Group relative to the aggregate
outstanding Loan Balance of the Mortgage Loans, thereby reducing the actual
level of the related Overcollateralization Amount to the new, lower Targeted
Overcollateralization Amount. This portion of the Principal Remittance Amount
not distributed as principal on the related Certificates therefore releases
overcollateralization from the Trust with respect to the related Mortgage Loan
Group. The amount of such releases are the Overcollateralization Release
Amounts. Notwithstanding the foregoing, any reduction in the Targeted
Overcollateralization Amount from prior periods will be subject to a collateral
performance test that is described in the Pooling and Servicing Agreement.
On any Payment Date, the sum of the Monthly Excess Interest Amount
(plus any interest on the Overcollateralization Amount) and the
Overcollateralization Release Amount, if any, with respect to a Mortgage Loan
Group is the Monthly Excess Cash Flow Amount, which is required to be applied in
the following order of priority on such Payment Date:
(1) to fund the Class A Interest Carry Forward Amount, if any,
with respect to the related Mortgage Loan Group;
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(2) to fund the Extra Principal Distribution Amount for such
Payment Date with respect to the related Mortgage Loan Group;
(3) to fund the Class M-1 Interest Carry Forward Amount, if any,
with respect to the related Mortgage Loan Group;
(4) to fund the Class M-1 Realized Loss Amortization Amount for
such Payment Date, with respect to the related Mortgage Loan
Group;
(5) to fund the Class M-2 Interest Carry Forward Amount, if any,
with respect to the related Mortgage Loan Group;
(6) to fund the Class M-2 Realized Loss Amortization Amount for
such Payment Date, with respect to the related Mortgage Loan
Group;
(7) to fund the Class B-1 Interest Carry Forward Amount, if any,
with respect to the related Mortgage Loan Group;
(8) to fund the Class B-1 Realized Loss Amortization Amount for
such Payment Date, with respect to the related Mortgage Loan
Group;
(9) to fund the Class C-IO Interest Carry Forward Amount, if any,
with respect to the related Mortgage Loan Group;
(10) to fund any amounts listed in clauses (1) through (9) above
for such Payment Date with respect to the other Mortgage Loan
Group to the extent that such amounts have not been funded in
full through the application of such Mortgage Loan Group's
Monthly Excess Cash Flow Amount on such Payment Date;
(11) to the Servicer to the extent of any unreimbursed Delinquency
Advances or Servicing Advances;
(12) to pay an Available Funds Cap Shortfall Amount, if any, to the
Owners of the Adjustable Rate Group Certificates on a pro rata
basis among such Owners;
(13) to fund a distribution to Owners of the Class D Certificates
(provided that, if a Subordinated Trigger Event is in effect
on such Payment Date in respect of a Mortgage Loan Group, the
related amount of any Overcollateralization Release Amount
that would otherwise be distributed to the Owners of the Class
D Certificates will instead be distributed as follows: first,
to the Owners of the related Class B-1 Certificates until the
related Class B-1 Certificate Principal Balance has been
reduced to zero; second, to the Owners of the related Class
M-2 Certificates until the related Class M-2 Certificate
Principal Balance has been reduced to zero; third, to the
Owners of the related Class M-1 Certificates until the related
Class M-1 Certificate Principal Balance has been reduced to
zero; and, fourth to the Owners of the Class D Certificates) ;
and
(14) to fund a distribution to Owners of the Class R Certificates.
The "Certificate Principal Balance" of any Class of the Class A
Certificates is the Original Certificate Principal Balance of such Class as
reduced by all amounts actually distributed as principal to the Owners of such
Class of Class A Certificates on all prior Payment Dates.
"Class B-1 Applied Realized Loss Amount" means, as to either Class of
the Class B-1 Certificates and as to any Payment Date, the lesser of (x) the
related Class B-1 Certificate Principal Balance (after taking into account the
distribution of the related Principal Distribution Amount on such Payment Date,
but prior to the application of the related Class B-1 Applied Realized Loss
Amount, if any, on such Payment Date) and (y) the related Applied Realized Loss
Amount.
"Class B-1 Certificate Principal Balance" means, as to either Class of
Class B-1 Certificates and as of any date of determination, the related Original
Class B-1 Certificate Principal Balance as reduced by the sum of (x) all amounts
actually distributed to the Owners of the related Class B-1 Certificates on all
prior Payment Dates on account of principal and (y) the aggregate, cumulative
amount of related Class B-1 Applied Realized Loss Amounts on all prior Payment
Dates.
"Class B-1 Realized Loss Amortization Amount" means, as to either Class
of Class B-1 Certificates and as of any Payment Date, the lesser of (x) the
related Class B-1 Unpaid Realized Loss Amount as of such Payment Date and (y)
the excess of (i) the related Monthly Excess Cash Flow Amount over (ii) the sum
of the related Extra Principal Distribution Amount, the related Class M-1
Realized Loss Amortization Amount, the related Class M-2 Realized Loss
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Amortization Amount, the related Class M-1 Interest Carry Forward Amount, the
related Class M-2 Interest Carry Forward Amount and the related Class B-1
Interest Carry Forward Amount in each case for such Payment Date.
"Class M-1 Applied Realized Loss Amount" means, as to either Class of
Class M-1 Certificates and as to any Payment Date, the lesser of (x) the related
Class M-1 Certificate Principal Balance (after taking into account the
distribution of the related Principal Distribution Amount on such Payment Date,
but prior to the application of the related Class M-1 Applied Realized Loss
Amount, if any, on such Payment Date) and (y) the excess of (i) the related
Applied Realized Loss Amount as of such Payment Date over (ii) the sum of the
related Class M-2 Applied Realized Loss Amount and the related Class B-1 Applied
Realized Loss Amount as of such Payment Date.
"Class M-1 Certificate Principal Balance" means, as to either Class of
Class M-1 Certificates and as of any date of determination, the related Original
Class M-1 Certificate Principal Balance as reduced by the sum of (x) all amounts
actually distributed to the Owners of the related Class M-1 Certificates on all
prior Payment Dates on account of principal and (y) the aggregate, cumulative
amount of related Class M-1 Applied Realized Loss Amounts on all prior Payment
Dates.
"Class M-1 Realized Loss Amortization Amount" means, as to either Class
of Class M-1 Certificates and as of any Payment Date, the lesser of (x) the
related Class M-1 Unpaid Realized Loss Amount as of such Payment Date and (y)
the excess of (i) the related Monthly Excess Cash Flow Amount over (ii) the sum
of the related Extra Principal Distribution Amount and the related Class M-1
Interest Carry Forward Amount, in each case for such Payment Date.
"Class M-2 Applied Realized Loss Amount" means, as to either Class of
Class M-2 Certificates and as to any Payment Date, the lesser of (x) the related
Class M-2 Certificate Principal Balance (after taking into account the
distribution of the related Principal Distribution Amount on such Payment Date,
but prior to the application of the related Class M-2 Applied Realized Loss
Amount, if any, on such Payment Date) and (y) the excess of (i) the related
Applied Realized Loss Amount as of such Payment Date over (ii) the sum of the
related Class B-1 Applied Realized Loss Amount , in each case as of such Payment
Date.
"Class M-2 Certificate Principal Balance" means, as to either Class of
Class M-2 Certificates and as of any date of determination, the related Original
Class M-2 Certificate Principal Balance as reduced by the sum of (x) all amounts
actually distributed to the Owners of the related Class M-2 Certificates on all
prior Payment Dates on account of principal and (y) the aggregate, cumulative
amount of related Class M-2 Applied Realized Loss Amounts on all prior Payment
Dates.
"Class M-2 Realized Loss Amortization Amount" means, as to either Class
of Class M-2 Certificates and as of any Payment Date, the lesser of (x) the
related Class M-2 Unpaid Realized Loss Amount as of such Payment Date and (y)
the excess of (i) the related Monthly Excess Cash Flow Amount over (ii) the sum
of the related Extra Principal Distribution Amount, the related Class M-1
Realized Loss Amortization Amount, the related Class M-1 Interest Carry Forward
Amount and the related Class M-2 Interest Carry Forward Amount, in each case for
such Payment Date.
"Unpaid Realized Loss Amount" means for any Class of the Subordinate
Certificates (other than the Class C-IO Certificates) and as to any Payment
Date, the excess of (x) the aggregate cumulative amount of related Applied
Realized Loss Amounts with respect to such Class for all prior Payment Dates
over (y) the aggregate, cumulative amount of related Realized Loss Amortization
Amounts with respect to such Class for all prior Payment Dates.
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in the Prospectus and this Prospectus Supplement, there is
set forth below a summary of certain other provisions of the Pooling and
Servicing Agreement.
Covenant of the Seller to Take Certain Actions with Respect to the Mortgage
Loans in Certain Situations
Pursuant to the Pooling and Servicing Agreement, upon the discovery by
the Depositor, the Seller, a Servicer, the Master Servicer or the Trustee that
any representations and warranties set out in the Pooling and Servicing
Agreement with respect to the Mortgage Loans were untrue in any material respect
as of the Closing Date with the result that the interests of the Owners are
materially and adversely affected, or the value of the related Mortgage Loan is
materially and adversely affected, the party discovering such breach is required
to give prompt written notice to certain other parties thereto.
Upon the earliest to occur of the Seller's discovery of or its receipt
of notice of a breach described above from any of the other parties, the Seller
(or Ameriquest in the case of Ameriquest Loans) will be required promptly to (i)
cure such breach in all material respects or (ii) within the time period
specified in the Pooling and Servicing Agreement (a) substitute in lieu of each
affected Mortgage Loan a Qualified Replacement Mortgage (as such term is defined
in the Pooling and Servicing Agreement) and deliver any Substitution Amount to
the related Servicer for deposit into its Principal and Interest Account on
behalf of the Trust as part of the Monthly Remittance remitted by such Servicer
on the related Monthly Remittance Date or (b) purchase such Mortgage Loan from
the Trust at a purchase price equal to
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the Loan Purchase Price (as defined below) thereof. Notwithstanding any
provision of the Pooling and Servicing Agreement to the contrary, with respect
to any Mortgage Loan which is not in default or as to which no default is
imminent, no such repurchase or substitution will be made unless the Seller (or
Ameriquest in the case of Ameriquest Loans) obtains for the Trustee an opinion
of counsel experienced in federal income tax matters and acceptable to the
Trustee to the effect that such a repurchase or substitution would not
constitute a Prohibited Transaction for the Trust or otherwise subject the Trust
to tax and would not jeopardize the status of the Upper-Tier REMIC or the
Lower-Tier REMIC as a REMIC (a "REMIC Opinion"), addressed and acceptable to the
Servicers, the Master Servicer and the Trustee. Any Mortgage Loan as to which
repurchase or substitution was delayed pursuant to the Pooling and Servicing
Agreement shall be repurchased or substituted for (subject to compliance with
the provisions of the Pooling and Servicing Agreement) upon the earlier of (a)
the occurrence of a default or imminent default with respect to such Mortgage
Loan and (b) receipt by the Trustee of a REMIC Opinion. In connection with any
breach of a representation, warranty or covenant or defect in documentation
giving rise to such repurchase or substitution obligation, the Seller (or
Ameriquest in the case of Ameriquest Loans), if it believes such opinion may be
necessary, may cause to be delivered to the Trustee a REMIC Opinion, if a
favorable opinion can be rendered, as a result of any such repurchase or
substitution. The obligation of the Seller (or Ameriquest) so to cure,
substitute or purchase any such Mortgage Loan in respect of a breach that has
not been remedied constitutes the sole remedy available to the Owners, the
Depositor and the Trustee.
"Loan Purchase Price" means generally the outstanding principal balance
of the related Mortgage Loan on the Cut-Off Date, less any principal amounts
previously distributed to the Owners relating to such Mortgage Loan (such
amount, the "Loan Balance" of such Mortgage Loan) as of the date of purchase
(assuming that the Monthly Remittance remitted by the Servicer on such Monthly
Remittance Date has already been remitted), plus one month's interest at the Net
Coupon Rate.
Assignment of Mortgage Loans
Pursuant to the Pooling and Servicing Agreement, the Seller on the
Closing Date with respect to the Initial Mortgage Loans and the Subsequent
Transfer Date with respect to the Subsequent Mortgage Loans will transfer,
assign, set over and otherwise convey without recourse to the Depositor and the
Depositor will transfer, assign, set over and otherwise convey without recourse
to the Custodian, on behalf of the Trustee, all of its respective right, title
and interest in and to each Mortgage Loan and all its respective right, title
and interest in and to principal and interest due on each such Mortgage Loan on
or after the related Cut-Off Date; provided, however, that the Depositor will
reserve and retain all its right, title and interest in and to principal
(including Prepayments) and interest due on each Mortgage Loan on or prior to
the related Cut-Off Date (except with respect to Mortgage Loans that were
delinquent on the related Cut-Off Date, which payments are not being retained by
the Depositor). Purely as a protective measure and not to be construed as
contrary to the parties' intent that the transfer on the Closing Date is a sale,
the Seller has also been deemed to have granted to the Depositor and the
Depositor has also been deemed to have granted to the Trustee a security
interest in the Trust Estate in the event that the transfer of the Trust Estate
is deemed to be a loan and not a sale.
In connection with the transfer and assignment of the Initial Mortgage
Loans on the Closing Date and the Subsequent Mortgage Loans on each Subsequent
Transfer Date, the Depositor will be required to:
(i) deliver to the Custodian, on behalf of the Trustee, on the
Closing Date with respect to each Initial Mortgage Loan or on each
Subsequent Transfer Date with respect to each Subsequent Mortgage Loan
identified in the related Schedule of Mortgage Loans (A) the original
Notes, endorsed in blank or to the order of the Trustee, (B) the
original title insurance policy or any one of an original title binder,
an original preliminary title report, or an original title commitment,
or a copy certified by the issuer of any of the foregoing, or the
attorney's opinion of title, (C) originals or certified copies of all
intervening recorded assignments, showing a complete chain of title
from origination to the Trustee, if any, including warehousing
assignments, with evidence of recording thereon, (D) originals of all
assumption, modification, written assurance or substitution agreements,
if any and (E) either: (1) the original Mortgage, with evidence of
recording thereon, (2) a certified copy if such original Mortgage has
not been received from the applicable recording office by the Seller
and returned to the Trustee or (3) a copy of the Mortgage certified by
the public recording office in those instances where the original
recorded Mortgage has been lost;
(ii) cause the Custodian, on behalf of the Trustee, within 60
days following the Closing Date with respect to the Initial Mortgage
Loans, or the Subsequent Transfer Date with respect to the Subsequent
Mortgage Loans, to submit to the Master Servicer for recording in the
appropriate jurisdictions, assignments of the Mortgages to
"___________________________________, as Trustee of AMRESCO Residential
Securities Corporation Mortgage Loan Trust 199__-__ under the Pooling
and Servicing Agreement dated as of ____________ ___, 199__" provided,
however, that the Depositor shall not be required to cause the Master
Servicer to record any assignment of Mortgage for a Mortgage with
respect to which the Mortgaged Property is located in California or the
original recording information is lacking;
(iii) if not delivered on the Closing Date, deliver the title
insurance policy or title searches, the original Mortgages and such
recorded assignments, together with originals or duly certified copies
of any and all prior assignments, to the Custodian, on behalf of the
Trustee, within 15 days of receipt thereof by the Depositor (but in any
event, with respect to any Mortgage as to which original recording
information has been
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made available to the Depositor within two years after the Closing Date
with respect to the Initial Mortgage Loans, or Subsequent Transfer Date
with respect to the Subsequent Mortgage Loans); and
(iv) with respect to any Subsequent Transfer Date, furnish to
the Trustee, at the Depositor's expense, a tax opinion and an opinion
of counsel with respect to the sale and perfection of all Subsequent
Mortgage Loans delivered to the Trust in form and substance
satisfactory to the Trustee.
The Trustee will agree, for the benefit of the Owners, to review the
documents contained in each Mortgage Loan File held by the Trustee (each, a
"File") within 45 days after the Closing Date or Subsequent Transfer Date (or
the date of receipt of any documents delivered to the Trustee after such date)
to ascertain that all required documents (or certified copies of documents) have
been executed and received.
If the Trustee during such 45-day period finds any document
constituting a part of a File which is not properly executed, has not been
received, or is unrelated to the Mortgage Loans, or that any Mortgage Loan does
not conform in a material respect to the description thereof as set forth in the
Schedule of Mortgage Loans, the Trustee will be required to promptly notify the
Depositor, the Seller and the Owners. The Seller (or Ameriquest in the case of
Ameriquest Loans) will agree in the Pooling and Servicing Agreement to use
reasonable efforts to remedy a material defect in a document constituting part
of a File of which it is so notified by the Trustee. If, however, within the
time period set forth in the Pooling and Servicing Agreement after such notice
to it respecting such defect the Seller (or Ameriquest in the case of Ameriquest
Loans) shall not have remedied the defect and the defect materially and
adversely affects the interest in the related Mortgage Loan of the Owners, the
Seller (or Ameriquest in the case of Ameriquest Loans) within the time period
specified in the Pooling and Servicing Agreement shall (i) substitute in lieu of
such Mortgage Loan another Mortgage Loan of like kind (a "Qualified Replacement
Mortgage," as such term is defined in the Pooling and Servicing Agreement) and
deliver any "Substitution Amount" (the excess, if any, of the Loan Balance of a
Mortgage Loan being replaced over the outstanding principal balance of a
replacement Mortgage Loan plus accrued and unpaid interest) to the related
Servicer for deposit into its Principal and Interest Account on behalf of the
Trust as part of the Monthly Remittance to be remitted by the Servicer on the
related Monthly Remittance Date or (ii) purchase such Mortgage Loan at a
purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the related Servicer for deposit in the related Principal
and Interest Account as part of the Monthly Remittance to be remitted by such
Servicer on the related Monthly Remittance Date.
In addition to the foregoing, the Trustee has agreed to provide an
updated exception report during the 12th month after the Closing Date indicating
the current status of the exceptions previously noted by the Trustee (the "Final
Certification"). After delivery of the Final Certification, the Trustee shall
provide to the related Servicer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
Servicing
Each Servicer will be obligated under the Pooling and Servicing
Agreement to service and administer the Mortgage Loans identified as being
serviced by it as described therein and with reasonable care, and using that
degree of skill and attention that such Servicer exercises with respect to
comparable mortgage loans that it services for itself or others, and shall have
full power and authority, acting alone, to do or cause to be done any and all
things in connection with such servicing and administration which it may deem
necessary or desirable. Consistent with the foregoing, each Servicer will be
permitted to, in its discretion, (i) waive any assumption fees, late payment
charges, charges for checks returned for insufficient funds or other fees which
may be collected in the ordinary course of servicing the Mortgage Loans, (ii) if
a Mortgagor is in default or about to be in default because of a Mortgagor's
financial condition, arrange with the Mortgagor a schedule for the payment of
delinquent payments due on the related Mortgage Loan, or (iii) modify payments
of monthly principal and interest on any Mortgage Loan becoming subject to the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, in
accordance with such Servicer's general policies with respect to comparable
mortgage loans subject to such Act.
Each Servicer will be paid a monthly fee from interest collected with
respect to each Mortgage Loan serviced by it (as well as from any Liquidation
Proceeds from a Liquidated Mortgage Loan ("Liquidation Proceeds") that are
applied to accrued and unpaid interest) equal to the Loan Balance thereof
multiplied by the applicable Servicing Fee Rate (such product, the "Servicing
Fee"). The "Servicing Fee Rate" for each Mortgage Loan will be the rate provided
in the Pooling and Servicing Agreement, not to exceed 0.50% per annum. The
amount of the monthly Servicing Fee is subject to adjustment with respect to
prepaid Mortgage Loans, as described below. Each Servicer is also entitled to
receive, as additional servicing compensation, all late payment fees, assumption
fees and other similar charges and all reinvestment income earned on amounts on
deposit in the related Principal and Interest Account. In addition, each
Servicer will be entitled to retain additional servicing compensation in the
form of release fees, bad check charges, assumption fees, late payment charges,
or any other servicing-related fees, Net Liquidation Proceeds not required to be
deposited in the related Principal and Interest Account pursuant to the Pooling
and Servicing Agreement, and similar items. Prepayment penalties may also be
retained as additional servicing compensation to the extent set forth in the
Pooling and Servicing Agreement.
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Each Servicer is required to establish, or cause to be established, in
the name of the Trustee at one or more depository institutions, a principal and
interest account maintained as a trust account of such institution (each, a
"Principal and Interest Account"). All funds in the Principal and Interest
Accounts are required to be held (i) uninvested or (ii) invested in Eligible
Investments (as defined in the Pooling and Servicing Agreement). Any investment
of funds in the Principal and Interest Accounts must mature on or prior to the
immediately succeeding Monthly Remittance Date. Any investment earnings on funds
held in the Principal and Interest Accounts are for the account of, and any
losses therein are also for the account of and must be promptly replenished by,
the respective Servicer.
Each Servicer is required to deposit in the related Principal and
Interest Account, on a daily basis (but in no event later than the second
Business Day following receipt) all scheduled principal and interest due on the
related Mortgage Loans, other than "Balloon Payments" (i.e., the final payment
of principal due with respect to a Balloon Mortgage Loan), after the Cut-Off
Date or Subsequent Cut-Off Date, as the case may be, and past due interest and
principal on any Mortgage Loan, other than Balloon Payments, that were
delinquent as of the Cut-Off Date or Subsequent Cut-Off Date, as the case may
be, including any Prepayments, the proceeds of any liquidation of a Mortgage
Loan (including any insurance proceeds) net of expenses and unreimbursed
Delinquency Advances and Servicing Advances ("Net Liquidation Proceeds"), any
income from REO Properties received thereafter (net of unreimbursed Servicing
Advances and Delinquency Advances), but net of (i) the Servicing Fee with
respect to each Mortgage Loan and other servicing compensation, (ii) principal
collected and interest accrued on any Mortgage Loan on or prior to the Cut-Off
Date or Subsequent Cut-Off Date, as the case may be, if such Mortgage Loan was
current as of the Cut-Off Date or Subsequent Cut-Off Date, as the case may be,
which amounts shall be delivered to the Seller, (iii) late payments received on
any Mortgage Loan in respect of unreimbursed Servicing Advances and Delinquency
Advances and (iv) reimbursements for past Delinquency Advances which the
Servicer has determined in its good faith business judgment are not recoverable
from the related Mortgage Loan proceeds (all such net amounts being referred to
herein as the "Daily Collections").
Each Servicer may make withdrawals for its own account (or for the
account of the Seller in the case of clause (i) below) from the amounts on
deposit in the related Principal and Interest Account with respect to the
related Mortgage Loan Group, only for the following purposes:
(i) to withdraw interest paid with respect to any Mortgage
Loans that had accrued for periods on or prior to the Cut-Off Date or
Subsequent Cut-Off Date, as the case may be, and principal due on all
current Mortgage Loans on or prior to the Cut-Off Date or Subsequent
Cut-Off Date, as the case may be, which shall be paid to the Seller;
(ii) to withdraw investment earnings on amounts on deposit in
its respective Principal and Interest Account;
(iii) to reimburse itself for unreimbursed Delinquency
Advances and Servicing Advances and unrecovered Delinquency Advances
and Servicing Advances determined by it to be nonrecoverable to the
extent permitted in the Pooling and Servicing Agreement;
(iv) to withdraw amounts that have been deposited to its
respective Principal and Interest Account in error, including in
respect of over-advances based on incorrect calculations of the Master
Servicer; and
(v) to clear and terminate its respective Principal and
Interest Account following the termination of the Trust Estate.
Each Servicer will remit to the Trustee for deposit in the Certificate
Account the Monthly Remittance Amount not later than the related Monthly
Remittance Date.
Subject to the following limitations, each Servicer will be required to
advance on any Mortgage Loan serviced by it prior to each Payment Date its own
funds or other funds made available to it under the Pooling and Servicing
Agreement as set forth in the next paragraph, for such Payment Date, in an
amount equal to the aggregate of payments of principal and interest on the
Mortgage Loans serviced by it in the related Mortgage Loan Group (adjusted to
the applicable Net Coupon Rate) that became due during the related Remittance
Period and were delinquent on the related Determination Date, together with an
amount equivalent to interest on the principal balance of the Mortgage Loan
related to each Mortgaged Property (each, an "REO Property") acquired by the
Trust through liquidation (any such advance, a "Delinquency Advance"). The Net
Coupon Rate is the rate equal to the excess of the Coupon Rate over the
applicable Servicing Fee Rate, the Trustee Fee and the Master Servicer Fee.
Delinquency Advances are intended to maintain a regular flow of
scheduled interest and principal payments on the Certificates rather than to
guarantee or insure against losses. Each Servicer is obligated to make
Delinquency Advances with respect to delinquent payments of principal of or
interest on each Mortgage Loan, other than delinquent Balloon Payments on
"Balloon Mortgage Loans" (i.e., Mortgage Loans with respect to which the
principal balance, by its original terms, does not fully amortize at final
maturity), serviced by it (with such payments of interest adjusted to the
related Net Coupon Rate) to the extent that such Delinquency Advances are, in
its good faith business judgment, recoverable from future payments and
collections or insurance payments or proceeds of liquidation of the related
Mortgage Loan. With respect to a delinquent Balloon Payment, the Servicer is not
required to make a Delinquency
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Advance of such delinquent Balloon Payment. The Servicer will, however, make
monthly Delinquency Advances with respect to Balloon Mortgage Loans with
delinquent Balloon Payments, in each case in an amount equal to the assumed
monthly principal and interest payment that would have been due on the related
Due Date based on the original principal amortization schedule for the
applicable Balloon Mortgage Loan. Such Delinquency Advances shall be required
only to the extent that the Servicer, in its good faith business judgment,
determines that such Delinquency Advance will be recoverable from future
payments and collections or insurance payments or proceeds of liquidation of the
related Mortgage Loan. Each Servicer shall be permitted to fund its payment of
Delinquency Advances on any Business Day, or to reimburse itself for any
Delinquency Advances paid from such Servicer's own funds, from collections on
any Mortgage Loan deposited to the related Principal and Interest Account
subsequent to the related Remittance Period (including "Prepaid Installments"
(i.e., early payments of scheduled principal and interest intended by the
borrower to be treated as such)) and shall deposit into the related Principal
and Interest Account with respect thereto (i) collections from the Mortgagor
whose delinquency gave rise to the shortfall which resulted in such Delinquency
Advance net of any such Delinquency Advance and (ii) Net Liquidation Proceeds
recovered on account of the related Mortgage Loan to the extent of the amount of
aggregate Delinquency Advances related thereto. Previously unreimbursed
Delinquency Advances that the Servicer determines to be nonrecoverable may be
reimbursed to the Servicer out of any Mortgagor payments prior to their deposit
to the related Principal and Interest Account or from funds on deposit in the
related Principal and Interest Account. All Delinquency Advances will be
included with the distribution to Owners of the Certificates of the related
Group of Certificates on the related Payment Date. Any failure by a Servicer to
make a Delinquency Advance as required under the Pooling and Servicing Agreement
with respect to the Certificates will constitute an event of default thereunder
for such Servicer, in which case the Trustee, as successor servicer, or the
successor servicer will be obligated to make any such Delinquency Advance, in
accordance with the terms of the Pooling and Servicing Agreement.
Each Servicer will be required to pay all customary, reasonable and
necessary "out of pocket" costs and expenses incurred in the performance of its
servicing obligations, including, but not limited to, (i) expenditures in
connection with a foreclosed Mortgage Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation ("Preservation
Expenses"), (ii) the cost of any enforcement or judicial proceedings, including
foreclosures and (iii) the cost of the management and liquidation of Property
acquired in satisfaction of the related Mortgage, to the extent such expenses
are, in its good faith business judgment, recoverable. Such costs will
constitute "Servicing Advances." Each Servicer may recover a Servicing Advance
(x) to the extent permitted by the Mortgage Loans or, if not theretofore
recovered from the Mortgagor on whose behalf such Servicing Advance was made,
from Liquidation Proceeds realized upon the liquidation of the related Mortgage
Loan or (y), to the extent that such Servicing Advance is determined by the
Servicer in its good faith business judgment to be non-recoverable from such
proceeds from the Monthly Excess Cash Flow Amount and certain other Mortgage
Loan proceeds as specified in the Pooling and Servicing Agreement.
A full month's interest at the related Net Coupon Rate will be due to
the Trust on the outstanding Loan Balance of each Mortgage Loan as of the
beginning of each Remittance Period. If a Prepayment in full of a Mortgage Loan
occurs during any calendar month, any difference between the interest collected
from the Mortgagor in connection with such prepayment and the full month's
interest at the Net Coupon Rate ("Compensating Interest") (but not in excess of
the aggregate Servicing Fee, and any Prepayment Interest Excess for such period)
will be required to be deposited to the Principal and Interest Account on the
Monthly Remittance Date by the related Servicer and shall be included in the
Monthly Remittance to be made available to the Trustee on the next succeeding
Monthly Remittance Date.
When a Mortgagor prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates ("Due Dates"), the Mortgagor pays interest on
the amount prepaid only to the date of prepayment. Prepayments received during
the prior Remittance Period are included in the distribution to Owners on the
current Payment Date thereby causing a shortfall in interest. In order to
mitigate the effect of any such shortfall in interest distributions to the
Owners of the Certificates on any Payment Date, the amount of the Servicing Fee
otherwise payable to the related Servicer for such month shall, to the extent of
such shortfall, be deposited by such Servicer in the Certificate Account for
distribution to the Owners of the Certificates on such Payment Date. However,
any such reduction in the Servicing Fee will be made only to the extent of the
Servicing Fee otherwise payable to such Servicer with respect to Scheduled
Payments having a Due Date to which such Payment Date relates. Any such deposit
by the related Servicer will be reflected in the distributions to the Owners of
the Certificates made on the Payment Date on which the Prepayment received would
be distributed.
Each Servicer will have the right, but not the obligation, to purchase
for its own account any Mortgage Loan serviced by it which becomes delinquent,
in whole or in part, as to four consecutive monthly installments or any Mortgage
Loan as to which enforcement proceedings have been brought by such Servicer. The
purchase price for any such Mortgage Loan is equal to the Loan Purchase Price
thereof, which purchase price shall be deposited in the related Principal and
Interest Account.
Each Servicer, with respect to Mortgage Loans serviced by it, shall
foreclose upon or otherwise comparably convert the ownership on behalf of the
Trust of Mortgaged Properties relating to defaulted Mortgage Loans as to which
no satisfactory arrangements can be made for collection of delinquent payments
and which the related Servicer has not purchased from the Trust. Each Servicer
will be required to sell any REO Property managed by it within 35 months of its
acquisition by the Trust, unless an appropriate extension is obtained, or an
opinion of counsel is obtained to the effect that the holding by the Trust of
such REO Property for any greater period will not result in the imposition of
taxes
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on "Prohibited Transactions" of the Trust as defined in Section 860F of the Code
or cause the Trust to fail to qualify as a REMIC under the REMIC Provisions at
any time that any Certificates are outstanding, in which case such Servicer
shall sell any REO Property by the end of any extended period specified in any
such opinion or such extension as applicable.
Notwithstanding the generality of the foregoing provisions, each
Servicer will be required to manage, conserve, protect and operate each REO
Property managed by it for the Owners solely for the purpose of its prompt
disposition and sale in a manner which does not cause such REO Property to fail
to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or result in the receipt by the Trust of any "income from non-permitted
assets" within the meaning of Section 860F(a)(2)(B) of the Code or any "net
income from foreclosure property" which is subject to taxation under the REMIC
Provisions. Pursuant to its efforts to sell such REO Property, the related
Servicer will be required to either itself or through an agent selected by such
Servicer protect and conserve such REO Property in the same manner and to such
extent as is customary in the locality where such REO Property is located and
may, incident to its conservation and protection of the interests of the Owners
and after consultation with the holder of a majority in interest of the Class R
Certificates, rent the same, or any part thereof, as such Servicer deems to be
in the best interest of the Owners for the period prior to the sale of such REO
Property.
If so required by the terms of any Mortgage Loan, the related Servicer
will be required to cause hazard insurance to be maintained with respect to the
related Mortgaged Property and to advance sums (such Advances to be treated as
Servicing Advances) on account of the premiums therefor if not paid by the
Mortgagor if permitted by the terms of such Mortgage Loan.
Each Servicer will have the right under the Pooling and Servicing
Agreement to accept applications of Mortgagors for consent to (i) partial
releases of Mortgages, (ii) alterations and (iii) removal, demolition or
division of Mortgaged Properties. No application for approval may be considered
by such Servicer unless: (i) the provisions of the related Note and Mortgage
have been complied with; (ii) the loan-to-value ratio and debt-to-income ratio
after any release does not exceed the maximum loan-to-value ratio and
debt-to-income ratio established in accordance with the Underwriting Guidelines
set forth herein to be applicable to such Mortgage Loan; and (iii) the lien
priority of the related Mortgage is not affected.
Each Servicer will be permitted under the Pooling and Servicing
Agreement to enter into subservicing agreements for any servicing and
administration of Mortgage Loans with any institution which is reasonably
acceptable to the Owners of a majority of the Percentage Interests of the Class
R Certificates and meeting the requirements of the Pooling and Servicing
Agreement.
