<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration No. 33-80625
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 2, 1996)
$287,149,271
NATIONSLINK FUNDING CORPORATION
DEPOSITOR
AMRESCO MANAGEMENT, INC.
MASTER SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-1
The Series 1996-1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of the following fourteen classes (each, a
"Class"): the Class A-1, Class A-2 and Class A-3 Certificates (collectively, the
"Class A Certificates"), the Class IO Certificates (the "Class IO
Certificates"), the Class B, Class C, Class D, Class E, Class F, Class G, Class
H and Class UR Certificates, and the Class R and Class LR Certificates. The
Class A Certificates and the Class IO Certificates are referred to collectively
herein as the "Senior Certificates." The Class B, Class C, Class D, Class E,
Class F, Class G, Class H and Class UR Certificates are referred to collectively
herein as the "Subordinate Certificates." The Class B, Class C, Class D and
Class E Certificates are referred to herein collectively as the "Subordinate
Investment Grade Certificates." The Class R and Class LR Certificates are
referred to collectively herein as the "Residual Certificates." Only the Class
A, Class B, Class C, Class D and Class E Certificates are being offered hereby
(collectively, the "Offered Certificates").
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund"), to be established by the
Depositor, that will consist primarily of a segregated pool (the "Mortgage
Pool") of multifamily and commercial, fixed-rate, balloon mortgage loans (the
"Mortgage Loans"). Bankers Mutual Mortgage, Inc., Berkshire Mortgage Finance
Corporation, The Patrician Financial Company, SouthTrust Bank of Alabama, N.A.
and Washington Mortgage Financial Group originated the conventional multifamily
loans. NationsBanc Mortgage Capital Corporation ("NMCC") originated the
commercial, health care and low income housing tax credit ("LIHTC") loans. As of
May 1, 1996 (the "Cut-off Date"), the Mortgage Loans had an aggregate principal
balance of $322,639,635 (the "Initial Pool Balance"), after application of all
payments of principal due on or before such date, whether or not received.
Certain characteristics of the Mortgage Loans are described herein under
"Description of the Mortgage Pool." The rights of the holders of the Subordinate
Certificates to receive distributions with respect to the Mortgage Loans will be
subordinate to the rights of the holders of the Senior Certificates, and the
rights of the holders of certain Classes of Subordinate Certificates to receive
distributions with respect to the Mortgage Loans will be subordinate to the
rights of the holders of other Classes of Subordinate Certificates, in each case
to the extent described herein and in the Prospectus. (continued on next page)
<TABLE>
<CAPTION>
INITIAL CLASS PASS-
CERTIFICATE THROUGH
BALANCE(1) RATE
------------- -------
<S> <C> <C>
Class A-1.................... $ 70,980,719 7.533%
Class A-2.................... $ 96,791,890 7.515%
Class A-3.................... $ 51,622,341 7.830%
Class B...................... $ 16,131,981 7.690%
Class C...................... $ 19,358,378 7.690%
Class D...................... $ 17,745,179 7.690%
Class E...................... $ 14,518,783 7.690%
</TABLE>
- ---------------
(1) Approximate, subject to a permitted variance of plus or minus 5%.
------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS AFFILIATES, INCLUDING
NATIONSBANK CORPORATION, THE DEPOSITOR'S ULTIMATE PARENT. NEITHER
THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY
OR BY THE DEPOSITOR OR ANY OF ITS AFFILIATES.
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE S-14 HEREIN AND PAGE 15 IN THE PROSPECTUS
BEFORE PURCHASING ANY OFFERED CERTIFICATE.
The Offered Certificates will be purchased from the Depositor by
NationsBanc Capital Markets, Inc. (the "Underwriter") and will be offered by the
Underwriter from time to time 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 Offered Certificates, before deducting expenses payable by the
Depositor estimated to be approximately $1,450,000, will be 99.469% of the
initial aggregate Certificate Balance of the Offered Certificates, plus accrued
interest on the Offered Certificates from the Cut-off Date. The Offered
Certificates are offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to certain other
conditions. It is expected that the Offered Certificates will be delivered in
book-entry form through the Same-Day Funds Settlement System of The Depository
Trust Company ("DTC") on or about May 16, 1996 (the "Closing Date").
NATIONSBANC CAPITAL MARKETS, INC.
May 2, 1996
<PAGE> 2
(cover continued)
It is a condition of their issuance that the Class A Certificates each be
rated not lower than "AAA," the Class B Certificates be rated not lower than
"AA," the Class C Certificates be rated not lower than "A" and the Class D
Certificates be rated not lower than "BBB" by Standard & Poor's Ratings Services
("S&P"). It is a condition of their issuance that the Class A Certificates each
be rated not lower than "AAA," the Class B Certificates be rated not lower than
"AA+," the Class C Certificates be rated not lower than "AA-," the Class D
Certificates be rated not lower than "BBB+," and the Class E Certificates be
rated not lower than "BBB-" by Duff & Phelps Credit Rating Co. ("DCR").
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates, but
is not obligated to do so. There can be no assurance that a secondary market for
the Offered Certificates will develop or, if it does develop, that it will
continue. The Offered Certificates will not be listed on any securities
exchange.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to marketmaking transactions in the
Offered Certificates with respect to which the Underwriter is a principal. The
Underwriter may also act as agent in such transactions. Such sales will be made
at negotiated prices determined at the time of sale.
The Offered Certificates will be represented initially by certificates
registered in the name of Cede & Co., as nominee of DTC. The interests of the
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 and in the Prospectus. See "Description of the
Certificates -- Book-Entry Registration of the Offered Certificates" herein and
in the Prospectus.
Elections will be made to treat two segregated pools of assets comprising
the Trust (each, a "REMIC Pool") as two separate "real estate mortgage
investment conduits" (each, a "REMIC" and, respectively, the "Upper-Tier REMIC"
and the "Lower-Tier REMIC") for federal income tax purposes. As described more
fully herein and in the Prospectus, the Certificates other than the Residual
Certificates will be designated as "regular interests" in the Upper-Tier REMIC,
and the Class R and Class LR Certificates will be designated as the "residual
interests" in the Upper-Tier REMIC and Lower-Tier REMIC, respectively. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
Distributions on the Certificates will be made, to the extent of available
funds, on the 20th day of each month or, if any such day is not a business day,
then on the next business day, beginning in June 1996 (each, a "Distribution
Date"). As described herein, interest distributions on each Class of Offered
Certificates will be made on each Distribution Date based on the pass-through
rate (the "Pass-Through Rate") applicable to such Class, as set forth on the
cover of this Prospectus Supplement, and the stated principal amount (the
"Certificate Balance") of such Class outstanding immediately prior to such
Distribution Date. Interest will accrue on the Offered Certificates from the
first day of the month preceding the month in which the related Distribution
Date occurs through the last day of such month (each such period, an "Interest
Accrual Period"). Distributions of interest and principal on each Class of
Offered Certificates will be made in the amounts and in accordance with the
priorities described herein. See "Description of the Certificates --
Distributions" herein.
The yield to maturity on each Class of Offered Certificates will depend on,
among other things, the rate and timing of principal payments (including by
reason of prepayments, defaults and liquidations) on the Mortgage Loans. See
"Yield and Maturity Considerations" herein and "Yield and Maturity
Considerations" and "Risk Factors -- Effect of Prepayments on Average Life of
Certificates" in the Prospectus.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED MAY 2, 1996, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND
THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
UNTIL AUGUST 6, 1996, 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
DELIVERY REQUIREMENT 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.
S-2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE PROSPECTUS SUPPLEMENT.................................................. S-5
RISK FACTORS.......................................................................... S-14
Exposure of the Mortgage Pool to Adverse Economic or Other Developments Based on
Geographic Concentration......................................................... S-14
Increased Risk of Loss Associated with Concentration of Mortgage Loans and
Borrowers........................................................................ S-14
Increased Risk of Default Associated with Balloon Payments.......................... S-14
Extension Risk Associated with Modification of Mortgage Loans with Balloon
Payments......................................................................... S-14
Risks Particular to Commercial and Multifamily Properties........................... S-15
Risks Relating to Lack of Certificateholder Control Over Trust Fund................. S-15
Special Servicer May Purchase Certificates.......................................... S-15
Yield Risk Associated With Changes in Concentrations................................ S-15
Subordination of Subordinate Investment Grade Certificates.......................... S-15
Risks Associated with Low Income Housing Tax Credits Relating to the Section 42
Mortgage Loans................................................................... S-15
Management.......................................................................... S-16
Retail and Office Properties........................................................ S-16
Senior Housing/Health Care Properties............................................... S-16
Limitations on Enforceability of Cross-Collateralization............................ S-17
Potential Liability to the Trust Fund Relating to a Materially Adverse Environmental
Condition........................................................................ S-17
Tax Considerations Related to Foreclosure........................................... S-17
No Earthquake Insurance............................................................. S-18
Zoning Compliance................................................................... S-18
Costs of Compliance with Americans with Disabilities Act............................ S-18
Litigation.......................................................................... S-18
DESCRIPTION OF THE MORTGAGE POOL...................................................... S-18
General............................................................................. S-18
The Section 42 Mortgage Loans....................................................... S-19
Certain Terms and Conditions of the Mortgage Loans.................................. S-21
Additional Mortgage Loan Information................................................ S-24
The Mortgage Loan Seller............................................................ S-34
Underwriting Standards.............................................................. S-34
Representations and Warranties; Repurchases......................................... S-38
SERVICING OF THE MORTGAGE LOANS....................................................... S-42
General............................................................................. S-42
The Master Servicer................................................................. S-44
The Special Servicer................................................................ S-45
Replacement of the Special Servicer................................................. S-45
Servicing and Other Compensation and Payment of Expenses............................ S-45
Maintenance of Insurance............................................................ S-46
The Extension Adviser............................................................... S-47
Modifications, Waivers and Amendments............................................... S-48
Inspections; Collection of Operating Information.................................... S-49
DESCRIPTION OF THE CERTIFICATES....................................................... S-50
General............................................................................. S-50
Book-Entry Registration of the Offered Certificates................................. S-51
Distributions....................................................................... S-52
</TABLE>
S-3
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Allocation of Prepayment Premiums and Yield Maintenance Charges..................... S-57
Assumed Final Distribution Date; Rated Final Distribution Date...................... S-58
Subordination; Allocation of Collateral Support Deficit............................. S-58
Advances............................................................................ S-60
Appraisal Reductions................................................................ S-61
Reports to Certificateholders; Certain Available Information........................ S-62
Voting Rights....................................................................... S-62
Termination; Retirement of the Certificates......................................... S-63
The Trustee......................................................................... S-63
YIELD AND MATURITY CONSIDERATIONS..................................................... S-64
Yield Considerations................................................................ S-64
Weighted Average Life............................................................... S-65
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... S-74
METHOD OF DISTRIBUTION................................................................ S-75
LEGAL MATTERS......................................................................... S-76
RATING................................................................................ S-76
LEGAL INVESTMENT...................................................................... S-77
ERISA CONSIDERATIONS.................................................................. S-77
INDEX OF PRINCIPAL DEFINITIONS........................................................ S-80
</TABLE>
S-4
<PAGE> 5
SUMMARY OF PROSPECTUS SUPPLEMENT
The following Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms that are used in this
Summary may be defined elsewhere in this Prospectus Supplement or in the
Prospectus. An Index of Principal Definitions is included at the end of both
this Prospectus Supplement and the Prospectus. Terms that are used but not
defined in this Prospectus Supplement will have the meanings specified in the
Prospectus.
TITLE OF CERTIFICATES...... NationsLink Funding Corporation Commercial Mortgage
Pass-Through Certificates, Series 1996-1.
DEPOSITOR.................. NationsLink Funding Corporation. The Depositor, a
Delaware corporation, is a subsidiary of
NationsBanc Mortgage Capital Corporation. The
Depositor maintains its principal office at
NationsBank Corporate Center, 100 North Tryon
Street, Charlotte, North Carolina 28255. See "The
Depositor" in the Prospectus.
MASTER SERVICER............ AMRESCO Management, Inc. See "Servicing of the
Mortgage Loans -- The Master Servicer" herein.
SPECIAL SERVICER........... Initially, the Master Servicer also will be the
Special Servicer. See "Servicing of the Mortgage
Loans -- The Special Servicer" herein.
TRUSTEE.................... The Chase Manhattan Bank, N.A. See "Description of
the Certificates -- The Trustee" herein.
REMIC ADMINISTRATOR........ NationsBanc Mortgage Capital Corporation. See
"Certain Federal Income Tax
Consequences -- REMICs -- Reporting and Other
Administrative Matters" and "The Pooling and
Servicing Agreements -- Events of Default" and
"-- Rights Upon Event of Default" in the
Prospectus. For a description of NationsBanc
Mortgage Capital Corporation, see "-- Mortgage Loan
Seller" below and "Description of the Mortgage
Pool -- The Mortgage Loan Seller" herein.
MORTGAGE LOAN SELLER....... NationsBanc Mortgage Capital Corporation. The
Mortgage Loan Seller, a Texas corporation, is the
parent of the Depositor and a subsidiary of
NationsBank Corporation. The Mortgage Loan Seller
maintains its principal office at NationsBank
Corporate Center, 100 North Tryon Street,
Charlotte, North Carolina 28255. See "Description
of the Mortgage Pool -- The Mortgage Loan Seller"
herein.
CUT-OFF DATE............... May 1, 1996.
CLOSING DATE............... On or about May 16, 1996.
DISTRIBUTION DATES......... Distributions on the Certificates will be made
monthly on the 20th day of the month, or, if such
day is not a business day, the next succeeding
business day, commencing in June 1996.
S-5
<PAGE> 6
ASSUMED FINAL DISTRIBUTION
DATE.....................
<TABLE>
<CAPTION>
ASSUMED FINAL
CLASS DESIGNATION DISTRIBUTION DATE
------------------------------------------- -----------------
<S> <C>
Class A-1................................ September 2002
Class A-2................................ July 2005
Class A-3................................ December 2005
Class B.................................. December 2005
Class C.................................. January 2006
Class D.................................. January 2006
Class E.................................. February 2006
</TABLE>
The Assumed Final Distribution Dates set forth
above have been determined on the basis of the
assumptions described in "Description of the
Certificates -- Assumed Final Distribution Date;
Rated Final Distribution Date" herein.
RATED FINAL DISTRIBUTION
DATE....................... As to each Class of Offered Certificates, January
1, 2028, the first Distribution Date after the 24th
month following the end of the amortization term
for the Mortgage Loan that, as of the Cut-off Date,
has the longest remaining amortization term. See
"Description of the Certificates -- Assumed Final
Distribution Date; Rated Final Distribution Date"
herein.
DENOMINATIONS.............. The Offered Certificates will be issued, maintained
and transferred on the book-entry records of DTC
and its Participants in denominations of $10,000
and integral multiples of $1,000 in excess thereof,
in the case of the Senior Certificates, and
$250,000 and integral multiples of $1,000 in excess
thereof, in the case of the Subordinate Investment
Grade Certificates.
CERTIFICATE REGISTRATION... Each Class of Offered Certificates will be
represented by one or more global Certificates
registered in the name of Cede & Co., as nominee of
DTC. No person acquiring an interest in the Offered
Certificates (any such person, a "Certificate
Owner") will be entitled to receive an Offered
Certificate in fully registered, certificated form
(a "Definitive Certificate"), except under the
limited circumstances described herein and in the
Prospectus. See "Description of the
Certificates -- Book-Entry Registration of the
Offered Certificates" herein and in the Prospectus.
THE MORTGAGE POOL.......... The Mortgage Pool will consist of 69 conventional
multifamily, 2 low income housing tax credit
multifamily and 23 commercial, fixed-rate, balloon
Mortgage Loans with an Initial Pool Balance of
$322,639,635. On or prior to the Closing Date, the
Depositor will acquire the Mortgage Loans from the
Mortgage Loan Seller pursuant to a Mortgage Loan
Purchase and Sale Agreement, dated as of May 1,
1996, between the Depositor and the Mortgage Loan
Seller (the "Purchase Agreement").
Each Mortgage Loan is secured by a first priority
lien on a fee simple or leasehold estate in a
multifamily or commercial property (each, a
"Mortgaged Property"). Set forth below are the
number of Mortgage Loans, and the approximate
percentage of the Initial Pool Balance
S-6
<PAGE> 7
represented by such Mortgage Loans, that are
secured by Mortgaged Properties operated for each
indicated purpose:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
MORTGAGE INITIAL POOL
PROPERTY TYPE LOANS BALANCE
-------------------------------------- --------- -------------
<S> <C> <C>
Multifamily........................... 69 72.21%
Retail................................ 14 16.86
Health Care........................... 5 4.55
Industrial/Flex....................... 3 4.38
Office................................ 1 1.08
Multifamily (LIHTC)................... 2 0.92
</TABLE>
See "Risk Factors -- Risks Particular to
Multifamily Properties" and "Description of the
Mortgage Pool -- Additional Mortgage Loan
Information" herein.
The Mortgaged Properties are located throughout 27
states and the District of Columbia. Set forth
below are the number of Mortgage Loans, and the
approximate percentage of the Initial Pool Balance
represented by such Mortgage Loans, that are
secured by Mortgaged Properties located in the
seven jurisdictions with concentrations
representing more than 5% of the Initial Pool
Balance:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
MORTGAGE INITIAL POOL
STATE LOANS BALANCE
-------------------------------------- --------- -------------
<S> <C> <C>
Texas................................. 22 17.08%
Florida............................... 9 10.42
Tennessee............................. 9 8.20
Ohio.................................. 4 8.05
Georgia............................... 5 7.99
Washington............................ 2 5.53
Arizona............................... 6 5.27
</TABLE>
All of the Mortgage Loans provide for scheduled
payments of principal and/or interest ("Monthly
Payments") to be due on the first day of each month
(the "Due Date"). The Mortgage Loans bear interest
at fixed Mortgage Rates. See "Description of the
Mortgage Pool -- Certain Terms and Conditions of
the Mortgage Loans" herein.