Notwithstanding any subservicing agreement, each Servicer will not be
relieved of its obligations under the Pooling and Servicing Agreement and such
Servicer will be obligated to the same extent and under the same terms and
conditions as if it alone were servicing and administering the Mortgage Loans
subject to such subservicing agreement. Each Servicer shall be entitled to enter
into any agreement with a subservicer for indemnification of such Servicer by
such subservicer and nothing contained in such subservicing agreement shall be
deemed to limit or modify the Pooling and Servicing Agreement.
Each Servicer (except the Trustee if it is required to succeed any
Servicer under the Pooling and Servicing Agreement) will agree to indemnify and
hold the Trustee, the Seller, the Master Servicer and the Depositor harmless
against any and all claims, losses, penalties, fines, forfeitures, legal fees
and related costs, judgments, and any other costs, fees and expenses that the
Trustee, the Seller, the Master Servicer and the Depositor may sustain in any
way related to the failure of such Servicer to perform its duties and service
the Mortgage Loans in compliance with the terms of the Pooling and Servicing
Agreement. A party against whom any such claim is brought shall immediately
notify the other parties and the Rating Agencies if a claim is made by a third
party with respect to the Pooling and Servicing Agreement, and such Servicer may
assume the defense of any such claim and, upon a determination that the claim
results from the Servicer's failure to perform in accordance with the Pooling
and Servicing Agreement, pay all expenses in connection therewith, including
reasonable counsel fees, and promptly pay, discharge and satisfy any judgment or
decree which may be entered against such Servicer, the Trustee, the Seller or
the Depositor in respect of such claim.
Each Servicer will be required to deliver to the Trustee, the Seller,
the Depositor, the Master Servicer and the Rating Agencies: (1) on or before
April 15 of each year, commencing in 1999, an officers' certificate stating, as
to each signer thereof, that (i) a review of the activities of such Servicer
during such preceding calendar year and of performance under the Pooling and
Servicing Agreement has been made under such officers' supervision, and (ii) to
the best of such officers' knowledge, based on such review, such Servicer has
fulfilled all its obligations under the Pooling and Servicing Agreement for such
year, or, if there has been a default in the fulfillment of all such obligation,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by such Servicer to remedy such default;
and (2) on or before April 15 of any year commencing in or after 1999, a letter
or letters of a firm of independent, nationally recognized certified public
accountants dated as of the date of the Servicer's fiscal year end audit for
each subsequent letter stating that such firm has examined the Servicer's
overall servicing operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto.
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Removal and Resignation of a Servicer
The Owners, the Trustee or the Seller will have the right pursuant to
the Pooling and Servicing Agreement, to remove any Servicer upon the occurrence
of, and in certain cases after notice and expiration of the related cure period:
(a) certain acts of bankruptcy or insolvency on the part of such Servicer; (b)
certain failures on the part of such Servicer to perform its obligations under
the Pooling and Servicing Agreement (including the requirement that certain of
the Servicers maintain their net worth at levels specified in the Pooling and
Servicing Agreement); (c) the failure to cure material breaches of such
Servicer's obligations in the Pooling and Servicing Agreement; or (d) if the
loss and/or delinquency levels of the related Mortgage Loans are at certain
specified levels.
No Servicer is permitted to resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement except (i) upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of such Servicer so
causing such conflict being of a type and nature carried on by such Servicer on
the date of the Pooling and Servicing Agreement or (ii) upon written consent of
the Seller, the Master Servicer and the Trustee and confirmation from the Rating
Agencies that the ratings of the Offered Certificates are not reduced. Any such
determination permitting the resignation of such Servicer pursuant to clause (i)
above is required to be evidenced by an opinion of counsel to such effect which
shall be delivered to the Master Servicer and the Trustee.
Upon removal or resignation of a Servicer, the Trustee (x) shall
solicit bids for a successor Servicer and (y) pending the appointment of a
successor Servicer as a result of soliciting such bids, shall serve as Servicer.
The Trustee, if it is unable to obtain a qualifying bid and is prevented by law
from acting as servicer, will be required to appoint, or petition a court of
competent jurisdiction to appoint, any housing and home finance institution,
bank or mortgage servicing institution designated as an approved servicer
meeting the requirements of the Pooling and Servicing Agreement, and acceptable
to the Seller as the successor to such Servicer in the assumption of all or any
part of the responsibilities, duties or liabilities of such Servicer.
No removal or resignation of a Servicer will become effective until the
Trustee or a successor Servicer shall have assumed a Servicer's responsibilities
and obligations in accordance with the Pooling and Servicing Agreement.
Reporting Requirements
On each Payment Date the Trustee is required to report in writing to
the Depositor, each Owner, the Master Servicer, the Underwriters and their
designees:
(i) the amount of the distribution with respect to the related
Class of the Certificates (based on a Certificate in the original
principal amount of $1,000);
(ii) the amount of such distribution allocable to scheduled
principal on the Mortgage Loans in each Mortgage Loan Group, separately
identifying the aggregate amount of any Prepayments of principal,
repurchases or Liquidation Proceeds and, with respect to each Mortgage
Loan Group, any Pre-Funded Amounts distributed as a Prepayment at the
end of the Funding Period (based on a Certificate in the original
principal amount of $1,000);
(iii) the amount of such distribution allocable to interest on
the related Mortgage Loans in each Mortgage Loan Group (based on a
Certificate in the original principal amount of $1,000);
(iv) the Interest Carry Forward Amount for each Class;
(v) the principal amount of each Class of the Offered
Certificate (based on a Certificate in the original principal amount of
$1,000) which will be outstanding and the aggregate Loan Balance of
each Mortgage Loan Group and in total, in each case after giving effect
to any payment of principal on such Payment Date;
(vi) the aggregate Loan Balance of the Mortgage Loans in each
Mortgage Loan Group and in total, in each case after giving effect to
any payment of principal on such Payment Date;
(vii) the total of any Substitution Amounts or Loan Purchase
Price amounts included in such distribution with respect to each
Mortgage Loan Group and in total;
(viii) the weighted average Coupon Rate and weighted average
remaining term to maturity of the Mortgage Loans with respect to each
Mortgage Loan Group and in total, calculated both as of the first and
last day of the related Collection Period;
(ix) the Extra Principal Distribution Amount for each Mortgage
Loan Group;
(x) the Servicing Fees, the Master Servicer Fee and Trustee
Fees allocable to each Mortgage Loan Group and in total;
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(xi) whether a Trigger Event has occurred with respect to each
Mortgage Loan Group as shown by percentage of 60+ Day Delinquent Loans;
(xii) the Senior Enhancement Percentage for each Mortgage Loan
Group;
(xiii) the Overcollateralization Amount for each Mortgage Loan
Group and the Certificate Principal Balance of each Class of the
Offered Certificates then outstanding after giving effect to any
payment of principal on such Payment Date; and
(xiv) the amount of any Applied Realized Loss Amount and
Unpaid Realized Loss Amount for each Class as of the close of such
Payment Date.
Certain obligations of the Trustee to provide information to the Owners
are conditioned upon such information being received from the Servicers.
In addition, on each Payment Date the Trustee will be required to
distribute to the Depositor, the Master Servicer, the Underwriters, the Rating
Agencies and each Owner, together with the information described above, the
following information prepared by the related Servicer and furnished to the
Trustee for such purpose and with respect to each Mortgage Loan Group:
(a) the number and aggregate principal balances of Mortgage
Loans in each Mortgage Loan Group (i) 30-59 days delinquent, (ii) 60-89
days delinquent and (iii) 90 or more days delinquent (exclusive of
foreclosures), as of the close of business on the last day of the prior
calendar month and the number and aggregate Loan Balances of all
Mortgage Loans and related data as of the last day of the Collection
Period.
(b) the number and dollar amounts of all Mortgage Loans in
foreclosure proceedings as of the last day of the Collection Period.
(c) the number of Mortgagors and the Loan Balances of the
related Mortgages involved in bankruptcy proceedings as of the last day
of the prior Remittance Period;
(d) the number and aggregate principal balance of Mortgage
Loans related to REO Properties and, to the extent reported by the
Servicers, the aggregate book value of the Mortgage Loans related to
REO Properties;
(e) the amount of cumulative and current period Realized
Losses for each Mortgage Loan Group and the cumulative loss percentage
for each Mortgage Loan Group, in each case as of the last day of the
Collection Period; and
(f) The aggregate Loan Balance of 60+ Day Delinquent Loans in
each Mortgage Loan Group and in the aggregate as of the last day of the
Collection Period.
Within a reasonable time after the end of each calendar year, the
Trustee shall furnish to each person who at any time during the calendar year
was an Owner of a Certificate, if requested in writing by such person, a
statement containing the information described in clauses (ii) and (iii) above,
aggregated for such calendar year or applicable portion thereof during which
such person was an Owner. Such obligation of the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information has been
prepared and furnished by the Trustee to Owners pursuant to any requirements of
the Code as in effect from time to time.
Removal of Trustee for Cause
The Trustee may be removed upon the occurrence of any one of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Trustee: (1) failure to
make distributions of available amounts; (2) certain breaches of covenants and
representations by the Trustee; (3) certain acts of bankruptcy or insolvency on
the part of the Trustee; and (4) failure to meet the standards of Trustee
eligibility as set forth in the Pooling and Servicing Agreement.
If any such event occurs and is continuing, then and in every such case
(x) the Depositor or (y) the Owners of a majority of the Percentage Interests
represented by the Offered Certificates or, if there are no Offered Certificates
then outstanding, by a majority of the Percentage Interests represented by the
Private Certificates, may appoint a successor trustee.
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Governing Law
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
Amendments
The Trustee, the Depositor, the Master Servicer, the Seller and the
Servicers may, at any time and from time to time and without notice to or the
consent of the Owners, amend the Pooling and Servicing Agreement, and the
Trustee will be required to consent to such amendment, for the purposes of (i)
if accompanied by a favorable opinion of counsel experienced in federal income
tax matters, removing the restriction against the transfer of a Class R
Certificate to a Disqualified Organization (as such term is defined in the
Code), (ii) complying with the requirements of the Code including any amendments
necessary to maintain the status of either the Upper-Tier REMIC or the
Lower-Tier REMIC as a "REMIC", (iii) curing any ambiguity, (iv) correcting or
supplementing any provisions therein which are inconsistent with any other
provisions therein or (v) for any other purpose, provided that in the case of
clause (v), such amendment shall not adversely affect in any material respect
any Owner. Any such amendment shall be deemed not to adversely affect in any
material respect any Owner if there is delivered to the Trustee written
notification from each Rating Agency that such amendment will not cause such
Rating Agency to reduce its then current rating assigned to any Class of the
Offered Certificates. Notwithstanding anything to the contrary, no such
amendment shall (a) change in any manner the amount of, or delay the timing of,
payments which are required to be distributed to any Owner without the consent
of the Owner of such Certificate or (b) reduce the percentages of Percentage
Interest which are required to consent to any such amendments, without the
consent of the Owners of all Certificates of the Class or Classes affected then
outstanding.
The Trustee will be required to furnish written notification of the
substance of any such amendment to each Owner in the manner set forth in the
Pooling and Servicing Agreement.
Termination of the Trust
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Certificates of all amounts
required to be paid to such Owners upon the last to occur of (a) the final
payment or other liquidation (or any advance made with respect thereto) of the
last Mortgage Loan, (b) the disposition of all property acquired in respect of
any Mortgage Loan remaining in the Trust Estate and (c) at any time when a
Qualified Liquidation of the Trust Estate is effected as described below. To
effect a termination pursuant to clause (c) above, the Owners of all
Certificates then outstanding will be required (i) unanimously to direct the
Trustee on behalf of the Lower-Tier REMIC and the Upper-Tier REMIC to adopt a
plan of complete liquidation, as contemplated by Section 860F(a)(4) of the Code
and (ii) to furnish to the Trustee an opinion of counsel experienced in federal
income tax matters acceptable to the Trustee to the effect that such liquidation
constitutes a Qualified Liquidation.
Auction Sale; Step Up on Certain Pass-Through Rates; Termination
Auction Sale. The Pooling and Servicing Agreement requires that, within
90 days of the Auction Sale Bid Date, with respect to a Mortgage Loan Group, the
Trustee shall solicit bids for the purchase of all Mortgage Loans remaining in
such Mortgage Loan Group. In the event that satisfactory bids are received as
described in the Pooling and Servicing Agreement, the net sale proceeds will be
distributed to the Owners of the Certificates related to such Mortgage Loan
Group, in the same order of priority as interest and principal distributions. If
satisfactory bids are not received, the Trustee shall decline to sell the
Mortgage Loans and shall not be under any obligation to solicit any further bids
or otherwise negotiate any further sale of the Mortgage Loans in such Mortgage
Loan Group. The Auction Sale must constitute a "qualified liquidation" of the
Classes of Certificates related to such Mortgage Loan Group under Section 860F
of the Code, including, without limitation, the requirement that the qualified
liquidation takes place over a period not to exceed 90 days.
Step Up on Certain Pass-Through Rates. If an Auction Sale with respect
to the Adjustable Rate Group has not occurred by the Step Up Date, the
Pass-Through Rate on each Class of the Adjustable Rate Group Certificates will
be increased as provided in "Summary of Terms - Certificates Offered" herein,
for each Payment Date occurring thereafter.
Optional Termination By Servicers. If an Auction Sale with respect to a
Mortgage Loan Group does not occur, the Servicers will also have the right,
collectively, to purchase all of the Mortgage Loans in such Mortgage Loan Group
they are servicing on any Monthly Remittance Date when the outstanding
Certificate Principal Balance related to such Mortgage Loan Group has declined
to 5% of the Original Certificate Principal Balance of such Mortgage Loan Group.
Mandatory Purchase. In the event that an Auction Sale has not occurred
with respect to both Mortgage Loan Groups, and the Servicers fail to exercise
their respective option to purchase all of the Mortgage Loans in both Mortgage
Loan Groups, the Owners of the Class R Certificates will be required to purchase
all of the Mortgage Loans in both Mortgage Loan Groups on the Monthly Remittance
Date in June 2028.
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Termination Upon Loss of REMIC Status. Following a final determination
by the Internal Revenue Service or by a court of competent jurisdiction, in
either case from which no appeal is taken within the permitted time for such
appeal, or if any appeal is taken, following a final determination of such
appeal from which no further appeal can be taken, to the effect that either the
Upper-Tier REMIC or the Lower-Tier REMIC does not and will no longer qualify as
a "REMIC" pursuant to Section 860D of the Code (the "Final Determination"), at
any time on or after the date which is 30 calendar days following such Final
Determination the Owners of a majority in Percentage Interests represented by
the Offered Certificates then outstanding may direct the Trustee on behalf of
the Trust to adopt a plan of complete liquidation, as contemplated by Section
860F(a)(4) of the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Offered Certificates is to be considered only in connection with "Certain
Federal Income Tax Consequences" in the Prospectus. The discussion herein and in
the Prospectus is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Offered Certificates.
REMIC Elections
The Trust Estate (other than the Pre-Funding Account and the
Capitalized Interest Account) created by the Pooling and Servicing Agreement,
will consist of two segregated asset pools with respect to which elections will
be made to treat each as a separate REMIC for federal income tax purposes. The
Lower-Tier REMIC will issue several uncertificated subclasses of non-voting
interests (the "Lower-Tier REMIC Regular Interests") which will be designated as
the "regular interests" in the Lower-Tier REMIC and the uncertificated
"Lower-Tier REMIC Residual Interest" which will be designated as the "residual
interest" in the Lower-Tier REMIC. The assets of the Lower-Tier REMIC will
consist of the Mortgage Loans and all other assets comprising the Trust Estate
(other than the Pre-Funding Account and the Capitalized Interest Account) except
for the property allocated to the Upper-Tier REMIC. The Upper-Tier REMIC will
issue the Offered Certificates, the Class C-IO Certificates, the Class D
Certificates and the Class S Certificates which will be designated as the
"regular interests" in the Upper-Tier REMIC and the Class R Certificates which
will be designated as the "residual interest" in the Upper-Tier REMIC. The
assets of the Upper-Tier REMIC consist of the Lower-Tier REMIC Regular Interests
and the Upper-Tier Distribution Accounts. See "Formation of the Trust and Trust
Property" herein.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Arter & Hadden LLP, special tax counsel, will advise that, in its
opinion, for federal income tax purposes, assuming (i) the REMIC elections are
made and (ii) compliance with the Pooling and Servicing Agreement, each REMIC
will be treated as a REMIC, the Lower-Tier REMIC Regular Interest will be
treated as the "regular interests" in the Lower-Tier REMIC, the Offered
Certificates, the Class C-IO Certificates, the Class D Certificates and the
Class S Certificates will be treated as "regular interests" in the Upper-Tier
REMIC, the Lower-Tier REMIC Residual Interest will be treated as the sole
"residual interest" in the Lower-Tier REMIC and the Class R Certificates will be
the sole "residual interest" in the Upper-Tier REMIC. Except as indicated below
and in the Prospectus, for federal income tax purposes, regular interests in a
REMIC are treated as debt instruments issued by such REMIC on the date on which
those interests are created, and not as ownership interests in such REMIC or its
assets. Owners of the Offered Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to such
Offered Certificates under an accrual method.
The prepayment assumption for each Class of the Offered Certificates
for calculating original issue discount is 24% HEP for the Fixed Rate Group
Certificates and 100% of the Prepayment Assumption for the Adjustable Rate Group
Certificates. See "Prepayment and Yield Considerations - Prepayment and Yield
Scenarios for Offered Certificates" herein.
As a result of the qualification of the Lower-Tier REMIC and the
Upper-Tier REMIC, as REMICs, the Trust will not be subject to federal income tax
except with respect to (i) income from prohibited transactions, (ii) "net income
from foreclosure property" and (iii) certain contributions to the Trust after
the Closing Date (see "Certain Federal Income Tax Consequences" in the
Prospectus). The total income of the Trust (exclusive of any income that is
taxed at the REMIC level) will be taxable to the Beneficial Owners of the
Certificates.
Under the laws of New York State and New York City, an entity that is
treated for federal income tax purposes as a REMIC generally is exempt from
entity level taxes imposed by those jurisdictions. This exemption does not
apply, however, to the income on the Offered Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans and
individual retirement arrangements to which it applies ("Plan") and on those
persons who are fiduciaries with respect to such Plans. Any Plan fiduciary which
proposes to cause a Plan to acquire any of the Class A Certificates should
consult with counsel with respect to the consequences under ERISA and the Code
of the Plan's acquisition and ownership of such Certificates. See "ERISA
Considerations" in the Prospectus.
The Department of Labor (the "DOL") has issued to one or more of the
Underwriters individual prohibited transaction exemptions (the "Exemptions");
which generally exempt from the application of the prohibited transaction
provisions of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA
and the excise taxes imposed pursuant to Sections 4975(a) and (b) 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 Exemptions. The loans covered by the Exemptions include
mortgage loans such as the Mortgage Loans.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
(1) the acquisition of the Class A 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 Class A
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other Certificates of the Trust Estate;
(3) the Class A 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 either Standard & Poor's
Rating Services, Moody's, Fitch or DCR;
(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 any
Underwriter in connection with the distribution of the Class A
Certificates represents not more than reasonable compensation for
underwriting such Class A Certificates; the sum of all payments made to
and retained by the Seller pursuant to the assignment of the Mortgage
Loans to the Trust Estate represents not more than the fair market
value of such loans; the sum of all payments made to and retained by
any Servicer represents not more than reasonable compensation for such
person's services under the Agreement and reimbursement of such
person's reasonable expenses in connection therewith; and
(6) the Plan investing in the Class A 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 Estate must also meet the following requirements:
(i) the corpus of the Trust Estate must consist solely of a
fixed pool 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 rating categories of Standard &
Poor's Ratings Services, Moody's, Fitch or DCR for at least one year
prior to the Plan's acquisition of Class A 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 the Plan's acquisition of the Class A
Certificates.
Moreover, the Exemptions provide 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 in which the
fiduciary (or its affiliate) is a mortgagor on the receivables held in the
trust; provided that, among other requirements, (i) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is a
mortgagor with respect to five percent or less of the fair market value of the
obligations contained in the trust; (iii) the Plan's investment in certificates
of any class does not exceed twenty-five percent 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 of the assets of the
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 Exemptions do not apply to Plans
sponsored by the Depositor, the Underwriters, the Trustee, the Master Servicer,
the related Servicer, any mortgagor with respect to Mortgage Loans included in
the Trust Estate constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Estate, or any
affiliate of such parties (the "Restricted Group").
S-71
<PAGE>
On July 21, 1997, the DOL published in the Federal Register amendments
to the Exemptions ("PTE 97-34"), which extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the Class
A Certificates, PTE 97-34 generally allows Mortgage Loans supporting payments to
Owners of Class A Certificates, and having a value equal to no more than 25% of
the total principal amount of the Certificates being offered by the Trust, to be
transferred to the Trust within a funding period no longer than 90 days or three
months following the Closing Date instead of requiring that all such Mortgage
Loans be either identified or transferred on or before the Closing Date. The
relief will apply to the purchase, sale and holding of the Class A Certificates,
provided that the following general 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 ("Pre-Funding
Limit") does not exceed 25%;
(2) all Subsequent Mortgage Loans meet the same terms and conditions for
eligibility as the original Mortgage Loans used to create the Trust,
which terms and conditions have been approved by the Rating Agencies;
(3) the transfer of such Subsequent Mortgage Loans to the Trust during the
Funding Period does not result in the Class A Certificates to be
covered by the Exemptions receiving a lower credit rating from a Rating
Agency upon termination of the Funding Period than the rating that was
obtained at the time of the initial issuance of the Class A
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 Mortgage Loans and Subsequent Mortgage Loans in the Trust at the
end of the Funding Period is not more than 100 basis points lower than
the Average Interest Rate for the Mortgage Loans which were transferred
to the Trust on the Closing Date;
(5) either;
(i) the characteristics of the Subsequent Mortgage Loans are
monitored by an insurer or other credit support provider which
is independent of the Depositor; or
(ii) an independent accountant retained by the Depositor provides
the Depositor with a letter (with copies provided to the
Rating Agencies, the Underwriters and the Trustee) stating
whether or not the characteristics of the Subsequent Mortgage
Loans conform to the characteristics described in the
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 Mortgage
Loans which were transferred to the Trust as of the Closing
Date;
(6) the Funding Period ends 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 Rating Agencies
and:
(i) are 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 of the
three highest generic rating categories by such Rating Agency;
(8) the Prospectus or Prospectus Supplement describes;
(i) any Pre-Funding Account and/or Capitalized Interest Account;
(ii) the duration of the Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding Limit
for the Funding Period that will be remitted to Owners of
Class A Certificates as repayments of principal; and
(iv) that the amounts remaining in the Pre-Funding Account at the
end of the Funding Period will be remitted to owners of Class
A Certificates as repayments of principal; and
(9) the Pooling and Servicing Agreement describes the permitted investments
for the Pre-Funding Account and/or Capitalized Interest Account and, if
not disclosed in the Prospectus or Prospectus Supplement, the terms and
conditions for eligibility of Subsequent Mortgage Loans.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the possible applicability of the
Exemption (as amended by PTE 97-34), or other exemptive relief, and all of the
potential consequences in their specific circumstances, prior to making an
investment in a Class A Certificate. Each Plan fiduciary should determine
whether under the general fiduciary standards of investment procedure and
diversification an investment in the Class A Certificates is appropriate for the
Plan, taking into account the overall
S-72
<PAGE>
investment policy of the Plan and the composition of the Plan's investment
portfolio. In particular, purchasers that are insurance companies should consult
with their counsel with respect to the United States Supreme Court case, John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank (decided
December 13, 1993). In John Hancock, the Supreme Court ruled that assets held in
an insurance company's general account may be deemed to be "plan assets" under
certain circumstances. Purchasers should analyze whether the decision may have
an impact with respect to purchases of the Class A Certificates.
The exemptions do not apply to the initial purchase, the holding or the
subsequent resale of the Mezzanine Certificates and Class B-1 Certificates
because such Certificates are subordinate to certain other Classes of
Certificates. Accordingly, Plans may not purchase the Mezzanine Certificates or
Class B-1 Certificates, except that any insurance company may purchase such
Certificates with assets of its general account if the exemptive relief granted
by the DOL for transactions involving insurance company general accounts in
Prohibited Transaction Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995) ("PTE
95-60") is available with respect to such investment. Any insurance company
proposing to purchase such Certificates for its general account should consider
whether such relief would be available. By the transferee's acceptance of the
Mezzanine Certificates or Class B-1 Certificates it shall be deemed to have
represented that PTE 95-60 covers its acquisition and holding of such
Certificates. In the event that such representations are violated, any attempted
transfers or acquisitions shall be void and of no effect.
RATINGS
It is a condition of the issuance of each Class of the Offered
Certificates that the Offered Certificates receive the ratings set out below:
The ratings of each Rating Agency do not address the possibility that,
as a result of principal prepayments, Owners may receive a lower than
anticipated yield.
The ratings of the Certificates should be evaluated independently from
similar ratings on other types of securities. 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 agency.
The Depositor has not requested a rating of the Certificates offered
hereby by any rating agency other than the Rating Agencies and the Depositor has
not provided information relating to the Certificates offered hereby or the
Mortgage Loans to any rating agency other than the Rating Agencies. However,
there can be no assurance as to whether any other rating agency will rate the
Certificates offered hereby or, if another rating agency rates such
Certificates, what rating would be assigned to such Certificates by such rating
agency. Any such unsolicited rating assigned by another rating agency to the
Certificates offered hereby may be lower than the rating assigned to such
Certificates by any of the Rating Agencies.
LEGAL INVESTMENT MATTERS
The Offered Certificates (other than the Class A-7 Certificates, the
Class A-8 Certificates and the Class M-1A Certificates) will not constitute
"mortgage related securities" for purposes of SMMEA. The appropriate
characterization of the Offered Certificates (other than the Class A-7
Certificates, the Class A-8 Certificates and the Class M-1A Certificates) under
various legal investment restrictions applicable to the investment activities of
certain institutions, and thus the ability of investors subject to these
restrictions to purchase the Offered Certificates (other than the Class A-7
Certificates, the Class A-8 Certificates and the Class M-1A Certificates), may
be subject to significant interpretive uncertainties.
The Class A-7 Certificates, the Class A-8 Certificates and the Class
M-1A Certificates will constitute "mortgage related securities" for purposes of
SMMEA for so long as they are rated in one of the two highest rating categories
by one or more nationally recognized statistical rating organizations. As such,
the Class A-7 Certificates, the Class A-8 Certificates and the Class M-1A
Certificates will be legal investments for certain entities to the extent
provided in SMMEA, subject to state laws overriding SMMEA. In addition,
institutions whose investment activities are subject to review by federal or
state regulatory authorities may be or may become subject to restrictions, which
may be retroactively imposed by such regulatory authorities, on the investment
by such institutions in certain forms of mortgage related securities.
Furthermore, certain states have enacted legislation overriding the legal
investment provisions of SMMEA.
S-73
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Certificates (the "Underwriting Agreement"), the
Depositor has agreed to cause the Trust to sell to each of the Underwriters
named below (the "Underwriters"), and each of the Underwriters has severally
agreed to purchase the Percentage Interest of each Class of the Offered
Certificates as follows:
Underwriters
Percentage of Each
Underwriters Class of Certificates
------------ ---------------------
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Certificates
offered hereby, if any are purchased. The Depositor has been advised by the
Underwriters that they propose initially to offer the Offered Certificates to
the public at the respective offering prices set forth on the cover page hereof
and to certain dealers at such price less a concession not in excess of the
respective amounts set forth in the table below (expressed as a percentage of
the relative Certificate Principal Balance). The Underwriters may allow and such
dealers may reallow a discount not in excess of the respective amounts set forth
in the table below to certain other dealers.
Class Selling Concession
----- ------------------
A-1
A-2
A-3
A-4
A-5
A-6
A-7
A-8
M-1F
M-1A
M-2F
M-2A
B-1F
B-1A
In connection with this offering and in compliance with applicable law
and industry practice, the Underwriters may over-allot or effect transactions
which stabilize, maintain or otherwise affect the market price of the Offered
Certificates at a level above that which might otherwise prevail in the open
market, including stabilizing bids, effecting syndicate covering transactions or
imposting penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits Prudential Securities Incorporated, as
managing underwriter, to reclaim a selling concession from a syndicate member in
connection with the offering when Offered Certificates originally sold by the
syndicate member are purchased in syndicate covering transactions. The
Underwriters are not required to engage in any of these activities. Any such
activities, if commended, may be discontinued at any time.
The Depositor has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
AMRESCO Securities, Inc. (formerly Data Financial, Inc.) is a
broker-dealer registered as such with the National Association of Securities
Dealers, Inc.
The Depositor, the Seller and the Master Servicer are each affiliates
of AMRESCO Securities, Inc.
S-74
<PAGE>
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Seller and the Depositor by Arter &
Hadden LLP, Washington, D.C. and by ______________________, Esquire, Deputy
General Counsel for AMRESCO, INC., the parent of the Depositor. Certain legal
matters relating to insolvency issues and certain federal income tax matters
concerning the Certificates will be passed upon for the Depositor by Arter &
Hadden LLP.
S-75
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered AMRESCO
Residential Securities Corporation Mortgage Loan Trust 199__-__ Mortgage Loan
Pass-Through Certificates, Class A, Class M-1, Class M-2 and Class B-1 (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of DTC, Cedel or
Euroclear. The Global Securities will be tradeable 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 through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel 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, Cedel and
Euroclear will hold positions on behalf of their Participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. 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 Cedel 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 generally applicable to
mortgage loan asset-backed certificates issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant 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 Accrual Period for the
related Class. 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 Relevant Depositary to the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Cedel 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 Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
I-1
<PAGE>
Cedel 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 Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel 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 the result will depend on each Cedel
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 crediting Global
Securities to the respective European Depositary for the benefit of Cedel
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 Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel 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 Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to credit
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
Accrual Period for the related Class. 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
Cedel Participant or Euroclear Participant the following day, and receipt of the
cash proceeds in the Cedel 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 Cedel 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 Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the trade is reflected in their Cedel 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 Cedel 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 Cedel Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel 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 (as defined below), 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). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
I-2
<PAGE>
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), 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).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons 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). 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 Certificate Owners or their agent.
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 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
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate the income of which is includible in gross income for United States tax
purposes, regardless of its source or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust. The term "Non-U.S. Person" means any
person who is not a U.S. Person. 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.