All of the Mortgage Loans provide for monthly
payments of principal based on amortization
schedules significantly longer than the remaining
terms of such Mortgage Loans, thereby leaving
substantial principal amounts due and payable (each
such payment, together with the corresponding
interest payment, a "Balloon Payment") on their
respective maturity dates, unless prepaid prior
thereto.
DESCRIPTION OF THE
CERTIFICATES............... The Certificates will be issued pursuant to a
Pooling and Servicing Agreement, to be dated as of
the Cut-off Date, among the Depositor, the Master
Servicer, the Special Servicer, the Trustee and the
REMIC Administrator (the "Pooling and Servicing
Agreement"), and will represent in the aggregate
the entire beneficial ownership interest in the
Trust Fund, which will consist of the Mortgage Pool
and certain related assets.
The aggregate Certificate Balance of the
Certificates as of the Closing Date will equal the
Initial Pool Balance. Each Class of Offered
Certificates will have the initial Certificate
Balance set forth on the cover page,
S-7
<PAGE> 8
subject to a permitted variance of plus or minus
5%. The Class F, Class G, Class H and Class UR
Certificates will have an aggregate initial
Certificate Balance of approximately $35,490,364.
The Class R and Class LR Certificates will each
have an initial Certificate Balance of zero. The
Class IO Certificates will not have a Certificate
Balance or entitle their holders to distributions
of principal. The Class IO Certificates will,
however, represent the right to receive
distributions of interest accrued as described
herein on a notional amount (the "Notional
Amount"). The Notional Amount of the Class IO
Certificates is equal to 99.99% of the aggregate
Stated Principal Balance of the Mortgage Loans as
of the preceding Distribution Date (after giving
effect to the distribution of principal on such
Distribution Date) or, in the case of the first
Distribution Date, the Cut-off Date. The Notional
Amount of the Class IO Certificates is used solely
for purposes of describing the amounts of interest
payable on the Class IO Certificates and does not
represent an interest in principal payments on the
Mortgage Loans. The Class IO, Class F, Class G,
Class H, Class UR, Class R and Class LR
Certificates are referred to herein collectively
as the "Non-Offered Certificates" See "Description
of the Certificates -- General" herein.
The Pass-Through Rate applicable to each Class of
Offered Certificates for each Distribution Date
will equal the rate for such Class set forth on the
cover page. See "Description of the
Certificates -- Distributions -- Pass-Through
Rates" and " -- Distributions -- Certain
Calculations with Respect to Individual Mortgage
Loans" herein.
DISTRIBUTIONS OF PRINCIPAL
AND INTEREST............. Available Distribution Amount. The "Available
Distribution Amount" for any Distribution Date is,
as described herein under "Description of the
Certificates -- Distributions", the total of all
payments or other collections (or available
advances) on or in respect of the Mortgage Loans
that are available for distribution on the
Certificates on such date.
The Trust Fund will include two separate real
estate mortgage investment conduits (each, a
"REMIC"). Collections on the Mortgage Loans will be
used to make payments of principal and interest on
interests (the "Lower-Tier Interests") in a REMIC
(the "Lower-Tier REMIC"). Those payments in turn
will be used to make distributions on the
Certificates, which represent interests in a second
REMIC (the "Upper-Tier REMIC"). For purposes of
simplicity, distributions will generally be
described herein as if made directly from
collections on the Mortgage Loans to the Holders of
the Certificates.
Interest Distributions. On each Distribution Date,
to the extent of the Available Distribution Amount
and subject to the distribution priorities
described herein, holders of each Class of Offered
Certificates will be entitled to receive
distributions of interest in an amount equal to all
Distributable Certificate Interest with respect to
such Certificates for such Distribution Date and,
to the extent not previously paid, for all prior
Distribution Dates (such amount, for such class,
the "Interest Distribution Amount"). No interest
will accrue on such overdue amounts. See
"Description of the Certificates -- Distributions"
herein.
The "Distributable Certificate Interest" in respect
of any Class of Certificates (other than the Class
R and Class LR Certificates) for any
S-8
<PAGE> 9
Distribution Date will equal one month's
interest at the then-applicable Pass-Through Rate
accrued on the Certificate Balance or Notional
Amount, as the case may be, of such Class of
Certificates immediately prior to such
Distribution Date, reduced (to not less than zero)
by such Class of Certificates' share of any
Appraisal Reduction Amounts (as described herein)
allocated to such Class on such Distribution Date.
Interest will accrue with respect to the
Certificates on the basis of a year deemed to
consist of twelve 30-day months. See "Description
of the Certificates -- Distributions -- Interest
Distribution Amount" herein.
Principal Distributions. On each Distribution
Date, to the extent of the Available Distribution
Amount remaining after the distributions of
interest to be made on a Class of Offered
Certificates on such date and subject to the
distribution priorities described herein, holders
of such Class of Offered Certificates will be
entitled to distributions of principal (until the
Certificate Balance of such Class of Certificates
is reduced to zero) in an aggregate amount equal to
the Principal Distribution Amount for such
Distribution Date. See "Description of the
Certificates -- Distributions -- Principal
Distribution Amount" herein.
CERTAIN YIELD AND
PREPAYMENT
CONSIDERATIONS........... In General. The yield on the Offered Certificates
of any Class will depend on, among other things,
the Pass-Through Rate for such Certificates. The
yield on any Offered Certificate that is purchased
at a discount or premium will also be affected by
the rate and timing of distributions in respect of
principal on such Certificate, which in turn will
be affected by (i) the rate and timing of principal
payments (including principal prepayments) and
principal losses on the Mortgage Loans and (ii) the
extent to which such principal payments are applied
on any Distribution Date in reduction of the
Certificate Balance of the Class to which such
Certificate belongs. See "Description of the
Certificates -- Distributions -- Priority" and
" -- Distributions -- Scheduled Principal
Distribution Amount and Unscheduled Principal
Distribution Amount" herein.
An investor that purchases an Offered Certificate
at a discount should consider the risk that a
slower than anticipated rate of principal payments
on such Certificate will result in an actual yield
that is lower than such investor's expected yield.
An investor that purchases any Offered Certificate
at a premium should consider the risk that a faster
than anticipated rate of principal payments on such
Certificate will result in an actual yield that is
lower than such investor's expected yield. Insofar
as an investor's initial investment in any Offered
Certificate is repaid, there can be no assurance
that such amounts can be reinvested in a comparable
alternative investment with a comparable yield.
The actual rate of prepayment of principal on the
Mortgage Loans cannot be predicted. All of the
Mortgage Loans are subject to Lock-Out Periods,
Prepayment Premiums or Yield Maintenance Charges
for specified periods of time, after which the
Mortgage Loans may be prepaid at any time without
restriction. The investment performance of the
Offered Certificates may vary materially and
adversely from the investment expectations of
investors due to prepayments on the Mortgage Loans
being higher or lower than anticipated by
investors. The actual yield to the holder of an
Offered Certificate may not be equal to
S-9
<PAGE> 10
the yield anticipated at the time of purchase
of the Certificate, and even if the actual yield
is equal to the yield anticipated at that time,
the total return on investment expected by the
investor or the expected weighted average life of
the Certificate may not be realized. For a
discussion of certain factors affecting prepayment
of the Mortgage Loans, see "Yield and Maturity
Considerations" herein. IN DECIDING WHETHER TO
PURCHASE ANY OFFERED CERTIFICATES, AN INVESTOR
SHOULD MAKE AN INDEPENDENT DECISION AS TO THE
APPROPRIATE PREPAYMENT ASSUMPTIONS TO BE USED.
The structure of the Offered Certificates causes
the yield of certain Classes to be particularly
sensitive to changes in the rates of prepayment of
the Mortgage Loans and other factors. Allocation on
each Distribution Date to the outstanding Class of
Certificates having the highest priority with
respect to distributions of principal, for so long
as such Class remains outstanding, of the entire
Principal Distribution Amount for such Distribution
Date will generally accelerate the amortization of
such Certificates relative to the actual
amortization of the Mortgage Loans.
ADVANCES................... The Master Servicer is required to make advances of
delinquent principal and interest on the Mortgage
Loans or, in the case of each Mortgage Loan that is
delinquent in respect of its Balloon Payment, an
Assumed Scheduled Payment ("P&I Advances"), in any
event under the circumstances and subject to the
limitations set forth herein. Subject to the
limitations set forth herein, the Master Servicer
is also required to make advances ("Servicing
Advances", together with P&I Advances, the
"Advances") to pay delinquent real estate taxes,
assessments and hazard insurance premiums and
similar expenses necessary to maintain the lien on
the Mortgaged Property or enforce the related
Mortgage Loan documents.
Advances are intended to maintain a regular flow of
scheduled interest and principal payments to the
Certificateholders, and are not intended to
guarantee or insure against losses. Accordingly,
Advances which cannot be reimbursed out of
collections on or in respect of the related
Mortgage Loans ("Nonrecoverable Advances") will
represent a portion of the losses to be borne by
Certificateholders.
The Master Servicer will be entitled to interest on
any Advances made, such interest accruing at the
rate and payable under the circumstances described
herein. Interest accrued on outstanding Advances
will result in a reduction in amounts payable on
the Certificates. See "Description of the
Certificates -- Advances" and "-- Subordination;
Allocation of Collateral Support Deficit" herein
and "Description of the Certificates -- Advances in
Respect of Delinquencies" and "The Pooling and
Servicing Agreements -- Certificate Account" in the
Prospectus.
Each Distribution Date Statement delivered by the
Trustee to the Certificateholders will contain
information relating to the amounts of Advances
made with respect to the related Distribution Date.
See "Description of the Certificates -- Reports to
Certificateholders; Certain Available Information"
herein and "Description of Certificates -- Reports
to Certificateholders" in the Prospectus.
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<PAGE> 11
SUBORDINATION; ALLOCATION
OF COLLATERAL SUPPORT
DEFICIT.................. Credit enhancement for the Offered Certificates
will be provided by the Classes of Certificates
which are subordinate to such Offered Certificates
(including, except in the case of the Class E
Certificates, subordination provided by other
Offered Certificates to the extent provided herein)
with respect to (i) rights to receive certain
distributions of interest and principal and (ii)
the allocation of Collateral Support Deficit. Such
subordination will be accomplished by the
application of the Available Distribution Amount on
each Distribution Date to distributions on the
respective Classes of Certificates in the order
described herein under "Description of the
Certificates -- Distributions -- Priority." No
other form of Credit Support will be available for
the benefit of the holders of the Offered
Certificates.
Allocation on each Distribution Date to the
outstanding Class of Certificates having the
highest priority (relative to the other outstanding
Classes of Certificates) with respect to
distributions of principal, for so long as such
Class remains outstanding, of the Principal
Distribution Amount for such Distribution Date will
generally accelerate the amortization of the
Certificates of such Class relative to the actual
amortization of the Mortgage Loans. To the extent
that such Certificates are amortized faster than
the Mortgage Loans, the percentage interest
evidenced by such Class of Certificates in the
Trust Fund will be decreased (with a corresponding
increase in the interest in the Trust Fund
evidenced by the remaining Classes of
Certificates), thereby increasing, relative to
their respective Certificate Balances, the
subordination afforded such Certificates by such
remaining Classes of Certificates.
As a result of losses and other shortfalls
experienced with respect to the Mortgage Loans or
otherwise with respect to the Trust Fund (which may
include shortfalls arising from interest accrued on
Advances, from Nonrecoverable Advances and from
expenses of the Trust Fund not directly related to
any Mortgage Loan), the aggregate Stated Principal
Balance of the Mortgage Pool expected to be
outstanding immediately following any Distribution
Date may be less than the aggregate Certificate
Balance of the Certificates immediately following
the distributions on such Distribution Date. Such
deficit (the "Collateral Support Deficit") will be
allocated (in reduction of their Certificate
Balances) first to the Class UR Certificates, then
to the Class H Certificates, then to the Class G
Certificates, then to the Class F Certificates,
then to the Class E Certificates, then to the Class
D Certificates, then to the Class C Certificates,
and then to the Class B Certificates, in each case
until the related Certificate Balance has been
reduced to zero. Following the reduction of the
Certificate Balances of all such Classes of
Certificates to zero, Collateral Support Deficit
will be allocated, pro rata, to the Class A-1,
Class A-2 and Class A-3 Certificates until the
Certificate Balances of such Classes have been
reduced to zero. See "Description of the
Certificates -- Subordination; Allocation of
Collateral Support Deficit" herein.
OPTIONAL TERMINATION....... At its option, on any Distribution Date on which
the remaining aggregate Stated Principal Balance of
the Mortgage Pool is less than 5% of the Initial
Pool Balance, the Master Servicer or the Depositor
may purchase all of the Mortgage Loans and REO
Properties, and thereby effect
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<PAGE> 12
termination of the Trust Fund and early
retirement of the then outstanding Certificates.
See "Description of the Certificates --
Termination; Retirement of Certificates" herein
and in the Prospectus.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............. For federal income tax purposes, elections will be
made to treat two segregated pools of assets
comprising the Trust as two separate real estate
mortgage investment conduits (each, a "REMIC" and,
respectively, the "Upper-Tier REMIC" and the
"Lower-Tier REMIC"). All of the classes of Offered
Certificates and the Class IO, Class E, Class F,
Class G, Class H, and Class UR Certificates will be
designated as regular interests in the Upper-Tier
REMIC. The Class R and Class LR Certificates will
be designated as residual interests in the
Upper-Tier REMIC and the Lower-Tier REMIC,
respectively.
Because they represent regular interests, each
Class of Offered Certificates generally will be
treated as newly originated debt instruments for
federal income tax purposes. Holders of such
Classes of Certificates will be required to include
in income all interest on such Certificates in
accordance with the accrual method of accounting,
regardless of a Certificateholder's usual method of
accounting. It is anticipated that the Class D and
Class E Certificates will be issued with OID in an
amount equal to the excess of their initial
Certificate Balances over their respective issue
prices (including accrued interest). In addition,
it is expected that the Class A-1, Class A-2 and
Class A-3 Certificates will be issued at a premium
and that the Class B and Class C Certificates will
be issued with de minimis OID for federal income
tax purposes. The prepayment assumption that will
be used in determining the rate of accrual of OID
for federal income tax purposes or whether such OID
is de minimis, and that may be used to amortize
premium, is 0% CPR. NO REPRESENTATION IS MADE THAT
THE MORTGAGE LOANS WILL PREPAY AT THAT OR ANY OTHER
RATE.
For further information regarding the federal
income tax consequences of investing in the Offered
Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
RATING..................... It is a condition of the issuance of the Offered
Certificates that they receive the following credit
ratings from Duff & Phelps Credit Rating Co.
("DCR") and Standard & Poor's Ratings Services
("S&P"):
<TABLE>
<CAPTION>
DCR S&P
--- ----
<S> <C> <C>
Class A-1................................... AAA AAA
Class A-2................................... AAA AAA
Class A-3................................... AAA AAA
Class B..................................... AA+ AA
Class C..................................... AA- A
Class D..................................... BBB+ BBB
Class E..................................... BBB- *
</TABLE>
--------------------------------------------
* Not rated by S&P
A rating addresses the likelihood of the receipt by
Certificateholders of distributions due on the
Certificates, including in the case of the Class A,
Class B, Class C, Class D and Class E Certificates,
distribution of all principal thereof by the Rated
Final Distribution Date. The rating takes
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<PAGE> 13
into consideration the characteristics of the
Mortgage Loans and the structural and legal
aspects associated with the Certificates. Each
rating assigned to the Offered Certificates should
be evaluated independently of any other rating.
A 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. In addition, a rating does not address the
likelihood or frequency of voluntary or mandatory
prepayments of Mortgage Loans, payments of
Prepayment Premiums or Yield Maintenance Charges or
the corresponding effect on yield to investors. See
"Certificate Rating" herein and "Risk
Factors -- Limited Nature of Rating" in the
Prospectus.
ERISA CONSIDERATIONS....... Fiduciaries of employee benefit plans and certain
other retirement plans and arrangements, including
individual retirement accounts, annuities, Keogh
plans, and collective investment funds and separate
accounts in which such plans, accounts, annuities
or arrangements are invested, that are subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code, should review with their legal advisors
whether the purchase or holding of Offered
Certificates could give rise to a transaction that
is prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the Code. See
"ERISA Considerations" herein and in the
Prospectus.
The U.S. Department of Labor has issued to the
Underwriter an individual exemption, Prohibited
Transaction Exemption 93-31, which generally
exempts 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 Underwriter and the servicing
and operation of related asset pools, provided that
certain conditions are satisfied.
The Depositor expects that Prohibited Transaction
Exemption 93-31 will generally apply to the Class A
Certificates, but it will not apply to the other
Classes of Offered Certificates. ACCORDINGLY, THE
CLASS B, CLASS C, CLASS D AND CLASS E CERTIFICATES
SHOULD NOT BE ACQUIRED BY, ON BEHALF OF OR WITH
ASSETS OF A PLAN, UNLESS THE PURCHASE AND HOLDING
OF SUCH CERTIFICATE OR INTEREST THEREIN IS EXEMPT
FROM THE PROHIBITED TRANSACTION PROVISIONS OF
SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE
UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60,
WHICH PROVIDES AN EXEMPTION FROM THE PROHIBITED
TRANSACTION RULES FOR CERTAIN TRANSACTIONS
INVOLVING AN INSURANCE COMPANY GENERAL ACCOUNT. See
"ERISA Considerations" herein and in the
Prospectus.