I-3
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
2/28 Loans.................................................S-5 Collection Period.........................................S-10
3/27 Loans.................................................S-5 Combined Loan-to-Value Ratios..............................S-3
5/25 Loans.................................................S-4 Compensating Interest.....................................S-65
Accrual Period.............................................S-6 Cooperative...............................................S-56
Actuarial Loans...........................................S-31 Coupon Rates...............................................S-3
Adjustable Rate Group Certificates.........................S-1 Current Interest...........................................S-7
Advances..................................................S-14 Cut-Off Date...............................................S-2
Aggregate Certificate Principal Balance....................S-2 Daily Collections.........................................S-64
Applied Realized Loss Amount..............................S-15 Definitive Certificate....................................S-55
Appraised Values..........................................S-31 Deleted Mortgage Loan.....................................S-29
ARCC......................................................S-27 Delinquency Advance.......................................S-64
Auction Sale..............................................S-19 Depositor..................................................S-2
Auction Sale Bid Date.....................................S-19 DOL.......................................................S-71
Available Funds Cap Shortfall Amount......................S-18 DTC.......................................................S-19
Average Interest Rate.....................................S-72 DTC Participants..........................................S-56
Balloon Mortgage Loans....................................S-64 Due Dates.................................................S-65
Balloon Payments..........................................S-64 Eligible Investments......................................S-54
Beneficial Owners.........................................S-19 ERISA.....................................................S-71
Book-Entry Certificates...................................S-55 Euroclear.................................................S-19
Business Day...............................................S-6 Euroclear Operator........................................S-56
Capitalized Interest Account..............................S-18 Euroclear Participants....................................S-56
Cede......................................................S-19 European Depositaries.....................................S-20
Cedel.....................................................S-19 Exemptions................................................S-71
Cedel Participants........................................S-56 Extra Principal Distribution Amount.......................S-12
Certificate Account.......................................S-51 File......................................................S-63
Certificate Principal Balance.............................S-60 Final Certification.......................................S-63
Certificates...............................................S-2 Final Determination.......................................S-70
Chase.....................................................S-20 Final Scheduled Payment Dates.............................S-48
Citibank..................................................S-20 Financial Intermediary....................................S-55
Class......................................................S-1 Fixed Rate Group Certificates..............................S-1
Class A Certificates.......................................S-1 Fixed Rate Loans...........................................S-4
Class A Principal Distribution Amount.....................S-11 Funding Period............................................S-18
Class A-1 Certificates.....................................S-1 HEP.......................................................S-49
Class A-2 Certificates.....................................S-1 IML.......................................................S-56
Class A-3 Certificates.....................................S-1 Initial Mortgage Loans.....................................S-3
Class A-4 Certificates.....................................S-1 Interest Amount Available..................................S-6
Class A-5 Certificates.....................................S-1 Interest Carry Forward Amount..............................S-7
Class A-6 Certificates.....................................S-1 Interest Remittance Amount.................................S-7
Class A-6 Lockout Distribution Amount......................S-9 Liquidated Mortgage Loan..................................S-10
Class A-6 Lockout Percentage..............................S-10 Liquidation Proceeds......................................S-63
Class A-6 Lockout Pro Rata Distribution Amount............S-10 Loan Balance..............................................S-62
Class A-7 Certificates.....................................S-1 Loan Purchase Price.......................................S-29
Class A-8 Certificates.....................................S-1 Lower-Tier REMIC..........................................S-20
Class B-1 Applied Realized Loss Amount....................S-60 Lower-Tier REMIC Regular Interests........................S-70
Class B-1 Certificate Principal Balance...................S-60 Lower-Tier REMIC Residual Interest........................S-70
Class B-1 Principal Distribution Amount...................S-12 Master Servicer............................................S-2
Class B-1 Realized Loss Amortization Amount...............S-60 Master Servicer Fee........................................S-7
Class B-1A Certificates....................................S-1 Mezzanine Certificates.....................................S-1
Class B-1F Certificates....................................S-1 Monthly Excess Cash flow Amount...........................S-17
Class C-AIO Certificates...................................S-1 Monthly Excess Interest Amount.............................S-7
Class C-FIO Certificates...................................S-1 Monthly Remittance Date...................................S-10
Class C-IO Certificates....................................S-1 Mortgage Loan Group.......................................S-51
Class D Certificates.......................................S-2 Mortgage Loans............................................S-31
Class Distribution Amount..................................S-6 Mortgaged Properties.......................................S-3
Class M-1 Realized Loss Amortization Amount...............S-61 Mortgages..................................................S-3
Class M-1F Certificates....................................S-1 Net Coupon Rate...........................................S-29
Class M-1 Applied Realized Loss Amount....................S-61 Net Liquidation Proceeds..................................S-64
Class M-1 Certificate Principal Balance...................S-61 Notes......................................................S-3
Class M-1 Certificates.....................................S-1 Offered Certificates.......................................S-1
Class M-1 Principal Distribution Amount...................S-11 One-Month LIBOR...........................................S-54
Class M-1A Certificates....................................S-1 One-Month LIBOR Determination Date........................S-54
Class M-2 Applied Realized Loss Amount....................S-61 Original Certificate Principal Balance.....................S-1
Class M-2 Certificate Principal Balance...................S-61 Original Pre-Funded Amount.................................S-2
Class M-2 Certificates.....................................S-1 Originators...............................................S-50
Class M-2 Principal Distribution Amount...................S-11 Overcollateralization Amount..............................S-12
Class M-2 Realized Loss Amortization Amount...............S-61 Overcollateralization Deficiency..........................S-12
Class M-2A Certificates....................................S-1 Overcollateralization Release Amount......................S-13
Class M-2F Certificates....................................S-1 Owner.....................................................S-55
Class R Certificates.......................................S-2 PAGs......................................................S-27
Class S Certificates.......................................S-2 Participants..............................................S-55
Closing Date...............................................S-2 Pass-Through Rate.........................................S-52
Code......................................................S-20
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Payment Date...............................................S-5 Seller.....................................................S-2
Percentage Interest.......................................S-52 Senior Enhancement Percentage.............................S-12
Plan......................................................S-71 Senior Specified Enhancement Percentage...................S-12
Pooling and Servicing Agreement............................S-2 Servicing Advances........................................S-65
Preference Amount.........................................S-13 Servicing Fee.............................................S-14
Prepaid Installments......................................S-65 Servicing Fee Rate........................................S-63
Prepayment Assumption.....................................S-49 Six-Month LIBOR...........................................S-24
Prepayments...............................................S-22 Six-Month LIBOR Loans......................................S-5
Preservation Expenses.....................................S-65 SMMEA.....................................................S-21
Pre-Funded Amount.........................................S-18 Step Up Date..............................................S-19
Pre-Funding Account........................................S-2 Stepdown Date.............................................S-11
Pre-Funding Limit.........................................S-72 Subordinate Certificates...................................S-1
Principal and Interest Account............................S-64 Subordinated Trigger Event................................S-13
Principal Distribution Amount..............................S-9 Subsequent Cut-Off Date...................................S-23
Principal Remittance Amount...............................S-10 Subsequent Mortgage Loans..................................S-2
Private Certificates.......................................S-2 Subsequent Transfer Agreement.............................S-23
PTE 95-60.................................................S-73 Subsequent Transfer Date..................................S-18
PTE 97-34.................................................S-72 Substitution Amount.......................................S-63
Qualified Replacement Mortgage............................S-29 Targeted Overcollateralization Amount.....................S-13
Rating Agencies...........................................S-20 Telerate Page 3750........................................S-55
REMIC.....................................................S-20 Terms and Conditions......................................S-56
REMIC Opinion.............................................S-62 Trigger Event.............................................S-10
REO Property..............................................S-64 Trust.....................................................S-50
Realized Loss.............................................S-15 Trust Estate..............................................S-51
Record Date................................................S-6 Trustee Fee................................................S-7
Reference Banks...........................................S-55 Underwriters..............................................S-74
Register..................................................S-51 Underwriting Agreement....................................S-74
Registrar.................................................S-51 Underwriting Guidelines...................................S-26
Relevant Depositary.......................................S-55 Unpaid Realized Loss Amount...............................S-61
Remittance Period.........................................S-10 Upper-Tier REMIC..........................................S-20
Restricted Group..........................................S-72 Weighted Average Life.....................................S-48
Retained Certificates......................................S-2
Riegle Act................................................S-25
Rules.....................................................S-55
</TABLE>
A-2
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or by the Underwriters. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction in which the person making
such offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that information herein (including
information incorporated by reference herein) or therein is correct as of any
time subsequent to the date of this Prospectus Supplement or the Prospectus.
----------
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Summary of Terms............................................................S-1
Risk Factors ..............................................................S-26
The Portfolio of Mortgage Loans............................................S-30
Use of Proceeds............................................................S-42
The Depositor..............................................................S-42
The Mortgage Loan Pools....................................................S-42
Prepayment and Yield Considerations........................................S-58
The Originators............................................................S-66
Formation of the Trust and Trust Property..................................S-66
Additional Information.....................................................S-67
Description of the Offered Certificates....................................S-67
Global Clearance, Settlement and Tax
Documentation Procedures...........................................Annex I
Index to Location of Principal Defined Terms................................A-1
PROSPECTUS
Summary of Prospectus.........................................................1
Risk Factors..................................................................7
Description of the Securities................................................10
The Trusts...................................................................14
Credit Enhancement...........................................................17
Servicing of the Mortgage Loans and Contracts................................21
Administration...............................................................27
Use of Proceeds..............................................................33
The Depositor................................................................33
Certain Legal Aspects of the Mortgage Assets.................................34
Legal Investment Matters.....................................................42
ERISA Considerations.........................................................43
Certain Federal Income Tax Consequences......................................45
Plan of Distribution.........................................................67
Ratings......................................................................68
Legal Matters................................................................68
Financial Information........................................................68
Index to Location of Principal Defined Terms................................A-1
================================================================================
<PAGE>
================================================================================
AMRESCO Residential
Securities Corporation
Mortgage Loan Trust
199__-__
$---------------
Mortgage Loan
Pass-Through Certificates,
Series 199__-__
----------
$___________ Class A-1 Certificates
$___________ Class A-2 Certificates
$____________Class A-3 Certificates
$____________Class A-4 Certificates
$____________Class A-5 Certificates
$____________Class A-6 Certificates
$____________Class A-7 Certificates
$___________ Class A-8 Certificates
$___________ Class M-1F Certificates
$___________ Class M-1A Certificates
$___________ Class M-2F Certificates
$___________ Class M-2A Certificates
$___________ Class B-1F Certificates
$___________ Class B-1A Certificates
----------
PROSPECTUS SUPPLEMENT
----------
_______________ ___, 199__
================================================================================
Exhibit 99.3
PROSPECTUS SUPPLEMENT
(To Prospectus dated _______, 199__) NOTES
AMRESCO RESIDENTIAL SECURITIES CORPORATION
LOAN OWNER TRUST 19__-__
$__________ ADJUSTABLE RATE MORTGAGE LOAN
ASSET BACKED NOTES, SERIES 199__-__
DUE _____________________
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
Depositor
AMRESCO RESIDENTIAL SECURITIES CORPORATION
Seller
------------------
Servicer
[AMRESCO LOGO]
The AMRESCO Residential Securities Corporation Mortgage Loan Owner
Trust 19__-__ (the "Issuer") will be formed pursuant to a trust agreement to be
dated as of _________, 199__ (the "Trust Agreement") between AMRESCO Residential
Securities Corporation, as depositor (the "Depositor") and __________________,
as owner trustee (the "Owner Trustee"). The Issuer is hereby offering
$___________ aggregate principal amount of its Adjustable Rate Mortgage Loan
Asset Backed Notes, Series 19__-__ (the "Notes"). The Notes will be issued
pursuant to an indenture, dated as of ________ ___, 199__ (the "Indenture"),
between the Issuer and __________________, as indenture trustee (the "Indenture
Trustee"), and will be secured by a trust estate (the "Trust Estate") consisting
primarily of (i) a pool (the "Pool") of adjustable rate mortgage loans secured
by liens on one-to-four family residential properties (the "Mortgage Loans"),
(ii) the Issuer's rights under the Sale and Servicing Agreement (as defined
herein), (iii) the Note Insurance Policy, as described herein and (iv) certain
other assets described in the Indenture. The Issuer also will issue instruments
evidencing the residual interest in the Trust Estate (the "Residual Interest").
The Residual Interest and the Notes are collectively referred to as the
"Securities." Only the Notes are offered hereby.
Simultaneously with the issuance of the Notes, the Seller will obtain
from _______________________ (the "Note Insurer") a financial guaranty note
insurance policy relating to the Notes (the "Note Insurance Policy") in favor of
the Indenture Trustee. The Note Insurance Policy will require the Note Insurer
to make certain Insured Payments (as defined herein) on the Notes.
(continued on following page)
[Note Insurer logo]
For a discussion of significant matters affecting investment in the
Notes, see "Risk Factors" beginning on page S-___ herein, "Prepayment and Yield
Considerations" beginning on page S-___ herein and "Risk Factors" beginning on
page __ in the Prospectus.
THE NOTES REPRESENT NON-RECOURSE OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SELLER, THE
SERVICER, THE INDENTURE TRUSTEE, THE OWNER TRUSTEE, THE NOTE
INSURER OR ANY OF THEIR AFFILIATES, EXCEPT AS DESCRIBED
HEREIN. NEITHER THE NOTES NOR THE MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================================
Initial Note Price to Underwriting Proceeds to
Principal Balance Note Rate Public Discount Depositor(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Note ................. $ Variable(2) % % %
- -----------------------------------------------------------------------------------------------------------------------------
Total..................... $ $ $ $
=============================================================================================================================
</TABLE>
(1) Before deducting expenses, estimated to be $_________.
(2) The Note Rate on the Notes is adjustable based on one-month LIBOR as
described herein.
The Notes are offered subject to prior sale, when, as, and if accepted by the
Underwriters and subject to the Underwriters' rights to reject orders in whole
or in part. It is expected that the Notes will be delivered in book entry form
only through the facilities of The Depository Trust Company, Cedel Bank, S.A.
and the Euroclear System on or about ________ ___, 199__. The Notes will be
offered in Europe and the United States of America.
---------------------
[Underwriter] [Underwriter] [Underwriter] [Underwriter]
--------------------
The date of this Prospectus Supplement is ______ __, 199__.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
(cover continued from previous page)
The aggregate Loan Balance of the Mortgage Loans as of the Statistical
Calculation Date was $___________ (of which _____% are first liens and the
remainder are second liens). In addition to the Mortgage Loans as of the
Statistical Calculation Date, additional Mortgage Loans will be purchased by the
Trust from the Depositor on the Closing Date. All of the Mortgage Loans in the
Trust as of the Closing Date (the "Initial Mortgage Loans") will have a Cut-Off
Date of ______ ___, 199___ and AMRESCO Residential Capital Markets, Inc. (the
"Seller") expects that the Initial Mortgage Loans will total at least
$___________ as of the Closing Date (as defined below). The Mortgage Loans as of
the Statistical Calculation Date consist of adjustable rate mortgage loans and
all of the additional Mortgage Loans to be delivered on the Closing Date and all
of the Subsequent Mortgage Loans will be adjustable rate mortgage loans. See
"The Mortgage Loan Pool" herein.
The Sale and Servicing Agreement provides that additional Mortgage
Loans (the "Subsequent Mortgage Loans") may be purchased by the Issuer from the
Depositor from time to time on or before __________ ___, 199___ from funds on
deposit in the Pre-Funding Account. On the Closing Date an aggregate cash amount
of not more than $__________ (the "Pre-Funded Amount") will be deposited with
the Indenture Trustee in the Pre-Funding Account to be used by the Issuer to
acquire Subsequent Mortgage Loans.
Payments of principal and interest will be made to the owners (the
"Owners") of the Notes on the 25th day of each month (or, if such day is not a
business day, the next following business day) beginning ______ ___, 199__
(each, a "Payment Date"). Interest will be paid on each Payment Date to the
Owners of the Notes based on the Note Principal Balance (as defined herein) at
the Note Rate subject to the limitations described herein.
The Notes will constitute non-recourse obligations of the Issuer. The
Seller will have limited obligations arising in respect of certain
representations and warranties on the Mortgage Loans. The Servicer will have
limited obligations that arise pursuant to certain representations and
warranties and to its contractual servicing obligations under that certain
agreement to be entered into among the Depositor, the Servicer, the Seller, the
Indenture Trustee and the Issuer (the "Sale and Servicing Agreement"), including
any obligation it may have to advance delinquent interest payments on the
Mortgage Loans.
The Notes will be unconditionally and irrevocably guaranteed as to
timely payment of interest due to Owners and as to ultimate payment of the Note
Principal Balance, in each case pursuant to the terms of the Note Insurance
Policy issued by the Note Insurer. See "The Note Insurer" herein.
The stated maturity for the Notes is the Payment Date occurring on
___________ __, _____ (the "Final Payment Date").
The yield to maturity on the Notes will be affected by, among other
things, the rate of payment of principal (including by reason of prepayments,
defaults and liquidations) of the Mortgage Loans and the timing and receipt of
such payments as described herein and in the Prospectus. See "Risk Factors" in
the Prospectus and "Prepayment and Yield Considerations" herein.
The Notes are subject to optional redemption in full by the holder(s)
of a majority of the Residual Interest at any time after the aggregate Loan
Balance of the Mortgage Loans has declined to less than 10% of the sum of (x)
the Original Aggregate Loan Balance and (y) the Pre-Funded Amount. In addition,
the Note Insurer will have rights, under the limited circumstances described in
the Sale and Servicing Agreement, to acquire all of the Mortgage Loans from the
Issuer and thereby effect a redemption of the Notes. See "Administration --
Redemption of the Notes" herein.
It is a condition to the issuance of the Notes that they be rated "Aaa"
by Moody's Investors Service, Inc. and "AAA" by Standard & Poor's, a division of
The McGraw-Hill Companies, Inc.
No election will be made to treat the Trust as a "real estate mortgage
investment conduit" (a "REMIC") for federal income tax purposes.
There is currently no secondary market for the Notes. The Underwriters
intend to make a secondary market for the Notes, but have no obligation to do
so. There can be no assurance that a secondary market for the Notes will develop
or, if one does develop, that it will provide investors with a satisfactory
level of liquidity or that it will continue.
---------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
The Notes offered by this Prospectus Supplement will be a separate
series of Asset Backed Notes being offered by the Depositor pursuant to its
Prospectus dated ______ ___, 199__, of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
As provided herein under "The Note Insurer -- Incorporation of Certain
Documents by Reference," the Seller will provide without charge to any person to
whom this Prospectus Supplement is delivered, upon oral or written request of
such person, a copy of any or all financial statements incorporated herein by
reference. Requests for such copies should be directed as provided under "The
Note Insurer -- Incorporation of Certain Documents by Reference" herein.
---------------------
To the extent statements contained herein do not relate to historical
or current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Notes,
which risks and uncertainties are discussed under "Risk Factors" and "Prepayment
and Yield Considerations" herein. As a consequence, no assurance can be given as
to the actual distributions on, or the yield of, the Notes.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
NOTES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement under the Securities Act of 1933
with respect to the Certificates. This Prospectus Supplement and the related
Prospectus, which form a part of the Registration Statement, omit certain
information contained in such Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement can be inspected and
copied at the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C., and the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and electronically
through the Commission's Electronic Data Gathering Analysis and Retrieval system
at the Commission's Web site (http:\\www.sec.gov).
REPORTS TO OWNERS
Monthly and annual reports concerning the Notes and the Issuer will be
sent by the Indenture Trustee to the Owners of Notes. So long as any Note is in
book-entry form, such reports will be sent to Cede & Co., as the nominee of DTC
and as Owner of such Notes pursuant to the Indenture. DTC will supply such
reports to Owners of any such Notes in accordance with its procedures. The
Depositor will file or cause to be filed with the Commission such periodic
reports with respect to the Issuer as are required under the Securities Exchange
Act of 1934 and the rules and regulations of the Commission thereunder. It is
the Depositor's intent to suspend the filing of such reports as soon as such
reports are no longer statutorily required.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY OF TERMS............................................................S-2
RISK FACTORS................................................................S-13
THE PORTFOLIO OF MORTGAGE LOANS.............................................S-16
General....................................................................S-16
Underwriting Guidelines....................................................S-16
Prepayment Penalties.......................................................S-20
The Servicer...............................................................S-20
THE ISSUER..................................................................S-20
THE DEPOSITOR...............................................................S-20
USE OF PROCEEDS.............................................................S-21
THE MORTGAGE LOAN POOL......................................................S-21
General....................................................................S-21
Conveyance of Subsequent Mortgage Loans....................................S-30
PREPAYMENT AND YIELD CONSIDERATIONS.........................................S-30
General....................................................................S-30
Mandatory Prepayment.......................................................S-31
Prepayment and Yield Scenarios for the Notes ..............................S-31
THE ORIGINATORS.............................................................S-35
ADDITIONAL INFORMATION......................................................S-35
DESCRIPTION OF THE NOTES....................................................S-35
General....................................................................S-35
Payment Dates..............................................................S-35
Payments...................................................................S-36
Calculation of One-Month LIBOR.............................................S-38
Pre-Funding Account........................................................S-38
Capitalized Interest Account...............................................S-39
Book Entry Registration of the Notes.......................................S-39
Assignment of Rights.......................................................S-42
THE NOTE INSURER............................................................S-42
CREDIT ENHANCEMENT..........................................................S-46
Note Insurance Policy......................................................S-46
Overcollateralization Provisions...........................................S-46
ADMINISTRATION..............................................................S-48
Covenant of the Seller to Take Certain Actions with Respect
to the Mortgage Loans in Certain Situations...........................S-48
Assignment of Mortgage Loans...............................................S-49
Servicing and Sub-Servicing................................................S-50
Removal and Resignation of Servicer........................................S-54
Redemption of the Notes....................................................S-54
The Indenture Trustee......................................................S-55
The Indenture..............................................................S-55
Voting.....................................................................S-56
Reporting Requirements.....................................................S-56
Removal of Indenture Trustee for Cause.....................................S-58
Governing Law..............................................................S-58
FEDERAL INCOME TAX CONSEQUENCES.............................................S-58
STATE TAX CONSEQUENCES......................................................S-59
ERISA CONSIDERATIONS........................................................S-59
RATINGS.....................................................................S-60
LEGAL INVESTMENT CONSIDERATIONS.............................................S-61
UNDERWRITING................................................................S-61
REPORT OF EXPERTS...........................................................S-62
CERTAIN LEGAL MATTERS.......................................................S-62
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES...................................................I-1
Certain U.S. Federal Income Tax Documentation Requirements.................I-3
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS................................A-1
Prospectus
Page
----
SUMMARY OF PROSPECTUS..........................................................1
RISK FACTORS...................................................................7
DESCRIPTION OF THE SECURITIES.................................................10
General......................................................................11
Classes of Securities........................................................11
Distributions of Principal and Interest......................................12
Book Entry Registration......................................................14
List of Owners of Securities.................................................14
THE TRUSTS....................................................................14
Mortgage Loans...............................................................15
Contracts....................................................................17
Mortgage-Backed Securities...................................................17
Other Mortgage Securities....................................................17
CREDIT ENHANCEMENT............................................................17
SERVICING OF MORTGAGE LOANS AND CONTRACTS.....................................21
Payments on Mortgage Loans...................................................22
Advances.....................................................................22
Collection and Other Servicing Procedures....................................23
Primary Mortgage Insurance...................................................25
Standard Hazard Insurance....................................................25
Title Insurance Policies.....................................................26
Claims Under Primary Mortgage Insurance Policies and Standard
Hazard Insurance Policies; Other Realization Upon
Defaulted Loan..........................................................26
Servicing Compensation and Payment of Expenses...............................27
Master Servicer..............................................................27
ADMINISTRATION................................................................27
Assignment of Mortgage Assets................................................27
Evidence as to Compliance....................................................29
The Trustee..................................................................30
Administration of the Security Account.......................................30
Reports......................................................................31
Forward Commitments; Pre-Funding.............................................32
Servicer Events of Default...................................................32
Rights Upon Servicer Event of Default........................................32
Amendment....................................................................33
Termination..................................................................33
USE OF PROCEEDS...............................................................33
THE DEPOSITOR.................................................................33
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS..................................34
General......................................................................34
Foreclosure..................................................................35
Soldiers' and Sailors' Civil Relief Act.....................................39
The Contracts................................................................40
The Title I Program..........................................................42
LEGAL INVESTMENT MATTERS......................................................42
ERISA CONSIDERATIONS..........................................................43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................45
Federal Income Tax Consequences For REMIC Securities.........................45
Taxation of Regular Securities...............................................46
Taxation of Residual Securities..............................................51
Treatment of Certain Items of REMIC Income and Expense.......................53
Tax-Related Restrictions on Transfer of Residual Securities..................55
Sale or Exchange of a Residual Security......................................57
Taxes That May Be Imposed on the REMIC Pool..................................57
Liquidation of the REMIC Pool................................................58
Administrative Matters.......................................................58
Limitations on Deduction of Certain Expenses.................................58
Taxation of Certain Foreign Investors........................................59
Backup Withholding...........................................................59
Reporting Requirements.......................................................60
Federal Income Tax Consequences for Securities as to Which
No REMIC Election Is Made...............................................60
Standard Securities..........................................................60
Premium and Discount.........................................................62
Stripped Securities..........................................................63
Reporting Requirements and Backup Withholding................................65
Taxation of Certain Foreign Investors........................................66
Debt Securities..............................................................66
Taxation of Securities Classified as Partnership Interests...................67
PLAN OF DISTRIBUTION..........................................................67
RATINGS.......................................................................68
LEGAL MATTERS.................................................................68
FINANCIAL INFORMATION.........................................................68
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS.................................A-1
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the "Index to Location of
Principal Defined Terms" for the location of the definitions of certain
capitalized terms.
<TABLE>
<S> <C>
Securities Offered: $___________ Adjustable Rate Mortgage Loan Asset Backed Notes, Series
19__-__ (the "Notes"). The Notes represent non-recourse obligations of the
Issuer. Proceeds of the assets in the Trust Estate will be the sole source of
payments on the Notes.
Note Issuer: AMRESCO Residential Securities Corporation Mortgage Loan Owner Trust
199__-__ (the "Issuer" or the "Trust"), a Delaware business trust established
by the Depositor pursuant to a trust agreement, dated as of ______ __,
199__ (the "Trust Agreement"), between the Depositor and the Owner
Trustee. The Issuer does not have, nor is it expected in the future to have,
any significant assets, other than the assets included in the Trust Estate. See
"The Issuer" herein.
Depositor: AMRESCO Residential Securities Corporation (the "Depositor"), a
Delaware corporation.
Seller: AMRESCO Residential Capital Markets, Inc. (the "Seller"), a Delaware corporation.
Servicer: _________________ (the "Servicer").
Indenture Trustee: ______________________, a _____________ corporation, as Indenture Trustee
(the "Indenture Trustee"). The Indenture Trustee shall receive a fee (the
"Indenture Trustee Fee") equal to _______% per annum, payable monthly at
one-twelfth the annual rate of the aggregate outstanding Loan Balance of the
Mortgage Loans.
Owner Trustee: _________________, a Delaware banking corporation, as owner trustee under the
Trust Agreement (the "Owner Trustee"). The Owner Trustee shall receive a fee (the
"Owner Trustee Fee") as provided under the Trust Agreement.
Custodian: ____________________, a __________-chartered trust company (the "Custodian").
Cut-Off Date: As of the close of business on __________ __, 199__ (the "Cut-Off Date").
Statistical Calculation Date: As of the close of business on _____________ __, 199__ (the "Statistical
Calculation Date").
Closing Date: On or about ________ __, 199__.
Description of the Notes: The Notes represent non-recourse obligations of the Issuer and will be issued
pursuant to an indenture to be dated as of ______ __, 199__ (the "Indenture"),
entered into between the Issuer and the Indenture Trustee. The assets included in
the trust estate created by the Indenture (the "Trust Estate") will be the sole
source of payments on the Notes. The Notes will be issued in a single class.
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The assets of the Trust Estate will consist of (i) a pool (the "Pool") of
adjustable rate conventional mortgage loans (the "Mortgage Loans") secured by
first or second lien mortgages, security deeds or deeds of trust on one-to-four
family residential properties, including units in condominiums, planned unit
developments, townhouses and manufactured housing units (the "Properties"), and
including a promissory note (each, a "Mortgage Note"); (ii) all payments in
respect of principal and interest on the Mortgage Loans (other than any principal
or interest payments due thereon on or prior to the Cut-Off Date whether or not
received); (iii) security interests in the Properties; (iv) the Issuer's rights
under the Sale and Servicing Agreement; (v) the Note Insurance Policy and (vi)
certain other property.
On the Closing Date, the Pre-Funded Amount (as defined herein) will be deposited
in a trust account held by the Indenture Trustee in the name of the Indenture
Trustee for the benefit of the Owners of the Notes and the Note Insurer (the
"Pre-Funding Account"). It is intended that additional Mortgage Loans satisfying
the criteria specified in the Sale and Servicing Agreement (the "Subsequent
Mortgage Loans") will be purchased by the Issuer from the Depositor from time to
time on or before ______ __, 199__ from funds on deposit in the Pre-Funding
Account. As a result, the aggregate principal balance of the Mortgage Loans will
increase by an amount equal to the aggregate principal balance of the Subsequent
Mortgage Loans so purchased and the amount in the Pre-Funding Account will
decrease proportionately.
As described below, on the Closing Date, cash will be deposited in the name of the
Indenture Trustee in the Capitalized Interest Account (as defined herein). Funds
in the Capitalized Interest Account will be applied by the Indenture Trustee to
cover shortfalls in interest during the Funding Period (as described herein under
"Pre-Funding Account") on the Notes attributable to the provisions allowing for
purchase of Subsequent Mortgage Loans after the Cut-Off Date.
Other Securities: In addition to the Notes, pursuant to the Trust Agreement the Trust will issue a
class of securities (the "Residual Interest") which will represent the residual
interest in the Trust. The Notes and the Residual Interest are herein referred to
as the "Securities." Only the Notes are offered hereby.
Denominations: The Notes are issuable in minimum denominations of an original principal amount of
$25,000 and multiples of $1,000 in excess thereof.
The Mortgage Loans: Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are approximate and are measured by the aggregate Loan
Balance of the Mortgage Loans as of the Statistical Calculation Date.
Similarly, unless otherwise noted, any references to Loan Balances represent
scheduled Loan Balances as of the Statistical Calculation Date. The
statistical characteristics of the Mortgage Loans will vary upon the transfer
into the Trust of (x) the additional Initial Mortgage Loans on the Closing
Date and (y) the Subsequent Mortgage Loans during the Funding Period.
See "Additional Information" herein.
The Mortgage Loans to be conveyed to the Trust by the Depositor on the Closing
Date (the "Initial Mortgage Loans") consist of adjustable rate conventional
mortgage loans evidenced by promissory notes secured by first
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and second lien deeds of trust, security deeds or mortgages (the "Mortgages"),
which, as of the Statistical Calculation Date, were located in ___ states and the
District of Columbia. The properties securing the Mortgage Loans consist primarily
of single-family residences (which may be attached or detached), two- to four-
family dwellings, condominium units, units in planned unit developments,
manufactured homes and townhouses. The Mortgaged Properties may be either
owner-occupied or non-owner-occupied investment properties. No Combined
Loan-to-Value Ratio (as defined below) (based upon appraisals made at the time of
origination) exceeded 90% as of the Statistical Calculation Date. The Mortgage
Loans are not insured by either primary or pool mortgage insurance policies;
however, certain distributions due to the owners of the Notes (the "Owners") are
insured by the Note Insurer pursuant to the Note Insurance Policy. The Mortgage
Loans are not guaranteed by the Issuer, the Depositor, the Seller, the Servicer,
the Note Insurer, the Owner Trustee, the Indenture Trustee or any of their
affiliates. The Mortgage Loans will be serviced by the Servicer generally in
accordance with the standards and procedures required by Fannie Mae for Fannie Mae
mortgage-backed securities and in accordance with the terms of that Sale and
Servicing Agreement dated as of _______ ___, 199__ (the "Sale and Servicing
Agreement") among the Issuer, the Depositor, the Seller, the Servicer and the
Indenture Trustee.
As of the Statistical Calculation Date, the average Loan Balance of the Initial
Mortgage Loans was $_________; the weighted average interest rate (the "Coupon
Rate") of such Initial Mortgage Loans was _____% per annum; the Coupon Rates of
the Initial Mortgage Loans ranged from _____% per annum to ______% per annum; the
weighted average Loan-to-Value Ratio of the Initial Mortgage Loans was _____%; and
the weighted average remaining term to maturity of the Initial Mortgage Loans was
approximately ____ months. The remaining terms to maturity as of the Statistical
Calculation Date of the Initial Mortgage Loans ranged from ____ months to ____
months. The maximum Loan Balance of the Initial Mortgage Loans as of the
Statistical Calculation Date was $__________. No Initial Mortgage Loan as of the
Statistical Calculation Date will mature later than ___________________ ___, ____.
As a percentage of the aggregate Loan Balance of the Initial Mortgage Loans as of
the Statistical Calculation Date, _____% were secured by mortgages on
single-family dwellings, ____% by mortgages on two- to four-family dwellings,
____% by mortgages on condominiums, ____% by mortgages on planned unit
developments, ____% by mortgages on manufactured homes and ____% by mortgages on
townhouses. See "The Mortgage Loan Pool" herein.
All of the Initial Mortgage Loans have maximum Coupon Rates. As of the Statistical
Calculation Date, the weighted average maximum Coupon Rate of the Initial Mortgage
Loans is _____% per annum, with maximum Coupon Rates that range from approximately
______% per annum to ______% per annum. As of the Statistical Calculation Date,
the Initial Mortgage Loans have a weighted average gross margin of _____%. The
gross margin for the Initial Mortgage Loans as of the Statistical Calculation
Date, ranges from _____% to _____%. The minimum Coupon Rates for the Initial
Mortgage Loans as of the Statistical Calculation Date, range from _____% per annum
to ______% per annum.
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_____% of the Initial Mortgage Loans as of the Statistical Calculation Date (the
"Six-Month LIBOR Loans"), bear interest at rates that adjust, along with the
related monthly payments, semiannually based on Six-Month LIBOR. As of the
Statistical Calculation Date, _____% of the Six-Month LIBOR Loans have a
semiannual reset cap of ___%, substantially all of which have a lifetime reset cap
ranging from ___% to ___%. The Six-Month LIBOR Loans consist of Initial Mortgage
Loans as of the Statistical Calculation Date aggregating $______________.
_____% of the Initial Mortgage Loans as of the Statistical Calculation Date (the
"2/28 Loans"), bear interest at a fixed rate of interest for a period of two years
after origination and thereafter have semiannual interest rate and payment
adjustments at frequencies and in the same manner as the Six-Month LIBOR Loans. As
of the Statistical Calculation Date, ____% of the 2/28 Loans have a periodic rate
adjustment cap of ___%, substantially all of which have a lifetime reset cap
ranging from ___% to ___%; ____% of the 2/28 Loans have a periodic rate adjustment
cap of ___% and generally have a lifetime reset cap of ___%. The 2/28 Loans
consist of Initial Mortgage Loans as of the Statistical Calculation Date
aggregating $_____________.
____% of the Initial Mortgage Loans as of the Statistical Calculation Date (the
"3/27 Loans"), bear interest at a fixed rate of interest for a period of three
years after origination and thereafter have semiannual interest rate and payment
adjustments at frequencies and in the same manner as the Six-Month LIBOR Loans
with all of such Initial Mortgage Loans being subject to a ___% periodic rate
adjustment cap. Substantially all of the 3/27 Loans have a lifetime reset cap
ranging from ___% to ___%. The 3/27 Loans consist of Initial Mortgage Loans as of
the Statistical Calculation Date, aggregating $____________.
_____% and ____% of the Initial Mortgage Loans by Loan Balance as of the
Statistical Calculation Date, were originated by AMRESCO Residential Mortgage
Company ("ARMC") and _________________, respectively.
Final Payment Date: The Final Payment Date for the Notes is ______ ___, ____, although it is
anticipated that the actual final Payment Date for the Notes will occur
significantly earlier than the Final Payment Date. See "Prepayment and Yield
Considerations" herein.