LEGAL INVESTMENT........... None of the Offered Certificates will be "mortgage
related securities" within the meaning of SMMEA. As
a result, the appropriate characterization of the
Offered Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase the
Offered Certificates, may be subject to significant
interpretative uncertainties.
Investors should consult their legal advisors to
determine whether and to what extent the Offered
Certificates constitute legal investments for them.
See "Legal Investment" herein and in the
Prospectus.
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<PAGE> 14
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among other
things, the following risk factors (as well as the risk factors set forth under
"Risk Factors" in the Prospectus) in connection with an investment therein.
Exposure of the Mortgage Pool to Adverse Economic or other Developments
Based on Geographic Concentration. Twenty-two Mortgage Loans, which represent
approximately 17.08% of the Initial Pool Balance, are secured by liens on
Mortgaged Properties located in Texas, and nine of the Mortgage Loans, which
represent approximately 10.42% of the Initial Pool Balances, are secured by
Mortgaged Properties located in Florida. Other jurisdictions also represent
significant percentages of the Initial Pool Balance, as set forth in the tables
under "Description of the Mortgage Pool -- Additional Mortgage Loan
Information". In general, such concentration increases the exposure of the
Mortgage Pool to any adverse economic or other developments that may occur in
Texas, Florida and such other jurisdictions.
Increased Risk of Loss Associated With Concentration of Mortgage Loans and
Borrowers. Several of the Mortgage Loans have Cut-off Date Balances that are
substantially higher than the average Cut-off Date Balance of the Mortgage
Loans. In general, concentrations of larger-than-average balances in a mortgage
pool can result in losses that are more severe, relative to the size of the
pool, than would be the case if the aggregate balance of the pool were more
evenly distributed. The 94 Mortgage Loans in the Mortgage Pool have been made to
a total of 91 borrowers. Of the 91 borrowers, 3 have 2 Mortgage Loans each and
such borrowers' Mortgage Loans represent, in the aggregate, approximately 1.48%
of the Initial Pool Balance. The remaining 88 single-loan borrowers account for
approximately 98.52% the Initial Pool Balance. Of such remaining borrowers, 11
have Mortgage Loans that each account for more than 2% of the Initial Pool
Balance. Concentration of borrower representation in a mortgage pool can also
pose increased risks. For instance, Mortgaged Properties that are owned by a
single borrower or group of affiliated borrowers are more likely to be commonly
managed than Mortgaged Properties for which the borrowers are unaffiliated
entities, resulting in a greater impact on the pool if the common manager
experiences difficulties than if such manager were managing only one property.
In addition, a financial failure or bankruptcy filing involving a large group of
affiliated Mortgaged Properties would have a greater impact on the Mortgage Pool
than a financial failure or bankruptcy filing involving only one Mortgaged
Property. Nonetheless, the filing of a bankruptcy petition should not invalidate
the first lien position held by the Trustee on the related Mortgaged Property,
and the Master Servicer is required to make Advances through to liquidation
unless the Master Servicer determines that such Advances will not be
recoverable. See "Description of the Certificates -- Advances" herein. In
addition, in the case of affiliated borrowers, the originators of the Mortgage
Loans generally required that the borrowers be single-purpose entities whose
organizational and Mortgage Loan documents limited their activities and ability
to incur additional indebtedness, although there can be no assurance that such
borrowers will comply with such requirements. See "Certain Legal Aspects of
Mortgage Loans -- Bankruptcy Laws" in the Prospectus.
Increased Risk of Default Associated with Balloon Payments. None of the
Mortgage Loans is fully amortizing over its term to maturity. Thus, each
Mortgage Loan will have a substantial payment (that is, a Balloon Payment) due
at its stated maturity unless prepaid prior thereto. Loans with Balloon Payments
involve a greater risk of default than self-amortizing loans because the ability
of a borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the loan or to sell the related mortgaged property. See
"Risk Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage Loans -- Increased Risk of Default Associated With Balloon
Payments" in the Prospectus.
Extension Risk Associated With Modification of Mortgage Loans with Balloon
Payments. In order to maximize recoveries on defaulted Mortgage Loans, the
Pooling and Servicing Agreement enables the Special Servicer to extend and
modify Mortgage Loans that are in material default or as to which a payment
default (including the failure to make a Balloon Payment) is reasonably
foreseeable; subject, however, to the limitations described under "Servicing of
the Mortgage Loans -- Modifications, Waivers and Amendments" herein. There can
be no assurance, however, that any such extension or modification will increase
the present value of recoveries in a given case. Any delay in collection of a
Balloon Payment that would otherwise be
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<PAGE> 15
distributable in respect of a Class of Offered Certificates, whether such delay
is due to borrower default or to modification of the related Mortgage Loan by
the Special Servicer, will likely extend the weighted average life of such Class
of Offered Certificates. See "Yield and Maturity Considerations" herein and in
the Prospectus.
Risks Particular to Multifamily Properties. Adverse economic conditions,
either local, regional or national, may limit the amount of rent that can be
charged and may result in a reduction in timely rent payments or a reduction in
occupancy levels. Further, the cost of operating a property may increase,
including the costs of utilities and the costs of required capital expenditures.
Occupancy and rent levels may also be affected by construction of additional
housing units, local military base closings and national and local politics,
including current or future rent stabilization and rent control laws and
agreements. In addition, the level of mortgage interest rates may encourage
tenants to purchase single-family housing. All of these conditions and events
may increase the possibility that a borrower may be unable to meet its
obligation under its Mortgage Loan.
Risks Relating to Lack of Certificateholder Control Over Trust
Fund. Certificateholders generally do not have a right to vote, except with
respect to required consents to certain amendments to the Pooling and Servicing
Agreement. Furthermore, Certificateholders will generally not have the right to
make decisions with respect to the administration of the Trust Fund, except for
the right of the Controlling Class to replace the Special Servicer and the right
of the Directing Certificateholder to object to any Asset Strategy Report. See
"Servicing of the Mortgage Loans -- General" and " -- Replacement of the Special
Servicer" herein. Such decisions are generally made, subject to the express
terms of the Pooling and Servicing Agreement, by the Master Servicer, the
Trustee, the Special Servicer or the REMIC Administrator, as applicable. Any
decision made by one of those parties in respect of the Trust Fund, even if made
in the best interests of the Certificateholders (as determined by such party in
its good faith and reasonable judgment), may be contrary to the decision that
would have been made by the holders of any particular Class of Offered
Certificates and may negatively affect the interests of such holders.
Special Servicer May Purchase Certificates. It is anticipated that the
Special Servicer will purchase the Class UR Certificates. Such a purchase by the
Special Servicer could cause a conflict between such entity's duties pursuant to
the Pooling and Servicing Agreement and its interest as a holder of a
Certificate. However, the Pooling and Servicing Agreement provides that the
Mortgage Loans shall be administered in accordance with the Servicing Standards
without regard to ownership of any Certificate by the Master Servicer, Special
Servicer, or any affiliate thereof. See "Servicing of the Mortgage
Loans -- General" herein.
Yield Risk Associated With Changes in Concentrations. If and as payments
in respect of principal (including any principal prepayments, liquidations and
the principal portion of the repurchase prices of any Mortgage Loans repurchased
due to breaches of representations) are received with respect to the Mortgage
Loans, the remaining Mortgage Loans as a group may exhibit increased
concentration with respect to the type of properties, property characteristics,
number of Mortgagors and affiliated Mortgagors and geographic location. Because
unscheduled collections of principal on the Mortgage Loans is payable first on
the Classes of Class A Certificates in order of numerical designation and then
on the other Classes of Certificates in order of alphabetical designation,
Classes that have a lower sequential priority are relatively more likely to be
exposed to any risks associated with changes in concentrations of loan or
property characteristics.
Subordination of Subordinate Investment Grade Certificates. As and to the
extent described herein, the rights of the holders of the Subordinate Investment
Grade Certificates to receive distributions of amounts collected or advanced on
or in respect of the Mortgage Loans will be subordinated to those of the holders
of the Senior Certificates. Furthermore, the rights of the Class E
Certificateholders to receive distributions of amounts collected or advanced on
or in respect of the Mortgage Loans will also be subordinated to those of the
holders of the Class D, Class C and Class B Certificates, the rights of the
Class D Certificateholders will also be subordinated to those of the Class C and
Class B Certificates, and the rights of the Class C Certificates will also be
subordinated to those of the holders of the Class B Certificates. See
"Description of the Certificates -- Distributions -- Priority" and
"-- Subordination; Allocation of Collateral Support Deficit" herein.
Risks Associated with Low Income Housing Tax Credits Relating to the
Section 42 Mortgage Loans. The rent limitations imposed on certain of the
Mortgaged Properties securing the Section 42 Mortgage Loans
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<PAGE> 16
pursuant to the requirements of Section 42 of the Code may adversely affect the
ability of the Mortgagor to increase rents to maintain the Mortgaged Properties
in proper condition during periods of rapid inflation or declining market value
of the Mortgaged Properties to the extent such restrictions survive the
foreclosure of the Mortgaged Properties. In addition, the income restrictions on
tenants imposed by Section 42 of the Code may reduce the number of eligible
tenants and result in a reduction in occupancy rates. See "Description of the
Mortgage Pool -- The Section 42 Mortgage Loans."
Management. The successful operation of a real estate project is also
dependent on the performance and viability of the property manager of such
project. The property manager is responsible for responding to changes in the
local market, planning and implementing the rental structure, including
establishing levels of rent payments, and advising the borrowers so that
maintenance and capital improvements can be carried out in a timely fashion.
There is no assurance regarding the performance of any operators and/or managers
or persons who may become operators and/or managers upon the expiration or
termination of leases or management agreements or following any default or
foreclosure under a Mortgage Loan. In addition, all of the property managers are
operating companies and unlike limited purpose entities, may not be restricted
from incurring debt and other liabilities in the ordinary course of business or
otherwise. There can be no assurance that the property managers will at all
times be in a financial condition to continue to fulfill their management
responsibilities under the related management agreements throughout the terms
thereof.
Retail and Office Properties. Income from and the market value of the
Mortgaged Properties would be adversely affected if space in the Mortgaged
Properties could not be leased, if tenants were unable to meet their lease
obligations, if a significant tenant were to become a debtor in a bankruptcy
case under the United States Bankruptcy Code, or if for any other reason rental
payments could not be collected. If tenant sales in the Mortgaged Properties
that contain retail space were to decline, percentage rents may decline and
tenants may be unable to pay their rent or other occupancy costs. Upon the
occurrence of an event of default by a tenant, delays and costs in enforcing the
lessor's rights could be experienced. Repayment of the Mortgage Loans will be
affected by the expiration of space leases and the ability of the respective
borrowers to renew the leases or relet the space on comparable terms. Even if
vacated space is successfully relet, the costs associated with reletting,
including tenant improvements and leasing commissions, could be substantial and
could reduce cash flow from the Mortgaged Properties.
Fourteen of the Mortgaged Properties which represent security for
approximately 16.86% of the Initial Pool Balance are retail properties.
Office properties and research and development properties may also be
adversely affected if there is an economic decline in the business operated by
their tenants. The risk of such an adverse effect is increased if revenue is
dependent on a single tenant or if there is a significant concentration of
tenants in a particular business or industry.
Senior Housing/Health Care Properties. Five of the Mortgaged Properties,
which represent approximately 4.55% of the Initial Pool Balance, are operated as
skilled nursing facilities or assisted living facilities. Loans secured by liens
on properties of these types pose risks not associated with loans secured by
liens on other types of income-producing real estate. Providers of long-term
nursing care and other medical services are subject to federal and state laws
that relate to the adequacy of medical care, distribution of pharmaceuticals,
rate setting, equipment, personnel, operating policies and additions to
facilities and services and, to the extent dependent on patients whose fees are
reimbursed by private insurers, to the reimbursement policies of such insurers.
In addition, facilities where such care or other medical services are provided
are subject to periodic inspection by governmental authorities to determine
compliance with various standards necessary for continued licensing under state
law and continued participation in the Medicaid and Medicare reimbursement
programs. The failure of any such borrowers to maintain or renew any required
license or regulatory approval could prevent it from continuing operations at a
Mortgaged Property (in which case no revenues would be received from such
property or portion thereof requiring licensing) or, if applicable, bar it from
participation in government reimbursement programs. While the Mortgage Loan
Seller has taken legal steps to ensure the preservation of licenses, should
control be adversely transferred from the borrowers to the Trust Fund, in the
event of foreclosure, there can be no assurance that the Trustee (or Master
Servicer or Special Servicer) or a
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<PAGE> 17
purchaser in a foreclosure sale would be entitled to the rights under such
licenses and such party may have to apply in its own right for such a license.
There can be no assurance that a new license could be obtained.
Nursing facilities may receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid and
Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions. Moreover, governmental
payors have employed cost-containment measures that limit payments to health
care providers, and there are currently under consideration various proposals
for national health care reform that could further limit those payments.
Accordingly, there can be no assurance that payments under government
reimbursement programs will, in the future, be sufficient to fully reimburse the
cost of caring for program beneficiaries. If not, net operating income of the
Mortgaged Properties that receive revenues from those sources, and consequently
the ability of the related borrowers to meet their Mortgage Loan obligations,
could be adversely affected.
Limitations on Enforceability of Cross-Collateralization. Eight of the
Mortgage Loans representing approximately 1.94% of the Initial Pool Balance are
secured by more than one Mortgaged Property. The arrangements seek to reduce the
risk that the inability of a Mortgaged Property securing each such Mortgage Loan
to generate net operating income sufficient to pay debt service will result in
defaults and ultimate losses. See "-- Concentration of Mortgage Loans, Borrowers
and Managers" above and "Risk Factors -- Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans -- Limitations on Enforceability of
Cross-Collateralization" in the Prospectus.
Potential Liability to the Trust Fund Relating to a Materially Adverse
Environmental Condition. An environmental site assessment was performed at each
of the Mortgaged Properties during the 18-month period prior to the Cut-off
Date. No such environmental assessment revealed any material adverse
environmental condition or circumstance at any Mortgaged Property, except for
(i) those cases in which the condition or circumstance was remediated or an
escrow for such remediation has been established and (ii) those cases in which
an operations and maintenance plan or periodic monitoring of nearby properties
was recommended, which recommendations are consistent with industrywide
practices.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property securing a
defaulted Mortgage Loan prior to acquiring title thereto or assuming its
operation. Such prohibition effectively precludes enforcement of the security
for the related Mortgage Note until a satisfactory environmental site assessment
is obtained (or until any required remedial action is thereafter taken), but
will decrease the likelihood that the Trust Fund will become liable for a
material adverse environmental condition at the Mortgaged Property. However,
there can be no assurance that the requirements of the Pooling and Servicing
Agreement will effectively insulate the Trust Fund from potential liability for
a materially adverse environmental condition at any Mortgaged Property. See "The
Pooling and Servicing Agreements -- Realization Upon Defaulted Mortgage Loans",
"Risk Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage Loans -- Risk of Liability Arising from Environmental Conditions"
and "Certain Legal Aspects of Mortgage Loans -- Environmental Considerations" in
the Prospectus.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required to retain an independent contractor to operate and
manage the Mortgaged Property. Any net income from such operation and
management, other than qualifying "rents from real property," or any rental
income based on the net profits of a tenant or sub-tenant or allocable to a
service that is non-customary in the area and for the type of building involved,
will subject the Trust Fund to federal (and possibly state or local) tax on such
income at the highest marginal corporate tax rate (currently 35%), thereby
reducing net proceeds available for distribution to Certificateholders. The
Trust Fund will generally be permitted to receive such taxable "net income from
foreclosure property" if the Special Servicer determines that the net after-tax
recovery to the Trust Fund would be greater than if such REO Property were
leased to a third party at a fixed rental so as to produce qualifying "rents
from real property."
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<PAGE> 18
No Earthquake Insurance. None of the Mortgage Loans is insured for any
loss resulting from an earthquake.
Zoning Compliance. Due to changes in applicable building and zoning
ordinances and codes ("Zoning Laws") affecting certain of the Mortgaged
Properties which have come into effect after the construction of improvements on
such Mortgaged Properties and to other reasons, certain improvements may not
comply fully with current Zoning Laws, including density, use parking and set
back requirements, but qualify as permitted non-conforming uses. Such changes
may limit the ability of the borrower to rebuild the premises "as is" in the
event of a substantial casualty loss with respect thereto and may adversely
affect the ability of the borrower to meet its Mortgage Loan obligations from
cash flow.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. To the extent the Mortgaged Properties do not comply with the
ADA, the borrowers are likely to incur costs of complying with the ADA. In
addition, noncompliance could result in the imposition of fines by the federal
government or an award of damages to private litigants.
Litigation. There may be legal proceedings pending and, from time to time,
threatened against the borrowers and their affiliates relating to the business
of or arising out of the ordinary course of business of the borrowers and their
affiliates. There can be no assurance that such litigation will not have a
material adverse effect on the distributions to Certificateholders.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
All percentages of the Mortgage Loans, or of any specified group of
Mortgage Loans, referred to herein without further description are approximate
percentages by aggregate Cut-off Date Balance. The Trust Fund will consist
primarily of 94 conventional and low-income housing tax credit, multifamily and
commercial, balloon Mortgage Loans with an Initial Pool Balance of $322,639,635.