Payments--General: On the 25th day of each month, or if such a day is not a Business Day, then
the next succeeding Business Day, commencing _________________ __,
199__ (each such day being a "Payment Date"), the Indenture Trustee will
be required, subject to the availability of amounts therefor, pursuant to the
cash flow priorities hereinafter described, to make payments on the Notes
to the Owners thereof of record as of the last Business Day preceding such
Payment Date (the "Record Date").
A "Business Day" is any day other than a Saturday or Sunday or a day on which
banking institutions in California, The City of New York, the city in which the
corporate trust office of the Indenture Trustee is located or the city in which
the Note Insurer is located are authorized or obligated by law or executive order
to be closed.
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Interest: On each Payment Date, the Notes will be entitled to payments in respect of
Current Interest .
"Current Interest" means, with respect to any Payment Date the sum of (i) the
aggregate amount of interest accrued from and including the preceding Payment Date
(or from the Closing Date in the case of the first Payment Date) to and including
the day prior to the current Payment Date (the "Accrual Period") at the Note Rate
on the outstanding principal balance of the Notes (the "Note Principal Balance"),
(ii) any Interest Carry Forward Amount and (iii) the Preference Amount as it
relates to interest previously paid on such Note prior to such Payment Date (in
accordance with the Note Insurance Policy); provided, however, that Current
Interest will be reduced by the amount of any Civil Relief Interest Shortfalls (as
defined in the Sale and Servicing Agreement). All calculations of interest on the
Notes will be made on the basis of the actual number of days elapsed in the
related Accrual Period and a year of 360 days.
The "Interest Carry Forward Amount" for any Payment Date is the sum of (x) the
amount, if any, by which (i) the Current Interest as of the immediately preceding
Payment Date exceeded (ii) the amount of the actual payments of interest made on
such immediately preceding Payment Date plus (y) interest on the amount in clause
(x) above calculated at the Note Rate for the number of days in the related
Accrual Period.
On each Payment Date, the "Note Rate" will be equal to the lesser of (x) the
Formula Note Rate and (y) the Available Funds Cap.
The "Formula Note Rate" for any Payment Date will equal the lesser of (x)(i) with
respect to any Payment Date which occurs on or prior to the Redemption Date (as
defined herein), One-Month LIBOR plus ____% per annum and (ii) with respect to any
Payment Date thereafter, One-Month LIBOR plus ____% per annum, and (y) _____% per
annum.
The "Available Funds Cap" for any Payment Date will equal the weighted average of
the Coupon Rates on the Mortgage Loans, less (i) prior to the Payment Date in
__________ 199__, _______% per annum, and (ii) on or after the Payment Date in
___________ 199__, _______% per annum.
If, on any Payment Date, the Available Funds Cap limits the Note Rate (i.e., the
rate as determined by the Available Funds Cap is less than the Formula Note Rate),
the amount of any such shortfall will be carried forward and be due and payable on
future Payment Dates and shall accrue interest at the Formula Note Rate, until
paid (such shortfall, together with such accrued interest, the "Available Funds
Cap Carry Forward Amount"). The Note Insurance Policy does not cover the Available
Funds Cap Carry Forward Amount; the payment of such amount may be funded only from
(i) any excess interest resulting from the Available Funds Cap being in excess of
the Formula Note Rate on future Payment Dates and (ii) any Net Monthly Excess
Cashflow which would otherwise be paid to the Servicer or the Indenture Trustee on
account of certain reimbursable amounts described in the Sale and Servicing
Agreement, or to the Owners of the Residual Interests.
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The "Redemption Date" is the first Monthly Remittance Date on which the aggregate
Loan Balance of the Mortgage Loans has declined to less than 10% of the sum of (x)
the aggregate Loan Balance of the Initial Mortgage Loans as of the Cut-Off Date
(the "Original Aggregate Loan Balance") plus (y) the original Pre-Funded Amount
(such sum, the "Maximum Collateral Amount").
Principal: On each Payment Date, payments in reduction of the Note Principal Balance
will be made in the amounts described herein. The "Principal Payment
Amount" for each Payment Date shall be the lesser of:
(a) the Total Available Funds (as defined herein) plus any Insured Payment minus
the Current Interest and the Trust Fees and Expenses for such Payment Date; and
(b) the excess, if any, of
(i) the sum of (without duplication):
(A) the Preference Amount with respect to principal owed to each Owner of
a Note that remains unpaid as of such Payment Date;
(B) the principal portion of all scheduled monthly payments on the
Mortgage Loans due on or prior to the related Due Date thereof, to the
extent actually received by the Servicer during the related Remittance
Period and any Prepayments made by the Mortgagors and actually received by
the Servicer during the related Remittance Period;
(C) the balance of each Mortgage Loan (the "Loan Balance") that was
repurchased by the Seller or purchased by the Servicer on or prior to the
related Monthly Remittance Date, to the extent such Loan Balance is
actually received by the Servicer during the related Remittance Period;
(D) any Substitution Amounts (i.e., the excess, if any, of the Loan
Balance of a Mortgage Loan being replaced over the outstanding principal
balance of a replacement Mortgage Loan plus accrued and unpaid interest)
delivered by the Seller on the related Monthly Remittance Date in
connection with a substitution of a Mortgage Loan (to the extent such
Substitution Amounts relate to principal), to the extent such Substitution
Amounts are actually received by the Servicer on the related Remittance
Date;
(E) all Net Liquidation Proceeds actually collected by the Servicer with
respect to the Mortgage Loans during the related Remittance Period (to the
extent such Net Liquidation Proceeds relate to principal);
(F) the amount of any Overcollateralization Deficit for such Payment Date;
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(G) the principal portion of the proceeds received by the Indenture
Trustee upon termination of the Trust Estate (to the extent such proceeds
relate to principal);
(H) on the Payment Date immediately following the end of the Funding
Period, all amounts remaining on deposit in the Pre-Funding Account to the
extent not used to purchase Subsequent Mortgage Loans during the Funding
Period; and
(I) the amount of any Overcollateralization Increase Amount for such
Payment Date to the extent of any Net Monthly Excess Cashflow available
for such purpose;
over
(ii) the amount of any Overcollateralization Reduction Amount for such
Payment Date.
The "Remittance Period" with respect to any Monthly Remittance Date is the period
from the second day of the month immediately preceding such Monthly Remittance
Date to the first day of the month in which such Monthly Remittance Date occurs. A
"Monthly Remittance Date" is any date on which funds on deposit in the Principal
and Interest Account are remitted to the Note Account, which is the 20th day of
each month, or if such day is not a Business Day, the next preceding Business Day,
commencing in __________ 199__.
The "Preference Amount" is any amount (other than amounts in respect of the
Available Funds Cap Carry Forward Amount) previously distributed to an Owner on a
Note that is recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code (Title 11 of
the United States Code), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
The "Premium Amount" is the amount payable to the Note Insurer as premium for the
Note Insurance Policy.
Monthly Servicing Fee: The Servicer will retain a fee (the "Servicing Fee") equal to ____% per annum,
payable monthly at one-twelfth the annual rate of the then outstanding principal
balance of each Mortgage Loan as of the first day of each Remittance Period.
Credit Enhancement: The credit enhancement provided for the benefit of the Notes consists of (x) the
overcollateralization which utilizes the excess interest created by the internal
cash flows of the Pool and (y) the Note Insurance Policy.
Overcollateralization. The required application of the cash flow from the Pool
results in a limited acceleration of the Notes relative to the amortization of the
Mortgage Loans in the early months of the transaction. The accelerated
amortization is achieved by the application of certain excess interest to the
payment in reduction of the Note Principal Balance. This acceleration feature
creates overcollateralization (i.e., the excess of the aggregate outstanding Loan
Balance of the Mortgage Loans over the Note
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Principal Balance). Once the required level of overcollateralization is reached,
and subject to the provisions described in the next paragraph, the acceleration
feature will cease unless necessary to maintain the required level of
overcollateralization.
The Sale and Servicing Agreement provides that, subject to certain floors, caps
and triggers, the required level of overcollateralization may increase or decrease
over time. An increase would result in a temporary period of accelerated
amortization of the Notes to increase the actual level of overcollateralization to
its required level; a decrease would result in a temporary period of decelerated
amortization to reduce the actual level of overcollateralization to its required
level. See "Prepayment and Yield Considerations", "Credit Enhancement --
Overcollateralization Provisions" herein and "Credit Enhancement" in the
Prospectus.
Financial Guaranty Note Insurance Policy. ________________________, a
________________ insurance company (the "Note Insurer"), will issue a financial
guaranty note insurance policy (the "Note Insurance Policy") with respect to the
Notes.
Pursuant to the provisions of the Note Insurance Policy, the Note Insurer will
irrevocably and unconditionally guarantee certain payments to the Indenture
Trustee for the benefit of the Owners of the Notes. The amount of the actual
payment, if any, made by the Note Insurer to the Indenture Trustee for the benefit
of the Owners of the Notes under the Note Insurance Policy on each Payment Date
(the "Insured Payment") is the excess, if any, of (i) the sum of (a) the Current
Interest, (b) the Overcollateralization Deficit and (c) the Preference Amount
(without duplication) over (ii) the Total Available Funds (after any deduction for
the Trust Fees and Expenses) and after taking into account the portion of the
Principal Payment Amount to be actually distributed on such Payment Date (without
regard to any Insured Payment to be made with respect to such Payment Date). The
Note Insurance Policy does not insure the payment of Available Funds Cap Carry
Forward Amounts.
Insured Payments do not cover Realized Losses except to the extent that an
Overcollateralization Deficit exists. Insured Payments do not cover the Servicer's
failure to make Delinquency Advances pursuant to the Sale and Servicing Agreement,
except to the extent that an Overcollateralization Deficit would otherwise result
therefrom. Nevertheless, the effect of the Note Insurance Policy is to guaranty
the timely payment of interest on, and the ultimate payment of the principal
amount of, the Notes.
The Note Insurance Policy is noncancellable for any reason.
Unless a Note Insurer Default exists, the Note Insurer shall have the right to
exercise certain rights of the Owners of the Notes, as specified in the Indenture,
without any consent of such Owners; and such Owners may exercise such rights only
with the prior written consent of the Note Insurer, except as provided in the
Indenture. In addition, to the extent of unreimbursed payments under the Note
Insurance Policy, the Note Insurer will be subrogated to the rights of the Owners
of the Notes on which such Insured Payments were made. In connection with each
Insured Payment on a Note, the Indenture Trustee, as attorney-in-fact for the
Owner thereof, will
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be required to assign to the Note Insurer the rights of such Owner with respect to
the Note to the extent of such Insured Payment. "Note Insurer Default" is defined
under the Sale and Servicing Agreement as the existence and continuance of (x) the
failure by the Note Insurer to make a required payment under the Note Insurance
Policy or (y) the bankruptcy or insolvency of the Note Insurer.
The "Trust Fees and Expenses" are the Premium Amount, the Indenture Trustee Fee
and any Trustee Reimbursable Expenses (each as defined herein).
Pre-Funding Account: On the Closing Date, an aggregate cash amount (the "Pre-Funded Amount")
of no more than $___________ will be deposited in the Pre-Funding
Account. During the period (the "Funding Period") from the Closing Date
until the earliest to occur of (i) the date on which the Pre-Funded Amount
is reduced to $100,000 or less, (ii) the occurrence of a "Servicer
Termination Event" (as defined in the Sale and Servicing Agreement) or an
"Event of Default" (as defined herein) or (iii) _______________ __, 199__,
the Pre-Funded Amount will be maintained in the Pre-Funding Account.
The Pre-Funded Amount will be reduced during the Funding Period by the
amount thereof used to purchase Subsequent Mortgage Loans in accordance
with the Sale and Servicing Agreement. Subsequent Mortgage Loans
purchased on any date (each, a "Subsequent Transfer Date") must satisfy the
criteria set forth in the Sale and Servicing Agreement. See "The Mortgage
Loan Pool-- Conveyance of Subsequent Mortgage Loans" herein. Any
Pre-Funded Amount remaining at the end of the Funding Period will be
distributed to the Owners of the Notes on the Payment Date immediately
following the end of the Funding Period, thus resulting in a partial principal
prepayment of the Notes as specified herein under "Description of the
Notes-- Payments." All interest and other investment earnings on amounts
on deposit in the Pre-Funding Account will be deposited in the Capitalized
Interest Account.
Capitalized Interest
Account: On the Closing Date, cash in an amount satisfactory to the Note Insurer will
be deposited in a trust account (the "Capitalized Interest Account") in the
name of, and maintained by, the Indenture Trustee in trust for the Owners
of the Notes. The amount on deposit in the Capitalized Interest Account,
including reinvestment income thereon, will be used by the Indenture
Trustee on each Payment Date during and immediately after the Funding
Period to fund the excess, if any, of (i) the amount of interest accruing on
the outstanding Pre-Funded Amount at a rate equal to the Note Rate over (ii)
the amount of any reinvestment income on monies on deposit in the Pre-
Funding Account. Such amounts on deposit will be so applied by the
Indenture Trustee on the Payment Dates during and immediately after the
Funding Period to fund any such excess. Any amounts remaining in the
Capitalized Interest Account not needed for such purpose will be paid to the
Seller or its designee at the end of the Funding Period.
Mandatory Prepayment of
Certificates: It is intended that the principal amount of Subsequent Mortgage Loans sold
to the Issuer will require application of substantially all of the original Pre-
Funded Amount and it is not intended that there will be any material amount
of principal prepaid to the Owners of the Notes from the Pre-Funding
Account. In the event that the Depositor is unable to sell Subsequent
Mortgage Loans to the Issuer during the Funding Period in an amount equal
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to the Pre-Funded Amount, principal prepayments to Owners of the Notes will occur
on the Payment Date immediately following the end of the Funding Period in an
amount equal to the Pre-Funded Amount remaining at the end of the Funding Period.
Book Entry Registration of the
Notes: The Notes will initially be issued in book entry form. Persons acquiring
beneficial ownership interests in the Notes ("Beneficial Owners") will hold their
interests through The Depository Trust Company ("DTC"), in the United States, or
Cedel Bank, S.A. ("Cedel") or the Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, Cedel or Euroclear, as the case may be, will be in
accordance with the usual rules and operating procedures of the relevant system.
So long as the Notes are Book Entry Notes (as defined herein), such Notes will be
evidenced by one or more Notes registered in the name of Cede & Co. ("Cede"), as
the nominee of DTC or one of the European Depositaries. Cross-market transfers
between persons holding directly or indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly through Cedel or Euroclear, on the
other, will be effected in DTC through Citibank, N.A. ("Citibank") or The Chase
Manhattan Bank ("Chase" and together with Citibank, the "European Depositaries"),
the relevant depositaries of Cedel and Euroclear, respectively, and each a
participating member of DTC or one of the European Depositaries. The Notes will
initially be registered in the name of Cede. The interests of the Owners of such
Notes will be represented by book entries on the records of DTC and participating
members thereof. No Beneficial Owner will be entitled to receive a definitive note
representing such person's interest, except in the event that Definitive Notes (as
defined herein) are issued under the limited circumstances described herein. All
references in this Prospectus Supplement to any Notes reflect the rights of
Beneficial Owners only as such rights may be exercised through DTC and its
participating organizations for so long as such Notes are held by DTC. See "Global
Clearance, Settlement and Tax Documentation Procedures" in Annex I attached hereto
and "Description of the Notes-- Book Entry Registration of the Notes" herein, and
"Description of the Securities-- Book Entry Registration" in the Prospectus.
Optional Redemption - Clean-Up
Call: The holders of Residual Interests exceeding in the aggregate a 50% percentage
interest (the "Majority Residualholders") may, at their option, effect an early
redemption of the Notes and terminate the Trust on any Payment Date on or after
the Redemption Date by purchasing all of the Mortgage Loans at a price equal to or
greater than the Redemption Price (as defined under "Administration--Redemption of
Notes" herein). The proceeds from any such purchase of the Mortgage Loans will be
used by the Issuer to redeem the Notes and terminate the Indenture. In addition,
the Note Insurer will have rights, under the limited circumstances described in
the Sale and Servicing Agreement, to acquire all of the Mortgage Loans from the
Issuer and thereby effect a redemption of the Notes and terminate the Indenture.
See "Administration-- Redemption of the Notes" herein.
Ratings: It is a condition of issuance of the Notes that they be rated "Aaa" by Moody's
Investors Services Inc. ("Moody's") and "AAA" by Standard & Poor's Rating
Services, a division of the McGraw-Hill Companies, Inc. ("Standard & Poor's").
Moody's and Standard & Poor's are referred to
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herein collectively as the "Rating Agencies". The ratings issued by the Rating
Agencies on the payment of principal and interest on the Notes do not cover the
payment of any Available Funds Cap Carry Forward Amounts. 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 entity. No Rating Agency is obligated
to maintain any rating on the Notes and, accordingly, there can be no assurance
that the rating assigned to Notes upon initial issuance thereof will not be
lowered or withdrawn at any time thereafter. See "Ratings" herein.
Federal Tax Aspects:
No election will be made to treat the Trust Estate or any portion thereof as a
"real estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes.
Upon the issuance of the Notes, Arter & Hadden LLP, counsel to the Issuer, will
deliver its opinion that the Notes will be treated as debt obligations and not as
representing an ownership interest in the Trust Estate or an equity interest in
the Issuer, the Depositor or the Seller. In addition, for federal income tax
purposes, the Issuer will not be (i) classified as an association taxable as a
corporation, (ii) a taxable mortgage pool as defined in Section 7701(i) of the
Code, or (iii) a "publicly traded partnership" as defined in Treasury Regulation
Section 1.7704-1. An Owner of a Note, by its acceptance of a Note, will be deemed
to have agreed to treat the Note as indebtedness. An Owner will not be required to
report income with respect to the Note under an accrual method unless the Owner
otherwise uses the accrual method or purchases a Note which has original issue
discount.
The Notes will not represent "real estate assets" for purposes of Section
856(c)(5)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), or
"[l]oans . . . principally secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code.
Investors are advised to consult their tax advisors and to review "Certain Federal
Income Tax Consequences" herein and in the Prospectus.
ERISA Considerations: Subject to the considerations discussed under "ERISA Considerations" herein and in
the Prospectus, the Notes may be purchased by employee benefit plans that are
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). See "ERISA Considerations" herein and in the Prospectus.
Legal Investment Considerations: The Notes will not constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Accordingly, many
institutions with legal authority to invest in comparably rated securities based
on qualifying first lien mortgage loans may not be legally authorized to invest in
the Notes.
</TABLE>
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RISK FACTORS
Prospective investors in the Notes should consider, among other things,
the following risk factors (as well as the factors set forth under "Risk
Factors" in the Prospectus) in connection with the purchase of the Notes.
Sensitivity to Prepayments. The Mortgage Loans may be prepaid by the
related mortgagor in whole or in part at any time. However, approximately,
_____% of the Initial Mortgage Loans as of the Statistical Calculation Date
require the payment of a fee in connection with certain prepayments. See "The
Portfolio of Mortgage Loans--Prepayment Penalties" herein for a description of
prepayment penalty provisions applicable to the Mortgage Loans. In addition, all
of the Mortgage Loans contain due-on-sale provisions which, to the extent
enforced by the Servicer, will result in prepayment of such Mortgage Loans.
Furthermore, the Seller may initiate a refinance policy as described in "The
Portfolio of Mortgage Loans-Prepayment Penalties" herein which could have an
impact on prepayments of the Mortgage Loans. See "Prepayment and Yield
Considerations" herein and "Certain Legal Aspects of the Mortgage Assets" in the
Prospectus. Generally, if prevailing interest rates fall significantly below the
interest rates on the Mortgage Loans, the Mortgage Loans are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rates on such Mortgage Loans. Conversely, if prevailing interest
rates rise significantly above the interest rates on the Mortgage Loans, the
rate of prepayments is likely to decrease.
All of the Mortgage Loans 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 low interest rate
environment. For example, if prevailing interest rates were to fall, mortgagors
with adjustable rate mortgage loans may be inclined to refinance such mortgage
loans with a fixed rate loan to "lock in" a lower interest rate. The existence
of the applicable periodic rate cap, maximum Coupon Rate and minimum Coupon Rate
also may affect the likelihood of prepayments resulting from refinancings. In
addition, the delinquency and loss experience on adjustable rate mortgage loans
may differ from that on fixed rate mortgage loans because the amount of the
monthly payments on adjustable rate mortgage loans are subject to adjustment on
each payment change date.
The average life of the Notes, and, if purchased at other than par, the
yields realized by Owners of the Notes will be sensitive to levels of payment
(including any payments of principal received before the scheduled due date (the
"Prepayments")) on the Mortgage Loans. In general, the yield on the Notes if
purchased at a premium from the outstanding principal amount thereof will be
adversely affected by a higher than anticipated level of Prepayments and
enhanced by a lower than anticipated level. Conversely, the yield on Notes if
purchased at a discount from the outstanding principal amount thereof will be
enhanced by a higher than anticipated level of Prepayments and adversely
affected by a lower than anticipated level. See "Prepayment and Yield
Considerations" herein.
Risk of Higher Delinquencies Associated with Guidelines. The
Underwriting Guidelines (as described herein under "The Portfolio of Mortgage
Loans - Guidelines") are intended to assess the credit quality of a mortgagor
and the value of the mortgaged property and to evaluate the adequacy of such
property as collateral for the mortgage loan. The Originators provide loans
primarily to mortgagors who do not qualify for loans conforming to Fannie Mae
and FHLMC guidelines but who have substantial equity in their property.
Furthermore, the Underwriting Guidelines do not prohibit a borrower from
obtaining secondary financing at the time of origination of the Originator's
first lien, which financing would reduce the equity the borrower would otherwise
have in the related mortgaged property from that indicated in the Originators'
loan-to-value determination.
As a result of the Underwriting Guidelines, the Mortgage Loans are
likely to experience rates of delinquency, foreclosure and bankruptcy that are
higher, and that may be substantially higher, than those experienced by mortgage
loans underwritten to Fannie Mae and FHLMC conforming guidelines. Furthermore,
changes in the values of Properties may have a greater effect on the
delinquency, foreclosure, bankruptcy and loss experience of the Mortgage Loans
than on mortgage loans originated in a more traditional manner. No assurance can
be given that the values of the Properties have remained or will remain at the
levels in effect on the dates of origination of the related Mortgage Loans.
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Risk of Mortgage Loan Coupon Rates Reducing the Note Rate. The
calculation of the Note Rate is based upon (i) the value of an index (One-Month
LIBOR) which is different from the value of the indices applicable to the
Mortgage Loans as described under "The Mortgage Loan Pool" either as a result of
the use of a different index, rate determination date or rate adjustment date
and (ii) the weighted average of the Coupon Rates of the Mortgage Loans, which
are subject to periodic adjustment caps, maximum rate caps and minimum rate
floors. As of the Statistical Calculation Date, ____% of the Mortgage Loans by
aggregate Loan Balance are Six-Month LIBOR Loans. While _____% of the Six-Month
LIBOR Loans first adjust approximately six months after origination, _____% of
the Six-Month LIBOR Loans do not first adjust until approximately two or three
years from the date of origination and the remainder of the Six-Month LIBOR
Loans do not first adjust until approximately one year from the date of
origination. The Note Rate adjusts monthly based upon One-Month LIBOR as
described under "Description of the Notes -- Calculation of One-Month LIBOR"
herein, subject to the Available Funds Cap. Consequently, the interest which
becomes due on the Mortgage Loans (net of the Servicing Fee and the Trust Fees
and Expenses) during any Remittance Period may not equal the amount of interest
that would accrue at One-Month LIBOR plus the margin on the Notes during the
related Accrual Period. In particular, the Note Rate adjusts monthly, while the
interest rates of the Mortgage Loans adjust less frequently with the result that
the Available Funds Cap may limit increases in the Note Rate for extended
periods in a rising interest rate environment. In addition, One-Month LIBOR and
Six-Month LIBOR may respond to different economic and market factors, and there
is not necessarily a correlation among them. Thus, it is possible, for example,
that One-Month LIBOR may rise during periods in which Six-Month LIBOR is stable
or is falling or that, even if each of One-Month LIBOR and Six-Month LIBOR rise
during the same period, One-Month LIBOR may rise more rapidly than Six-Month
LIBOR. Furthermore, if the Available Funds Cap determines the Note Rate for a
Payment Date, the value of the Notes may be temporarily or permanently reduced.
Although Owners of the Notes will be entitled to receive any Available
Funds Cap Carry Forward Amount from and to the extent of funds available
therefor as described herein, there is no assurance that such funds will be
available. The failure to pay any Available Funds Cap Carry Forward Amount due
to a lack of funds therefor will not constitute an Event of Default under the
Indenture. In addition, the Note Insurance Policy does not cover, and the
ratings of the Notes do not address the likelihood of the payment of any
Available Funds Cap Carry Forward Amount.
The Subsequent Mortgage Loans and the Pre-Funding Account. Any
conveyance of Subsequent Mortgage Loans is subject to the following conditions,
among others (i) each such Subsequent Mortgage Loan must satisfy the
representations and warranties specified in the agreement pursuant to which such
Subsequent Mortgage Loans are transferred to the Issuer (each, a "Subsequent
Transfer Agreement") and in the Sale and Servicing Agreement; (ii) the Depositor
will not select such Subsequent Mortgage Loans in a manner adverse to the
interest of the Owners of the Notes; (iii) the Depositor will deliver certain
opinions of counsel with respect to the validity of the conveyance of such
Subsequent Mortgage Loans; (iv) each Subsequent Mortgage Loan will be an
adjustable rate Mortgage Loan; and (v) as of each cut-off date (each, a
"Subsequent Cut-Off Date") applicable thereto, the Mortgage Loans at that time,
including the Subsequent Mortgage Loans to be conveyed by the Depositor as of
such Subsequent Cut-Off Date, will satisfy the criteria set forth in the Sale
and Servicing Agreement, as described herein under "The Mortgage Loan Pool --
Conveyance of Subsequent Mortgage Loans" and the Note Insurer shall have
consented to such conveyance. The Sale and Servicing Agreement will provide that
any of such requirements may be waived or modified in any respect upon prior
written consent of the Note Insurer.
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Mortgage Loans by the
Issuer by the end of the Funding Period, the Owners of the Notes will receive a
prepayment of principal in an amount equal to the Pre-Funded Amount remaining in
the Pre-Funding Account on the Payment Date immediately following the Funding
Period. The Seller intends that the principal amount of Subsequent Mortgage
Loans sold to the Issuer will require the application of substantially all
amounts on deposit in the Pre-Funding Account and that therefore there will be
no material principal prepayment to the Owners of the Notes.
Each Subsequent Mortgage Loan must satisfy the eligibility criteria
referred to above at the time of its addition. However, Subsequent Mortgage
Loans may be originated or purchased by the Seller using credit criteria
different from those which were applied to the Initial Mortgage Loans and may be
of a different credit quality. Following the transfer of Subsequent Mortgage
Loans to the Issuer, it is anticipated that the aggregate characteristics
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of the Mortgage Loans then held by the Issuer will not vary significantly from
those of the Initial Mortgage Loans. See "The Mortgage Loan Pool -- Conveyance
of Subsequent Mortgage Loans" herein.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of the Originator. In addition, other state laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the Mortgage Loans. The related Originator will be
required to repurchase any Mortgage Loans which, at the time of origination, did
not comply with applicable federal and state laws and regulations. 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 Servicer to collect all or part of the principal of or interest
on the Mortgage Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Seller to damages and
administrative enforcement. See "Certain Legal Aspects of the Mortgage Assets"
in the Prospectus.
The Mortgage Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
borrowers regarding the terms of the Mortgage Loans;
(ii) the Equal Credit 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 Servicer to collect all or part of the principal of or interest on the
Mortgage Loans and, in addition, could subject the Originator to damages and
administrative enforcement. The Originator will be required to repurchase any
Mortgage Loans which, at the time of origination did not comply with such
federal laws or regulations. See "Certain Legal Aspects of Mortgage Assets" in
the Prospectus.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act"), which incorporates the Home Ownership and Equity Protection Act of 1994.
The Riegle Act adds certain additional provisions to Regulation Z, which is the
implementing regulation of the Truth-in-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to
non-purchase money mortgage loans with high interest rates or high upfront fees
and charges. In general, mortgage loans within the purview of the Riegle Act
have annual percentage rates over 10% greater than the yield on Treasury
Securities of comparable maturity and/or fees and points which exceed the
greater of 8% of the total loan amount or $400. 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 their 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, without limitation, the right to rescind
the mortgage loan.
Risk of Seller Insolvency. The Seller believes that the transfer of the
Mortgage Loans to the Depositor and by the Depositor to the Issuer constitutes a
sale by the Seller to the Depositor and by the Depositor to the Issuer and,
accordingly, that such Mortgage Loans will not be part of the assets of the
Seller in the event of the insolvency of the Seller and will not be available to
the creditors of the Seller. However, in the event of an insolvency of the
Seller, it is possible that a bankruptcy trustee or a creditor of the Seller may
argue that the transaction between the Seller and the Depositor was a pledge of
such Mortgage Loans in connection with a borrowing by the Seller rather than a
true sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Notes.
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On the Closing Date with respect to the Initial Mortgage Loans and on
each Subsequent Transfer Date with respect to the Subsequent Mortgage Loans, the
Indenture Trustee and the Seller will have received an opinion of Arter & Hadden
LLP, counsel to the Seller and the Depositor, with respect to the true sale of
Mortgage Loans from the Seller to the Depositor and from the Depositor to the
Issuer, in form and substance satisfactory to the Indenture Trustee and the
Rating Agencies.
Risk of Higher Default Rates Associated with California Real Property.
Because _____% by principal amount of the Properties relating to Initial
Mortgage Loans as of the Statistical Calculation Date, are located in the State
of California, an overall decline in the related residential real estate markets
could adversely affect the values of the Properties securing such Initial
Mortgage Loans causing the Loan Balances of the related Initial Mortgage Loans
to equal or exceed the value of such Mortgaged Properties.
The standard hazard insurance policy required to be maintained under
the terms of each Mortgage Loan does not insure against physical damage arising
from earth movement (including earthquakes, landslides and mud flows). See
"Servicing of Mortgage Loans and Contracts - Standard Hazard Insurance" in the
Prospectus.
Risk Associated with the Note Insurer. If the protection afforded by
overcollateralization is insufficient and if, upon the occurrence of an
Overcollateralization Deficit, the Note Insurer is unable to meet its
obligations under the Note Insurance Policy, then the Owners of the Notes could
experience a loss of their investment.
THE PORTFOLIO OF MORTGAGE LOANS
General
The Mortgage Loan Pool primarily includes newly originated loans which
were purchased by the Depositor from the Seller, which acquired such loans from
the related Originators.
Underwriting Guidelines
The Mortgage Loans have been originated by the Originators in
accordance with the underwriting guidelines established by each of them and
reviewed and approved by the Seller (the "Underwriting Guidelines"). The
Underwriting Guidelines are primarily intended to evaluate the value and
adequacy of the mortgaged property as collateral and are also intended to
consider the mortgagor's credit standing and repayment ability. On a
case-by-case basis, the Originator may determine that, based upon compensating
factors, a prospective mortgagor not strictly qualifying under the Underwriting
Guidelines warrants an underwriting exception. Compensating factors may include,
but are not limited to, low loan-to-value ratio, low debt-to-income ratio, good
credit history, stable employment, pride of ownership and time in residence at
the applicant's current address. It is expected that a substantial number of the
Mortgage Loans to be included in the Mortgage Pools will represent such
underwriting exceptions.
Under the Underwriting Guidelines, the Originators review and verify
the loan applicant's sources of income (except under the stated income
programs), calculate the amount of income from all such sources indicated on the
loan application, review the credit history of the applicant and calculate the
debt-to-income ratio to determine the applicant's ability to repay the loan, and
review the mortgaged property for compliance with their Underwriting Guidelines.
The Underwriting Guidelines are applied in accordance with a procedure which
complies with applicable federal and state laws and regulations and requires (i)
an appraisal of the mortgaged property which conforms to FHLMC and Fannie Mae
standards and (ii) a review of such appraisal, which review may be conducted by
the Originator's staff appraiser or representative and, depending upon the
original principal balance and loan-to-value ratio of the mortgaged property may
include a desk review of the original appraisal or a drive-by review appraisal
of the mortgaged property. The Underwriting Guidelines generally permit
single-family loans with loan-to-value ratios at origination of up to 90% for
the highest credit grading category (80% under the stated income programs),
depending on the type and use of the property, the creditworthiness of the
mortgagor and the debt-to-income ratio. Under the Underwriting Guidelines, the
maximum combined loan-to-value ratio for purchase money mortgage loans may
differ from those applicable to refinancings.
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All of the Mortgage Loans are based on loan application packages
submitted through mortgage brokerage companies or at the related Originator's
retail branches or are purchased from originators approved by the Originators.
Loan application packages submitted through mortgage brokerage companies,
containing in each case relevant credit, property and underwriting information
on the loan request, are compiled by the applicable mortgage brokerage company
and submitted to the Originator for approval and funding. The mortgage brokerage
companies receive a portion of the loan origination fee charged to the mortgagor
at the time the loan is made.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's liabilities, income, credit history
and employment history, as well as certain other personal information. Each
Originator requires a credit report on each applicant from a credit reporting
company. The applicant must provide to the related Originator or the originator
a letter explaining all late payments on mortgage debt and, generally, consumer
(i.e., non-mortgage) debt. The report typically contains information relating to
such matters as credit history with local and national merchants and lenders,
installment debt payments and any record of defaults, bankruptcy, repossession,
suits or judgments. Self-employed individuals are generally required to submit
their two most recent federal income tax returns. As part of their quality
control systems, each Originator generally reverifies information with respect
to the foregoing matters that has been provided by the mortgage brokerage
company prior to funding a loan and periodically audits files based on a random
sample of closed loans. In the course of their pre-funding audit, each
Originator generally reverifies the income of each mortgagor or, for a
self-employed individual, reviews the income documentation obtained pursuant to
the Underwriting Guidelines (except under stated income programs). If the
loan-to-value ratio is greater than a predetermined level, the Originators
generally verify the source of funds for the down payment; however, the related
Originator may not verify the source of funds if the loan-to-value ratio is less
than such level.
Mortgaged properties that are to secure mortgage loans are generally
appraised by qualified independent appraisers who are approved by the related
Originator. In most cases, below-average properties (including properties
requiring major deferred maintenance) are not acceptable as security for
mortgage loans under the Underwriting Guidelines. Each appraisal includes a
market data analysis based on recent sales of comparable homes in the area and,
where deemed appropriate, replacement cost analysis based on the current cost of
constructing a similar home. Except with respect to purchase money mortgage
loans, every independent appraisal is generally reviewed by the related
Originators before the loan is funded, and a drive-by review or appraisal is
generally performed in connection with loan amounts over a certain predetermined
dollar amount established for each State. With respect to purchase money
mortgage loans, an independent appraisal may be reviewed by the Originator.
The Underwriting Guidelines are less stringent than the standards
generally acceptable to Fannie Mae and FHLMC with regard to the mortgagor's
credit standing and repayment ability. Mortgagors who qualify under the
Underwriting Guidelines generally have payment histories and debt ratios which
would not satisfy Fannie Mae and FHLMC underwriting guidelines and may have a
record of major derogatory credit items such as outstanding judgments or prior
bankruptcies. The Underwriting Guidelines establish the maximum permitted
loan-to-value ratio for each loan type based upon these and other risk factors.
The Mortgage Loans were originated consistent with and generally
conform to "Full Documentation", "Limited Documentation", or "Stated Income
Documentation" residential loan programs. Under each of the programs, the
related Originator generally reviews the applicant's source of income,
calculates the amount of income from sources indicated on the loan application
or similar documentation, reviews the credit history of the applicant,
calculates the debt service-to-income ratio to determine the applicant's ability
to repay the loan, reviews the type and use of the property being financed, and
reviews the property. In determining the ability of the applicant to repay the
loan, a rate is established that generally is equal to the lesser of the fully
indexed interest rate on the loan being applied for or one percent above the
initial interest rate on such loan. The Underwriting Guidelines require that
mortgage loans be underwritten in a standardized procedure which complies with
applicable federal and state laws and regulations and requires the Originator's
underwriters to be satisfied that the value of the property being financed, as
indicated by an appraisal and a review of the appraisal, currently supports the
outstanding loan balance. In general, the maximum loan amount for mortgage loans
originated under the programs is $350,000. Mortgage loans may, however, be
originated generally up to $500,000, provided the loan-to-value ratio is at
least 5% below the applicable residential loan program maximum that would
otherwise apply. The Underwriting Guidelines permit one- to
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four-family loans to have loan-to-value ratios at origination of generally up to
90%, depending on, among other things, the purpose of the mortgage loan, the
mortgagor's credit history, repayment ability and debt service-to-income ratio,
as well as the type and use of the property. With respect to mortgage loans
secured by mortgaged properties acquired by a mortgagor under a "lease option
purchase," the loan-to-value ratio of the related mortgage loan is generally
based on the appraised value at the time of origination of such mortgage loan.
The Underwriting Guidelines require that income be verified for each
applicant and that the source of funds (if any) required to be deposited by the
applicant into escrow under its various programs be as follows: Under the Full
Documentation programs, applicants generally are required to submit two written
forms of verification of stable income for 24 months (or, if the loan-to-value
ratio is less than or equal to 65%, for 12 months). Under the Limited
Documentation programs, generally one such form of verification is required for
12 months. Under the Stated Income Documentation programs, generally an
applicant may be qualified based upon monthly income as stated on the mortgage
loan application if the applicant meets certain criteria. All the foregoing
programs typically require that with respect to each applicant, there be a
telephone verification of the applicant's employment. Verification of the source
of funds (if any) required to be deposited by the applicant into escrow in the
case of a purchase money loan is generally required under the Full Documentation
program guidelines. No such verification is required under the other programs.
The Underwriting Guidelines require title insurance on all mortgage
loans secured by liens on real property. The Underwriting Guidelines also
require that fire and extended coverage casualty insurance be maintained on the
secured property in an amount at least equal to the principal balance of the
related single-family loan or the replacement cost of the property, whichever is
less.
Under the Underwriting Guidelines, various risk categories are used to
grade the likelihood that the mortgagor will satisfy the repayment conditions of
the mortgage loan. These risk categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor's credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the Underwriting
Guidelines establish lower maximum loan-to-value ratios and maximum loan amounts
for loans graded in such categories.
ARCC Performance Assumption Grouping
The Seller, through its manager AMRESCO Residential Credit Corporation
("ARCC"), performs due diligence on all mortgage loan portfolios which it
acquires, including the Mortgage Loans included in the Trust Estate. Part of
ARCC's review includes a review of the credit-grading process of the related
Originators. ARCC has developed Performance Assumption Groupings ("PAGs") which
are similar to a credit-grading criteria. ARCC determines which PAG the
Originators' related credit grade most closely matches, and all loans which the
Originator has placed in that credit grade are placed in the related PAG
category. Because there are multiple factors in both the credit grades
identified by the Originators and the PAG categories, it is unlikely that any
credit grade designation will match up exactly to any PAG category. ARCC uses
its best efforts to match the categories based upon its projection of asset
performance for the related credit grade and PAG. It should be noted that while
the Originators have specific criteria for credit grades, they have the
discretion to place a loan in a credit grade for which it does not meet all of
the criteria, based upon consideration of all relevant factors. It should
further be noted that ARCC does not make any attempt to determine how individual
loans would fall under the PAG criteria described below, but only associates the
existing credit grades of the Originator to the various PAG categories.
Seller's PAG I
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 90% or less. The
maximum back-end debt ratio should not exceed 50%. The prospective mortgagor
should have approximately five years of established credit with five trade
lines. In the last 12 months, mortgage credit should show no delinquencies in
excess of 30 days, and in the last 24 months, should show delinquencies only for
30 days or less. The credit history should reveal no foreclosures. In the last
12 months,
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installment and revolving accounts should indicate no delinquencies for major
credit, and a maximum of 30 days for minor credit. In the last 24 months, both
major and minor credit should be a maximum of 30 days delinquent. There should
be no evidence of judgments, charge offs, collections or bankruptcies affecting
the mortgagor. In last 36 months, the prospective mortgagor should have had only
minor collection actions totaling less than $500.
Seller's PAG II
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 85% or less. The
maximum back end debt ratio should not exceed 50%. The prospective mortgagor
should have approximately three years of established credit with three trade
lines. In the last 12 months, mortgage credit should show no more than two
30-day delinquencies and no 60-day delinquencies, and all credits should be
current at the time of origination; in the last 24 months, the credit history
should show a maximum of 30 day delinquencies. In the last 12 months,
installment and revolving accounts should include no more than two 30-day
delinquencies for major credit and a maximum of 60 day delinquency for minor
credit. In the last 24 months, the maximum delinquency should be 60 days for
both major and minor credit. In the last 12 months, there should be no
collection action taken against the prospective mortgagor. In the last 24
months, there should be no judgments or charge offs against the prospective
mortgagor, and discharged bankruptcies should have reestablished credit with no
delinquencies. In the last 36 months, mortgagor should be subject to only minor
collection actions totaling less than $1,000.
Seller's PAG III
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 80% or less. The
maximum back end debt ratio should not exceed 50%. The prospective mortgagor
should have approximately two years of established credit with two trade lines.
In the last 12 months, mortgage credit should show no more than three 30-day
delinquencies and one 60-day delinquency. Mortgage credit should be a maximum 30
days delinquent at the time of origination, and in the last 24 months, a maximum
of 60 days delinquent. In the last 12 months, installment and revolving accounts
should show no more than two 60-day delinquencies for major credit and a maximum
delinquency of 90 days for minor credit. In the last 24 months, installment and
revolving accounts should be a maximum 90 days delinquent for both major and
minor credit. In the last 12 months, there should be no judgments or charge
offs, and only minor collection actions totaling less than $500 against the
prospective mortgagor. In the last 24 months, the prospective mortgagor is
permitted to have judgments or charge offs totaling less than $500, and
discharged bankruptcies with a maximum 30-day delinquency on reestablished
credit. In the last 36 months, collection actions totaling less than $2,500 are
permitted.
Seller's PAG IV
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 75% or less. The
maximum back-end debt ratio should not exceed 55%. There is no requirement for
an established credit history. In the last 12 months, mortgage credit should
include no more than four 30-day delinquencies and two 60-day delinquencies, and
mortgage credit should be a maximum of 90 days delinquent at the time of
origination. In the last 12 months, installment and revolving accounts should
show no more than two 90-day delinquencies for major credit and a maximum
delinquency of 90 days for minor credit. In the last 24 months, installment and
revolving accounts should be a maximum 90 days delinquent for both major and
minor credit. In the last 12 months, mortgagor may have discharged bankruptcies
with maximum 30 day delinquency on reestablished credit, and collection actions
totaling less than $2,500 are permitted. In the last 24 months, total judgments
and charge offs should be less than $2,500.
Seller's PAG V
The maximum loan-to-value ratio for all eligible properties, owner or
non-owner occupied, purchase money or refinance, should be 65% or less. The
maximum back-end debt ratio should not exceed 55%. There is no requirement for
an established credit history. In the last 12 months, mortgage credit should be
a maximum of 120 days delinquent, and no foreclosure may be pending at the time
of origination. In the last 24 months, mortgage credit
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should be a maximum of 120 days delinquent. There are no stipulations regarding
other derogatory information other than that bankruptcies should have been
discharged.
Approximately _____%, _____%, _____%, ____% and ____% of the Initial
Mortgage Loans, as of the Statistical Calculation Date, are in the Seller's PAG
I, PAG II, PAG III, PAG IV, and PAG V categories, respectively.
Approximately _____%, ____% and _____% of the Initial Mortgage Loans,
as of the Statistical Calculation Date, are in the Full Documentation, Limited
Documentation and Stated Income Documentation programs, respectively.
Prepayment Penalties
Any Mortgage Loan may be prepaid in full or in part at any time;
however, approximately _____% of the Initial Mortgage Loans, as of the
Statistical Calculation Date, provide for the payment by the Mortgagor of a
prepayment charge in limited circumstances on certain full or partial
prepayments made generally up to five years from the date of execution of the
related Note. The amount of the prepayment charge is as provided in the related
Note. In general, the Note provides that a prepayment charge will apply if, in
any twelve-month period generally up to the first five years from the date of
origination of such Mortgage Loan, the Mortgagor prepays an aggregate amount
exceeding 20% of the original principal balance of such Mortgage Loan. The
amount of the prepayment charge will generally be equal to six months' advance
interest calculated on the basis of the rate in effect at the time of such
prepayment on the amount prepaid in excess of 20% of the original balance of
such Mortgage Loan.
The Seller may initiate a refinance policy with the Originators who
originated Mortgage Loans for the Trust and for other trusts in which the Seller
or an affiliate of the Seller owns a residual interest in an effort to retain
borrowers who the Seller or the Originators believe are likely to refinance
their loans due to interest rate changes or other reasons. Although the policy
is expected to permit the Originators to solicit such borrowers in accordance
with the Seller's policy, the Depositor believes that this practice will not
likely result in a material change in the prepayment experience of the Trust
because the solicited borrowers would have been expected to refinance through
other originators in any event.
The Servicer
The information set forth below concerning the Servicer has been
provided to the Depositor by the Servicer. Neither the Depositor, the Seller,
the Indenture Trustee, the Owner Trustee, the Underwriters nor any of their
respective affiliates have made any independent investigation of such
information.
THE ISSUER
The Issuer is a Delaware business trust established by the Depositor
pursuant to the Trust Agreement under the laws of the State of Delaware. After
its formation, the Issuer will not engage in any activity other than (i)
acquiring, holding and managing the Mortgage Loans and the other assets of the
Trust Estate and the proceeds therefrom, (ii) issuing the Notes and the Residual
Interest, (iii) making payments on the Notes and the Residual Interest and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or in connection therewith.
The Residual Interest represents the residual interest in the assets of the
Trust Estate. The Notes and the Residual Interests will be delivered by the
Issuer to the Depositor as consideration for the Mortgage Loans sold to it and
the Depositor will in turn deliver the Residual Interests and the proceeds of
the Notes to the Seller as consideration for the Mortgage Loans sold to it, all
pursuant to the Sale and Servicing Agreement. The Issuer does not have, nor is
it expected in the future to have, any significant assets, other than the assets
included in the Trust Estate.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on November 9,
1995 and is a wholly-owned subsidiary of AMRESCO, INC. The Depositor maintains
its principal offices at 700 N. Pearl, Suite 2400, Dallas, Texas 75201. Neither
the Depositor nor any of its affiliates will insure or guarantee distributions
on the Notes.
S-20
<PAGE>
USE OF PROCEEDS
The Depositor will sell the Initial Mortgage Loans to the Trust
concurrently with delivery of the Notes. Net proceeds from the sale of the Notes
will be applied by the Depositor to the purchase of the Initial Mortgage Loans
from the Seller, to the deposit of the Pre-Funded Amount in the Pre-Funding
Account and to the deposit of certain amounts to the Capitalized Interest
Account. Such net proceeds less the Pre-Funded Amount and the amount deposited
in the Capitalized Interest Account will represent the purchase price to be paid
by the Issuer to the Depositor for the Initial Mortgage Loans. The net proceeds,
after funding transaction costs, will be used to pay down the Seller's warehouse
facilities with certain affiliates of the Underwriters, and any remaining
proceeds will be added to the Seller's general funds and will be available for
general corporate purposes.
THE MORTGAGE LOAN POOL
General
The statistical information presented in this Prospectus Supplement
concerning the pool of Mortgage Loans is based on the pool of Mortgage Loans as
of Statistical Calculation Date. The pool of Mortgage Loans aggregated
$____________ as of the Statistical Calculation Date. Additional Mortgage Loans
will be purchased by the Trust for inclusion in the Trust from the Depositor on
the Closing Date. Such additional Initial Mortgage Loans will represent Initial
Mortgage Loans acquired or to be acquired by the Depositor on or prior to the
Closing Date. The Depositor expects that the actual pool of Initial Mortgage
Loans as of the Closing Date will represent at least $___________. In addition,
with respect to the pool of Mortgage Loans as of the Statistical Calculation
Date as to which statistical information is presented herein, some amortization
of the pool will occur prior to the Closing Date. Moreover, certain loans
included in the pool of Mortgage Loans as of the Statistical Calculation Date
may prepay in full, or may be determined not to meet the eligibility
requirements for the final pool, and may not be included in the final pool. As a
result of the foregoing, the statistical distribution of characteristics for the
Initial Mortgage Loan pool as of the Closing Date will vary from the statistical
distribution of such characteristics for the Mortgage Loans as of the
Statistical Calculation Date as presented in this Prospectus Supplement. Unless
otherwise noted, all statistical percentages in this Prospectus Supplement are
measured by the aggregate principal balance of the Mortgage Loans as of the
Statistical Calculation Date.
Subsequent Mortgage Loans are intended to be purchased by the Issuer
from the Depositor from time to time on or before ____________ ___, 199___ from
funds on deposit in the Pre-Funding Account. The Initial Mortgage Loans and the
Subsequent Mortgage Loans are referred to collectively as the "Mortgage Loans."
The Subsequent Mortgage Loans to be purchased by the Issuer will be sold by the
Seller to the Depositor and then by the Depositor to the Issuer.
This subsection describes generally certain characteristics of the
Initial Mortgage Loans. Unless otherwise specified herein, references herein to
percentages of loan principal balances relating to the Initial Mortgage Loans
refer in each case to the approximate percentage of the aggregate principal
balance of the Initial Mortgage Loans as of the Statistical Calculation Date,
based on the scheduled principal balances of the Initial Mortgage Loans, after
giving effect to all principal payments due on or prior to the Cut-Off Date. The
pool of Initial Mortgage Loans consists of adjustable rate Mortgage Loans with
remaining terms to maturity of not more than 359 months (including both fully
amortizing Mortgage Loans and Balloon Mortgage Loans). The Mortgage Loans have
the characteristics set forth below as of the Statistical Calculation Date. The
columns entitled "% of Aggregate Loan Balance" and "Aggregate Loan Balance" in
the following tables may not sum to 100% and $___________, respectively, due to
rounding.
The Loan-to-Value Ratios shown below were calculated based upon the
lower of the sales prices and the appraised values of the Properties at the time
of origination (the "Appraised Values"). No assurance can be given that values
of the Properties have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the residential real estate market
has experienced or should experience an overall decline in property values such
that the outstanding balance of any Mortgage Loan becomes equal to or greater
than the value of the Property, the
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<PAGE>
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
All of the Mortgage Loans are "Actuarial Loans", which provide that
interest is charged to the Mortgagors thereunder, and payments are due from such
Mortgagors, as of a scheduled day of each month which is fixed at the time of
origination. Scheduled monthly payments made by the Mortgagors on the Actuarial
Loans either earlier or later than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest.
The information set forth with respect to the Mortgage Loans is based
upon data provided to the Depositor by each of the related Originators and has
been compiled by the Depositor. Neither the Depositor, the Seller, the Master
Servicer, the Servicers, the Underwriters, the Originators nor any of their
respective affiliates have made or will have made any representation as to the
accuracy or completeness of such compiled information.
As of the Statistical Calculation Date, the average scheduled Loan
Balance of the Initial Mortgage Loans was $_________; the Coupon Rates of the
Initial Mortgage Loans ranged from _____% per annum to ______% per annum; the
weighted average Coupon Rate of the Initial Mortgage Loans was _____% per annum;
the weighted average original Loan-to-Value Ratio of the Initial Mortgage Loans
determined as of the date of origination was ______%; the weighted average
remaining term to maturity was approximately ____ months; and the weighted
average original term to maturity was approximately ____ months. The remaining
terms to maturity as of the Statistical Calculation Date of the Initial Mortgage
Loans ranged from ____ months to ____ months. The minimum and maximum Loan
Balances of the Initial Mortgage Loans as of the Statistical Calculation Date
were $_________ and $__________, respectively. No Initial Mortgage Loan as of
the Statistical Calculation Date will mature later than _______________ ___,
______.
All of the Initial Mortgage Loans have maximum Coupon Rates. The
weighted average maximum Coupon Rate of the Initial Mortgage Loans as of the
Statistical Calculation Date was ______% per annum, with maximum Coupon Rates
that range from ______% per annum to ______% per annum. As of the Statistical
Calculation Date, the weighted average minimum Coupon Rate of the Initial
Mortgage Loans was _____% per annum, with minimum Coupon Rates that range from
_____% per annum to ______% per annum. The Initial Mortgage Loans have a
weighted average gross margin as of the Statistical Calculation Date of ______%.
The gross margin for the Initial Mortgage Loans as of the Statistical
Calculation Date ranges from _____% to _____%.
______% of the Initial Mortgage Loans as of the Statistical Calculation
Date are Six-Month LIBOR Loans that bear interest at rates that adjust, along
with the related monthly payments, semiannually based on Six-Month LIBOR. _____%
of the Six-Month LIBOR Loans as of the Statistical Calculation Date have a
semiannual reset cap of ___%, substantially all of which have a lifetime reset
cap ranging from ___% to ___%. The Six-Month LIBOR Loans consist of Initial
Mortgage Loans aggregating $______________ as of the Statistical Calculation
Date.
_____% of the Initial Mortgage Loans as of the Statistical Calculation
Date are 2/28 Loans that bear interest at a fixed rate of interest for a period
of approximately two years after origination and thereafter have semiannual
interest rate and payment adjustments at the same frequencies and in the same
manner as the Six-Month LIBOR Loans. _____% of the 2/28 Loans as of the
Statistical Calculation Date have a periodic rate adjustment cap of ___%, and
generally have a lifetime reset cap ranging from ___% to ___%. ___% of the 2/28
Loans have a periodic rate adjustment cap of ____% and generally have a lifetime
reset cap of ___%. The 2/28 Loans consist of Initial Mortgage Loans aggregating
$_____________ as of the Statistical Calculation Date.
____% of the Initial Mortgage Loans as of the Statistical Calculation
Date are 3/27 Loans that bear interest at a fixed rate of interest for a period
of approximately three years after origination and thereafter have semiannual
interest rate and payment adjustments at the same frequencies and in the same
manner as the Six-Month LIBOR Loans. As of the Statistical Calculation Date, all
of the 3/27 Loans are subject to a ___% periodic rate adjustment cap.
Substantially all of the 3/27 Loans have a lifetime reset cap ranging from ___%
to ___%. The 3/27 Loans consist of Initial Mortgage Loans aggregating
$____________ as of the Statistical Calculation Date.
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<PAGE>
Geographic Distribution of Properties
The geographic distribution of the Mortgage Loans by state as of the
Statistical Calculation Date was as follows:
Number of Aggregate % of Aggregate
State Mortgage Loans Loan Balance Loan Balance
- ----- -------------- ------------ ------------
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total $ 100.00%
========= =======
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<PAGE>
Original Loan-to-Value Ratios
The original loan-to-value ratios as of the origination dates of the
Mortgage Loans (based upon either appraisals made at the time of origination or
the sales price thereof) (the "Loan-to-Value Ratios") as of the Statistical
Calculation Date were distributed as follows:
Range of Number of Aggregate % of Aggregate
Original LTV's Mortgage Loans Loan Balance Loan Balance
- -------------- -------------- ------------ ------------
10.001 to 15.000% $ %
20.001 to 25.000
25.001 to 30.000
30.001 to 35.000
35.001 to 40.000
40.001 to 45.000
45.001 to 50.000
50.001 to 55.000
55.001 to 60.000
60.001 to 65.000
65.001 to 70.000
70.001 to 75.000
75.001 to 80.000
80.001 to 85.000
85.001 to 90.000
90.001 to 95.000
95.001 to 100.000
Total $ 100.00%
========= =======
Statistical Calculation Date Coupon Rates
The Coupon Rates borne by the Notes relating to the Mortgage Loans as
of the Statistical Calculation Date were distributed as follows:
Range of Number of Aggregate % of Aggregate
Coupon Rates Mortgage Loans Loan Balance Loan Balance
- ------------ -------------- ------------ ------------
5.001 to 6.000% $ %
6.001 to 7.000
7.001 to 8.000
8.001 to 9.000
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
15.001 to 16.000
16.001 to 17.000
Total $ 100.00%
========= =======
S-24
<PAGE>
Statistical Calculation Date Loan Balances
The distribution of the outstanding principal amounts of the Mortgage
Loans as of the Statistical Calculation Date were as follows:
Statistical
Calculation Date Number of Aggregate % of Aggregate
Loan Balances Mortgage Loans Loan Balance Loan Balance
- ------------- -------------- ------------ ------------
Up to $ 25,000.00 $ %
25,000.01 to 50,000.00
50,000.01 to 75,000.00
75,000.01 to 100,000.00
100,000.01 to 125,000.00
125,000.01 to 150,000.00
150,000.01 to 175,000.00
175,000.01 to 200,000.00
200,000.01 to 250,000.00
250,000.01 to 300,000.00
300,000.01 to 350,000.00
350,000.01 to 400,000.00
400,000.01 to 450,000.00
450,000.01 to 500,000.00
500,000.01 to 550,000.00
Over 550,000.00
Total $ 100.00%
========= =======
Types of Mortgaged Properties
The Properties securing the Mortgage Loans as of the Statistical
Calculation Date were of the property types as follows:
Number of Aggregate % of Aggregate
Property Types Mortgage Loans Loan Balance Loan Balance
- -------------- -------------- ------------ ------------
Single Family Detached $ %
Two- to Four-Family
Condominium
Single Family Attached
Manufactured Housing
Planned Unit Development
Townhouse
Multi-Family
Mixed Use
Total $ 100.00%
======== =======
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<PAGE>
Distribution of Months Since Origination
The distribution of the number of months since the date of origination
of the Mortgage Loans as of the Statistical Calculation Date was as follows:
Number Elapsed Number of Aggregate % of Aggregate
Since Origination Mortgage Loans Loan Balance Loan Balance
- ----------------- -------------- ------------ ------------
0 to 1 $ %
2 to 12
13 to 24
25 or more
Total $ 100.00%
======= ======
Distribution of Remaining Term to Maturity
The distribution of the number of months remaining to maturity of the
Mortgage Loans as of the Statistical Calculation Date was as follows:
Months Remaining Number of Aggregate % of Aggregate
to Maturity Mortgage Loans Loan Balance Loan Balance
- ----------- -------------- ------------ ------------
Up to 120 $ %
121 to 180
181 to 240
301 to 360
Total $ 100.00%
========== ======
Occupancy Status
The occupancy status of the Properties securing the Mortgage Loans as
of the Statistical Calculation Date based on representations by the borrowers at
the time of origination of such Mortgage Loan. was as follows:
Number of Aggregate % of Aggregate
Occupancy Status Mortgage Loans Loan Balance Loan Balance
- ---------------- -------------- ------------ ------------
Owner Occupied $ %
Investor Owned
Vacation/Second Home
Total $ 100.00%
=========== =======
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<PAGE>
Distribution by Lien Position
The lien position of the Mortgage Loans as of the Statistical
Calculation Date was as follows:
Number of Aggregate % of Aggregate
Lien Position Mortgage Loans Loan Balance Loan Balance
- ------------- -------------- ------------ ------------
First Lien $ %
Second Lien
Total $ 100.00%
========== ======
Distribution of Margins
The margins borne by the Mortgage Notes relating to the Mortgage Loans
as of the Statistical Calculation Date were as follows:
Number of Aggregate % of Aggregate
Range of Margins Mortgage Loans Loan Balance Loan Balance
- ---------------- -------------- ------------ ------------
2.001 to 3.000% $ %
3.001 to 4.000
4.001 to 5.000
5.001 to 6.000
6.001 to 7.000
7.001 to 8.000
8.001 to 9.000
9.001 to 10.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
Total $ 100.00%
========= ======
S-27
<PAGE>
Distribution of Maximum Coupon Rates
The maximum Coupon Rates borne by the Mortgage Notes relating to the
Mortgage Loans as of the Statistical Calculation Date were as follows:
Range of Maximum Number of Aggregate % of Aggregate
Coupon Rates Mortgage Loans Loan Balance Loan Balance
------------ -------------- ------------ ------------
6.001 to 7.000% $ %
7.001 to 8.000
10.001 to 11.000
11.001 to 12.000
12.001 to 13.000
13.001 to 14.000
14.001 to 15.000
15.001 to 16.000
16.001 to 17.000
17.001 to 18.000
18.001 to 19.000
19.001 to 20.000
20.001 to 21.000
21.001 to 22.000
22.001 to 23.000
26.001 to 27.000
30.001 to 35.000
35.001 to 40.000
Total $ 100.00%
========= =======
S-28
<PAGE>
Distribution of Next Rate Adjustment Date
The month of the next rate adjustment date for each of the Mortgage
Notes relating to the Mortgage Loans as of the Statistical Calculation Date was
as follows:
Date of Next Number of Aggregate % of Aggregate
Rate Adjustment Date Mortgage Loans Loan Balance Loan Balance
- -------------------- -------------- ------------ ------------
August 1998 $ %
September 1998
October 1998
November 1998
December 1998
January 1999
February 1999
March 1999
April 1999
May 1999
June 1999
July 1999
August 1999
September 1999
October 1999
November 1999
December 1999
January 2000
February 2000
March 2000
April 2000
May 2000
June 2000
July 2000
August 2000
September 2000
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
April 2001
May 2001
August 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
Total $ 100.00%
======== ======
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<PAGE>
Conveyance of Subsequent Mortgage Loans
The Sale and Servicing Agreement permits the Issuer to acquire
Subsequent Mortgage Loans in an aggregate principal balance equal to the
Pre-Funded Amount. Accordingly, the statistical characteristics of the Mortgage
Loans will vary as of each Subsequent Cut-Off Date upon the acquisition of
Subsequent Mortgage Loans, but the Seller does not expect such variance to be
material.
The obligation of the Issuer to purchase a Subsequent Mortgage Loan on
a Subsequent Transfer Date for assignment to the Mortgage Loan Pool is subject,
among other factors, to the following requirements: (i) the rating on the Notes
shall not have been downgraded by any Rating Agency; (ii) such Subsequent
Mortgage Loan may not be 30 or more days contractually delinquent as of the
related Subsequent Cut-Off Date; (iii) the weighted average margin of the
Subsequent Mortgage Loans will be at least ____%; (iv) such Subsequent Mortgage
Loan will be an adjustable rate Mortgage Loan; (v) the original term to maturity
of such Subsequent Mortgage Loan may not exceed 30 years; (vi) such Subsequent
Mortgage Loan must be a first lien; (vii) following the purchase of such
Subsequent Mortgage Loan by the Trust, the Mortgage Loans (including the
Subsequent Mortgage Loans) (a) will have a weighted average Coupon Rate of at
least _____%; (b) will have a weighted average Loan-to-Value Ratio of not more
than _____%; (c) will have at least _____% Mortgage Loans which are owner
occupied; and (d) will have at least _____% Mortgage Loans secured by single
family detached properties.
PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, the Notes will relate to the rate of payment of principal
of the Mortgage Loans, including, for this purpose, Prepayments, liquidations
due to defaults, casualties and condemnations, and repurchases of Mortgage Loans
by the Seller. The Mortgage Loans may be prepaid by the related Mortgagors, in
whole or in part, at any time. However, approximately _____% of the Mortgage
Loans as of the Statistical Calculation Date (by Loan Balance) require the
payment of a fee in connection with certain prepayments which may affect the
rate of principal payment. For a discussion of such provisions, see "The
Portfolio of Mortgage Loans - Prepayment Penalties" herein. In addition, the
actual rate of principal prepayments on pools of mortgage loans is influenced by
a variety of economic, tax, geographic, demographic, social, legal and other
factors and has fluctuated considerably in recent years. In addition, the rate
of principal prepayments may differ among pools of mortgage loans at any time
because of specific factors relating to the mortgage loans in the particular
pool, including, among other things, the age of the mortgage loans, the
geographic locations of the properties securing the loans and the extent of the
mortgagors' equity in such properties, and changes in the mortgagors' housing
needs, job transfers and unemployment.
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 loan to "lock in" a lower fixed interest rate. However,
no assurance can be given as to the level of prepayments that the Mortgage Loans
will experience.
The prepayment behavior of the 2/28 Loans and 3/27 Loans may differ
from that of the other Mortgage Loans. As a 2/28 Loan or 3/27 Loan approaches
its initial adjustment date, the borrower may become more likely to refinance
such loan to avoid an increase in the Coupon Rate, even if fixed rate loans are
only available at rates that are slightly lower or higher than the Coupon Rate
before adjustment. The existence of the applicable periodic rate cap, lifetime
cap and lifetime floor also may affect the likelihood of prepayments resulting
from refinancings. In addition, the delinquency and loss experience on the
Mortgage Loans may differ from that on the fixed rate mortgage loans because the
amount of the monthly payments on the Mortgage Loans are subject to adjustment
on each adjustment date.
The prepayment experience on non-conventional mortgage loans may differ
from that on conventional first mortgage loans, primarily due to the credit
quality of the typical borrower. Because the credit histories of many
non-conventional borrowers may preclude them from other traditional sources of
financing, such borrowers may be less likely to refinance due to a decline in
market interest rates. Non-conventional mortgage loans may experience more
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<PAGE>
prepayments in a rising interest rate environment as the borrowers' finances are
stressed to the point of default. Prepayments may also affect the yield to the
Owners of the Notes, if the weighted average margins are reduced.
In addition to the foregoing factors affecting the weighted average
life of the Notes, the overcollateralization provisions of the transaction
result in an additional reduction of the Note Principal Balance relative to the
amortization of the Mortgage Loans in early months of the transaction. This
creates overcollateralization which results from the excess of the aggregate
Loan Balance of the Mortgage Loans over the Note Principal Balance.
Mandatory Prepayment
In the event that prior to the end of the Funding Period the Depositor
is unable to sell Subsequent Mortgage Loans to the Issuer in an amount equal to
the Pre-Funded Amount, the Owners of the Notes will receive a partial prepayment
on the Payment Date immediately following the end of the Funding Period in an
amount equal to the Pre-Funded Amount remaining at the end of the Funding
Period.
The Depositor intends to use substantially all of the amount on deposit
in the Pre-Funding Account to purchase Subsequent Mortgage Loans such that no
material amount of principal is expected to be prepaid at the end of the Funding
Period.
Prepayment and Yield Scenarios for the Notes
As indicated above, if purchased at other than par (disregarding, for
purposes of this discussion, the effects on an investor's yield resulting from
the timing of the settlement date), the yield to maturity on a Note will be
affected by the rate of the payment of principal of the Mortgage Loans. If the
actual rate of payments on the Mortgage Loans is slower than the rate
anticipated by an investor who purchases Notes at a discount, the actual yield
to such investor will be lower than such investor's anticipated yield. If the
actual rate of payments on the Mortgage Loans is faster than the rate
anticipated by an investor who purchases Notes at a premium, the actual yield to
such investor will be lower than such investor's anticipated yield.