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage Note") and
secured by a mortgage, deed of trust or other similar security instrument (a
"Mortgage") that creates a first mortgage lien on a fee simple estate (or, with
respect to four of the Mortgage Loans representing 4.43% of the Initial Pool
Balance, a leasehold estate) in a commercial or multifamily rental property (a
"Mortgaged Property"). The "Cut-off Date Balance" of any Mortgage Loan is the
unpaid principal balance thereof as of the Cut-off Date, after application of
all payments due on or before such date, whether or not received.
The Mortgage Loans are not insured or guaranteed by any governmental entity
or private mortgage insurer. The Depositor has not undertaken any evaluation of
the significance of the recourse provisions of any of a number of the Mortgage
Loans that provide for recourse against the related borrower or another person
in the event of a default. Accordingly, investors should consider all of the
Mortgage Loans to be nonrecourse loans as to which recourse in the case of
default will be limited to the specific property and such other assets, if any,
as were pledged to secure a Mortgage Loan.
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from the Mortgage Loan Seller pursuant to the Purchase Agreement and will
thereupon assign its interests in the Mortgage Loans, without recourse, to the
Trustee for the benefit of the Certificateholders. See "-- The Mortgage Loan
Seller" below and "The Pooling and Servicing Agreements -- Assignment of
Mortgage Loans; Repurchases" in the Prospectus. For purposes of the Prospectus,
the Mortgage Loan Seller constitutes a "Mortgage Asset Seller".
The Mortgage Loans were originated during the approximately 14-month period
between January 5, 1995 and March 1, 1996. The Mortgage Loan Seller originated
25 of the Mortgage Loans, which represent 27.79% of the Initial Pool Balance,
and acquired the remaining Mortgage Loans from the respective originators
thereof, generally in accordance with the underwriting criteria described below
under "-- Underwriting Standards".
S-18
<PAGE> 19
THE SECTION 42 MORTGAGE LOANS
In addition to the 69 Mortgage Loans which are secured by conventional
multifamily residential rental properties, there are 2 Mortgage Loans,
constituting 0.92% of the Initial Mortgage Pool (the "Section 42 Mortgage
Loans"), which are believed eligible to receive low income housing tax credits
("Tax Credits") pursuant to Section 42 of the Code. The Section 42 Mortgage
Loans were originated by NMCC, and are being sub-serviced by Midland Loan
Services L.P. All of the Section 42 Mortgage Loans were underwritten to Debt
Service Coverage Ratio of not less than 1.16 and an LTV Ratio of not greater
than 85%.
Background. The Tax Reform Act of 1986 eliminated or restricted most of
the existing federal tax incentives for the production of rental housing (such
as tax-exempt bond financing, accelerated depreciation and deduction of
construction period interest) and replaced them with a federal tax credit for
qualifying property that was acquired, constructed or rehabilitated after
December 31, 1986. The Low Income Housing Tax Credit provisions are set forth in
Section 42 of the Code. The Tax Credit program is administered by the U.S.
Treasury Department. The intent of the Tax Credit Program is to facilitate,
through the tax credit mechanism, the construction or substantial rehabilitation
of affordable multifamily housing with the benefits of this indirect subsidy
flowing to a targeted tenant profile. All of the Mortgaged Properties relating
to the Section 42 Mortgage Loans have been allocated Tax Credits.
General Rules. Under the Tax Credit provisions, a property owner must
comply with the tenant income restrictions and rental restrictions over a
minimum 15-year compliance period. In addition, agreements governing the
property will normally require an "extended use period" which has the effect of
extending the income and rental restrictions for an additional 15 years.
However, at any time during the last year of the compliance period or at any
time during the extended use period, the property owner may demand that the
related state housing finance agency find a buyer for the property who will
purchase the property subject to the income and rental restrictions and who will
pay enough to both retire any debt on the property and return the owner's equity
investment plus cost-of-living adjustments. If the related state housing finance
agency cannot find such a purchaser within one year of such demand, the income
and rental restrictions cease to apply and rents may be increased to market
rates over a three-year period. In return for agreeing to these restrictions,
the property owner is entitled to receive a tax credit (i.e., a
dollar-for-dollar reduction of federal taxes) in each taxable year over a period
of 10 years for a qualified low-income project commencing with occupancy by
qualified tenants.
Income Targeting Test. At the time the project is placed in service, the
property owner must make an irrevocable election of one of two set-aside rules,
either (i) at least 20% of the units must be rented to tenants with incomes of
50% or less of median income, as adjusted for family size (the "20-50"
set-aside), or (ii) at least 40% of the units must be rented to tenants with
incomes of 60% or less of median income, as adjusted for family size (the
"40-60" set-aside). The aggregate amount of Tax Credits the owner is entitled to
is based upon the percentage of total units made available to qualified tenants.
See "-- Value of Tax Credits" below.
The applicable set-aside requirement must be met on an annual basis over
the 15-year compliance periods with tenant income each year measured against the
income limit applicable for that year. Most owners have elected the 40-60
set-aside rule and designated 100% of the units for tenants that qualify under
the income requirements.
Once qualified, tenant income can rise to 140% of the applicable income
limitation for that year without disqualification of the tenant. The provisions
allow the income of an existing tenant to exceed the 140% limit without
disqualification if the next available rental unit of comparable size is rented
(or made available) to a tenant qualifying at 60% of the median income (or 50%
for the 20-50 set-aside projects). In practice, there is no income limit for
existing tenants who initially met the applicable income requirements in a Tax
Credit project for which the owner has elected to rent 100% of the units thereof
to qualified tenants. A majority of the Section 42 Mortgage Loans were secured
by Mortgaged Properties where the Mortgagors had elected to rent 100% of the
units to qualified tenants.
Rental Requirements. The Tax Credit provisions require that gross rent for
each low-income unit not exceed 30% of the annual HUD median income, adjusted
for the household size expected to occupy the
S-19
<PAGE> 20
particular unit. The gross rent charged for a unit must take into account an
allowance for utilities. If utilities are paid by the tenant, then the maximum
allowable Tax Credit rent is reduced according to utility allowances, as
provided in regulations of the IRS.
Value of Tax Credits. The amount of tax credits received by the owner of a
qualified project will depend largely on the "qualified basis," which is the
portion of the project's "eligible basis" attributable to low-income units. In
general, qualified basis is the percentage of total rental units (up to a
maximum of 100%) rented to or made available to qualifying tenants. Eligible
basis is essentially project cost (exclusive of land). Qualified basis can
change from year to year during the Tax Credit Period if owners elect to make
more (or fewer) rental units available to qualifying tenants. Accordingly, the
amount of Tax Credits received from year to year could vary.
The amount of tax credits available to the owner of the property each year
is equal to the "annual tax credit percentage" times the qualified basis. The
annual tax credit percentage applicable to a particular property is generally
determined when the property is placed in service and will not change
thereafter. In 1987, the "annual tax credit percentage" for new construction was
9% and the annual tax credit percentage for acquisition of existing buildings
was 4%. In subsequent years, the IRS has published monthly factors to compute
the annual tax credit percentage for projects placed in service that month.
These annual percentages approximate 9% and 4%.
For example, for a newly-constructed Tax Credit project, Tax Credits equal
to approximately 9% of the project's qualified basis would be available for each
year of the Tax Credit Period. Thus, the aggregate amount of tax credits
available over the Tax Credit Period would equal 90% of the project's qualified
basis, which for projects which are (and remain) 100% Tax Credit qualified, may
approximate almost 90% of the project cost (excluding the cost of land).
However, when investors consider the amount of funds they are willing to
contribute as limited partners to a partnership which owns a Tax Credit project,
they generally consider (among other factors) the timing of the receipt of tax
credits (future tax credits have lower present values). Accordingly, investor
capital contributions for 9% projects generally approximate 45-50% of the
aggregate amount of Tax Credits allocated to a property.
Compliance and Recapture of Tax Credits. Tax Credit compliance over the
15-year compliance period is based on whether tenants qualify. This is
determined by reviewing tenant income (adjusted for family size) in relation to
the HUD median income for the area as described above under "Income Targeting
Test."
In the event a Tax Credit project does not maintain compliance with the Tax
Credit restrictions on tenant income or rental rates, the owners of the Tax
Credit project may lose the Tax Credits related to the period of the
noncompliance and face the partial recapture of previously taken Tax Credits.
The loss of Tax Credits, and the possibility of recapture of Tax Credits already
taken, may provide significant incentive for project owners to keep the Tax
Credit project in compliance. Additionally, in many cases, it may be
economically prudent for project owners to subsidize poorly performing projects
as opposed to permitting a default on a Section 42 Mortgage Loan secured by the
Tax Credit project. As the Tax Credits flow to the owner of the Tax Credit
project, a default on a Section 42 Mortgage Loan that leads to a foreclosure
would result in the prior owners losing any future Tax Credits and the potential
recapture of a portion of any Tax Credits already taken as discussed in the
following paragraph. Additionally, in the event of a foreclosure upon a Tax
Credit project during the Tax Credit Period, the subsequent owner will be
entitled to the remaining Tax Credits in the same manner as the original owner
of the Tax Credit project, subject to continued compliance with Section 42 of
the Code. Accordingly, the resale value of the Tax Credit project during such
Tax Credit Period may be enhanced by the existence of the Tax Credits. In the
event of a foreclosure sale during such period, prospective purchasers may
assign a value to the remaining Tax Credits and reflect such value in the price
they are willing to pay to acquire the Tax Credit project. Conventional
valuation analysis, such as net operating income, does not recognize this value.
Thus, the true value may be understated. However, the actual value assigned by
prospective purchasers to the Tax Credits will depend on the remaining term of
the Tax Credit Period, the prevailing market for Tax Credits properties and
other economic factors, and no assurance can be given that the existence of Tax
Credits will generate any increase in the value of the related Mortgaged
Properties. All
S-20
<PAGE> 21
the Section 42 Mortgage Loans securing the Certificates are secured by liens on
related Mortgaged Properties which have been allocated Tax Credits.
Under certain circumstances, a property owner is subject to the recapture
of the "accelerated portions" of any credit previously taken, plus interest.
Because the credit is taken over a 10-year period while the Section 42
compliance period is 15 years, one-third of the credit taken in years 1 through
10 is considered "accelerated" and is subject to recapture. If the
non-compliance events occur in years 11 through 15, the total accelerated
portion (which equals one-third of the total credits taken) is reduced pro rata
each subsequent year. Additionally, if a project as a whole fails to meet the
minimum requirements (e.g., the 20-50 or 40-60 set-aside, whichever is elected),
there is recapture of 100% of the accelerated portion of the credits taken in
each preceding year. Recapture does not occur if noncompliance is corrected
within a "reasonable period," as determined under the Code.
In substantially all cases, the Tax Credits were allocated to the Mortgaged
Properties securing the Section 42 Mortgage Loans based upon most of the units
therein being held available or occupied by individuals whose income is 60% or
less of the area median gross income for the area in which the related Mortgaged
Properties is located. Under Section 42 of the Code, the rent that can be
charged for the qualified units must be restricted on the basis of unit size (or
number of occupants in pre-1990 properties) and area median income. In addition,
to avoid a recapture of a portion of the Tax Credits previously taken by a
Mortgagor, the Mortgaged Properties securing the Section 42 Mortgage Loans must
meet the income and rental requirements for at least 15 years.
NMCC received, with respect to each Mortgaged Property securing the Section
42 Mortgage Loans, evidence as to (i) the amount of Tax Credits, (ii) the
"eligible basis," (iii) the "qualified basis," (iv) the "date placed in
service," and (v) compliance with the Tax Credits regulations to date. As part
of the documents related to the origination of each Mortgage Loan, the
originator also has received a copy of the Tax Credit agreement with the
applicable state or local HFA.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day of
each month and all prepayments, if any, are generally required to include one
month's interest on the amount prepaid. All of the Mortgage Loans bear fixed
interest rates. All of the Mortgage Loans provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of such Mortgage Loans. Thus, each Mortgage Loan will have a
Balloon Payment due at its stated maturity date, unless prepaid prior thereto.
Prepayment Provisions. Each Mortgage Loan restricts voluntary prepayments
in one or more of the following ways: (i) by prohibiting any prepayments for a
specified period of time after the date of origination of such Mortgage Loan (a
"Lock-out Period"), (ii) by requiring that any principal prepayment made during
a specified period of time after the date of origination of such Mortgage Loan
or, in the case of a Mortgage Loan also subject to a Lock-out Period, after the
date of expiration of such Lock-out Period (a "Yield Maintenance Period") be
accompanied by a Yield Maintenance Charge (as defined below) and (iii) by
imposing fees or penalties generally equal to a percentage of the then
outstanding principal balance of such Mortgage Loan ("Prepayment Premiums") in
connection with full or partial principal prepayments for a specified period of
time after the expiration of the related Yield Maintenance Period or, in the
case of Mortgage Loans not subject to a Yield Maintenance Period, the related
Lock-out Period. Each Mortgage Loan also specifies a period of time prior to the
maturity date of such Mortgage Loan during which there are no restrictions on
voluntary prepayments.
The "Yield Maintenance Charge" will generally be equal to the greater of
(A) 1% of the entire unpaid principal balance (or, in some cases, of the amount
of principal being prepaid) of the Mortgage Loan at the time of prepayment, or
(B) the present value of an amount equal to the product of (1) the entire unpaid
principal balance (or, in some cases, the amount of principal being prepaid) of
the Mortgage Loan at the time of prepayment, multiplied by (2) the difference
obtained by subtracting the Yield Rate on a specified U.S.
S-21
<PAGE> 22
Treasury security from the interest rate on the Mortgage Loan. The "Yield Rate"
is the rate reported in The Wall Street Journal on the fifth business day
preceding the date of notice of prepayment or acceleration.
The following table summarizes the Lock-out Periods, Yield Maintenance
Periods and Prepayment Premium Periods applicable to the Mortgage Loans.
PREPAYMENT RESTRICTIONS IN EFFECT AS OF THE CUT-OFF DATE -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NO
LOCK- YIELD PREPAYMENT PENALTY
NUMBER % OF OUT MAINTENANCE PREMIUM DURING
LOAN MATURITY OF LOANS BALANCE TOTAL PERIOD PERIOD PERIOD LAST:
- ---------------------- -------- ------------ ----- ------------ ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
7 Years.............. 8 $ 28,416,550 8.81% Years 1-2 Years 3-5 2% in year 6 6 months
1% for next 6
months
7 Years.............. 27 $ 94,764,366 29.37% None Years 1-5 2% in year 6 6 months
1% for next 6
months
10 Years.............. 16 $ 51,113,254 15.84% Years 1-3 Years 4-7 3% in year 8 6 months
2% in year 9
1% for next 6
months
10 Years.............. 2 $ 9,241,515 2.86% None Years 1-7 3% in year 8 3 months
2% in year 9
1% for next 9
months
10 Years.............. 27 $ 95,679,668 29.66% None Years 1-7 3% in year 8 6 months
2% in year 9
1% for next 6
months
10 Years.............. 3 $ 19,909,323 6.17% None Years 1-7 1% in year 8 3 months
1% in year 9
1% for next 9
months
10 Years.............. 1 $ 5,759,416 1.79% None Years 1-6 3% in year 7 1 year
2% in year 8
1% in year 9
10 Years.............. 1 $ 2,969,009 0.92% None Years 1-7 1% in year 8 6 months
1% in year 9
1% for next 6
months
18 Years.............. 6 $ 9,037,267 2.80% None Years 1-15 None 3 years
18 Years.............. 1 $ 1,342,639 0.42% Years 1-15 None 2% in year 16 1 year
1% in year 17
18 Years.............. 1 $ 1,621,936 0.50% Years 1-17.5 None None 6 months
20 Years.............. 1 $ 2,784,692 0.86% None Years 1-10 3% in year 11 7 years
2% in year 12
1% in year 13
</TABLE>
Prepayment Premiums and Yield Maintenance Charges are distributable as
described herein under "Description of the Certificates -- Allocation of
Prepayment Premiums and Yield Maintenance Charges."
Unless the Mortgage Loan to be prepaid is relatively near its stated
maturity date or unless the sale price or the amount of the refinancing of the
related Mortgaged Property is considerably higher than the current outstanding
principal balance of such Mortgage Loan (due to an increase in the value of the
Mortgaged Property or otherwise), the Yield Maintenance Charge or Prepayment
Premium may, even in a relatively low interest rate environment, offset entirely
or render insignificant any economic benefit to be received by the borrower upon
a refinancing or sale of the Mortgaged Property. The Yield Maintenance Charge or
Prepayment Premium provision of a Mortgage Loan creates an economic disincentive
for the borrower to
S-22
<PAGE> 23
prepay such Mortgage Loan voluntarily and, accordingly, the Mortgagor may not
elect to prepay such Mortgage Loan. However, there can be no assurance that the
imposition of a Yield Maintenance Charge or Prepayment Premium will provide a
sufficient disincentive to prevent a voluntary principal prepayment.
Neither the Master Servicer nor the Special Servicer will be permitted to
waive or modify any term of a Mortgage Loan that requires the payment of a
Prepayment Premium or a Yield Maintenance Charge in connection with any
principal prepayment thereon. See "Servicing of the Mortgage
Loans -- Modifications, Waivers and Amendments" herein.