The Final Payment Date for the Notes is __________ ___, _____. This
date is the Payment Date in the twelfth month after the date on which the
initial Note Principal Balance as of the Closing Date would be reduced to zero,
assuming that no Prepayments are received on the Mortgage Loans, that scheduled
monthly payments of principal and interest on the Mortgage Loans are timely
received and that the overcollateralization mechanics of the transaction are not
used to make accelerated payments of principal to the Owners of the Notes. The
weighted average life of the Notes 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 actual final Payment Date with respect to the Notes could
occur significantly earlier than the Final Payment Date because (i) Prepayments
are likely to occur and (ii) the Majority Residualholders may cause a redemption
of the Notes on or after the Redemption Date.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Notes will be influenced by the rate at which principal of the Mortgage Loans is
paid, which may be in the form of scheduled amortization or prepayments (for
this purpose, the term "prepayment" includes Prepayments and liquidations due to
default).
Each Accrual Period for the Notes will consist of the actual number of
days elapsed from the 25th day of the month preceding the month of the
applicable Payment Date (or, in the case of the first Accrual Period, from the
Closing Date) through the 24th day of the month of such Payment Date. After the
initial Accrual Period, the Note Rate will be adjusted by reference to changes
in the level of One-Month LIBOR, subject to the effects of the applicable
limitation described herein.
The Note may be calculated by reference to the Coupon Rates on the
Mortgage Loans. Although the Coupon Rates on the Mortgage Loans are subject to
adjustment, the Coupon Rates adjust less frequently than the Note Rate which
adjust by reference to One-Month LIBOR. Changes in One-Month LIBOR may not
correlate with changes in Six-Month LIBOR and either may not correlate with
prevailing interest rates. It is possible that an increased level of
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<PAGE>
One-Month LIBOR could occur simultaneously with a lower level of prevailing
interest rates, which would be expected to result in faster prepayments, thereby
reducing the weighted average life of the Notes.
Certain of the Mortgage Loans, including the 2/28 Loans and the 3/27
Loans, were originated with initial Coupon Rates that were based on competitive
conditions. As a result, the Coupon Rates on such Mortgage Loans are more likely
to adjust on their first, and possibly subsequent adjustment dates subject to
the effects of the applicable periodic rate cap and lifetime cap. Because the
Note Rate is limited by the Available Funds Cap on each Payment Date, limits on
changes in the Coupon Rates of the Mortgage Loans may limit changes in the Note
Rate. In addition, the Coupon Rates for the 2/28 Loans will not adjust until
approximately the date on which the 24th scheduled monthly payment is due and
the Coupon Rates for the 3/27 Loans will not adjust until approximately the date
on which the 36th scheduled monthly payment is due.
The Available Funds Cap on a Payment Date will depend, in part, on the
weighted average of the then-current Coupon Rates of the outstanding Mortgage
Loans. If the Mortgage Loans bearing higher Coupon Rates were to prepay, the
weighted average Coupon Rate of the Mortgage Loans, and consequently the
Available Funds Cap, would be lower than otherwise would be the case.
The model used in this Prospectus Supplement is the constant prepayment
rate ("CPR") which 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 such mortgage loans. CPR does not purport to be a 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 Seller believes
that no existing statistics of which it is aware provide a reliable basis for
Owners of the Notes to predict the amount or the timing of receipt of
prepayments on the Mortgage Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between the characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Note Principal Balance outstanding and weighted average life
of the Notes set forth in the tables. In addition, since the actual Mortgage
Loans have characteristics which differ from those assumed in preparing the
tables set forth below, the payments of principal on the Notes may be made
earlier or later than as indicated in the tables.
For the purpose of the tables below, it is assumed that: (i) the
Mortgage Loans consist of pools of loans having the approximate characteristics
as set forth in the "Representative Loan Pools" table below, (ii) the Closing
Date for the Notes occurs on _________ ___, 199__, (iii) payments on the Notes
are made on the 25th day of each month regardless of the day on which the
Payment Date actually occurs, commencing in ________________ in accordance with
the priorities described herein, (iv) the difference between the gross Coupon
Rate and the net Coupon Rate is equal to the Servicing Fee and the net Coupon
Rate is further reduced by the Trust Fees and Expenses, (v) the prepayment rate
of the Mortgage Loans occurs at the CPR rates set forth in the table, (vi)
prepayments include 30 days' interest thereon, (vii) no reinvestment income from
any Trust account is available for payment to the Owners of the Notes other than
the Pre-Funding Account, which accrues on the funds therein based on a rate of
____% per annum; (viii) the scheduled monthly payments of principal and interest
on the Mortgage Loans will be timely delivered on the first day of the
Remittance Period (with no defaults), (ix) the level of Six-Month LIBOR remains
constant at approximately ____%, (x) the level of One-Month LIBOR remains
constant at approximately _______%, (xi) all Mortgage Loans are considered
Six-Month LIBOR Loans, (xii) the Coupon Rate for each Mortgage Loan is adjusted
on its next rate change date (and on subsequent rate change dates, if necessary)
to equal the sum of (a) the applicable index and (b) the respective gross margin
(subject to applicable interest rate caps and floors), (xiii) the
overcollateralization levels are set as specified in the Sale and Servicing
Agreement; (xiv) no optional redemption is exercised (except in the case of the
"Weighted Average Life to Call" set forth below) and (xv) all Mortgage Loans
accrue interest based on a 360-day year assumed to consist of twelve 30-day
months.
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<PAGE>
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Gross Net Initial Subsequent Months to Rate Change Original Term Remaining Term
Principal Coupon Coupon Gross Periodic Periodic Next Rate Frequency to Maturity of Maturity
Balance Rate Rate Margin Rate Cap Rate Cap Reset Date (in months) (in months) (in months)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % % % %
</TABLE>
SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
Gross Net Initial Subsequent Months to Rate Change Original Term Remaining Term
Principal Coupon Coupon Gross Periodic Periodic Next Rate Frequency to Maturity of Maturity
Balance Rate Rate Margin Rate Cap Rate Cap Reset Date (in months) (in months) (in months)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % % % %
</TABLE>
S-33
<PAGE>
The following table sets forth the percentages of the initial principal amount
of the Notes that would be outstanding after each of the dates shown, based on a
rate equal to 0.0%, 15.0%, 22.5%, 30.0% , 37.5% and 45.0% of the CPR (as defined
above).
PERCENTAGE OF INITIAL NOTE PRINCIPAL BALANCE(1)
Payment 0.0% 15.0% 22.5% 30.0% 37.5% 45.0%
Date ---- ----- ----- ----- ----- -----
Initial
08/25/1999
08/25/2000
08/25/2001
08/25/2002
08/25/2003
08/25/2004
08/25/2005
08/25/2006
08/25/2007
08/25/2008
08/25/2009
08/25/2010
08/25/2011
08/25/2012
08/25/2013
08/25/2014
08/25/2015
08/25/2018
08/25/2017
08/25/2018
08/25/2019
08/25/2025
08/25/2021
08/25/2022
08/25/2023
08/25/2024
08/25/2025
08/25/2026
08/25/2027
Weighted
Average
Life to
Maturity
(Years)(2)
Weighted
Average
Life to Call
(Years)(2)
- ----------
(1) The percentages in the above table have been rounded to the nearest whole
number.
(2) The weighted average life of the Notes is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related Payment Date, (ii) adding the results, and (iii)
dividing by the initial Note Principal Balance and rounding to one decimal
place.
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<PAGE>
THE ORIGINATORS
The Mortgage Loan Pool consists of Mortgage Loans purchased or
originated by in excess of ______________ originators (the "Originators") with
aggregate outstanding Loan Balances of $______________. _______________ has
originated _____% of the Mortgage Loans as of the Statistical Calculation Date.
ARMC has originated ____% of the Mortgage Loans as of the Statistical
Calculation Date. ____________ has originated ____% of the Mortgage Loans as of
the Statistical Calculation Date. It is the Seller's intent to purchase all of
the Subsequent Mortgage Loans from the Originators from whom the Initial
Mortgage Loans were purchased although the Sale and Servicing Agreement does not
prohibit the Seller from purchasing Subsequent Mortgage Loans from other
mortgage loan originators.
ARMC is a wholly-owned subsidiary of the Seller.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Loans and
the Properties is based upon the pool as constituted at the close of business on
the Statistical Calculation Date. Prior to the issuance of the Notes, Mortgage
Loans may be removed from the pool as a result of incomplete documentation or
non-compliance with representations and warranties set forth in the Sale and
Servicing Agreement, if the Seller deems such removal necessary or appropriate.
An aggregate amount of at least $__________ of additional Mortgage Loans will
also be included in the pool prior to the issuance of the Notes and the
Subsequent Mortgage Loans will be added to the pool after the issuance of the
Notes.
A current report on Form 8-K will be available to purchasers of the
Notes and will be filed, and incorporated by reference to the Registration
Statement together with the Indenture, the Trust Agreement and the Sale and
Servicing Agreement, with the Securities and Exchange Commission within fifteen
days after the initial issuance of the Notes and within fifteen days of the
addition of any Subsequent Mortgage Loans. In the event Initial Mortgage Loans
are removed from, added to, or Subsequent Mortgage Loans are added to the pool
as set forth in the preceding paragraph, such removal or addition will be noted
in a current report on Form 8-K. A description of the pool of Initial Mortgage
Loans, as of the Closing Date including such additional Mortgage Loans, will be
filed in a current report on Form 8-K within fifteen days after the initial
issuance of the Notes.
DESCRIPTION OF THE NOTES
General
The Issuer will issue the Notes pursuant to the Indenture. The Issuer
will also issue the Residual Interest pursuant to the Trust Agreement, which
represents the residual interest in the Trust Estate. The summaries of certain
provisions of the Indenture, the Sale and Servicing Agreement and the Trust
Agreement (collectively, the "Agreements") set forth below, under the caption
"Administration" herein, while complete in material respects, do not purport to
be exhaustive. For more details regarding the terms of the Agreements,
prospective investors in the Notes are advised to review the Agreements, a copy
of each of which the Depositor will provide (without exhibits) without charge
upon written request addressed to the Depositor.
The Notes will be secured by the Trust Estate created by the Indenture.
The Notes represent non-recourse obligations of the Issuer and proceeds of the
assets in the Trust Estate will be the sole source of payments of the Notes. The
Notes will not represent an interest in or obligation of the Depositor, the
Servicer, the Note Insurer, the Owner Trustee, the Indenture Trustee, the
Underwriters, any of their respective affiliates or any other entity.
Payment Dates
On each Payment Date, the Owners of the Notes will be entitled to
receive, from amounts then on deposit in a trust account established and
maintained by the Indenture Trustee in accordance with the Sale and Servicing
Agreement (the "Note Account") and until the Note Principal Balance is reduced
to zero, the aggregate payment amount as of such Payment Date as described
below. Payments will be made in immediately available funds to Owners of Notes
by wire transfer or otherwise, to the account of such Owner at a domestic bank
or other entity having appropriate
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<PAGE>
facilities therefor, if such Owner has so notified the Indenture Trustee at
least five Business Days prior to the Record Date, or by check mailed to the
address of the person entitled thereto as it appears on the register (the
"Register") maintained by the Indenture Trustee as registrar (the "Registrar").
Beneficial Owners may experience some delay in the receipt of their payments due
to the operations of DTC. See "Risk Factors -- Book Entry Registration" and
"Description of the Notes -- Book Entry Registration of the Notes" herein and
"Description of the Securities -- Book Entry Securities" in the Prospectus.
The Indenture will provide that an Owner, upon receiving the final
payment on such Owner's Notes, will be required to send such Note to the
Indenture Trustee. The Indenture additionally will provide that, in any event,
any Note as to which the final payment thereon has been made shall be deemed
canceled for all purposes of the Indenture and the Note Insurance Policy.
Each Owner of record of the Notes will be entitled to receive such
Owner's Percentage Interest in the amounts due on such Payment Date. The
"Percentage Interest" as of any date of determination will be equal to the
percentage obtained by dividing the principal balance of such Note as of the
Cut-Off Date by the Note Principal Balance as of the Cut-Off Date.
Payments
Upon receipt, the Indenture Trustee will be required to deposit into
the Note Account, (i) any Insured Payments, (ii) the proceeds of any liquidation
of the assets of the Trust Estate, (iii) all remittances made to the Indenture
Trustee by the Servicer, (iv) on the Payment Dates in ________ and ____________,
the Capitalized Interest Requirement (as defined in the Sale and Servicing
Agreement) and (v) on the Payment Date immediately following the end of the
Funding Period any portion of the Pre-Funding Amount remaining unused.
On each Payment Date, the Indenture Trustee is required to make the
following payments and transfers from monies then on deposit in the Note Account
as specified below in the following order of priority of each such transfer and
payment:
(i) first, on each Payment Date from amounts then on deposit in
the Note Account the Indenture Trustee shall distribute (A)
to itself, the Indenture Trustee Fee and the Indenture
Trustee Reimbursable Expenses and (B) provided that no Note
Insurer Default has occurred and is continuing, the Premium
Amount for such Payment Date to the Note Insurer;
(ii) second, on each Payment Date, the Indenture Trustee shall
allocate an amount equal to the sum of (x) the Total Monthly
Excess Spread (as defined herein) with respect to such
Payment Date plus (y) any Overcollateralization Reduction
Amount with respect to such Payment Date (such sum being the
"Total Monthly Excess Cashflow" with respect to such Payment
Date) in the following order of priority:
(A) first, such Total Monthly Excess Cashflow shall be
allocated to the payment of the Principal Payment
Amount (excluding any Overcollateralization Increase
Amount) pursuant to clause (iv)(C) below in an amount
equal to the amount, if any, by which (x) the
Principal Payment Amount (excluding any
Overcollateralization Increase Amount) exceeds (y) the
Available Funds for such Payment Date (net of the
related Current Interest and the Trust Fees and
Expenses) (the amount of such difference being an
"Available Funds Shortfall"); and
(B) second, any portion of the Total Monthly Excess
Cashflow remaining after the allocation described in
clause (A) above shall be paid to the Note Insurer in
respect of amounts owed on account of any
Reimbursement Amount (as defined in the Sale and
Servicing Agreement) owed to the Note Insurer;
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<PAGE>
(iii) third, the amount, if any, of the Total Monthly Excess
Cashflow on a Payment Date remaining after the allocations
and payments described in clause (ii) above is the "Net
Monthly Excess Cashflow" with respect to such Payment Date
and is required to be applied in the following order or
priority:
(A) first, such Net Monthly Excess Cashflow shall be used
to reduce to zero, through the payment of an
Overcollateralization Increase Amount to the Owners of
the Notes pursuant to clause (iv)(C) below, any
Overcollateralization Deficiency Amount (as defined in
the Sale and Servicing Agreement) as of such Payment
Date;
(B) second, any portion of the Net Monthly Excess Cashflow
remaining after the application described in clause
(A) above shall be used to pay any Available Funds Cap
Carry Forward Amount to the Owners of the Notes; and
(C) third, any Net Monthly Excess Cashflow remaining after
the applications and payments described in clauses (A)
and (B) above shall be paid to the Servicer to the
extent of any unreimbursed Delinquency Advances and
unreimbursed Servicing Advances;
(iv) fourth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above
from amounts (including any related Insured Payment) then on
deposit in the Note Account, the Indenture Trustee shall
distribute:
(A) (x) to the Note Insurer, the amounts described in
clause (ii)(B) above and (y) to the Servicer the
amounts described in clause (iii)(C) above;
(B) to the Owners of the Notes, the Current Interest
(including the proceeds of any Insured Payments made
by the Note Insurer) on a pro rata basis without any
priority among the Notes;
(C) to the Owners of the Notes, the Principal Payment
Amount until the Note Principal Balance is reduced to
zero;
(D) to the Indenture Trustee, as reimbursement of expenses
of the Indenture Trustee not reimbursed pursuant to
(i) above and incurred in connection with duties and
obligations under the Indenture; and
(v) fifth, following the making by the Indenture Trustee of all
allocations, transfers and disbursements described above,
from amounts then on deposit in the Note Account, the
Indenture Trustee shall distribute to the holders of the
Residual Interest, the remaining distributable amounts as
specified in the Sale and Servicing Agreement, for such
Payment Date.
"Available Funds" as to each Payment Date is the amount on deposit in
the Note Account on such Payment Date (net of Total Monthly Excess Cashflow and
disregarding the amounts of any Insured Payments to be made on such Payment Date
and inclusive of any investment earnings on eligible investments therein).
"Total Available Funds" as to each Payment Date is the sum of (x) the
amount on deposit in the Note Account on such Payment Date (net of Total Monthly
Excess Cashflow) on such Payment Date, (y) any amounts of Total Monthly Excess
Cashflow to be applied on such Payment Date and (z) any deposit to the Note
Account from the Pre-Funding Account or Capitalized Interest Account expected to
be made in accordance with the Sale and Servicing Agreement (disregarding the
amount of any Insured Payment to be made on such Payment Date).
The Indenture Trustee or Paying Agent (as defined in the Indenture)
shall (i) receive as attorney-in-fact of each Owner of Notes any Insured Payment
from the Note Insurer and deposit such amounts into the Note Account and (ii)
disburse the same to each Owner of Notes. The Sale and Servicing Agreement will
provide that to the extent the Note Insurer makes Insured Payments, either
directly or indirectly (as by paying through the Indenture Trustee), to the
S-37
<PAGE>
Owners of such Notes, the Note Insurer will be subrogated to the rights of such
Owners of Notes with respect to such Insured Payments and shall receive
reimbursement for such Insured Payment as provided in the Sale and Servicing
Agreement, but only from the sources and in the manner provided in the Sale and
Servicing Agreement, such subrogation and reimbursement to have no effect on the
Note Insurer's obligations under the Note Insurance Policy.
Each Owner of a Note will be required promptly to notify the Indenture
Trustee in writing upon the receipt of a court order relating to a Preference
Amount and will be required to enclose a copy of such order with such notice to
the Indenture Trustee.
Calculation of One-Month LIBOR
On each LIBOR Determination Date (as defined below), the Indenture
Trustee will determine LIBOR for the next Accrual Period for the Notes.
"One-Month LIBOR" means, as of any LIBOR Determination Date, the London
interbank offered rate for one-month United States dollar deposits which appears
in the Telerate Page 3750 as of 11:00 a.m., London time, on such date. If such
rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in United States dollars
are offered by the Reference Banks at approximately 11:00 a.m., London time, on
that day to prime banks in the London interbank market for a period equal to one
month. The Indenture Trustee will request the principal London office of each of
the Reference Banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate for that day will be the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested, the rate
for that day will be the arithmetic mean of the rates quoted by major banks in
New York City, selected by the Indenture Trustee, at approximately 11:00 a.m.,
New York City time, on that day for loans in United States dollars to leading
European banks for a period equal to one month.
"LIBOR Determination Date" means, for the Accrual Period related to the
___________ Payment Date, One-Month LIBOR on the second London business day
preceding the Closing Date, and for any Accrual Period thereafter, the second
London business day preceding the commencement of such Accrual Period. For
purposes of determining One-Month LIBOR, a "London business day" is any day on
which dealings in deposits of United States dollars are transacted in the London
interbank market.
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"Reference Banks" means leading banks selected by the Seller and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market.
Pre-Funding Account
On the Closing Date, the Pre-Funded Amount will be deposited in the
Pre-Funding Account, which account shall be in the name of and maintained by the
Indenture Trustee in trust for the Owners of the Notes. During the Funding
Period, the Pre-Funded Amount will be maintained in the Pre-Funding Account. The
Pre-Funded Amount will be reduced during the Funding Period by the amount
thereof used to purchase Subsequent Mortgage Loans in accordance with the Sale
and Servicing Agreement. Any Pre-Funded Amount remaining at the end of the
Funding Period will be distributed to the Owners of the Notes on the Payment
Date immediately following the end of the Funding Period in reduction of the
Note Principal Balance of such Owner's Notes, thus resulting in a partial
principal prepayment of such Notes.
Amounts on deposit in the Pre-Funding Account will be invested in
Eligible Investments. All interest and any other investment earnings on amounts
on deposit in the Pre-Funding Account will be deposited in the Capitalized
Interest Account prior to each Payment Date during the Funding Period.
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<PAGE>
Capitalized Interest Account
On the Closing Date cash will be deposited in the Capitalized Interest
Account, which account shall be in the name of and maintained by the Indenture
Trustee in trust for the Owners of the Notes. The amount on deposit in the
Capitalized Interest Account, including reinvestment income thereon, will be
used by the Indenture Trustee on each Payment Date during and immediately after
the Funding Period to fund the excess, if any, of (i) the amount of interest
accruing on the outstanding Pre-Funded Amount at a rate equal to the Note Rate
over (ii) the amount of any reinvestment income on monies on deposit in the
Pre-Funding Account; such amounts on deposit will be so applied by the Indenture
Trustee on the each Payment Date during and immediately after the Funding Period
to fund any such excess. Any amounts remaining in the Capitalized Interest
Account at the end of the Funding Period and not needed for such purpose will be
paid to the Seller and will not thereafter be available for distribution to the
Owners of the Notes. Amounts on deposit in the Capitalized Interest Account will
be invested in Eligible Investments.
Book Entry Registration of the Notes
The Notes will originally be issued as book entry notes (the "Book
Entry Notes"). Persons acquiring beneficial ownership interests in such Book
Entry Notes ("Beneficial Owners") may elect to hold their Book Entry Notes
directly through DTC in the United States, or Cedel or Euroclear (in Europe) if
they are participants of such system ("Participants"), or indirectly through
organizations which are Participants. The Book Entry Notes will be issued in one
or more Notes which in the aggregate equal the principal balance of such Notes
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 will act as depositary for Cedel and Chase will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Investors may hold such beneficial
interests in the Book Entry Notes in minimum denominations representing
principal amounts of $25,000 and multiples of $1,000 in excess thereof. Except
as described below, no Beneficial Owner will be entitled to receive a physical
certificate representing such Note (a "Definitive Note"). Unless and until
Definitive Notes are issued, it is anticipated that the only "Owner" of such
Book Entry Notes will be Cede & Co., as nominee of DTC. Beneficial Owners will
not be Owners as that term is used in the Agreements. Beneficial Owners are only
permitted to exercise their rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book Entry Note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book Entry Note 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 Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of Cedel and Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book Entry Notes from the Indenture Trustee through DTC and DTC
Participants. While such Notes 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 such
Notes and is required to receive and transmit distributions of principal of, and
interest on, such Notes. Participants and indirect participants with whom
Beneficial Owners have accounts with respect to Book Entry Notes are similarly
required to make book entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Owners. Accordingly,
although Beneficial Owners will not possess notes, the Rules provide a mechanism
by which Beneficial Owners will receive distributions and will be able to
transfer their interest.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Notes, except under
the limited circumstances described below. Unless and until Definitive Notes are
issued, Beneficial Owners who are not Participants may transfer ownership of
Notes only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer such Notes, by book entry
transfer, through DTC for the account of the purchasers of such Notes, which
account is maintained with their respective
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<PAGE>
Participants. Under the Rules and in accordance with DTC's normal procedures,
transfers of ownership of such Notes 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 Beneficial 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 below) or Euroclear Participant (as defined below) 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 settlements in DTC. For information with respect to tax
documentation procedures relating to the Notes, see "Federal Income Tax
Considerations -- Debt Certificates" in the Prospectus and "Global Clearance,
Settlement and Tax Documentation Procedures -- Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I hereto.
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.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book Entry Notes, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book Entry Notes will be
subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
Cedel Bank, S.A. was incorporated in 1970 as a limited company under
Luxembourg law. Cedel is owned by banks, securities dealers and financial
institutions, and currently has about 100 shareholders, including United States
financial institutions or their subsidiaries. No single entity may own more than
five percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeois, "IML," the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its participant 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.
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<PAGE>
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("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 now 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
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, 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.
The Euroclear Operator 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 the Euroclear
Operator 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.
Payments on the Book Entry Notes will be made on each Payment Date by
the Indenture Trustee to DTC. DTC will be responsible for crediting the amount
of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the Book
Entry Notes that it represents and to each Financial Intermediary for which it
acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the Beneficial Owners of the Book Entry Notes that it
represents.
Under a book entry format, Beneficial Owners of the Book Entry Notes
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Indenture Trustee to Cede. Distributions with respect to
Book Entry Notes 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. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book Entry Notes to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book Entry
Notes, may be limited due to the lack of physical certificates for such Book
Entry Notes. In addition, issuance of the Book Entry Notes in book entry form
may reduce the liquidity of such Notes in the secondary market since certain
potential investors may be unwilling to purchase Notes for which they cannot
obtain physical certificates.
Monthly and annual reports on the Issuer provided by the Servicer to
Cede, as nominee of DTC, may be made available 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 Notes of such Beneficial Owners are credited.
DTC has advised the Indenture Trustee that, unless and until Definitive
Notes are issued, DTC will take any action permitted to be taken by the holders
of the Book Entry Notes under the Indenture only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book Entry Notes are
credited, to the extent that such actions
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are taken on behalf of Financial Intermediaries whose holdings include such Book
Entry Notes. Cedel or the Euroclear Operator, as the case may be, will take any
action permitted to be taken by an Owner under the Indenture 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 Notes which conflict
with actions taken with respect to other Notes.
Definitive Notes will be issued to Beneficial Owners of the Book Entry
Notes, or their nominees, rather than to DTC, only if (a) DTC or the Depositor
advises the Indenture Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a nominee and
depository with respect to the Book Entry Notes and the Depositor or the
Indenture Trustee is unable to locate a qualified successor, (b) the Depositor,
at its sole option, elects to terminate a book entry system through DTC or (c)
DTC, at the direction of the Beneficial Owners representing a majority of the
outstanding Percentage Interests of the Notes, advises the Indenture Trustee in
writing that the continuation of a book entry system through DTC (or a successor
thereto) is no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all
Beneficial Owners of the occurrence of such event and the availability through
DTC of Definitive Notes. Upon surrender by DTC of the global certificate or
certificates representing the Book Entry Notes and instructions for
re-registration, the Indenture Trustee will issue Definitive Notes, and
thereafter the Indenture Trustee will recognize the holders of such Definitive
Notes as Owners under the Indenture.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Notes 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.
Assignment of Rights
An Owner may pledge, encumber, hypothecate or assign all or any part of
its right to receive distributions under any Notes, but such pledge,
encumbrance, hypothecation or assignment shall not constitute a transfer of an
ownership interest sufficient to render the transferee an Owner of such Notes
without compliance with the provisions of the Indenture described above.
THE NOTE INSURER
The information set forth in this section has been provided by the Note
Insurer. No representation is made by the Underwriters, the Issuer, the Seller,
the Servicer, the Depositor or any of their affiliates as to the accuracy or
completeness of such information or any information related to the Note Insurer
incorporated by reference herein.
The Note Insurer, in consideration of the payment of the premium and
subject to the terms of the Note Insurance Policy, will unconditionally and
irrevocably guarantee to any Owner that an amount equal to each full and
complete Insured Payment will be received by the Indenture Trustee or its
successor, as trustee for the Owners, on behalf of the Owners from the Note
Insurer, for distribution by the Indenture Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Note Insurer's obligations under
the Note Insurance Policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the Indenture Trustee, whether or not such funds are properly
applied by the Indenture Trustee. Insured Payments shall be made only at the
time set forth in the Note Insurance Policy and no accelerated Insured Payments
shall be made regardless of any acceleration of the Notes, unless such
acceleration is at the sole option of the Note Insurer.
Notwithstanding the foregoing paragraph, the Note Insurance Policy does
not cover shortfalls, if any, attributable to the liability of the Issuer or the
Indenture Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).
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The Note Insurer will pay any Insured Payment that is a Preference
Amount no later than 12:00 noon, New York City time, on the later of the Payment
Date on which the related Preference Amount is due or the third Business Day
following receipt on a Business Day by the Fiscal Agent (as described below) of
(i) a certified copy of the order requiring the return of such preference
payment, (ii) an opinion of counsel satisfactory to the Note Insurer that such
order is final and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Note Insurer, irrevocably assigning to the Note
Insurer all rights and claims of the Owner relating to or arising under the
Notes against the debtor which made such preference payment or otherwise with
respect to such preference payment and (iv) appropriate instruments to effect
the appointment of the Note Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Note Insurer; provided, that if such documents are received
after 12:00 noon, New York City time on such Business Day, they will be deemed
to be received on the following Business Day. Such payments shall be disbursed
to the receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Notes to such
receiver or trustee in bankruptcy, in which case such payment shall be disbursed
to such Owner.
The Note Insurer will pay any other amount payable under the Note
Insurance Policy no later than 12:00 noon New York City time, on the later of
the Payment Date on which the Insured Payment is due or the second Business Day
following receipt in New York, New York, on a Business Day by _________________,
as Fiscal Agent for the Note Insurer or any successor fiscal agent appointed by
the Note Insurer (the "Fiscal Agent") of a Notice (as described below); provided
that if such Notice is received after 12:00 noon New York City time on such
Business Day, it will be deemed to be received on the following Business Day. If
any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making a claim under the Note
Insurance Policy, it shall be deemed not to have been received by the Fiscal
Agent for purposes of this paragraph, and the Note Insurer or the Fiscal Agent,
as the case may be, shall promptly so advise the Indenture Trustee and the
Indenture Trustee may submit an amended Notice.
Insured Payments due under the Note Insurance Policy, unless otherwise
stated therein, will be disbursed by the Fiscal Agent to the Indenture Trustee
on behalf of Owners by wire transfer of immediately available funds in the
amount of the Insured Payment less, in respect of Insured Payments related to
Preference Amounts, any amount held by the Indenture Trustee for the payment of
such Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Note Insurer only and the Fiscal
Agent shall in no event be liable to Owners for any acts of the Fiscal Agent or
any failure of the Note Insurer to deposit or cause to be deposited, sufficient
funds to make payments due under the Note Insurance Policy.
Subject to the terms of the Sale and Servicing Agreement, the Note
Insurer shall be subrogated to the rights of each Owner to receive payments
under the Notes to the extent of any payment by the Note Insurer under the Note
Insurance Policy.
As used in the Note Insurance Policy, the following terms shall have
the following meanings:
"Agreement" means the Sale and Servicing Agreement dated as
of _______________ among AMRESCO Residential Securities Corporation, as
Depositor, AMRESCO Residential Capital Markets, Inc., as Seller,
__________________, as Servicer, AMRESCO Residential Securities
Corporation Mortgage Loan Owner Trust 199__-__, as Issuer, and
_______________________, as Indenture Trustee, without regard to any
amendment or supplement thereto, unless the Note Insurer shall have
consented in writing thereto.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in California, New York City,
the city in which the corporate trust office of the Indenture Trustee
under the Indenture is located or the city in which the principal
office of the Note Insurer is located are authorized or obligated by
law or executive order to close.
"Insured Payment" means for any Payment Date, the excess, if
any, of (i) the sum of (a) the Current Interest, (b) the
Overcollateralization Deficit and (c) the Preference Amount (without
duplication) over (ii) the
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Total Available Funds (after any deduction for the Trust Fees and
Expenses and after taking into account the portion of the Principal
Payment Amount to be actually paid on such Payment Date without regard
to any related Insured Payment to be made with respect to such Payment
Date). Insured Payments do not include the payment of any Available
Funds Cap Carry Forward Amounts.
"Notice" means the telephonic or telegraphic notice,
promptly confirmed in writing by telecopy substantially in the form of
Exhibit A attached to the Note Insurance Policy, the original of which
is subsequently delivered by registered or certified mail, from the
Indenture Trustee specifying the Insured Payment which shall be due and
owing on the applicable Payment Date.
"Owner" means each Owner (as defined in the Indenture) who,
on the applicable Payment Date, is entitled under the terms of the
applicable Note to payment thereunder.
"Preference Amount" means any amount previously distributed
to an Owner on a Note that is recoverable and sought to be recovered as
a voidable preference by a trustee in bankruptcy pursuant to the United
States Bankruptcy Code (11 U.S.C.) as amended from time to time, in
accordance with a final nonappealable order of a court having competent
jurisdiction.
Capitalized terms used in the Note Insurance Policy and not otherwise
defined therein will have the respective meanings set forth in the Agreement as
of the date of execution of the Note Insurance Policy, without giving effect to
any subsequent amendment to or modification of the Agreement unless such
amendment or modification has been approved in writing by the Note Insurer.
Any notice under the Note Insurance Policy or service of process on the
Fiscal Agent of the Note Insurer may be made at the address listed below for the
Fiscal Agent of the Note Insurer or such other address as the Note Insurer shall
specify in writing to the Indenture Trustee.
The notice address of the Fiscal Agent is ________________________
_____________________, Attention: ______________________________, or such other
address as the Fiscal Agent shall specify to the Indenture Trustee in writing.
The Note Insurance Policy is being issued under and pursuant to, and
shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
THE INSURANCE PROVIDED BY THE NOTE INSURANCE POLICY IS NOT COVERED BY
THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The Note Insurance Policy is not cancelable for any reason. The premium
on the Note Insurance Policy is not refundable for any reason including payment,
or provision being made for payment, prior to the maturity of the Notes.