Certain state laws limit the amounts that a lender may collect from a
borrower as an additional charge in connection with the prepayment of a mortgage
loan. Furthermore, the enforceability, under the laws of a number of states, of
provisions providing for payments comparable to the Prepayment Premiums and/or
Yield Maintenance Charges upon an involuntary prepayment is unclear. No
assurance can be given that, at the time a Prepayment Premium or a Yield
Maintenance Charge is required to be made on a Mortgage Loan in connection with
an involuntary prepayment, the obligation to pay such Prepayment Premium or
Yield Maintenance Charge will be enforceable under applicable state law. See
"Certain Legal Aspects of Mortgage Loans -- Default Interest and Limitations on
Prepayment" in the Prospectus.
The following table sets forth (i) the percentage of the Initial Pool
Balance expected to be outstanding on each given date and (ii) the percentage of
such outstanding percentage of the Initial Pool Balance with respect to which
principal prepayments will be subject after each given date to a Lock-out
Period, Yield Maintenance Charge or Prepayment Premium, in each case assuming no
prepayments, defaults or extensions and based also upon the assumptions set
forth preceding the tables appearing under "Yield and Maturity
Considerations -- Weighted Average Life" herein.
PERCENTAGE OF REMAINING POOL BALANCE SUBJECT TO PREPAYMENT RESTRICTIONS
<TABLE>
<CAPTION>
REMAINING
PERCENTAGE PERCENTAGE OF REMAINING POOL BALANCE SUBJECT TO INDICATED RESTRICTION
OF THE -----------------------------------------------------------------------------------
INITIAL LOCK- YIELD 3% 2% 1% NO
POOL OUT MAINTENANCE PREPAYMENT PREPAYMENT PREPAYMENT PREPAYMENT
DATE BALANCE PERIOD CHARGE PREMIUM PREMIUM PREMIUM RESTRICTIONS TOTAL(A)
- -------------- --------- ------ ----------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 16,
1996........ 100.0% 25.6% 74.4% 0.0% 0.0% 0.0% 0.0% 100.0%
May 20,
1997........ 99.0 25.4 74.6 0.0 0.0 0.0 0.0 100.0
May 20,
1998........ 97.8 16.6 83.4 0.0 0.0 0.0 0.0 100.0
May 20,
1999........ 96.6 0.9 99.1 0.0 0.0 0.0 0.0 100.0
May 20,
2000........ 95.2 0.9 98.5 0.0 0.6 0.0 0.0 100.0
May 20,
2001........ 93.8 0.9 60.9 0.0 37.6 0.6 0.0 100.0
May 20,
2002........ 91.6 0.9 58.4 2.9 0.0 10.2 27.6 100.0
May 20,
2003........ 55.9 1.5 6.0 76.3 4.6 11.6 0.0 100.0
May 20,
2004........ 54.8 1.5 6.1 0.0 76.2 16.2 0.0 100.0
May 20,
2005........ 52.5 1.6 6.2 0.0 0.0 56.9 35.4 100.0
May 20,
2006........ 4.0 20.2 62.0 17.8 0.0 0.0 0.0 100.0
May 20,
2007........ 3.9 20.3 62.2 0.0 17.6 0.0 0.0 100.0
May 20,
2008........ 3.8 20.3 62.3 0.0 0.0 17.3 0.0 100.0
May 20,
2009........ 3.7 20.4 62.6 0.0 0.0 0.0 17.0 100.0
May 20,
2010........ 3.6 20.5 62.8 0.0 0.0 0.0 16.7 100.0
May 20,
2011........ 3.4 11.2 0.0 0.0 9.3 0.0 79.5 100.0
May 20,
2012........ 3.3 11.3 0.0 0.0 0.0 9.4 79.4 100.0
May 20,
2013........ 3.1 0.0 0.0 0.0 0.0 0.0 100.0 100.0
May 20,
2014........ 0.4 0.0 0.0 0.0 0.0 0.0 100.0 100.0
May 20,
2015........ 0.4 0.0 0.0 0.0 0.0 0.0 100.0 100.0
May 20,
2016........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
</TABLE>
- ---------------
(A) The sum of the percentages in any row under the subheading "Percentage of
the Remaining Pool Balance Subject to Indicated Restriction" may not equal
100% as indicated in the "Total" column due to rounding.
S-23
<PAGE> 24
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgages contain
"due-on-sale" and "due-on-encumbrance" clauses that in each case, with limited
exceptions, permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or encumbers
the related Mortgaged Property, without the consent of the holder of the
Mortgage. The Special Servicer, in the case of Specially Serviced Mortgage
Loans, and the Master Servicer, in the case of all other Mortgage Loans, shall
exercise (or waive its right to exercise) any right it may have with respect to
a Mortgage Loan containing a "due on sale" clause (i) to accelerate the payments
thereon, or (ii) to withhold its consent to any such sale or transfer,
consistent with the Servicing Standards. With respect to a Mortgage Loan with a
"due on encumbrance" clause, the Special Servicer or Master Servicer, as
applicable, shall exercise (or waive its right to exercise) any right it may
have (i) to accelerate the payments thereon, or (ii) to withhold its consent to
the creation of any additional lien or other encumbrance, consistent with the
Servicing Standards. The existence of subordinated indebtedness, if created, may
increase the difficulty of refinancing the related Mortgage Loan at maturity and
the possibility that reduced cash flow could result in deferred maintenance.
Also, if the holder of the subordinated debt has filed for bankruptcy or been
placed in involuntary receivership, foreclosure of the related Mortgage Loan
could be delayed. See "Certain Legal Aspects of Mortgage Loans -- Due-on-Sale
and Due-on-Encumbrance Provisions" and "Subordinate Financing" in the
Prospectus.
ADDITIONAL MORTGAGE LOAN INFORMATION
The following tables set forth the specified characteristics of the
Mortgage Loans. The sum in any column may not equal the indicated total due to
rounding.
The descriptions in this Prospectus Supplement of the Mortgage Loans and
the Mortgaged Properties are based upon the Mortgage Pool as it is expected to
be constituted as of the close of business on the Closing Date, assuming that
(i) all scheduled principal and interest payments due on or before the Cut-off
Date will be made, and (ii) there will be no principal prepayments on or before
the Cut-off Date. Prior to the issuance of the Certificates, Mortgage Loans may
be removed from the Mortgage Pool and not sold by the Mortgage Loan Seller to
the Depositor as a result of prepayments, delinquencies, incomplete
documentation, or otherwise if the Depositor or the Mortgage Loan Seller deems
such removal necessary, appropriate or desirable. A limited number of other
mortgage loans may be included in the Mortgage Pool prior to the issuance of the
Certificates, unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range of Mortgage Interest Rates and
maturities as well as other characteristics of the Mortgage Loans described
herein may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Closing Date and
will be filed, 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 Mortgage Pool as set forth in the preceding paragraph, such
removal or addition will be noted in the Form 8-K.
S-24
<PAGE> 25
MORTGAGE RATES AS OF THE CUT-OFF DATE -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF MORTGAGE RATES LOANS DATE BALANCE DATE BALANCE
- ----------------------------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
6.50% to 7.00%...................................... 1 $ 3,486,921 1.08%
7.51% to 8.00%...................................... 9 40,185,776 12.46
8.01% to 8.50%...................................... 50 169,610,650 52.57
8.51% to 9.00%...................................... 28 87,364,753 27.08
9.01% to 9.50%...................................... 4 16,283,692 5.05
9.51% to 10.00%..................................... 1 3,820,848 1.18
10.01% to 10.50%..................................... 1 1,886,994 0.58
-- ----------------- -------
Total...................................... 94 $ 322,639,635 100.00%
======== ============= =============
Weighted Average
Mortgage Rate (All Mortgage Loans): 8.38% per annum
</TABLE>
ORIGINATORS -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
ORIGINATORS LOANS DATE BALANCE DATE BALANCE
- ----------------------------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
NMCC................................................. 25 $ 89,656,923 27.79%
Berkshire Mortgage Finance........................... 25 68,348,729 21.18
Washington Mortgage Financial Group.................. 21 61,189,931 18.97
SouthTrust Bank of Alabama, N.A...................... 7 43,488,629 13.48
Patrician Financial Company.......................... 14 44,750,296 13.87
Bankers Mutual Mortgage, Inc......................... 2 15,205,127 4.71
-- ----------------- -------
Total...................................... 94 $ 322,639,635 100.00%
======== ============= =============
</TABLE>
YEAR OF MATURITY -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR OF MATURITY LOANS DATE BALANCE DATE BALANCE
- ----------------------------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
2002................................................. 31 $ 110,156,799 34.14%
2003................................................. 4 13,024,117 4.04
2005................................................. 29 102,187,243 31.67
2006................................................. 21 82,484,942 25.57
2013................................................. 8 12,001,842 3.72
2015................................................. 1 2,784,692 0.86
-- ----------------- -------
Total...................................... 94 $ 322,639,635 100.00%
======== ============= =============
</TABLE>
S-25
<PAGE> 26
The Mortgage Loans are secured by Mortgaged Properties located in 27
different states and the District of Columbia. The following table sets forth
the states in which the Mortgaged Properties are located:
GEOGRAPHIC CONCENTRATION -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
STATE LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
Texas................................................. 22 $ 55,113,429 17.08%
Florida............................................... 9 33,603,688 10.42
Tennessee............................................. 9 26,454,386 8.20
Ohio.................................................. 4 25,967,679 8.05
Georgia............................................... 5 25,778,107 7.99
Washington............................................ 2 17,857,299 5.53
Arizona............................................... 6 16,994,554 5.27
California............................................ 2 15,205,127 4.71
Maryland.............................................. 3 11,775,816 3.65
Louisiana............................................. 2 9,412,618 2.92
17 Other States and the District of Columbia.......... 30 84,476,933 26.18
-- ----------------- -------
Total....................................... 94 $ 322,639,635 100.00%
======== ============= =============
</TABLE>
RANGE OF CUT-OFF BALANCES -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF CUT-OFF BALANCES LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
$0 to $1,000,000...................................... 12 $ 7,476,827 2.32%
$1,000,001 to $2,000,000.............................. 17 25,756,786 7.98
$2,000,001 to $3,000,000.............................. 24 63,625,681 19.72
$3,000,001 to $4,000,000.............................. 13 45,356,679 14.06
$4,000,001 to $5,000,000.............................. 10 44,920,493 13.92
$5,000,001 to $6,000,000.............................. 6 32,243,401 9.99
$6,000,001 to $7,000,000.............................. 3 19,147,507 5.93
$7,000,001 to $8,000,000.............................. 3 21,716,990 6.73
$8,000,001 to $9,000,000.............................. 1 8,050,740 2.50
$9,000,001 to $10,000,000............................. 2 19,017,443 5.89
$10,000,001 to $11,000,000............................ 1 10,573,256 3.28
$11,000,001 to $12,000,000............................ 1 11,368,783 3.52
$13,000,001 to $14,000,000............................ 1 13,385,050 4.15
-- ----------------- -------
Total....................................... 94 $ 322,639,635 100.00%
======== ============= =============
</TABLE>
RANGE OF ORIGINAL TERMS -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF ORIGINAL TERMS (YEARS) LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
7.................................................... 35 $ 123,180,916 38.18%
10.................................................... 50 184,672,185 57.24
18.................................................... 8 12,001,842 3.72
20.................................................... 1 2,784,692 0.86
-- ----------------- -------
Grand Total................................. 94 $ 322,639,635 100.00%
======== ============= =============
</TABLE>
S-26
<PAGE> 27
The following table sets forth a range of Debt Service Coverage Ratios for
the Mortgage Loans as of the Cut-off Date. The "Debt Service Coverage Ratio" or
"DSCR" for any Mortgage Loan for any 12-month period is the ratio of (i) Net
Cash Flow produced by the related Mortgaged Property during such period to (ii)
the aggregate amount of the Monthly Payments due during such period. The "Net
Cash Flow" for a Mortgaged Property is the net cash flow as set forth in, or
determined by the Mortgage Loan Seller on the basis of, Mortgaged Property
operating statements, generally certified but unaudited, and certified rent
rolls (as applicable) supplied by the related Borrower in the case of the
Mortgaged Property. Among other things, if available, the Mortgage Loan Seller
relied on full year 1995 and prior year operating statements, rolling 12 month
operating statements, and/or year to date operating statements, and current rent
rolls not more than 3 months old as of the origination date in determining Net
Cash Flow. Net Cash Flow is the revenue derived from the use and operation of a
Mortgaged Property (consisting primarily of rental income and deposit
forfeitures), less operating expenses (such as utilities, general administrative
expenses, management fees, advertising, repairs and maintenance), less fixed
expenses (such as insurance, real estate taxes, and if applicable, ground lease
payments) less reserves (such as reserves for tenant improvements and leasing
commissions in the case of commercial assets and capital improvement reserves in
the case of all assets). Items such as non-cash items such as depreciation and
amortization and debt service on loans accrued by the Mortgaged Property are not
accounted for in the cash flow calculation. The following table was prepared
using Net Cash Flow as determined by the Mortgage Loan Seller, from which a Debt
Service Coverage Ratio was calculated as set forth in Exhibit A with respect to
the related Mortgage Loan.
DEBT SERVICE COVERAGE RATIOS -- ALL MORTGAGE LOANS(A)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF DEBT SERVICE COVERAGE RATIOS LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
1.150 to 1.199(B)..................................... 2 $ 2,964,575 0.92%
1.200 to 1.299........................................ 20 76,740,285 23.79
1.300 to 1.399........................................ 39 113,486,274 35.17
1.400 to 1.499........................................ 17 70,931,866 21.98
1.500 to 1.599........................................ 6 25,808,784 8.00
1.600 to 1.699........................................ 4 10,403,388 3.22
1.800 to 1.899........................................ 4 15,328,482 4.75
2.000 to 2.099........................................ 1 3,489,060 1.08
5.500 to 5.599........................................ 1 3,486,921 1.08
-- ----------------- -------
Total....................................... 94 $ 322,639,635 100.00%
======== ============= =============
Weighted Average Debt Service Coverage Ratio (All Mortgage Loans): 1.45x
</TABLE>
- ---------------
(A) The Debt Service Coverage Ratios are based on the Mortgage Loan Seller's
underwritten estimate of future Net Cash Flow as determined by the Mortgage
Loan Seller.
(B) LIHTC Mortgage Loans.
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at origination and the Cut-off Date. An "LTV Ratio" for any Mortgage Loan,
as of any date of determination, is a fraction, expressed as a percentage, the
numerator of which is the original principal balance of such Mortgage Loan, and
the denominator of which is the appraised value of the related Mortgaged
Property as determined by an appraisal thereof obtained in connection with the
origination of such Mortgage Loan. Because it is based on the value of a
Mortgaged Property determined as of loan origination, the information set forth
in the table below is not necessarily a reliable measure of the related
borrower's current equity in each Mortgaged Property. In a declining real estate
market, the fair market value of a Mortgaged Property could have decreased from
the value determined at origination, and the current actual loan-to-value ratio
of a Mortgage Loan may be higher than even its LTV Ratio at origination,
notwithstanding taking into account amortization since origination.
S-27
<PAGE> 28
LTV RATIOS AT ORIGINATION -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER
OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF ORIGINAL LTV RATIOS LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
10.01% to 20.00%....................................... 1 $ 3,486,921 1.08%
40.01% to 50.00%....................................... 3 12,341,501 3.83
50.01% to 60.00%....................................... 8 21,838,157 6.77
60.01% to 70.00%....................................... 28 80,717,080 25.02
70.01% to 80.00%(A).................................... 53 202,634,042 62.81
80.01% to 85.00%(B).................................... 1 1,621,936 0.50
-- ----------------- -------
Total........................................ 94 $ 322,639,635 100.00%
======= ============= =============
</TABLE>
- ---------------
(A) Includes one LIHTC Mortgage Loan
(B) LIHTC Mortgage Loan
YEAR OF CONSTRUCTION -- ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER
OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR OF CONSTRUCTION LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------- -------- ----------------- -----------------
<S> <C> <C> <C>
Pre 1945............................................... 11 $ 22,048,049 6.83%
1945-1960.............................................. 6 25,973,526 8.05
1961-1970.............................................. 16 46,695,644 14.47
1971-1980.............................................. 35 135,076,884 41.87
1981-1990.............................................. 21 82,514,497 25.57
1991-1995.............................................. 5 10,331,035 3.20
-- ----------------- -------
Total........................................ 94 $ 322,639,635 100.00%
======= ============= =============
</TABLE>
MULTIFAMILY MORTGAGE LOANS
ORIGINATORS -- MULTIFAMILY MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
ORIGINATOR LOANS BALANCE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
Berkshire Mortgage Finance............................ 25 $ 68,348,729 28.97%
Washington Mortgage Financial Group................... 21 61,189,931 25.93
SouthTrust Bank of Alabama, N.A....................... 7 43,488,629 18.43
Patrician Financial Company........................... 14 44,750,296 18.97
Bankers Mutual Mortgage, Inc.......................... 2 15,205,127 6.44
NMCC.................................................. 2 2,964,575 1.26
-- ----------------- -------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
S-28
<PAGE> 29
GEOGRAPHIC CONCENTRATION -- MULTIFAMILY MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
STATE LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
Texas................................................. 18 $ 44,751,526 18.97%
Florida............................................... 8 30,922,230 13.11
Georgia............................................... 4 24,185,007 10.25
Tennessee............................................. 7 21,934,515 9.30
Washington............................................ 2 17,857,299 7.57
18 Other States....................................... 32 96,296,710 40.81
-- ----------------- -------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
YEAR OF MATURITY -- MULTIFAMILY MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR OF MATURITY LOANS DATE BALANCE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
2002.................................................. 26 $ 90,943,518 38.54%
2005.................................................. 25 87,991,147 37.29
2006.................................................. 12 45,010,780 19.08
2013.................................................. 8 12,001,842 5.09
-- ----------------- -------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
RANGE OF CUT-OFF BALANCES -- MULTIFAMILY MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF CUT-OFF BALANCES LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
$0 to $1,000,000...................................... 12 $ 7,476,827 3.17%
$1,000,001 to $2,000,000.............................. 14 21,551,888 9.13
$2,000,001 to $3,000,000.............................. 17 44,582,802 18.90
$3,000,001 to $4,000,000.............................. 7 24,465,005 10.37
$4,000,001 to $5,000,000.............................. 7 31,273,883 13.25
$5,000,001 to $6,000,000.............................. 5 26,483,985 11.22
$6,000,001 to $7,000,000.............................. 1 6,573,892 2.79
$7,000,001 to $8,000,000.............................. 3 21,716,990 9.20
$8,000,001 to $9,000,000.............................. 1 8,050,740 3.41
$9,000,001 to $10,000,000............................. 2 19,017,443 8.06
$11,000,001 to $12,000,000............................ 1 11,368,783 4.82
$13,000,001 to $14,000,000............................ 1 13,385,050 5.67
-- ----------------- -------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
S-29
<PAGE> 30
LTV RATIOS AT ORIGINATION -- MULTIFAMILY MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF ORIGINAL LTV RATIOS LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
50.01% to 60.00%...................................... 4 $ 10,112,275 4.29%
60.01% to 70.00%...................................... 21 58,242,654 24.68
70.01% to 80.00%(A)................................... 45 165,970,422 70.34
80.01% to 85.00%(B)................................... 1 1,621,936 0.69
-- ----------------- -------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
- ---------------
(A) Includes one LIHTC Mortgage Loan
(B) LIHTC Mortgage Loan
NUMBER OF UNITS -- MULTIFAMILY MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
NUMBER OF UNITS LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
25 to 50.............................................. 9 $ 6,467,788 2.74%
51 to 100............................................. 8 10,860,020 4.60
101 to 200............................................ 36 107,605,129 45.61
201 to 300............................................ 9 44,168,143 18.72
301 & up.............................................. 9 66,846,206 28.33
-- ----------------- -------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
DEBT SERVICE COVERAGE RATIOS -- MULTIFAMILY MORTGAGE LOANS(A)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF DEBT SERVICE COVERAGE RATIOS LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
1.150 to 1.199(B)..................................... 2 $ 2,964,575 1.26%
1.200 to 1.299........................................ 15 50,670,321 21.48
1.300 to 1.399........................................ 33 94,166,786 39.91
1.400 to 1.499........................................ 14 61,932,639 26.25
1.500 to 1.599........................................ 4 18,999,267 8.05
1.600 to 1.699........................................ 2 2,741,450 1.16
1.800 to 1.899........................................ 1 4,472,249 1.90
-- ----------------- -------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
- ---------------
(A) The Debt Service Coverage Ratios are based on the Mortgage Loan Seller's
underwritten estimate of future Net Cash Flow as determined by the Mortgage
Loan Seller.
(B) LIHTC Mortgage Loans
S-30
<PAGE> 31
OCCUPANCY -- MULTIFAMILY MORTGAGE LOANS (A)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
OCCUPANCY LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
65.01% to 75.00%...................................... 1 $ 7,070,169 3.00%
80.01% to 85.00%...................................... 1 4,682,333 1.98
85.01% to 90.00%...................................... 6 14,803,497 6.27
90.01% to 95.00%...................................... 21 77,922,455 33.03
95.01% to 100.00%..................................... 42 131,468,833 55.72
-- ------------- -------------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
- ---------------
(A) Occupancy rates are estimated based on the most recent rent rolls provided
by the borrowers at closing or, in certain cases, the most recent annual
operating statements provided by the borrowers.
YEAR OF CONSTRUCTION -- MULTIFAMILY MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR OF CONSTRUCTION LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
Pre 1945.............................................. 9 $ 13,195,609 5.59%
1945 -- 1960.......................................... 4 20,219,661 8.57
1961 -- 1970.......................................... 13 30,261,956 12.83
1971 -- 1980.......................................... 30 115,952,924 49.14
1981 -- 1990.......................................... 13 53,352,562 22.61
1991 -- 1995.......................................... 2 2,964,575 1.26
-- ------------- -------------
Total....................................... 71 $ 235,947,287 100.00%
======== ============= =============
</TABLE>
COMMERCIAL MORTGAGE LOANS
GEOGRAPHIC CONCENTRATION -- COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
STATE LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
Ohio.................................................. 3 $20,540,757 23.69%
Texas................................................. 4 10,361,903 11.95
North Carolina........................................ 2 9,083,843 10.48
Virginia.............................................. 2 8,672,032 10.00
Maryland.............................................. 2 8,639,997 9.97
Washington, D.C....................................... 3 8,234,432 9.50
Arkansas.............................................. 1 5,759,416 6.64
Tennessee............................................. 2 4,519,871 5.21
Kentucky.............................................. 1 3,820,848 4.41
Pennsylvania.......................................... 1 2,784,692 3.21
Florida............................................... 1 2,681,458 3.09
Georgia............................................... 1 1,593,100 1.84
-- ------------- -------------
Total....................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
S-31
<PAGE> 32
PROPERTY TYPE -- COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
PROPERTY TYPE LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
Industrial/Flex....................................... 2 $ 7,656,036 8.83%
Healthcare/ALF(1)..................................... 2 4,377,792 5.05
Healthcare/SNF(2)..................................... 3 10,298,577 11.88
Retail................................................ 13 52,021,070 60.01
Retail/Office......................................... 1 2,373,511 2.74
Office................................................ 1 3,486,921 4.02
Industrial............................................ 1 6,478,441 7.47
-- ------------- -------------
Total....................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
- ---------------
(1) Assisted Living Facilities. See "Underwriting Standards--Heath Care Mortgage
Loans" herein.
(2) Skilled Nursing Facilities. See "Underwriting Standards--Health Care
Mortgage Loans" herein.
YEAR OF MATURITY -- COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR OF MATURITY LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
2002.................................................. 5 $19,213,281 22.16%
2003.................................................. 4 13,024,117 15.02
2005.................................................. 4 14,196,096 16.38
2006.................................................. 9 37,474,162 43.23
2015.................................................. 1 2,784,692 3.21
-- ------------- -------------
Total....................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
RANGE OF CUT-OFF DATE BALANCES -- COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF CUT-OFF BALANCES LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
$1,000,001 to $2,000,000.............................. 3 $ 4,204,898 4.85%
$2,000,001 to $3,000,000.............................. 7 19,042,879 21.97
$3,000,001 to $4,000,000.............................. 6 20,891,674 24.10
$4,000,001 to $5,000,000.............................. 3 13,646,610 15.74
$5,000,001 to $6,000,000.............................. 1 5,759,416 6.64
$6,000,001 to $7,000,000.............................. 2 12,573,615 14.50
$10,000,001 to $11,000,000............................ 1 10,573,256 12.20
-- ------------- -------------
Total....................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
S-32
<PAGE> 33
LTV RATIOS AT ORIGINATION -- COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF ORIGINAL LTV RATIOS LOANS DATE BALANCE DATE BALANCE
- ------------------------------------------------------ --------- ----------------- -----------------
<S> <C> <C> <C>
10.01% to 20.00%...................................... 1 $ 3,486,921 4.02%
40.01% to 50.00%...................................... 3 12,341,501 14.24
50.01% to 60.00%...................................... 4 11,725,881 13.53
60.01% to 70.00%...................................... 7 22,474,425 25.92
70.01% to 80.00%...................................... 8 36,663,620 42.29
-- ------------- ------
Total....................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
RANGE OF DEBT SERVICE COVERAGE RATIOS -- COMMERCIAL MORTGAGE LOANS(A)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF DEBT SERVICE COVERAGE RATIOS LOANS DATE BALANCE DATE BALANCE
- ----------------------------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
1.200 to 1.299....................................... 5 $26,069,964 30.07%
1.300 to 1.399....................................... 6 19,319,488 22.29
1.400 to 1.499....................................... 3 8,999,227 10.38
1.500 to 1.599....................................... 2 6,809,517 7.85
1.600 to 1.699....................................... 2 7,661,938 8.84
1.800 to 1.899....................................... 3 10,856,233 12.52
2.000 to 2.099....................................... 1 3,489,060 4.02
5.500 to 5.599....................................... 1 3,486,921 4.02
-- ------------- ------
Total...................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
- ---------------
(A) The Debt Service Coverage Ratios are based on the Mortgage Loan Seller's
underwritten estimate of future Net Cash Flow as determined by the Mortgage
Loan Seller.
OCCUPANCY -- COMMERCIAL MORTGAGE LOANS(A)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
OCCUPANCY LOANS DATE BALANCE DATE BALANCE
- ----------------------------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
75.01% to 80.00%..................................... 1 $ 2,979,489 3.44%
85.01% to 90.00%..................................... 4 12,312,975 14.20
90.01% to 95.00%..................................... 8 26,220,519 30.25
95.01% to 100.00%.................................... 10 45,179,365 52.11
-- ------------- ------
Total...................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
- ---------------
(A) Occupancy rates are estimated based on the most recent rent rolls provided
by the borrowers during the underwriting period or, in certain cases, the
most recent annual operating statements provided by the borrowers.
S-33
<PAGE> 34
YEAR OF CONSTRUCTION -- COMMERCIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR LOANS DATE BALANCE DATE BALANCE
- ----------------------------------------------------- --------- ----------------- -----------------
<S> <C> <C> <C>
Pre 1945............................................. 2 $ 8,852,440 10.21%
1945 -- 1960......................................... 2 5,753,865 6.64
1961 -- 1970......................................... 3 16,433,688 18.96
1971 -- 1980......................................... 5 19,123,960 22.06
1981 -- 1990......................................... 8 29,161,935 33.64
1991 -- 1995......................................... 3 7,366,460 8.50
-- ----------- ------
Total...................................... 23 $86,692,348 100.00%
======== ============= =============
</TABLE>
Specified in Exhibit A to this Prospectus Supplement are the foregoing and
certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under " -- Underwriting Standards" and " -- Representations
and Warranties; Repurchases" and in the Prospectus under "Description of the
Trust Funds -- Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans".
Delinquencies. As of the Cut-off Date, no Mortgage Loan was more than 30
days delinquent in respect of any Monthly Payment.
THE MORTGAGE LOAN SELLER
General. The Mortgage Loan Seller, NationsBanc Mortgage Capital
Corporation ("NMCC" or the "Mortgage Loan Seller"), a wholly-owned finance
subsidiary of NationsBank Corporation, is a corporation organized on May 25,
1994 under the laws of the State of Texas.
The information set forth herein concerning the Mortgage Loan Seller and
its underwriting standards has been provided by the Mortgage Loan Seller, and
neither the Depositor nor the Underwriter makes any representation or warranty
as to the accuracy or completeness of such information.
UNDERWRITING STANDARDS
All of the Mortgage Loans were originated or acquired by the Mortgage Loan
Seller, generally in accordance with the underwriting criteria described herein.
NMCC's underwriting and quality control process began prior to the
establishment of the correspondent relationship with a financial review of each
originator as well as on-site reviews of each originator's servicing
organization, including loan reporting systems and software and the loan
application, approval, commitment and administration process.
NMCC's underwriting standards require an appraisal of the related mortgaged
property by a qualified appraiser, which appraisal and appraiser both satisfy
the requirements of Title XI of the Federal Institutions Reform, Recovery and
Enforcement Act of 1989 and the regulations promulgated thereunder, all as in
effect on the date the Mortgage Loan was originated.
Multifamily Mortgage Loans -- In General. NMCC has developed a quality
control system to help ensure stringent underwriting standards for its conduit
program. NMCC associates work closely with the staffs of the
originator/servicers throughout the underwriting process beginning with the loan
application. NMCC receives underwriting packages prior to scheduling a loan
committee meeting with the originator. At least one NMCC associate and one
NationsBank credit policy associate (both with real estate underwriting
backgrounds) are required to review the loan package prior to approval. NMCC
associates attend the loan committee meeting of the originator/servicers, and
while not members of the committee, can indicate that NMCC would decline to
purchase that loan. After the loan committee meeting, NMCC communicates to the
relevant originator its decision regarding the purchase of a particular loan.
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NMCC's underwriting standards require that the originator conduct an
analysis of the property including an analysis of the appraisal, engineering
report, environmental report and historical property operating statements. The
underwriting standards also require that the borrower and key principal(s) be
reviewed through analysis of financial statements and credit history. NMCC
requires that the originator conduct a property visit, including an inspection
of a minimum of 10% of the occupied units and all vacant units along with review
of at least 10% of the lease files. The underwriting standards require the
originator to analyze the submarket and visit most or all of the comparable
properties in the submarket. NMCC may request additional information on any
subject and regularly visits at least 40-50% of the properties.
Each conventional multifamily property must meet certain minimum criteria
to be eligible for this purchase by NMCC. These include a minimum occupancy of
85% at the time the loan is rate-locked. Additionally, conventional loans must
have a minimum DSCR of 1.20 for fixed rate loans and a maximum loan-to-value
ratio of 80%.
Each loan must have a key principal who will sign the loan documents. While
single-asset entities are not required, only four of the Multifamily Mortgage
Loans were made to multiple-asset entities. All loans are made to domestic
entities, and any amount of indirect foreign ownership or control is typically
layered with two levels of domestic control.
The underwriting standards require use of the higher of the property's
historical vacancy (with allowance for current trends) or the vacancy in the
submarket, but in no case less than 5%. All management fees are underwritten at
the market, but not less than 4% of the effective gross income.
NMCC's underwriting standards require that a minimum of $150 per unit per
annum in funded replacement reserves is required. By the end of the first year,
the weighted average funded reserves for the multifamily Mortgage Loans in the
Mortgage Pool should be $249 per unit pursuant to the loan documents. This is
composed of an initial escrow deposit of $23 per unit, plus underwritten
reserves of $226 per unit for year one. Many loans have an annual escalation
clause for replacement reserves which ranges from $10 to $50 per year.
Gross potential income is underwritten using actual rents achieved on the
most recent rent roll while other income is derived based on the lowest of the
last three years (if available) in each income category. Expenses are
underwritten based on historical information with appropriate trending or
confirmation of actual expenses where applicable.
Section 42 Mortgage Loans. The low-income housing tax credit program was
created by the Tax Reform Act of 1986 and provides incentives via tax credits
for investment in new construction, rehabilitation and acquisition of low income
housing. The tax credit eligibility standards are detailed in Section 42 of the
Code.
In order to qualify under the program, a project must either rent at least
20% of its units to families earning 50% or less of the area's median income, or
rent at least 40% of the units to families earning 60% or less of the area's
median income.
A qualifying property can claim a total tax credit equal to 70%
(approximately 9% annually) of the qualified costs for new construction and
major rehabilitation, or 30% (approximately 4% annually) of the qualified costs
for acquisitions and minor rehabilitation. Qualified costs are essentially the
cost of building or renovating the low income units, net of land.
The tax credit is received over a ten year period and earned over fifteen
years. If a project fails to adhere to Section 42 guidelines or is foreclosed,
the equity holder is subject to recapture of the unearned tax credits plus
interest. The impact of the tax recapture penalty on the equity owner
effectively acts as a deterrent to default and foreclosure. Even if the property
has negative cash flow, the equity holder typically has an incentive to support
the project to avoid foreclosure and tax credit recapture.
See "Description of the Mortgage Pool -- Section 42 Mortgage Loans" herein.
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Commercial Mortgage Loans. The Permanent Loan Group (the "PLG"), a
separate division within NationsBank's Real Estate Bank, originated all the
non-health care commercial loans for the transaction. The PLG used standards
that are fundamentally consistent with standard NMCC credit terms and risk
tolerance. PLG associates underwrite loans for submission for credit approval.
One NMCC associate and one credit policy associate (both with real estate
underwriting backgrounds) review the loan package prior to loan committee for
approval of the loan. An associate from the PLG, NMCC and credit policy each
must approve the loan.
The underwriter of the loan must prepare an extensive review of the
property including an analysis of the appraisal, engineering report,
environmental report and history of the property operating statements. The
credit of key principals and the borrower are examined for financial strength
and character prior to approval of the credit. The underwriter visits the
property for a site inspection to confirm the occupancy rates of the property,
analyze the property's market and the utility of the property within the market.
Commercial properties are subdivided into the following four distinct
property types: retail, industrial, office and health care. Each property type
has specific requirements to be eligible for the conduit. The following is a
list of requirements for retail, industrial and office property types:
<TABLE>
<S> <C>
RETAIL, INDUSTRIAL AND OFFICE:
Minimum DSCR: Minimum of 1.25x on underwritten NOI
LTV: Maximum of 75% LTV based on appraised value
Borrower Type: Single asset entity preferred
Escrow Requirements: Monthly escrows for taxes, insurance and all
required reserves
Retail Properties: Range in size from 10,000 square feet to
250,000 square feet
Industrial Properties: Range in size from 25,000 square feet to
500,000 square feet
Office Properties: Range in size from 10,000 square feet to
500,000 square feet
</TABLE>
Gross potential rent for the property is calculated by using the actual
lease rates in place, with a market rental rate assigned to any vacant space.