The Note Insurer is the principal operating subsidiary of __________
______________, a New York Stock Exchange listed company. __________________ is
not obligated to pay the debts of or claims against the Note Insurer. The Note
Insurer is domiciled in the State of New York and licensed to do business in and
is subject to regulation under the laws of all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands of the United States and the Territory of
Guam. The Note Insurer has two European branches, one in the Republic of France
and the other in the Kingdom of Spain. New York has laws prescribing minimum
capital requirements, limiting classes and concentration of investments and
requiring the approval of policy rates and forms. State laws also regulate the
amount of both the aggregate and individual risks that may be insured, the
payment of dividends by the Note Insurer, changes in control and transactions
among affiliates. Additionally, the Note Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
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The consolidated financial statements of the Note Insurer, a
wholly-owned subsidiary of __________________, and its subsidiaries as of
_________________ and ________________ and for each of the three years in the
period ended _____________________, prepared in accordance with generally
accepted accounting principles, included in the Annual Report on Form 10-K of
_______________ for the year ended _________________ and the consolidated
financial statements of the Note Insurer and its subsidiaries as of
__________________ and for the _______ month periods ended __________________
and __________________, included in the Quarterly Report on Form 10-Q of
_________________ for the period ending _________________, are hereby
incorporated by reference into this Prospectus Supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated by
reference herein shall be modified or superseded for purposes of this Prospectus
Supplement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus Supplement.
All financial statements of the Note Insurer and its subsidiaries
included in documents filed by _____________ pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Notes shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The tables below present selected financial information of the Note
Insurer determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
SAP
--------------------------------------------
199__ 199__
(Audited) (Unaudited)
--------- -----------
(In millions)
Admitted Assets $ $
Liabilities
Capital and Surplus
GAAP
--------------------------------------------
199__ 199__
(Audited) (Unaudited)
--------- -----------
(In millions)
Assets $ $
Liabilities
Shareholder's Equity
--------------------
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Copies of the financial statements of the Note Insurer incorporated by
reference herein and copies of the Note Insurer's ______ year-end audited
financial statements prepared in accordance with statutory accounting practices
are available, without charge, from the Note Insurer. The address of the Note
Insurer is ___________________________ ____________. The telephone number of the
Note Insurer is (_____) ______________.
The Note Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted heretofrom, other than with respect to the accuracy
of the information regarding the Note Insurance Policy and Note Insurer set
forth under the heading "The Note Insurer" herein. Additionally, the Note
Insurer makes no representations regarding the Notes or the advisability of
investing in the Notes.
Moody's rates the claims paying ability of the Note Insurer "Aaa".
Standard & Poor's rates the claims paying ability of the Note Insurer
"AAA".
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the claims paying ability of the Note Insurer "AAA".
Each rating of the Note Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Note Insurer and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Notes and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of any of the above
ratings may have an adverse effect on the market price of the Notes. The Note
Insurer does not guaranty the market price of the Notes nor does it guaranty
that the ratings on the Notes will not be revised or withdrawn.
CREDIT ENHANCEMENT
Note Insurance Policy
See "The Note Insurer" herein for a description of the Note Insurance
Policy.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Sale and
Servicing Agreement requires that, on each Payment Date, Net Monthly Excess
Cashflow be applied on such Payment Date as an accelerated payment of principal
on the Notes, but only to the limited extent hereafter described. Net Monthly
Excess Cashflow equals the excess of (i) the excess, if any of (x) the interest
which is collected on the Mortgage Loans during a Remittance Period (net of the
Servicing Fee and of certain miscellaneous administrative amounts) plus any
Delinquency Advances and Compensating Interest plus any amounts required to be
transferred from the Capitalized Interest Account and Pre-Funding Account
pursuant to the terms of the Sale and Servicing Agreement over (y) the sum of
the Current Interest and the Trust Fees and Expenses (the difference between (x)
and (y) is the "Total Monthly Excess Spread"), over (ii) the portion of the
Total Monthly Excess Cashflow that is used to cover shortfalls in Available
Funds on such Payment Date or used to reimburse the Note Insurer.
The application of Net Monthly Excess Cashflow has the effect of
accelerating the amortization of the Notes relative to the amortization of the
Mortgage Loans. To the extent that any Net Monthly Excess Cashflow is not so
used, the Sale and Servicing Agreement provides that it will be used to
reimburse the Owners of the Notes with respect to any Available Funds Cap Carry
Forward Amount and then to reimburse the Servicer with respect to any amounts
owing to it, and, thereafter, paid to the Owners of the Residual Interest.
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Pursuant to the Sale and Servicing Agreement, Net Monthly Excess
Cashflow will be applied as an accelerated payment of principal on the Notes
until the Overcollateralization Amount has increased to the level required.
"Overcollateralization Amount" means, the excess, if any, of (x) the sum of (i)
the aggregate Loan Balances of the Mortgage Loans as of the close of business on
the last day of the preceding Remittance Period and (ii) any amount on deposit
in the Pre-Funding Account at such time exclusive of Pre-Funding Account
Earnings (as defined in the Sale and Servicing Agreement) over (y) the aggregate
Note Principal Balance as of such Payment Date (after taking into account the
payment of the Principal Payment Amount (except for any Overcollateralization
Reduction Amount or Overcollateralization Increase Amount) on such Payment
Date). Any amount of Net Monthly Excess Cashflow actually applied as an
accelerated payment of principal is an "Overcollateralization Increase Amount."
The required level of the Overcollateralization Amount with respect to a Payment
Date is the "Specified Overcollateralization Amount." The Sale and Servicing
Agreement generally provides that the Specified Overcollateralization Amount
may, over time, decrease, or increase, subject to certain floors, caps and
triggers including triggers that allow the related Specified
Overcollateralization Amount to decrease or "step down" based on the performance
on the Mortgage Loans with respect to certain tests specified in the Sale and
Servicing Agreement based on delinquency rates and cumulative losses. In
addition, Net Monthly Excess Cashflow will be applied to the payment in
reduction of principal of the Notes during the period that the Mortgage Loans
are unable to meet certain tests specified in the Sale and Servicing Agreement
based on delinquency rates and cumulative losses.
In the event that the Specified Overcollateralization Amount is
permitted to decrease or "step down" on a Payment Date in the future, the Sale
and Servicing Agreement provides that a portion of the principal which would
otherwise be distributed to the Owners of the Notes on such Payment Date shall
be distributed to the Owners of the Residual Interest over the period specified
in the Sale and Servicing Agreement. This has the effect of decelerating the
amortization of the Notes relative to the amortization of the Mortgage Loans and
of reducing the Overcollateralization Amount. With respect to any Payment Date,
the excess, if any, of (x) the Overcollateralization Amount on such Payment Date
after taking into account all distributions to be made on such Payment Date
(except for any distributions of the Overcollateralization Reduction Amount as
described in this sentence) over (y) the Specified Overcollateralization Amount
is the "Excess Overcollateralization Amount" for such Payment Date. If, on any
Payment Date, the Excess Overcollateralization Amount is, or, after taking into
account all other distributions to be made on such Payment Date would be,
greater than zero (i.e., the Overcollateralization Amount is or would be greater
than the Specified Overcollateralization Amount), then any amounts relating to
principal which would otherwise be distributed to the Owners of the Notes on
such Payment Date shall instead be distributed to the Owners of the Residual
Interest (to the extent available therefor) in an amount equal to the lesser of
(x) the Excess Overcollateralization Amount and (y) the amount available for
distribution on account of principal with respect to the Notes on such Payment
Date; such amount being the "Overcollateralization Reduction Amount" with
respect to the related Payment Date.
The Sale and Servicing Agreement provides generally that, on any
Payment Date all amounts collected on account of principal (other than any such
amount applied to the payment of an Overcollateralization Reduction Amount)
during the prior Remittance Period will be distributed to the Owners of the
Notes on such Payment Date. If any Mortgage Loan became a Liquidated Loan during
such prior Remittance Period, the Net Liquidation Proceeds related thereto and
allocated to principal may be less than the principal balance of the related
Mortgage Loan; the amount of any such insufficiency is a "Realized Loss." In
addition, the Sale and Servicing Agreement provides that the principal balance
of any Mortgage Loan which becomes a Liquidated Loan shall thenceforth equal
zero. The Sale and Servicing Agreement does not contain any requirement that the
amount of any Realized Loss be distributed to the Owners of the Notes on the
Payment Date which immediately follows the event of loss; i.e., the Sale and
Servicing Agreement does not require the current recovery of losses. However,
the occurrence of a Realized Loss will reduce the Overcollateralization Amount,
which to the extent that such reduction causes the Overcollateralization Amount
to be less than the related Specified Overcollateralization Amount applicable to
the related Payment Date, will require the payment of an Overcollateralization
Increase Amount on such Payment Date (or, if insufficient funds are available on
such Payment Date, on subsequent Payment Dates, until the Overcollateralization
Amount equals the Specified Overcollateralization Amount).
Overcollateralization and the Note Insurance Policy. The Sale and
Servicing Agreement defines a "Overcollateralization Deficit" with respect to a
Payment Date to be the amount, if any, by which (x) the Note Principal Balance
with respect to such Payment Date, after taking into account all distributions
to be made on such Payment Date
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(without regard to any Insured Payment to be made on such Payment Date and
except for any Overcollateralization Deficit), exceeds (y) the sum of (i) the
aggregate Loan Balances of the Mortgage Loans as of the close of business on the
last day of the prior Remittance Period and (ii) the amount, if any, on deposit
in the Pre-Funding Account as of the close of business on the last day of the
prior Remittance Period (exclusive of Pre-Funding Account Earnings). The Sale
and Servicing Agreement requires the Indenture Trustee to make a claim for an
Insured Payment under the Note Insurance Policy not later than the second
Business Day prior to any Payment Date as to which the Indenture Trustee has
determined that an Overcollateralization Deficit will occur for the purpose of
applying the proceeds of such Insured Payment as a payment of principal to the
Owners of the Notes on such Payment Date. The Note Insurance Policy is thus
similar to the overcollateralization provisions described above insofar as the
Note Insurance Policy guarantees ultimate, rather than current, payment of the
amounts of any Realized Losses to the Owners of the Notes. Investors in the
Notes should realize that, under extreme loss or delinquency scenarios, they may
temporarily receive no distributions of principal when they would otherwise be
entitled thereto under the principal allocation provisions described herein.
Nevertheless, the exposure to risk of loss of principal of the Owners of the
Notes depends in part on the ability of the Note Insurer to satisfy its
obligations under the Note Insurance Policy. In that respect and to the extent
that the Note Insurer satisfies such obligations, the Owners of the Notes are
insulated from shortfalls in Available Funds that may arise.
ADMINISTRATION
In addition to the provisions of the Agreements summarized elsewhere in
the Prospectus and this Prospectus Supplement there is set forth below a summary
of certain other provisions of the Agreements.
Covenant of the Seller to Take Certain Actions with Respect to the Mortgage
Loans in Certain Situations
Pursuant to the Sale and Servicing Agreement, upon the discovery by the
Depositor, the Seller, the Note Insurer, any Sub-Servicer, any Owner, the
Custodian or the Indenture Trustee that the representations and warranties set
forth therein between the Seller and the Depositor are untrue in any material
respect as of the Closing Date with the result that the interests of the Owners
or of the Note Insurer are materially and adversely affected, the party
discovering such breach is required to give prompt written notice to the other
parties.
Upon the earliest to occur of the Seller's discovery, its receipt of
notice of breach from any of the other parties or such time as a situation
resulting from an existing statement which is untrue materially and adversely
affects the interests of the Owners or the Note Insurer, the Seller will be
required promptly to cure such breach in all material respects or the Seller
shall on or prior to the second Monthly Remittance Date next succeeding such
discovery, such receipt of notice or such time (i) substitute in lieu of each
Mortgage Loan which has given rise to the requirement for action by the Seller a
"Qualified Replacement Mortgage" (as such is defined in the Sale and Servicing
Agreement) and deliver an amount equal to the excess, if any, of the Loan
Balance of the Mortgage Loan being replaced over the outstanding principal
balance of the replacement Mortgage Loan plus interest (the "Substitution
Amount") to the Indenture Trustee on behalf of the Issuer as part of the Monthly
Remittance remitted by the Servicer on such Monthly Remittance Date or (ii)
purchase such Mortgage Loan from the Issuer at a purchase price equal to the
Loan Purchase Price (as defined below) thereof. The Seller shall also deliver an
Officer's Certificate to the Indenture Trustee and the Note Insurer concurrently
with the delivery of a Qualified Replacement Mortgage stating that such Mortgage
Loan meets the requirements of a Qualified Replacement Mortgage and that all
other conditions to the substitution thereof have been satisfied. The obligation
of the Seller to so substitute or repurchase any Mortgage Loan as to which a
representation of warranty is untrue in any material respect and has not been
remedied constitutes the sole remedy available to the Owners and the Indenture
Trustee.
"Loan Purchase Price" means an amount equal to the Loan Balance of such
Mortgage Loan as of the date of purchase (assuming that the Monthly Remittance
Amount remitted by the Servicer on such Monthly Remittance Date has already been
remitted), plus all accrued and unpaid interest on such Mortgage Loan at the
Coupon Rate to but not including the Monthly Remittance Date in the Remittance
Period of such purchase together with (without duplication) the aggregate amount
of (i) all unreimbursed Delinquency Advances and Servicing Advances theretofore
made with respect to such Mortgage Loan, (ii) all Delinquency Advances which the
Servicer has theretofore failed to remit with
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respect to such Mortgage Loan and (iii) all reimbursed Delinquency Advances to
the extent that such reimbursement is not made from the Mortgagor or from
Liquidation Proceeds from the respective Mortgage Loan.
Assignment of Mortgage Loans
The Seller on the Closing Date will sell, transfer, assign, set over
and otherwise convey without recourse to the Depositor and the Depositor will
sell, transfer, assign, set over and otherwise convey without recourse to the
Issuer all its respective right, title and interest in and to each Initial
Mortgage Loan and all its respective right, title and interest in and to
principal and interest due on each such Initial Mortgage Loan after the Cut-Off
Date; provided, however, that the Seller will reserve and retain all its right,
title and interest in and to principal (including Prepayments received on or
before the Cut-Off Date) and interest due on each Initial Mortgage Loan on or
prior to the Cut-Off Date (whether or not received on or prior to the Cut-Off
Date). The Issuer will pledge each Initial Mortgage Loan to the Indenture
Trustee for the benefit of the Owners of the Notes and the Note Insurer pursuant
to the Indenture.
In connection with the transfer and assignment of the Initial Mortgage
Loans on the Closing Date and the Subsequent Mortgage Loans on each Subsequent
Transfer Date, the Seller will be required to:
(i) deliver without recourse to _____________________________,
acting as the Custodian on behalf of the Indenture Trustee, on the
Closing Date with respect to each Initial Mortgage Loan or on each
Subsequent Transfer Date with respect to each Subsequent Mortgage Loan
identified in the Schedule of Mortgage Loans (A) the original Mortgage
Notes, endorsed in blank or to the order of the "_____________
_________________, as Indenture Trustee for the AMRESCO Residential
Securities Corporation Adjustable Rate Mortgage Loan Asset Backed
Notes, Series 19__-__", (B) (1) the original title insurance commitment
or a copy thereof certified as a true copy by the closing agent or the
Seller, or if available, the original title insurance policy or a copy
certified by the issuer of the title insurance policy or (2) the
attorney's opinion of title, (C) originals or copies of all intervening
assignments certified as true copies by the closing agent or the
Seller, showing a complete chain of title from origination to the
Indenture Trustee, if any, including warehousing assignments, if
recorded, (D) originals of all assumption and modification agreements,
if any, and (E) either: (1) the original Mortgage, with evidence of
recording thereon (if such original Mortgage has been returned to the
Seller from the applicable recording office) or a copy (if such
original Mortgage has not been returned to the Seller from the
applicable recording office) of the Mortgage certified as a true copy
by the closing agent or the Seller or (2) a copy of the Mortgage
certified by the public recording office in those instances where the
original recorded Mortgage has been lost or retained by the recording
office;
(ii) cause, within 60 days following the Closing Date with
respect to the Initial Mortgage Loans, or the Subsequent Transfer Date
with respect to Subsequent Mortgage Loans, assignments of the Mortgages
to "_____________________________, as Indenture Trustee for the AMRESCO
Residential Securities Corporation Adjustable Rate Mortgage Loan Asset
Backed Notes, Series 19__-__" to be submitted for recording in the
appropriate jurisdictions; provided, however, that the Seller shall not
be required to prepare any assignment of Mortgage for a Mortgage with
respect to which the original recording information has not yet been
received from the recording office until such information is received;
provided, further, that the Seller shall not be required to record an
assignment of a Mortgage (except upon the occurrence of certain
triggers specified in the Sale and Servicing Agreement) if the Seller
furnishes to the Indenture Trustee, the Note Insurer and the Rating
Agencies, on or before the Closing Date with respect to the Initial
Mortgage Loans, or on each Subsequent Transfer Date with respect to the
Subsequent Mortgage Loans, at the Seller's expense, an opinion of
counsel with respect to the relevant jurisdiction that such recording
is not required to perfect the Indenture Trustee's interests in the
Mortgage Loans (in form satisfactory to the Indenture Trustee, the Note
Insurer and the Rating Agencies);
(iii) deliver the title insurance policy, the original
Mortgages and such recorded assignments, together with originals or
duly certified copies of any and all prior assignments (other than
unrecorded warehouse assignments), to the Custodian on behalf of the
Indenture Trustee within 15 days of receipt thereof by the Seller (but
in any event, with respect to any Mortgage as to which original
recording information has
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been made available to the Seller, within one year after the Closing
Date with respect to the Initial Mortgage Loans, or on each Subsequent
Transfer Date with respect to the Subsequent Mortgage Loans); and
(iv) furnish to the Indenture Trustee, the Note Insurer and
the Rating Agencies, at the Seller's expense, an opinion of counsel
with respect to the sale and perfection of all Subsequent Mortgage
Loans delivered to the Trust in form and substance satisfactory to the
Indenture Trustee, the Note Insurer and the Rating Agencies.
The Indenture Trustee will agree, for the benefit of the Owners, to
cause the Custodian to review each File within 45 days after the Closing Date or
Subsequent Transfer Date (or the date of receipt of any documents delivered to
the Indenture Trustee after the Closing Date or Subsequent Transfer Date) to
ascertain that all required documents (or certified copies of documents) have
been executed and received.
If the Custodian on behalf of the Indenture Trustee during such 45-day
period finds any document constituting a part of a File which is not properly
executed, has not been received, is unrelated to the Mortgage Loans or that any
Mortgage Loan does not conform in a material respect to the description thereof
as set forth in the Schedule of Mortgage Loans, the Custodian on behalf of the
Indenture Trustee will be required to promptly notify the Depositor, the Seller,
the Owners and the Note Insurer. The Seller will agree to use reasonable efforts
to remedy a material defect in a document constituting part of a File of which
it is so notified by the Custodian on behalf of the Indenture Trustee. If,
however, within 90 days after such notice to it respecting such defect the
Seller shall not have remedied the defect and the defect materially and
adversely affects the interest in the related Mortgage Loan of the Owners, the
Seller will be required on the next succeeding Monthly Remittance Date to (or
will cause an affiliate of the Seller to) (i) substitute in lieu of such
Mortgage Loan a Qualified Replacement Mortgage and deliver the Substitution
Amount to the Indenture Trustee on behalf of the Owners of the Notes as part of
the Monthly Remittance Amount remitted by the Servicer on such Monthly
Remittance Date or (ii) purchase such Mortgage Loan at a purchase price equal to
the Loan Purchase Price thereof, which purchase price shall be delivered to the
Indenture Trustee along with the Monthly Remittance Amount remitted by the
Servicer on such Monthly Remittance Date.
In addition to the foregoing, the Custodian on behalf of the Indenture
Trustee has agreed to make a review during the 12th month after the Closing Date
indicating the current status of the exceptions previously indicated on the Pool
Certification (the "Final Certification"). After delivery of the Final
Certification, the Custodian, on behalf of the Indenture Trustee and the
Servicer shall monitor no less frequently than monthly the then current status
of exceptions, until all such exceptions have been eliminated.
Servicing and Sub-Servicing
The Servicer is required to service the Mortgage Loans in accordance
with the Sale and Servicing Agreement, the terms of the respective Mortgage
Loans, and the servicing standards set forth in Fannie Mae's Servicing Guide
(the "Fannie Mae Guide"); provided, however, that to the extent such standards,
such obligations or the Fannie Mae Guide is amended by Fannie Mae after the date
of the Sale and Servicing Agreement and the effect of such amendment would be to
impose upon the Servicer any material additional costs or other burdens relating
to such servicing obligations, the Servicer may, at its option, determine not to
comply with such amendment in accordance with the servicing standards set forth
in the Indenture.
The Servicer may retain from the interest portion of each monthly
payment, the Servicing Fee. In addition, the Servicer will be entitled to retain
additional servicing compensation in the form of prepayment charges, release
fees and bad check charges, assumption fees, late payment charges, prepayment
penalties, or any other servicing-related fees and Net Liquidation Proceeds not
required to be deposited in the Principal and Interest Account.
The Servicer is required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and,
to the extent such procedures are consistent with the Sale and Servicing
Agreement and the terms and provisions of any applicable insurance policy, to
follow collection procedures for all Mortgage Loans at least as rigorous as
those described in the Fannie Mae Guide. Consistent with the foregoing, the
Servicer may in its discretion waive or permit to be waived any late payment
charge, prepayment charge, assumption
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fee or any penalty interest in connection with the prepayment of a Mortgage Loan
or any other fee or charge which the Servicer would be entitled to retain as
additional servicing compensation. In the event the Servicer consents to the
deferment of the due dates for payments due on a Note, the Servicer will
nonetheless be required to make payment of any required Delinquency Advances
with respect to the interest payments so extended to the same extent as if the
interest portion of such installment were due, owing and delinquent and had not
been deferred.
The Servicer is required to create, or cause to be created, in the name
of the Indenture Trustee, at one or more depository institutions a principal and
interest account maintained as a trust account in the trust department of such
institution (the "Principal and Interest Account"). All funds in the Principal
and Interest Account are required to be held (i) uninvested, or (ii) invested in
Eligible Investments (as defined in the Indenture). Any investment of funds in
the Principal and Interest Account must mature or be withdrawable at par on or
prior to the immediately succeeding Monthly Remittance Date. Any investment
earnings on funds held in the Principal and Interest Account are for the account
of, and any losses therein are also for the account of, and must be promptly
replenished by, the Servicer.
The Servicer is required to deposit to the Principal and Interest
Account, within one business day following receipt, all principal and interest
due on the Mortgage Loans after the Cut-Off Date, including any Prepayments
received after the Cut-Off Date, the proceeds of any liquidation of a Mortgage
Loan net of expenses and unreimbursed Delinquency Advances ("Net Liquidation
Proceeds"), any income from REO Properties and Delinquency Advances, but net of
(i) Net Liquidation Proceeds to the extent that such Net Liquidation Proceeds
exceed the sum of (a) the Loan Balance of the related Mortgage Loan immediately
prior to liquidation, (b) accrued and unpaid interest on such Mortgage Loan (net
of the Servicing Fee) to the date of such liquidation and (c) any Realized
Losses during the related Remittance Period, (ii) principal (including
Prepayments) collected and interest due on the Mortgage Loans on or prior to the
Cut-Off Date, (iii) reimbursements for Delinquency Advances, and (iv)
reimbursement for amounts deposited in the Principal and Interest Account
representing payments of principal and/or interest on a Mortgage Note by a
Mortgagor which are subsequently returned by a depository institution as unpaid
(all such net amounts being referred to herein as the "Daily Collections").
The Servicer may make withdrawals for its own account from the
Principal and Interest Account in the following order and only for the following
purposes:
(i) on each Monthly Remittance Date, to pay itself the
Servicing Fee;
(ii) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account;
(iii) to withdraw amounts that have been deposited to the
Principal and Interest Account in error;
(iv) to reimburse itself for unrecovered Delinquency Advances
and for any excess interest collected from a Mortgagor; and
(v) to clear and terminate the Principal and Interest Account
following the termination of the Trust.
The Servicer will remit to the Indenture Trustee for deposit in the
Note Account the Daily Collections allocable to a Remittance Period not later
than the related Monthly Remittance Date, and Loan Purchase Prices and
Substitution Amounts two Business Days following the related repurchase or
substitution, as the case may be.
On each Monthly Remittance Date, the Servicer shall be required to
remit to the Indenture Trustee for deposit to the Note Account out of the
Servicer's own funds any Delinquent payment of interest with respect to each
Delinquent Mortgage Loan, which payment was not received on or prior to the
related Monthly Remittance Date and was not theretofore advanced by the
Servicer. Such amounts of the Servicer's own funds so deposited are "Delinquency
Advances." The Servicer may reimburse itself on any Business Day for any
Delinquency Advances paid from the Servicer's own funds, from collections on any
Mortgage Loan that are not required to be distributed on the Payment Date
occurring during the month in which such reimbursement is made (such amount to
be replaced on future dates to the extent necessary) or from the Note Account
out of Net Monthly Excess Cashflow.
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Notwithstanding the foregoing, in the event that the Servicer
determines in its reasonable business judgment in accordance with the servicing
standards of the Sale and Servicing Agreement that any proposed Delinquency
Advance if made would not be recoverable, the Servicer shall not be required to
make such Delinquency Advances with respect to such Mortgage Loan. To the extent
that the Servicer previously has made Delinquency Advances with respect to a
Mortgage Loan that the Servicer subsequently determines to be nonrecoverable,
the Servicer shall be entitled to reimbursement for such aggregate unreimbursed
Delinquency Advances as provided above. The Servicer shall give written notice
of such determination as to why such amount is or would be nonrecoverable to the
Indenture Trustee and the Note Insurer.
The Servicer will be required to pay all "out of pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, (i) expenditures in connection with a foreclosed Mortgage
Loan prior to the liquidation thereof, including, without limitation,
expenditures for real estate property taxes, hazard insurance premiums, property
restoration or preservation ("Preservation Expenses"), (ii) the cost of any
enforcement or judicial proceedings, including foreclosures and (iii) the cost
of the management and liquidation of Property acquired in satisfaction of the
related Mortgage, except to the extent that the Servicer in its reasonable
business judgment determines that any such proposed amount would not be
recoverable. Such costs and expenses will constitute "Servicing Advances". The
Servicer may recover a Servicing Advance to the extent permitted by the Mortgage
Loans or, if not theretofore recovered from the Mortgagor on whose behalf such
Servicing Advance was made, from Liquidation Proceeds realized upon the
liquidation of the related Mortgage Loan or from certain amounts on deposit in
the Note Account as provided in the Sale and Servicing Agreement. Except as
provided above, in no case may the Servicer recover Servicing Advances from the
principal and interest payments on any other Mortgage Loan.
A full month's interest at the related Coupon Rate will be due on the
outstanding Loan Balance of each Mortgage Loan as of the beginning of each
Remittance Period. If a prepayment in full of a Mortgage Loan or a Prepayment of
at least six times a Mortgagor's Monthly Payment occurs during any calendar
month, any difference between the interest collected from the Mortgagor in
connection with such payoff and the full month's interest at the related Coupon
Rate that would be due on the related due date for such Mortgage Loan (such
difference, the "Compensating Interest") (but not in excess of the aggregate
Servicing Fee for the related Remittance Period), will be required to be
deposited to the Principal and Interest Account (or if such difference is an
excess, the Servicer shall retain such excess) on the next succeeding Monthly
Remittance Date by the Servicer and shall be included in the Monthly Remittance
Amount to be made available to the Indenture Trustee on such Monthly Remittance
Date. The Servicer shall not be entitled to reimbursement for amounts paid as
Compensating Interest.
In accordance with the terms of the Sale and Servicing Agreement, the
Servicer will have the right and the option, but not the obligation, to purchase
for its own account any Mortgage Loan which becomes delinquent as to three
consecutive monthly installments or any Mortgage Loan as to which enforcement
proceedings have been brought by the Servicer. The purchase price for any such
Mortgage Loan is equal to the Loan Purchase Price thereof, which purchase price
shall be deposited in the Principal and Interest Account.
The Servicer is required to cause to be liquidated any Mortgage Loan
relating to a Property as to which ownership has been effected in the name of
the Servicer on behalf of the Trust and which has not been liquidated within 35
months of such effecting of ownership at such price as the Servicer deems
necessary to comply with this requirement, or within such period of time as may,
in the opinion of counsel nationally recognized in federal income tax matters,
be permitted under the Code.
The Servicer will be required to cause hazard insurance to be
maintained with respect to the related Property and to advance sums on account
of the premiums therefor if not paid by the Mortgagor if permitted by the terms
of such Mortgage Loan.
The Servicer will have the right under the Sale and Servicing Agreement
(upon receiving the consent of the Note Insurer) to accept applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations
thereof and (iii) removal, demolition or division of Properties. No application
for approval may be considered by the Servicer unless: (a) the provisions of the
related Mortgage Note and Mortgage have been complied with; (b) the
loan-to-value ratio and debt-to-income ratio after any release do not exceed the
loan-to-value ratio and debt-to-income ratio,
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respectively, of such Mortgage Note on the Cut-Off Date provided that the
loan-to-value ratio shall be permitted to be increased by an amount not to
exceed 5% unless approved by the Note Insurer; and (c) the lien priority of the
related Mortgage is not affected.
The Servicer shall not agree to any modification, waiver or amendment
of any provision of any Mortgage Loan unless, in the Servicer's good faith
judgment, such modification, waiver or amendment would minimize the loss that
might otherwise be experienced with respect to such Mortgage Loan and only in
the event of a payment default with respect to such Mortgage Loan or in the
event that a payment default with respect to such Mortgage Loan is imminent;
provided, however, that no such modification, waiver or amendment shall extend
the maturity date of such Mortgage Loan beyond the Remittance Period related to
the Final Payment Date. Notwithstanding anything set forth in the Sale and
Servicing Agreement to the contrary, the Servicer shall be permitted to modify,
waive or amend any provision of a Mortgage Loan if required by statute or a
court of competent jurisdiction to do so.
The Servicer shall provide written notice to the Indenture Trustee and
the Note Insurer, prior to the execution of any modification, waiver or
amendment of any provision of any Mortgage Loan and shall deliver to the
Custodian, on behalf of the Indenture Trustee for deposit in the related File,
an original counterpart of the agreement relating to such modification, waiver
or amendment, promptly following the execution thereof.
With the consent of the Note Insurer, the Servicer will be permitted
under the Sale and Servicing Agreement to enter into Sub-Servicing Agreements
for any servicing and administration of Mortgage Loans with any institution that
(x) is in compliance with the laws of each state necessary to enable it to
perform its obligations under such Sub-Servicing Agreement, (y) has experience
servicing mortgage loans that are similar to the Mortgage Loans and (z) has
equity of not less than $5,000,000 (as determined in accordance with generally
accepted accounting principles).
No Sub-Servicing arrangements will discharge the Servicer from its
servicing obligations. Notwithstanding any Sub-Servicing Agreement, the Servicer
will not be relieved of its obligations under the Sale and Servicing Agreement
and the Servicer will be obligated to the same extent and under the same terms
and conditions as if it alone were servicing and administering the Mortgage
Loans. The Servicer shall be entitled to enter into any agreement with a
Sub-Servicer for indemnification of the Servicer by such Sub-Servicer; provided,
however, that nothing contained in such Sub-Servicing Agreement shall be deemed
to limit or modify the Sale and Servicing Agreement.
The Servicer (except the Indenture Trustee if it is required to succeed
the Servicer under the Sale and Servicing Agreement) has agreed to indemnify and
hold the Issuer, the Indenture Trustee, the Depositor, the Note Insurer and each
Owner harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indenture Trustee, the Note Insurer and any Owner may
sustain in any way related to the failure of the Servicer to perform its duties
and service the Mortgage Loans in compliance with the terms of the Sale and
Servicing Agreement. The Servicer shall immediately notify the Issuer, the
Indenture Trustee, the Depositor, the Note Insurer and each Owner if a claim is
made by a third party with respect to the Sale and Servicing Agreement, and the
Servicer shall assume the defense of any such claim and pay all expenses in
connection therewith, including reasonable counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Servicer, the Indenture Trustee, the Depositor, the Note Insurer and/or Owner in
respect of such claim. The Indenture Trustee shall reimburse the Servicer from
amounts otherwise distributable on the Residual Interest for all amounts
advanced by it pursuant to the preceding sentence, except when a final
nonappealable adjudication determines that the claim relates directly to the
failure of the Servicer to perform its duties in compliance with the Sale and
Servicing Agreement. The indemnification provisions shall survive the
termination of the Sale and Servicing Agreement and the payment of the
outstanding Notes.
The Servicer will be required to deliver to the Indenture Trustee, the
Note Insurer and the Rating Agencies on or before __________ of each year,
commencing in ______: (i) an officers' certificate stating, as to each signer
thereof, that (a) a review of the activities of the Servicer during such
preceding calendar year and of performance under the Sale and Servicing
Agreement has been made under such officers' supervision, and (b) to the best of
such officers' knowledge, based on such review, the Servicer has fulfilled all
its obligations under the Sale and Servicing Agreement for such year, or, if
there has been a default in the fulfillment of all such obligation, specifying
each such default known to such officers and the nature and status thereof
including the steps being taken by the Servicer to remedy such default
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and (ii) a letter or letters of a firm of independent, nationally recognized
certified public accountants reasonably acceptable to the Note Insurer stating
that such firm has examined the Servicer's overall servicing operations in
accordance with the requirements of the Uniform Single Attestation Program for
Mortgage Bankers, and stating such firm's conclusions relating thereto.