NMCC then applies a vacancy factor against each property to calculate the
appropriate effective gross income for the property. The vacancy factor in
commercial loans is subjective and is determined, by among other things, such
items as reviewing the property's historical vacancy, the current sub-market
vacancy, the center's overall viability and each tenant's store sales to
determine the viability of their continued occupancy. NMCC also subjects the
income from particular tenants to the following defined criteria in most
instances: (i) for investment grade tenants (a tenant carrying a senior bond
rating of at least Baa3 by Moody's or BBB-by S&P, DCR or Fitch), with a lease
term longer than the loan term, a 0% vacancy factor was used; (ii) for
non-investment grade tenants (tenants who either do not carry a senior bond
rating, or who have a senior bond rating lower than Baa3 by Moody's or BBB- by
S&P, DCR or Fitch), a vacancy factor equal to the higher of market vacancy or
the actual vacancy at the center is applied, but in no case is a vacancy of less
than 10% used against this income if the tenant is a non-Qualified Anchor
Tenant; and (iii) for a "Qualified Anchor Tenant" (a tenant generally occupying
more than 20,000 s.f. in a retail center, that does not have a senior bond
investment grade rating but who reports sales at that location on a per s.f.
basis higher than the industry standards), a vacancy factor of one-half of the
sub-market vacancy is applied.
The mortgage loan's underwritten operating expenses are calculated based on
historical results, historical trends and are often increased in accordance with
market conditions, the operating practices of the borrower and industry
standards. The underwritten expenses exclude non-cash expenses (depreciation and
amortization), financing costs, interest expense and capital expenditures. The
operating expenses are subtracted from the effective gross income to determine
the net operating income (the "NOI").
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Replacement reserves are calculated in accordance with the expected useful
life of components of the property during the term of the mortgage loan. The
useful life and cost of replacement are determined by a third party engineering
firm. In most cases, the replacement reserve is calculated at an amount higher
than $0.05 per s.f. per annum on industrial properties, $0.10 per s.f. per annum
on retail properties and $0.20 per s.f. per annum on office properties,
regardless if the engineering firm determines that a lower stabilized amount
would be adequate.
Leasing commissions and tenant improvement reserves are calculated by
relying on the current lease expiration schedule, an assumed retention rate
(i.e., the percentage of tenants expected to renew their lease at lease
maturity), historical performance at the property and current market conditions.
Generally, minimum leasing commissions of 4% against the lease value are used on
leases for new tenants, with 2% assigned to tenants seeking to remain in the
property under a lease extension. Tenant improvements are assumed to cost at
least $2 per s.f. for new retail tenants, $10 per s.f. for new office tenants
and $1 per s.f. for new industrial tenants. If historical support and current
market conditions warrant, the underwriting standards allow NMCC to assume that
there will be no cost of tenant improvements for retained tenants. Generally,
the retention rate was assumed to be in the 50%-70% range.
Health Care Mortgage Loans. Health care loans are underwritten by NMCC
with NationsBank health care lending specialists serving as the originator.
Approval of the loans is similar in nature to the commercial loans with one NMCC
and one Credit Policy officer accepting and approving the loans. The originator
conducts a thorough analysis of the property including an analysis of the
appraisal, engineering report, environmental report and historical property
operating statements. The borrower and key principal(s) are also reviewed
through an analysis of financial statements and credit history. The property
visit includes inspection of a minimum of 10% of the occupied units and all
vacant units along with review of at least 10% of the lease files. The
originator also analyzes the market, visits all comparable properties within the
submarket, and inspects all of the properties collateralizing the loans. Loans
are documented with standard forms consistent with Rating Agency requirements.
Each health care property is divided into one of three functional
underwriting categories:
<TABLE>
<S> <C>
Senior Housing: Residents are ambulatory, handle their own affairs
and typically are empty nest couples. Accommodations
are usually apartment style.
Assisted Living Facilities: Typically single room occupancy, dormitory housing
for tenants who can self medicate but may have
difficulty with certain daily routines. Facilities
provide food service, cleaning and some personal
care.
Skilled Nursing Facilities: For post trauma and frail residents with
limited-mobility. Medical treatment is often
occurring up to six to eight hours per day. Tenants
require medical opinions to gain admission.
</TABLE>
For these three types of care, NMCC has devised various underwriting
criteria. In essence, the advance rate against expected cash flow is lowest for
skilled nursing and highest for senior housing. Some of the underwriting
criteria include a minimum of a 1.25x DSCR for senior housing; 1.30x for
assisted living facilities and 1.35x for skilled nursing facilities. The maximum
LTV for all health care loans is 75%. The health care loans in the Mortgage Pool
generally exceed 1.50x DSCR with LTV's ranging from 48% to 73%. The Mortgage
Pool contains only Assisted Living Facilities and Skilled Nursing Facilities.
In underwriting gross potential income, typically the trailing six month
income is utilized on an annualized basis. However, projects with expansion and
recent absorption from expansion may be underwritten using trailing 90 day
cycles. A vacancy allowance of not less than 5% is employed. In instances where
there is a large disparity between private pay rates and Medicaid rates,
underwritten rates are adjusted such that any private pay rates utilized are not
more than 30% higher than Medicaid rates.
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Structural replacement reserves of not less than $250 per bed are used in
underwriting the health care loans, while actual reserve escrows are collected
in accordance with the engineering study on a monthly basis.
The Depositor believes that the Mortgage Loans selected for inclusion in
the Mortgage Pool from the Mortgage Loan Seller's portfolio were not so selected
on any basis which would have a material adverse effect on the
Certificateholders.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Purchase Agreement, the Mortgage Loan Seller will represent and
warrant with respect to each Mortgage Loan, as of the Closing Date, or as of
such other date specifically provided in the representation and warranty, among
other things, that:
(i) immediately prior to the sale, transfer and assignment to the
Depositor, each related Mortgage Note and Mortgage were not subject to an
assignment or pledge, and the Mortgage Loan Seller has good title to, and
is the sole owner of, each Mortgage Loan;
(ii) the Mortgage Loan Seller is transferring such Mortgage Loan free
and clear of any and all liens, pledges, charges or security interests of
any nature encumbering such Mortgage Loan, as applicable;
(iii) each related Mortgage Note, Mortgage, assignment of leases (if
any) and other agreement executed in connection with such Mortgage Loan are
legal, valid and binding obligations of the related borrower, enforceable
in accordance with their terms, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors rights generally, or by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(iv) each related Assignment of Leases, if any, creates a valid,
collateral or first priority assignment of, or a valid first priority
security interest in, certain rights under the related leases, subject only
to a license granted to the related borrower to exercise certain rights and
to perform certain obligations of the lessor under such leases, including
the right to operate the related Mortgaged Property; no person other than
the related borrower owns any interest in any payments due under such
leases that is superior to or of equal priority with the mortgagee's
interest therein;
(v) each related assignment of Mortgage from the Mortgage Loan Seller
to the Depositor, and any related Reassignment of Assignment of Leases, or
assignment of any other agreement executed in connection with such Mortgage
Loan, from the Mortgage Loan Seller to the Depositor constitutes the legal,
valid and binding assignment from the Mortgage Loan Seller to the Depositor
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, liquidation, receivership, moratorium or other laws
relating to or affecting creditor's rights generally, or by general
principles or equity (regardless of whether such enforcement is considered
in a proceeding in equity or law);
(vi) since origination, and except as set forth in the related
mortgage file, such Mortgage Loan has not been waived, modified, altered,
satisfied, canceled, subordinated or rescinded and, each related Mortgaged
Property has not been released from the lien of the related Mortgage in any
manner which materially interferes with the security intended to be
provided by such Mortgage;
(vii) each related Mortgage is a valid and enforceable first lien on
the related Mortgaged Property, and such Mortgaged Property (subject to the
matters discussed in clause (viii) below) is free and clear of any
mechanics' and materialmen's liens which are prior to or equal with the
lien of the related Mortgage, except those which are insured against by a
lender's title insurance policy (as set forth in the Mortgage Loan Purchase
and Sale Agreement);
(viii) the lien of each related Mortgage is insured by an ALTA
lender's title insurance policy (or a binding commitment therefor), or its
equivalent as adopted in the applicable jurisdiction, insuring the Mortgage
Loan Seller, its successors and assigns, as to a valid and perfected first
priority security interest in the related Mortgaged Property and the first
priority lien of the Mortgage in the original principal of such Mortgage
Loan (as set forth on the Mortgage Loan Schedule which is an exhibit to the
Pooling and
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Servicing Agreement) after all advances of principal, subject only to
(a) the lien of current real property taxes, ground rents, water charges,
sewer rents and assessments not yet due and payable, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record, none of which, individually or in the aggregate, materially
interferes with the current use of the Mortgaged Property or the security
intended to be provided by such Mortgage or with the borrower's ability to
pay its obligations when they become due or the value of the Mortgaged
Property and (c) the exceptions (general and specific) set forth in such
policy, none of which, individually or in the aggregate, materially
interferes with the security intended to be provided by such Mortgage or
with the borrower's ability to pay its obligations when they become due or
the value of the Mortgaged Property; the Mortgage Loan Seller or its
successors or assigns is the sole named insured of such policy; such
policy is assignable to the Depositor without the consent of or any
notification to the insurer, and is in full force and effect upon the
consummation of the transactions contemplated by the Mortgage Loan
Purchase and Sale Agreement; no claims have been made under such policy
and the Mortgage Loan Seller has not done anything, by act or omission,
and the Mortgage Loan Seller has no knowledge of any matter, which would
impair or diminish the coverage of such policy; to the extent required by
applicable law the insurer issuing such policy is qualified to do business
in the jurisdiction in which the related Mortgaged Properties are located;
(ix) the proceeds of such Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder, no advance of funds
has been made, directly or indirectly, by it to the related borrower, no
funds have been received from any person other than the borrower for or on
account of payments due on the Mortgage Loan, and it will not make any
future advances under the Mortgage Loan to the related borrower;
(x) each related Mortgaged Property is free of any material damage
that would affect materially and adversely the value of such Mortgaged
Property as security for the Mortgage Loan and is in good repair and there
is no proceeding pending for the total or partial condemnation of such
Mortgaged Property;
(xi) each of the related borrowers (and in the case of certain loans,
each of the operators of the senior housing/health care facility) is in
possession of all material licenses, permits and other authorizations
necessary and required by all applicable laws for the conduct of its
business; all such licenses, permits and authorizations are valid and in
full force and effect; and if a related Mortgaged Property is improved by a
hotel, motel or senior housing facility, the most recent inspection or
survey by governmental authorities having jurisdiction in connection with
such licenses, permits and authorizations did not cite such Mortgaged
Property for material violations (which shall include only "Level A"
violations, in the case of skilled nursing facilities, that have not been
cured);
(xii) the Mortgage Loan Seller has inspected or caused to be inspected
each related Mortgaged Property within the past twelve months preceding the
Cut-off Date or within one month of origination of the Mortgage Loan;
(xiii) such Mortgage Loan does not have a shared appreciation feature,
other contingent interest feature or negative amortization;
(xiv) such Mortgage Loan is a whole loan and contains no equity
participation by the lender;
(xv) (A) the Mortgage Rate (exclusive of any default interest or yield
maintenance charges) of such Mortgage Loan complied as of the date of
origination with, or is exempt from, applicable state or federal laws,
regulations and other requirements pertaining to usury; any and all other
requirements of any federal, state or local laws, including, without
limitation, truth-in-lending, real estate settlement procedures, equal
credit opportunity or disclosure laws, applicable to such Mortgage Loan
have been complied with as of the date of origination of such Mortgage Loan
or (B) the Mortgage Loan Seller has received an opinion to such effect;
(xvi) all taxes and governmental assessments that prior to the Closing
Date became due and owing in respect of each related Mortgaged Property
have been paid, or an escrow of funds in an amount sufficient to cover such
payments has been established;
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(xvii) all escrow deposits and payments required pursuant to the
Mortgage Loan are in the possession, or under the control, of the Mortgage
Loan Seller or its agent and there are no deficiencies in connection
therewith;
(xviii) to the extent required under applicable law, as of the Cut-off
Date, the Mortgage Loan Seller was authorized to transact and do business
in the jurisdiction in which each related Mortgaged Property is located at
all times when it held the Mortgage Loan;
(xix) each related Mortgaged Property is insured by a fire and
extended perils insurance policy, issued by an insurer meeting the
requirements of the Mortgage Loans, in an amount not less than the
replacement cost and the amount necessary to avoid the operation of any
co-insurance provisions with respect to the Mortgaged Property; each
related Mortgaged Property is also covered by business interruption
insurance and comprehensive general liability insurance in amounts
generally required by institutional lenders for similar properties; all
premiums on such insurance policies required to be paid as of the date
hereof have been paid; such insurance policies require prior notice to the
insured of termination or cancellation, and no such notice has been
received; each related Mortgage obligates the related borrower to maintain
all such insurance and, at such borrower's failure to do so, authorizes the
mortgagee to maintain such insurance at the borrower's cost and expense and
to seek reimbursement therefor from such borrower;
(xx) there is no default, breach, violation or event of acceleration
existing under the related Mortgage or the related Note and no event (other
than payments due but not yet delinquent) which, with the passage of time
or with notice and the expiration of any grace or cure period, would and
does constitute a default, breach, violation or event of acceleration;
(xxi) as of the Cut-off Date, such Mortgage Loan is not 30 or more
days delinquent;
(xxii) each related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits
of the security, including realization by judicial or, if applicable,
non-judicial foreclosure, subject to the effect of bankruptcy or similar
law affecting the right of creditors and the application of principles of
equity, and there is no exemption available to the borrower which would
interfere with such right to foreclose;
(xxiii) in each related Mortgage or loan agreement, the related
borrower represents and warrants that it has not used, caused or permitted
to exist and will not use, cause or permit to exist on the related
Mortgaged Property any dangerous, toxic or hazardous pollutants, chemicals,
wastes or substances ("Hazardous Materials") in any manner which violates
federal, state or local laws, ordinances, regulations, orders, directives
or policies governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials; the related borrower agrees to indemnify, defend and hold the
mortgagee and its successors and assigns harmless from and against any and
all losses, liabilities, damages, injuries, penalties, fines, expenses, and
claims of any kind whatsoever (including attorneys' fees and costs) paid,
incurred or suffered by, or asserted against, any such party resulting from
a breach of any representation, warranty or covenant given by the borrower
in such Mortgage or loan agreement. A Phase I environmental report was
conducted by a reputable environmental engineer in connection with such
Mortgage Loan, which report did not indicate any material noncompliance or
material existence of Hazardous Materials. To the best of the Mortgage Loan
Seller's knowledge, each related Mortgaged Property is in material
compliance with all applicable federal, state and local laws pertaining to
environmental hazards, and no notice of violation of such laws has been
issued by any governmental agency or authority;
(xxiv) each related Mortgage or loan agreement contains provisions for
the acceleration of the payment of the unpaid principal balance of such
Mortgage Loan if, without the prior written consent of the mortgagee or the
satisfaction of certain conditions, the related Mortgaged Property, or any
interest therein, is directly or indirectly transferred or sold, or
encumbered in connection with subordinate
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financing and each related Mortgage Loan prohibits the pledge or
encumbrance of the Mortgaged Property without the consent of the holder of
the Mortgage Loan;
(xxv) in connection with the origination of such Mortgage Loan, the
Mortgage Loan Seller or applicable Originator has received an opinion of
counsel, subject to customary exceptions, to the effect that: (A) when each
related Mortgage and assignment of leases, if any, are duly recorded and
indexed in the appropriate state and local offices for such recording and
indexing, and when the related UCC financing statements are filed and
indexed in the appropriate state and local offices for such filing and
indexing, such recordings and filings shall be sufficient to perfect the
lien on the Mortgaged Property described therein; (B) no recording or
re-filing of any said instruments will be necessary for the enforcement of
such Mortgage Loan against the related borrower, other than filing UCC
continuation statements with the appropriate state and local offices as
required under the law of the applicable state to continue the perfection
of the liens perfected by the UCC financing statements; and (C) when
recorded and filed as provided above, each related Mortgage and Assignment
of Leases, if any, shall constitute a valid, enforceable and perfected lien
on, and security interest in, the related Mortgaged Property; and
(xxvi) (1) the Mortgage Loan is directly secured by a Mortgage on a
commercial property or multifamily residential property, and (2) the fair
market value of such real property, as evidenced by an MAI appraisal
conducted within 12 months of the origination of the Mortgage Loan, was at
least equal to 80% of the principal amount of the Mortgage Loan (a) at
origination (or if the Mortgage Loan has been modified in a manner that
constituted a deemed exchange under Section 1001 of the Code at a time when
the Mortgage Loan was not in default or default with respect thereto was
not reasonably foreseeable, the date of the last such modification) or (b)
at the Closing Date; provided that the fair market value of the real
property interest must first be reduced by (A) the amount of any lien on
the real property interest that is senior to the Mortgage Loan (unless such
senior lien also secures a Mortgage Loan, in which event the computation
described in (a) and (b) shall be made on an aggregated basis) and (B) a
proportionate amount of any lien that is in parity with the Mortgage Loan
(unless such other lien secures a Mortgage Loan that is
cross-collateralized with such Mortgage Loan, in which event the
computation described in (a) and (b) shall be made on an aggregate basis);
(xxvii) each Mortgaged Property is in compliance with all applicable
laws, zoning ordinances (including legal non-conforming uses), rules,
covenants and restrictions affecting the construction, occupancy, use and
operation of such Mortgaged Property. None of the improvements included for
the purpose of determining the appraised value of the Mortgaged Property at
the time of the origination of the Mortgage Loan lies outside of the
boundaries and building restriction lines of the Mortgaged Property and no
improvements on adjoining properties materially encroach upon the mortgaged
property. All inspections, licenses and certificates required, including
certificates of occupancy, whether by law, ordinance, regulation or
insurance standards to be made or issued with regard to the Mortgaged
Property, have been obtained and are in full force and effect;
(xxviii) no governmental or regulatory approval or consent is required
to transfer the mortgage loans and no bulk sale law applies;
(xxvix) if the related Mortgage is 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 the deed of trust, and
no fees or expenses are or will become payable to the trustee under the
deed of trust, except in connection with the sale or release of the
Mortgaged Property following default or payment of the loan.