Removal and Resignation of Servicer
The Note Insurer or the Indenture Trustee (with the prior written
consent of the Note Insurer) (or except as specified in the Sale and Servicing
Agreement, the Owners, with the consent of the Note Insurer) will have the
right, pursuant to the Sale and Servicing Agreement, to remove the Servicer upon
the occurrence of certain events (collectively, the "Servicer Termination
Events") including, without limitation: (a) certain acts of bankruptcy or
insolvency on the part of the Servicer; (b) certain failures on the part of the
Servicer to perform its obligations under the Sale and Servicing Agreement
(including certain performance tests related to the delinquency rate and
cumulative losses of the Mortgage Loan Pool); (c) the failure to cure material
breaches of the Servicer's representations in the Sale and Servicing Agreement;
or (d) certain mergers or other combinations of the Servicer with another
entity.
The Servicer is not permitted to resign from the obligations and duties
imposed on it under the Sale and Servicing Agreement except upon determination
that its duties thereunder are no longer permissible under applicable law or are
in material conflict by reason of applicable law with any other activities
carried on by it, the other activities of the Servicer so causing such conflict
being of a type and nature carried on by the Servicer on the date of the Sale
and Servicing Agreement. Any such determination permitting the resignation of
the Servicer is required to be evidenced by an opinion of counsel to such effect
which shall be delivered, and reasonably acceptable, to the Indenture Trustee
and the Note Insurer.
Upon removal or resignation of the Servicer, the Indenture Trustee may
(A) solicit bids for a successor servicer as described in the Sale and Servicing
Agreement and (B) until such time as a successor servicer is appointed pursuant
to the terms of the Sale and Servicing Agreement, shall serve in the capacity of
Backup Servicer. The Indenture Trustee, if it is unable to obtain a qualifying
bid and is prevented by law from acting as servicer, will be required to
appoint, or petition a court of competent jurisdiction to appoint, any housing
and home finance institution, bank or mortgage servicing institution designated
as an approved seller-servicer by FHLMC or Fannie Mae, having equity of not less
than $5,000,000, and acceptable to the Note Insurer and a majority of the Owners
of the Notes (provided that if the Note Insurer and such Owners cannot agree as
to the acceptability of such successor servicer, the decision of the Note
Insurer will control) as the successor to the Servicer in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer.
No removal or resignation of the Servicer will become effective until
the Backup Servicer or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with the Indenture.
Redemption of the Notes
The Majority Residualholders, may, at their option, on any Payment Date
on or after the Redemption Date redeem the Notes at a price equal to the
Redemption Price. Upon such redemption, the Indenture shall be terminated. The
Notes will be redeemed upon payment of the Redemption Price, and the payment of
the amount set forth in clause (i) of the definition of Redemption Price to the
Owners shall be in lieu of the payment otherwise required to be made on such
Payment Date in respect of the Notes. The "Redemption Price" is equal to the sum
of (i) the then outstanding Note Principal Balance plus all accrued and unpaid
interest thereon (and any Available Funds Cap Carry Forward Amount), (ii) any
Trust Fees and Expenses due and unpaid on such date, (iii) the payment of all
amounts owed to the Note Insurer and (iv) any unreimbursed Delinquency Advances
and Servicing Advances (as defined in the Sale and Servicing Agreement). The
Redemption Price will be distributed first, to the payment of any outstanding
Trust Fees and Expenses, second, to the Note Insurer, all amounts owed thereto,
third, to the Servicer for unreimbursed Servicing Advances and Delinquency
Advances, and fourth, to the Owners of the Notes in an amount equal to the then
outstanding Note Principal Balance plus all accrued and unpaid interest thereon
(plus any Available Funds Cap Carry Forward Amount). Any amounts remaining will
be distributed to the holders of the Residual Interest. Under certain
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circumstances described in the Sale and Servicing Agreement, the Note Insurer
may acquire all the Mortgage Loans from the Issuer and thereby effect a
redemption of the Notes and terminate the Indenture.
The Indenture Trustee
_____________________ will be the Indenture Trustee under the
Indenture. The Indenture will provide that the Indenture Trustee is entitled to
certain fees and reimbursement of expenses.
The Indenture also will provide that the Indenture Trustee may resign
at any time, upon notice to the Issuer, the Note Insurer, the Servicer and each
Rating Agency, in which event the Issuer (with the consent of the Note Insurer)
will be obligated to appoint a successor Indenture Trustee. The Issuer or the
Note Insurer may remove the Indenture Trustee if the Indenture Trustee ceases to
be eligible to continue as such under the Indenture Trustee and appointment of a
successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee. The Indenture will provide that
the Indenture Trustee is under no obligation to exercise any of the rights or
powers vested in it by the Indenture at the request or direction of any of the
Owners, unless such Owners shall have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction. The
Indenture Trustee may execute any of the rights of powers granted by the
Indenture or perform any duties thereunder either directly or by or through
agents or attorneys, and the Indenture Trustee is responsible for any misconduct
or negligence on the part of any agent or attorney appointed and supervised with
due care by it thereunder. Pursuant to the Indenture, the Indenture Trustee is
not liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Indenture. The Indenture Trustee and any
director, officer, employee or agent of the Indenture Trustee may rely and will
be protected in acting or refraining from acting in good faith in reliance on
any certificate, notice or other document of any kind prima facie properly
executed and submitted by the authorized officer of any person respecting any
matters arising under the Indenture.
The Indenture
Pursuant to the Indenture, the Indenture Trustee shall, upon the
direction of the Note Insurer (unless a Note Insurer Default (as defined in the
Sale and Servicing Agreement) has occurred and is continuing), direct the time,
method and place of conducting any proceeding for any remedy available to the
Indenture Trustee (including acceleration of the Notes) or exercising any trust
or power conferred on the Indenture Trustee.
An "Event of Default" with respect to the Notes is defined in the
Indenture as follows: (a) a default by the Issuer in the payment of any Current
Interest or Principal Payment Amount on any Note when the same becomes due and
payable (provided that for purposes of this clause, the Available Funds Cap
Carry Forward Amount does not constitute interest due and payable); (b) a
default in the observance or performance of any covenant or agreement of the
Issuer in the Indenture, or any representation or warranty of the Issuer made in
the Indenture, the Insurance Agreement, the Sale and Servicing Agreement or in
any certificate or other writing delivered pursuant thereto proving to have been
incorrect in any material respect as of the time made, and the continuation of
any such default, or the circumstance in respect of which any representation or
warranty not having been cured, as the case may be, for a period of thirty days
after notice is given to the Issuer by the Indenture Trustee, or to the Issuer
and the Indenture Trustee by the Owners of a majority of the Percentage Interest
of the Notes and, (c) certain events of bankruptcy, insolvency, receivership or
reorganization of the Issuer.
In case an Event of Default should occur and be continuing, the
Indenture Trustee shall, but only upon receipt of the prior written consent of
the Note Insurer or, if a Note Insurer Default has occurred and is continuing,
the Owners of Notes representing not less than a majority of the Percentage
Interest of the Notes may declare all the Notes to be immediately due and
payable. Such declaration may under certain circumstances be rescinded by the
Note Insurer, or if a Note Insurer Default exists, the Owners of Notes
representing a majority of the Percentage Interest of the Notes.
If, following an Event of Default, the Notes have been declared to be
due and payable, the Indenture Trustee may, with the prior written consent of
the Note Insurer (unless a Note Insurer Default has occurred and is continuing),
in its discretion, refrain from selling such assets and continue to apply all
amounts received on such assets to payments
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due on the Notes in accordance with their terms, notwithstanding the
acceleration of the maturity of such Notes. In addition, upon an Event of
Default, the Indenture Trustee may, with the consent of Owners of 100% of the
Percentage Interest of the Notes, sell all or part of the assets included in the
Trust Estate, in which event the collections on, or the proceeds from the sale
of, such assets will be applied as follows: (i) to the payment of the fees of
the Indenture Trustee and the Owner Trustee which have not been previously paid;
(ii) to the Note Insurer, any premium amount then due and unpaid; (iii) to the
Servicer for the Servicing Fee then due and unpaid; (iv) to the Owners, the
amount of interest then due and unpaid on the Notes, pro rata; (v) to the
Owners, the amount of principal then due and unpaid on the Notes, pro rata; (vi)
to the payment of amounts due and owing to the Note Insurer, to the extent not
previously reimbursed; (vii) to the Owners, the Available Funds Cap Carry
Forward Amount then unpaid; and (viii) to the Trust Paying Agent, the amounts to
be distributed, pro rata, to the Owners of the Residual Interest.
No Owner of any Note shall have any right to institute any proceeding
with respect to the Indenture unless (i) such Owner has previously given written
notice to the Indenture Trustee of a continuing Event of Default; (ii) the
Owners of a majority of the Percentage Interest of the Notes have made written
request to the Indenture Trustee to institute proceedings in respect of such
Event of Default in its own name as Indenture Trustee; (iii) such Owner has
offered the Indenture Trustee reasonable indemnity against the costs, expenses
and liabilities to be incurred in complying with such request; (iv) the
Indenture Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute such proceeding; and (v) no direction
inconsistent with such written request has been given to the Indenture Trustee
during such 60-day period by the Owners of a majority of the Percentage Interest
of the Notes.
Voting
Unless otherwise specified in the Indenture, with respect to any
provisions of the Indenture providing for the action, consent or approval of the
Owners evidencing specified "Voting Interests", each Owner will have a Voting
Interest equal to the Percentage Interest represented by such Owner's Note. Any
Note registered in the name of the Issuer or any affiliate thereof will be
deemed not to be outstanding and the Percentage Interest evidenced thereby shall
not be taken into account in determining whether the requisite amount of Voting
Interests necessary to take any such action, or effect any such consent, has
been obtained.
Reporting Requirements
On each Payment Date the Indenture Trustee will be required to report
in writing (based on information provided to the Indenture Trustee by the
Servicer) to each Owner, the Note Insurer , the Rating Agencies and the Note
Insurer:
(i) the amount of the distribution with respect the Notes
(based on a Note in the original principal amount of $1,000);
(ii) the amount of such distributions allocable to principal
on the Mortgage Loans, separately identifying the aggregate amount of
any prepayments in full or Prepayments or other recoveries of principal
included therein and any Pre-Funded Amounts distributed as a prepayment
(based on a Note in the original principal amount of $1,000) and any
related Overcollateralization Increase Amount;
(iii) the amount of such distribution allocable to interest on
the Mortgage Loans (based on a Note in the original principal amount of
$1,000);
(iv) if the interest paid to Owners is less than the Current
Interest, the Interest Carry Forward Amount on such Payment Date;
(v) the principal amount of the Notes (based on a Note in the
original principal amount of $1,000) which will be outstanding after
giving effect to any payment of principal on such Payment Date;
(vi) the aggregate Loan Balance of all Mortgage Loans after
giving effect to any payment of principal on such Payment Date;
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(vii) the amount of any Insured Payment included in the
amounts distributed to the Owners on such Payment Date;
(viii) based upon information furnished by the Seller such
information as may be required by Section 6049(d)(7)(C) of the Code and
the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(ix) the weighted average Coupon Rate of the Mortgage Loans;
(x) such other information as the Note Insurer may reasonably
request with respect to delinquent Mortgage Loans;
(xi) the amount of the Available Funds Cap Carry Forward
Amounts paid to Owners of the Notes on such Payment Date, if any, and
the Available Funds Cap Carrying Forward Amounts remaining, if any,
after such Payment Date;
(xii) the total of any Substitution Amounts or Loan Purchase
Price amounts included in such distribution;
(xiii) the weighted average Coupon Rate of the Mortgage Loans;
(xiv) the Loan Balance of each of the three largest Mortgage
Loans outstanding;
(xv) the Note Rate; and
(xvi) for Payment Dates during and immediately following the
Funding Period the total remaining Pre-Funded Amount in the Pre-Funding
Account.
Certain obligations of the Indenture Trustee to provide information to
the Owners are conditioned upon such information being received from the
Servicer.
In addition, on the Business Day preceding each Payment Date the
Indenture Trustee will be required to distribute to each Owner, the Note Insurer
and the Rating Agencies, together with the information described above, the
following information prepared by the Servicer and furnished to the Indenture
Trustee for such purpose:
(a) the number and aggregate principal balances of Mortgage
Loans (i) 30-59 days delinquent, (ii) 60-89 days delinquent, (iii) 90
or more days delinquent, as of the close of business on the last day of
the calendar month immediately preceding the Payment Date, (iv) the
numbers and aggregate Loan Balances of all Mortgage Loans as of such
Payment Date and (v) the percentage that each of the amounts
represented by clauses (i), (ii) and (iii) represent as a percentage of
the respective amounts in clause (iv);
(b) the status and the number and dollar amounts of all
Mortgage Loans in foreclosure proceedings as of the close of business
on the last day of the calendar month immediately preceding such
Payment Date;
(c) the number of Mortgagors and the Loan Balances of (i) the
related Mortgages involved in bankruptcy proceedings as of the close of
business on the last day of the calendar month immediately preceding
such Payment Date and (ii) Mortgage Loans that are "balloon" loans;
(d) the existence and status of any Properties as to which
title has been taken in the name of, or on behalf of the Indenture
Trustee, as of the close of business of the last day of the calendar
month immediately preceding the Payment Date;
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(e) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure as of the close
of business on the last day of the calendar month immediately preceding
the Payment Date; and
(f) the amount of cumulative Realized Losses, the current
period Realized Losses (each as defined in the Sale and Servicing
Agreement) and any other loss percentages as required by the Sale and
Servicing Agreement.
Removal of Indenture Trustee for Cause
The Indenture Trustee may be removed upon the occurrence of any one of
the following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Indenture Trustee: (i)
failure to make distributions of available amounts; (ii) certain breaches of
covenants and representations by the Indenture Trustee; (iii) certain acts of
bankruptcy or insolvency on the part of the Indenture Trustee; and (iv) failure
to meet the standards of Indenture Trustee eligibility as set forth in the
Indenture.
If any such event occurs and is continuing, then and in every such case
(i) the Note Insurer or (ii) with the prior written consent of the Note Insurer
(which is required not to be unreasonably withheld), the Issuer and the Owners
of a majority of the Percentage Interests represented by the Notes may remove
the Indenture Trustee.
Governing Law
The Agreements and each Note will be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed therein.
FEDERAL INCOME TAX CONSEQUENCES
The following section discusses certain of the material anticipated
Certain Federal Income Tax Consequences of the purchase, ownership and
disposition of the Notes. Such section must be considered only in connection
with "Certain Federal Income Tax Consequences" in the Prospectus. The discussion
herein and in the Prospectus is based upon laws, regulations, rulings and
decisions now in effect, all of which are subject to change. The discussion
below and in the Prospectus does not purport to deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Notes.
No election will be made to treat the Trust or the Trust Estate or any
portion thereof as a REMIC for federal income tax purposes.
Upon issuance of the Notes, Arter & Hadden LLP, special tax counsel,
will deliver its opinion that the Notes will be treated as newly originated debt
obligations and not as representing an ownership interest in the Trust Estate or
an equity interest in the Issuer, the Depositor or the Seller. In addition, for
federal income tax purposes, the Issuer will not be classified (i) as an
association taxable as a corporation, (ii) a taxable mortgage pool as defined in
Section 7701(i) of the Code or (iii) a "publicly traded partnership" as defined
in Treasury Regulations Section 1.7704-1. Each Owner of a Note, by its
acceptance of a Note, will agree to treat the Notes as indebtedness. It is
anticipated that the Notes will be issued without original issue discount for
federal income tax purposes. However, it is possible that the Internal Revenue
Service could treat a portion of the additional interest which would become
payable on the Notes after the Redemption Date as original issue discount.
Owners are urged to consult their tax advisor with respect to the tax
consequences of holding the Notes.
The prepayment assumption that is to be used in determining whether the
Notes are issued with original issue discount and the rate of accrual of
original issue discount is a CPR of ___%. No representation is made as to the
actual rate at which the Mortgage Loans will prepay. See "Certain Federal Income
Tax Considerations - Debt Certificates" in the Prospectus.
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The Notes will not represent "real estate assets" for purposes of
Section 856(c)(5)(A) of the Code or "[l]oans . . . principally secured by an
interest in real property" within the meaning of Section 7701(a)(19)(C)(v) of
the Code. The Notes will also not be treated as "qualified mortgages" under
Section 860G(a)(3)(C) of the Code.
STATE TAX CONSEQUENCES
In addition to the Certain Federal Income Tax Consequences described in
"Certain Certain Federal Income Tax Consequences" herein, potential investors
should consider the state income tax consequences of the acquisition, ownership,
and disposition of the Notes. State income tax law may differ substantially from
the corresponding federal tax law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to the various tax
consequences of investments in the Notes.
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA) and plans described in Code section
4975(e)(1), including individual retirement accounts (the "Plans") and (b)
persons who have certain specified relationships to such Plans or who constitute
"disqualified persons" under Code section 4975(e)(2) with respect to such Plans
("parties in interest"). Certain employee benefit plans, such as governmental
plans and church plans (if no election has been made under section 410(d) of the
Code), are not subject to the restrictions of ERISA, and assets of such plans
may be invested in the Notes without regard to the ERISA considerations
described below, subject to other applicable federal and state law. However, any
such governmental or church plan which is qualified under section 401(a) of the
Code and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code. Any Plan
fiduciary which proposes to cause a Plan to acquire any of the Notes should
consult with its counsel with respect to the potential consequences under ERISA,
and the Code, of the Plan's acquisition and ownership of the Notes. See "ERISA
Considerations" in the Prospectus. Investments by Plans are also 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.
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.
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions ("prohibited transactions") involving
a Plan and its assets unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA)
on parties in interest which engage in non-exempt prohibited transactions.
The United States Department of Labor ("DOL") has issued a final
regulation (29 C.F.R. Section 2510.3-101) concerning the definition of what
constitutes the assets of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (the "Plan Asset Regulation"). The Plan Asset
Regulation describes the circumstances under which the assets of an entity in
which a Plan invests will be considered to be "plan assets" such that any person
who exercises control over such assets would be subject to ERISA's fiduciary
standards. Under the Plan Asset Regulation, generally when a Plan invests in
another entity, the Plan's assets do not include, solely by reason of such
investment, any of the underlying assets of the entity. However, the Plan Asset
Regulation provides that, if a Plan acquires an "equity interest" in any entity
that is neither a "publicly-offered security" (as defined therein) nor a
security issued by an investment company registered under the Investment Company
Act of 1940, the assets of the entity will be treated as assets of the Plan
investor unless certain exceptions apply. If the Notes were deemed to be equity
interests and no statutory, regulatory or administrative exemption applies, the
Issuer could be considered to hold plan assets by reason of a Plan's investment
in the Notes. Such plan assets would include an undivided interest in any assets
held by the Issuer. In such an event, the Servicer and other persons, in
providing services with respect to the Issuer's assets, may be parties in
interest with respect to such Plans, subject to fiduciary responsibility
provisions of Title I of ERISA, including the general fiduciary duties of
Section 404 of ERISA, the prohibited transaction provisions of Section 406
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of ERISA, and to Section 4975 of the Code with respect to transactions involving
the Trust's assets. Under the Plan Asset Regulation, the term "equity interest"
is defined as any interest in an entity other than an instrument that is treated
as indebtedness under "applicable local law" and which has no "substantial
equity features." Although the Plan Asset Regulation is silent with respect to
the question of which law constitutes "applicable local law" for this purpose,
the DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Asset Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
Without regard to whether the Notes are treated as an equity interest
under the Plan Asset Regulation, the acquisition or holding of the Notes by or
on behalf of a Plan could be considered to give rise to a prohibited transaction
if such acquisition or holding is deemed to be a prohibited loan to a party in
interest with respect to such Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of the Notes
by a Plan depending on the type and circumstances of the plan fiduciary making
the decision to acquire the Notes. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding certain
transactions entered into by insurance company pooled separate accounts; PTCE
95-60, regarding certain transactions entered into by insurance company general
accounts; PTCE 96-23, regarding certain transactions effected by "in-house asset
managers"; PTCE 91-38, regarding certain transactions entered into by bank
collective investment funds; and PTCE 84-14, regarding certain transactions
effected by "qualified professional asset managers."
Any Plan fiduciary considering whether to purchase any Notes on behalf
of a Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment. Among other things, before purchasing any Notes, a
fiduciary of a Plan should make its own determination as to whether the Trust,
as obligor on the Notes, is a party in interest with respect to the Plan, the
availability of the exemptive relief provided in the Plan Asset Regulations and
the availability of any other prohibited transaction exemptions. Investors
should analyze whether the decision may have an impact with respect to purchases
of the Notes.
In addition to the matters described above, purchasers of an Notes that
are insurance companies should consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility rules
of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank 114 S.Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets
held in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Prospective purchasers using
insurance company general account assets should determine whether the decision
affects their ability to make purchases of the Notes.
RATINGS
It is a condition of the issuance of the Notes that the Notes receive
ratings of "Aaa" by Moody's and "AAA" by Standard & Poor's. Explanations of the
significance of such ratings may be obtained from Moody's, 99 Church Street, New
York, New York 10007 and Standard Poor's, 25 Broadway, New York, New York 10004.
Such ratings will be the views only of such rating agencies. There is no
assurance that such ratings will continue for any period of time or that such
ratings will not be revised or withdrawn. Any such revision or withdrawal of
such ratings may have an adverse effect on the market price of the Notes. A
security rating is not a recommendation to buy, sell or hold securities.
The ratings issued by Moody's and Standard & Poor's on the payment of
principal and interest on the Notes do not cover the payment of the Available
Funds Cap Carry Forward Amount. The ratings of Moody's and Standard & Poor's do
not address the possibility that, as a result of principal prepayments, Owners
of the Notes may receive a lower than anticipated yield.
The ratings of the Notes should be evaluated independently from similar
ratings on other types of securities. 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 agency.
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The Depositor has not requested a rating of the Notes offered hereby by
any rating agency other than Moody's and Standard & Poor's and the Depositor has
not provided information relating to the Notes offered hereby or the Mortgage
Loans to any rating agency other than Moody's and Standard & Poor's. However,
there can be no assurance as to whether any other rating agency will rate the
Notes offered hereby or, if another rating agency rates such Notes, what rating
would be assigned to such Notes by such rating agency. Any such unsolicited
rating assigned by another rating agency to the Notes offered hereby may be
lower than the rating assigned to such Notes by either or both of Moody's and
Standard & Poor's.
LEGAL INVESTMENT CONSIDERATIONS
The Notes will not constitute "mortgage related securities" for
purposes of SMMEA. Accordingly, many institutions with legal authority to invest
in comparably rated securities based on qualifying first mortgage loans may not
be legally authorized to invest in the Notes.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Notes (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), has severally agreed to purchase, the
principal amount of the Notes set forth opposite its name below:
Underwriters Principal Amount
------------ ----------------
_________________________ $_____________
_________________________ _____________
_________________________ _____________
_________________________ _____________
Total $
The Depositor and the Seller have agreed to indemnify the Underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments which the Underwriters may be required to make
in respect thereof.
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Notes offered
hereby, if any are purchased. The Depositor has been advised by the Underwriters
that they propose initially to offer the Notes to the public at the offering
price set forth on the cover page hereof and to certain dealers at such price
less a concession not in excess of ____% (expressed as a percentage of the Note
Principal Balance). The Underwriters may allow and such dealers may reallow a
discount not in excess of ____%.
After the initial public offering, such prices and discounts may be
changed.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934 (the "Exchange
Act"). Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specific maximum. Syndicate covering transactions involve purchases of
the Notes in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the Underwriters to
reclaim a selling concession from a syndicate member when the Notes originally
sold by such syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Notes to be
higher than it would otherwise be in the absence of such transactions. These
transactions, if commenced, may be discontinued at any time.
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REPORT OF EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of __________________ and _____ and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended ________________________, incorporated by
reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of ____________________, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Notes will be passed upon for the Seller, the Depositor, the Servicer and the
Issuer by Arter & Hadden LLP, Washington, D.C. Certain legal matters relating to
insolvency issues and certain federal income tax matters concerning the Notes
will be passed upon for the Seller, Depositor and the Issuer by Arter & Hadden
LLP. Certain legal matters relating to the validity of the issuance of the Notes
will be passed upon for the Underwriters by
________________________________________________. Certain legal matters relating
to the Note Insurer and the Note Insurance Policy will be passed upon for the
Note Insurer by __________________________________.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
$___________ Adjustable Rate Mortgage Loan Asset Backed Notes, Series 19__-__,
(the "Global Securities") will be available only in book entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
Cedel or Euroclear. The Global Securities will be tradeable 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 through Cedel and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel 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, Cedel and
Euroclear will hold positions on behalf of their participants through their
Relevant Depositary which in turn will hold such positions in their accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. 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 Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lockup" 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 securities issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedel or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the Relevant 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
accrual 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
Relevant Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement
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has been completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Cedel 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 Cedel or Euroclear cash debt will be valued instead as of
the actual settlement date.
Cedel 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 Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel 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 the result will depend on each Cedel
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 crediting Global
Securities to the respective European Depositary for the benefit of Cedel
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 Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel 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 Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to credit
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 accrual period and a year assumed to consist to
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 Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel 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 Cedel 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 Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the trade is reflected in their Cedel 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 Cedel 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 Cedel Participant or Euroclear
Participant.
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Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel 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 (as defined below), 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). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), 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).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons 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). 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 Note Owners or their agent.
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 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
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate the income of which is includible in gross income for United States tax
purposes, regardless of its source or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust. The term "Non-U.S. Person" means any
person who is not a U.S. Person. 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.
I-3
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
2/28 Loans...............................................S-5 Notes......................................................S-2
3/27 Loans...............................................S-5 One-Month LIBOR...........................................S-38
Accrual Period...........................................S-6 Original Aggregate Loan Balance............................S-7
Actuarial Loans.........................................S-22 Originators...............................................S-35
Agreements..............................................S-35 Overcollateralization Amount..............................S-47
Appraised Values........................................S-21 Overcollateralization Deficit.............................S-47
ARCC....................................................S-18 Overcollateralization Increase Amount.....................S-47
ARMC.....................................................S-5 Overcollateralization Reduction Amount....................S-47
Available Funds.........................................S-37 Owner Trust................................................S-2
Available Funds Cap......................................S-6 Owner Trustee Fee..........................................S-2
Available Funds Cap Carry Forward Amount.................S-6 Owners.....................................................S-4
Available Funds Shortfall...............................S-36 PAGs......................................................S-18
Beneficial Owners.......................................S-11 Participants..............................................S-39
Book-Entry Notes........................................S-39 Payment Date...............................................S-5
Business Day.............................................S-5 Percentage Interest.......................................S-36
Capitalized Interest Account............................S-10 Plan Asset Regulation.....................................S-59
Cede....................................................S-11 Plans.....................................................S-59
Cedel...................................................S-11 Pool.......................................................S-3
Cedel Participants......................................S-40 Preference Amount..........................................S-8
Closing Date.............................................S-2 Premium Amount.............................................S-8
Compensating Interest...................................S-52 Prepayments...............................................S-13
Cooperative.............................................S-41 Preservation Expenses.....................................S-52
Coupon Rate..............................................S-4 Pre-Funded Amount.........................................S-10
CPR.....................................................S-32 Pre-Funding Account........................................S-3
Current Interest.........................................S-6 Principal and Interest Account............................S-51
Custodian................................................S-2 Principal Payment Amount...................................S-7
Cut-Off Date.............................................S-2 Properties.................................................S-3
Daily Collections.......................................S-51 Rating Agencies...........................................S-12
Definitive Note.........................................S-39 REMIC.....................................................S-12
Delinquency Advances....................................S-51 Realized Loss.............................................S-47
Depositor................................................S-2 Record Date................................................S-5
DOL.....................................................S-59 Redemption Date............................................S-7
DTC.....................................................S-11 Redemption Price..........................................S-54
DTC Participants........................................S-40 Reference Banks...........................................S-38
ERISA...................................................S-12 Register..................................................S-36
Euroclear...............................................S-11 Registrar.................................................S-36
Euroclear Operator......................................S-41 Remittance Period..........................................S-8
Euroclear Participants..................................S-41 Residual Interest..........................................S-3
European Depositaries...................................S-11 Riegle Act................................................S-15
Event of Default........................................S-55 Rules.....................................................S-39
Excess Overcollateralization Amount.....................S-47 SAP.......................................................S-45
Exchange Act............................................S-61 Sale and Servicing Agreement...............................S-4
Fannie Mae Guide........................................S-50 Securities.................................................S-3
Final Certification.....................................S-50 Seller.....................................................S-2
Financial Intermediary..................................S-39 Servicer Termination Events...............................S-54
Fiscal Agent............................................S-43 Servicing Advances........................................S-52
Formula Note Rate........................................S-6 Servicing Fee..............................................S-8
Funding Period..........................................S-10 Six-Month LIBOR Loans......................................S-5
GAAP....................................................S-45 SMMEA.....................................................S-12
Indenture................................................S-2 Specified Overcollateralization Amount....................S-47
Indenture Trustee Fee...................................S-2 Standard & Poor's.........................................S-11
Indenture Trustee........................................S-2 Statistical Calculation Date...............................S-2
Initial Mortgage Loans...................................S-3 Subsequent Cut-Off Date...................................S-14
Insured Payment..........................................S-9 Subsequent Mortgage Loans..................................S-3
Interest Carry Forward Amount............................S-6 Subsequent Transfer Agreement.............................S-14
Issuer...................................................S-2 Subsequent Transfer Date..................................S-10
LIBOR Determination Date................................S-38 Substitution Amount.......................................S-48
Loan Balance.............................................S-7 Telerate Page 3750........................................S-38
Loan Purchase Price.....................................S-48 Terms and Conditions......................................S-41
Majority Residualholders................................S-11 Total Available Funds.....................................S-37
Maximum Collateral Amount................................S-7 Total Monthly Excess Cashflow.............................S-36
Monthly Remittance Date..................................S-8 Total Monthly Excess Spread...............................S-46
Moody's.................................................S-11 Trust......................................................S-2
Mortgage Loans...........................................S-3 Trust Agreement............................................S-2
Mortgage Note............................................S-3 Trust Estate...............................................S-2
Mortgages................................................S-4 Trust Fees and Expenses...................................S-10
Net Liquidation Proceeds................................S-51 Underwriters..............................................S-61
Net Monthly Excess Cashflow.............................S-37 Underwriting Agreement....................................S-61
Note Account............................................S-35 Underwriting Guidelines...................................S-16
Note Insurance Policy....................................S-9 Weighted average life.....................................S-31
Note Insurer.............................................S-9
Note Insurer Default....................................S-10
Note Principal Balance...................................S-6
Note Rate................................................S-6
</TABLE>
A - 1
<PAGE>
================================================================================
No dealer, salesperson or other person has been
authorized to give any information or to make any
representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such
information or representation must not be relied upon as
having been authorized by the Depositor or by the
Underwriters. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell, or a
solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither
the delivery of this Prospectus Supplement or the
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that information
herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of
the Depositor since such date.
----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Summary of Terms............................................................S-
Risk Factors ...............................................................S-
The Seller and Servicer.....................................................S-
The Issuer..................................................................S-
The Depositor...............................................................S-
Use of Proceeds.............................................................S-
The Home Equity Loan Pool...................................................S-
Prepayment and Yield Considerations.........................................S-
Additional Information......................................................S-
Description of the Notes....................................................S-
The Note Insurer............................................................S-
Credit Enhancement..........................................................S-
Administration..............................................................S-
Certain Federal Income Tax Consequences.....................................S-
State Tax Consequences......................................................S-
ERISA Considerations........................................................S-
Ratings.....................................................................S-
Legal Investment Considerations.............................................S-
Underwriting................................................................S-
Report of Experts...........................................................S-
Certain Legal Matters.......................................................S-
Global Clearance, Settlement and Tax
Documentation Procedures................................................I-1
Index to Location of Principal Defined Terms................................A-1
PROSPECTUS
Summary of Prospectus.........................................................
Risk Factors..................................................................
Description of the Securities.................................................
The Trusts....................................................................
Credit Enhancement............................................................
Servicing of Mortgage Loans...................................................
The Pooling and Servicing Agreement...........................................
The Indenture.................................................................
Use of Proceeds...............................................................
The Depositor.................................................................
Certain Legal Aspects of the Mortgage Assets..................................
Legal Investment Matters......................................................
ERISA Considerations..........................................................
Certain Federal Income Tax Consequences.......................................
Plan of Distribution..........................................................
Ratings.......................................................................
Legal Matters.................................................................
Financial Information.........................................................
Index to Location of Principal Defined Terms................................A-1
================================================================================
<PAGE>
================================================================================
AMRESCO RESIDENTIAL
SECURITIES CORPORATION
MORTGAGE LOAN
OWNER TRUST 19__-__
$___________ ADJUSTABLE RATE
MORTGAGE LOAN
ASSET BACKED NOTES, SERIES 19__-__,
DUE ___________ __, _____
[LOGO]
AMRESCO RESIDENTIAL CAPITAL
MARKETS, INC.
Seller
AMRESCO RESIDENTIAL SECURITIES
CORPORATION
Depositor
--------------------------------
Servicer
-----------
PROSPECTUS SUPPLEMENT
-----------
[Underwriter]
[Underwriter]
[Underwriter]
[Underwriter]
-------- ---, -----
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