(xxx) the Mortgage Note is not secured by any collateral that is not
included in the Trust Fund;
(xxxi) each mortgage loan that is cross-collateralized is
cross-collateralized only with other mortgage loans included in the Trust
Fund; and
(xxxii) the Mortgage File contains an appraisal of the related
Mortgaged Property signed by a qualified appraiser, who, to the Mortgage
Loan Seller's knowledge, had no interest, direct or indirect, in the
Mortgaged Property or in any loan made on the security thereof, and whose
compensation is not affected by the approval or disapproval of the Mortgage
Loan, and the appraisal and the appraiser both
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satisfy the requirements of Title XI of the Federal Institutions
Reform, Recovery and Enforcement Act of 1989 and the regulations
promulgated thereunder, all as in effect on the date the Mortgage Loan was
originated.
If the Mortgage Loan Seller has been notified of a material breach of any
of the foregoing representations and warranties as described in the Prospectus
and if the Mortgage Loan Seller cannot cure such breach within a period of 90
days following the earlier of its receipt of such notice or its discovery of the
breach, then the Mortgage Loan Seller will be obligated pursuant to the Purchase
Agreement (the relevant rights under which will be assigned, together with its
interests in the Mortgage Loans, by the Depositor to the Trustee) to repurchase
the affected Mortgage Loan within such 90-day period at a price (the "Purchase
Price") equal to the sum of (i) the unpaid principal balance of such Mortgage
Loan, (ii) unpaid accrued interest on such Mortgage Loan at the Mortgage Rate to
but not including the Due Date in the Due Period of purchase, (iii) all related
unreimbursed Servicing Advances plus accrued and unpaid interest on related
Advances and (iv) if pursuant to the Mortgage Loan Purchase Agreement,
reasonably incurred expenses in respect of the breach giving rise to the
repurchase obligation.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and none of the Depositor, the Master Servicer or any of
their affiliates (other than the Mortgage Loan Seller) will be obligated to
repurchase any affected Mortgage Loan in connection with a breach of the
Mortgage Loan Seller's representations and warranties if the Mortgage Loan
Seller defaults on its obligation to do so. However, the Depositor will not
include any Mortgage Loan in the Mortgage Pool if anything has come to the
Depositor's attention prior to the Closing Date that causes it to believe that
the representations and warranties made by the Mortgage Loan Seller regarding
such Mortgage Loan will not be correct in all material respects. See "The
Pooling and Servicing Agreements -- Representations and Warranties; Repurchases"
in the Prospectus.
SERVICING OF THE MORTGAGE LOANS
GENERAL
Each of the Master Servicer and the Special Servicer will be required to
service and administer the Mortgage Loans (directly or through sub-servicers)
for which it is responsible. Bankers Mutual Mortgage, Inc., Berkshire Mortgage
Finance Corporation, The Patrician Financial Company, SouthTrust Bank of
Alabama, N.A. and Washington Mortgage Financial Group originated the multifamily
loans, and each such originator will act as subservicer to the Master Servicer
with respect to the Mortgage Loans originated by it. NMCC originated the
commercial, health care and low income housing tax credit ("LIHTC") loans.
Midland Loan Services, L.P. will act as subservicer to the Master Servicer with
respect to the loans originated by NMCC.
The Master Servicer and the Special Servicer will service and administer
the Mortgage Loans for which it is responsible on behalf of the Trustee and in
the best interests of and for the benefit of the Certificateholders (as
determined by the Master Servicer or the Special Servicer, as the case may be,
in its good faith and reasonable judgment), in accordance with applicable law,
the terms of the Pooling and Servicing Agreement, the terms of the respective
Mortgage Loans and, to the extent consistent with the foregoing, and in
accordance with the higher of the following standards of care: (i) the same
manner in which, and with the same care, skill, prudence and diligence with
which the Master Servicer or Special Servicer, as the case may be, services and
administers similar mortgage loans for other third-party portfolios, giving due
consideration to the customary and usual standards of practice of prudent
institutional commercial and multifamily mortgage lenders servicing their own
mortgage loans and (ii) the same care, skill, prudence and diligence with which
the Master Servicer or Special Servicer, as the case may be, services and
administers mortgage loans owned by the Master Servicer or Special Servicer, as
the case may be, in either case exercising reasonable business judgment and
acting in accordance with applicable law, the terms of the Pooling and Servicing
Agreement,
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the respective Mortgage Loans or Specially Serviced Mortgage Loans, as
applicable, and with a view to the maximization of timely recovery of principal
and interest on the Mortgage Loans or Specially Serviced Mortgage Loans, as
applicable, and the best interests of the Trust and the Certificateholders, as
determined by the Master Servicer or Special Servicer, as the case may be, in
its reasonable judgment, but without regard to: (A) any relationship that the
Master Servicer or the Special Servicer, as the case may be, or any affiliate
thereof, may have with the related mortgagor; (B) the ownership of any
Certificate by the Master Servicer or the Special Servicer, as the case may be,
or any affiliate thereof; (C) the Master Servicer's obligation to make advances,
whether in respect of delinquent payments of principal and/or interest or to
cover certain servicing expenses; and (D) the Master Servicer's or the Special
Servicer's, as the case may be, right to receive compensation for its services
under the Pooling and Servicing Agreement or with respect to any particular
transaction (the foregoing, collectively referred to as the "Servicing
Standards").
Except as otherwise described under "-- Inspections; Collection of
Operating Information" below, the Master Servicer initially will be responsible
for the servicing and administration of the entire Mortgage Pool. With respect
to any Mortgage Loan (i) as to which a payment default has occurred at its
original maturity date and the Master Servicer shall not have extended the
maturity of such Mortgage Loan within 31 days following its original maturity
date as permitted by the Pooling and Servicing Agreement or as to which a
payment default has occurred at its extended maturity date, (ii) as to which any
Monthly Payment (other than a Balloon Payment) is more than 60 days delinquent,
(iii) as to which the borrower has entered into or consented to bankruptcy,
appointment of a receiver or conservator or a similar insolvency proceeding, or
the borrower has become the subject of a decree or order for such a proceeding
which shall have remained in force undischarged or unstayed for a period of 60
days, (iv) as to which the Master Servicer shall have received notice of the
foreclosure or proposed foreclosure of any other lien on the Mortgaged Property,
or (v) as to which, in the judgment of the Master Servicer, a payment default
has occurred or is imminent and is not likely to be cured by the borrower within
60 days, and prior to acceleration of amounts due under the related Mortgage
Note or commencement of any foreclosure or similar proceedings, the Master
Servicer will transfer its servicing responsibilities to the Special Servicer,
but will continue to receive payments on such Mortgage Loan (including amounts
collected by the Special Servicer), to make certain calculations with respect to
such Mortgage Loan and to make remittances and prepare certain reports to the
Offered Certificateholders with respect to such Mortgage Loan. If the related
Mortgaged Property is acquired in respect of any such Mortgage Loan (upon
acquisition, an "REO Property"), whether through foreclosure, deed-in-lieu of
foreclosure or otherwise, the Special Servicer will continue to be responsible
for the operation and management thereof. The Mortgage Loans serviced by the
Special Servicer are referred to herein as the "Specially Serviced Mortgage
Loans" and, together with any REO Properties, constitute the "Specially Serviced
Mortgage Assets". The Master Servicer shall have no responsibility for the
performance by the Special Servicer of its duties under the Pooling and
Servicing Agreement.
The Special Servicer will prepare a report (an "Asset Strategy Report") for
each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not later
than thirty (30) days after the servicing of such Mortgage Loan is transferred
to the Special Servicer. Each Asset Strategy Report will be delivered to the
Directing Certificateholder (as defined below). The Directing Certificateholder
may object to any Asset Strategy Report within 10 business days of receipt;
provided, however, that the related Special Servicer shall implement the
recommended action as outlined in such Asset Strategy Report if it makes an
affirmative determination that such objection is not in the best interest of all
the Certificateholders. In connection with making such affirmative
determination, the Special Servicer will request a vote by all the
Certificateholders. If the Directing Certificateholder does not disapprove an
Asset Strategy Report within 10 business days, the related Special Servicer
shall implement the recommended action as outlined in such Asset Strategy
Report. If the Directing Certificateholder disapproves such Asset Strategy
Report and the Special Servicer has not made the affirmative determination
described above, the related Special Servicer will revise such Asset Strategy
Report as soon as practicable. The related Special Servicer will revise such
Asset Strategy Report until the Directing Certificateholder fails to disapprove
such revised Asset Strategy Report as described above. Any Certificateholder may
request and obtain a copy of any Asset Strategy Report subject to delivery of a
certificate acknowledging certain possible limitations with respect to the use
of such report imposed by U.S. securities laws.
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The "Directing Certificateholder" will be the Controlling Class
Certificateholder selected by more than 50% of the Controlling Class
Certificateholders, by Certificate Balance, as certified by the Trustee from
time to time; provided, however, that (i) absent such selection, or (ii) until a
Directing Certificateholder is so selected, or (iii) upon receipt of a notice
from a majority of the Controlling Class Certificateholders, by Certificate
Balance, that a Directing Certificateholder is no longer designated, the
Controlling Class Certificateholder that owns the largest aggregate Certificate
Balance of the Controlling Class will be the Directing Certificateholder.
A "Controlling Class Certificateholder" is each holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified to
the Trustee from time to time by such holder (or Certificate Owner).
The "Controlling Class" will be as of any time of determination the most
subordinate Class of Certificates then outstanding that has a Certificate
Balance at least equal to the lesser of (a) 1% of the Initial Pool Balance or
(b) 25% of the initial Certificate Balance of such Class. For purposes of
determining the identity of the Controlling Class, the Certificate Balance of
each Class shall be deemed to be reduced by the amount allocated to such Class
of any Appraisal Reductions relating to Mortgage Loans as to which Liquidation
Proceeds or other final payment has not yet been received.
The Controlling Class as of the Closing Date will be the Class UR
Certificates.
The Special Servicer will not be required to take or refrain from taking
any action pursuant to instructions from the Directing Certificateholder that
would cause it to violate the Pooling and Servicing Agreement, including the
Servicing Standards, or the REMIC Provisions.
If any Specially Serviced Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes a performing Mortgage Loan for at least 90 days, the Special Servicer
will return servicing of such Mortgage Loan to the Master Servicer.
Set forth below, following the subsection captioned "-- The Master
Servicer", is a description of certain pertinent provisions of the Pooling and
Servicing Agreement relating to the servicing of the Mortgage Loans. Reference
is also made to the Prospectus, in particular to the section captioned "Pooling
and Servicing Agreements", for important information in addition to that set
forth herein regarding the terms and conditions of the Pooling and Servicing
Agreement as they relate to the rights and obligations of the Master Servicer
thereunder.
THE MASTER SERVICER
AMRESCO Management, Inc., a Texas corporation, will be the Master Servicer
and in such capacity will be responsible for servicing the Mortgage Loans.
AMRESCO Management, Inc. ("AMI") is a wholly owned subsidiary of AMRESCO, INC.
("AMRESCO"), a publicly traded (NASDAQ) company. The principal offices of AMI
are located at 1845 Woodall Rogers Freeway, Suite 1700, Dallas, Texas 75201. The
master servicing of all performing loans will be performed by the AMRESCO
Services Division of AMI, located in Atlanta, Georgia.
AMRESCO's portfolio consists of approximately 10,512 loans with an
aggregate principal balance of approximately $11.3 billion, making it the
largest commercial servicer according to the 1996 ranking issued by the Mortgage
Bankers Association of America. The portfolio is significantly diversified both
geographically and by product type. AMI will provide servicing for this
portfolio as well as other securitized transactions under full, primary, sub and
master servicing contracts for both public and private placement transactions
representing both single and multi-borrower mortgage pools.
In addition to its loan servicing capabilities, AMI has expertise in all
areas of asset management, including loan workouts, asset valuation,
environmental reviews, and REO management and disposition and is an active
purchaser of unrated and sub-investment grade interests in commercial mortgage
backed securities. The principal task of AMI's asset management division is the
management, turnaround, and capital recovery of distressed and underperforming
real estate loans and foreclosed real estate assets. The asset management
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division of AMI is also responsible for the valuation of portfolios in
connection with the purchase of commercial mortgage backed securities.
The Master Servicer has been approved by S&P as a commercial loan servicer
and as a special servicer/asset manager. However, the Master Servicer has
applied for, but not yet received, approval as a master servicer by S&P. While
the Master Servicer expects such approval will be timely received, in the event
that S&P does not grant such approval by August 31, 1996 (unless such date is
extended by S&P), the Depositor will cause the Master Servicer to be replaced
promptly thereafter by a successor master servicer acceptable to the Rating
Agencies and otherwise in accordance with the Pooling and Servicing Agreement.
The information set forth herein concerning the Master Servicer has been
provided by the Master Servicer, and neither the Depositor nor the Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
THE SPECIAL SERVICER
The Master Servicer also will be the initial Special Servicer, and in such
capacity will be responsible for the servicing and administration of the
Specially Serviced Mortgage Assets.
REPLACEMENT OF THE SPECIAL SERVICER
The Special Servicer may be removed, and a successor Special Servicer
appointed, at any time by the Holders of Certificates representing more than 50%
of the aggregate Certificate Balance of the Controlling Class, provided that
each of DCR and S&P confirms that such replacement of the Special Servicer will
not cause a qualification, withdrawal or downgrading of the then-current ratings
assigned to any Class of Certificates.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The fees of the Master Servicer (including fees payable to subservicers)
and the Trustee (collectively, the "Aggregate Servicing Fees") will be payable
monthly on a loan-by-loan basis from amounts received in respect of interest on
each Mortgage Loan, will accrue in the case of any Mortgage Loan at an aggregate
rate (the "Aggregate Servicing Fee Rate") ranging from 0.106% to 1.613% per
annum, and will be computed on the basis of the Stated Principal Balance of the
related Mortgage Loan and for the same period respecting which any related
interest payment on the related Mortgage Loan is computed. In addition to the
Master Servicer's monthly fee constituting part of the Aggregate Servicing Fees
(the "Master Servicing Fee"), the Master Servicer will be entitled to retain, as
additional servicing compensation, (i) all assumption and modification fees paid
by the borrowers (not to exceed 1.0% of the unpaid principal balance of the
related Mortgage Loan), and (ii) late charges and penalty interest paid by the
borrowers. The Master Servicer also is authorized but not required to invest or
direct the investment of funds held in the Certificate Account and the
Distribution Accounts in Permitted Investments, and the Master Servicer will be
entitled to retain any interest or other income earned on such funds. The Master
Servicer also is entitled to retain any interest earned on any servicing escrow
account to the extent such interest is not required to be paid to the related
borrowers.
The compensation to be paid to the Special Servicer in respect of its
special servicing activities will consist primarily of its monthly fee (the
"Special Servicing Fee"). The Special Servicing Fee will be payable monthly on a
loan by loan basis from amounts received in respect of interest on each
Specially Serviced Mortgage Loan at a rate equal to 0.50% per annum and will be
computed on the basis of the Stated Principal Balance of the related Mortgage
Loan and for the same period respecting which any related interest payment on
the related Mortgage Loan is computed. As additional compensation, the Special
Servicer will be entitled to: (i) a fee (a "Modification Fee") equal to (A)
0.25% of the Stated Principal Balance of any Mortgage Loan whose maturity date
is extended for a period of one year or less, or (B) 0.50% of the Stated
Principal Balance of any Mortgage Loan whose maturity date is extended for a
period of more than one year, in either case computed on the basis of the Stated
Principal Balance of such Mortgage Loan on the date of such extension; (ii) a
fee (a "Loan Disposition Fee") equal to (A) 1.00% of the Liquidation Proceeds
received with respect to any Mortgage Loan that is not, at the time of its
disposition, an REO Mortgage Loan, if the
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Stated Principal Balance of such Mortgage Loan is $5,000,000 or less, or (B)
0.50% of the Liquidation Proceeds received with respect to any Mortgage Loan
that is not, at the time of its disposition, an REO Mortgage Loan, if the Stated
Principal Balance of such Mortgage Loan exceeds $5,000,000; and (iii) a fee (an
"REO Disposition Fee") equal to 0.75% of the Liquidation Proceeds received with
respect to any REO Mortgage Loan. Notwithstanding the foregoing, the aggregate
of such fees payable as additional compensation to the Special Servicer with
respect to any Mortgage Loan shall not exceed 1.25% of the unpaid principal
balance of such Mortgage Loan.
Although the Master Servicer and Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the general
servicing standard described under "-- General" above and, accordingly, without
regard to its right to receive compensation under the Pooling and Servicing
Agreement, additional servicing compensation in the nature of assumption and
modification fees may under certain circumstances provide the Master Servicer or
the Special Servicer, as the case may be, with an economic disincentive to
comply with such standard.
As and to the extent described herein under "Description of the
Certificates -- Advances," the Master Servicer will be entitled to receive
interest on Advances, such interest to be paid contemporaneously with the
reimbursement of the related Advance.
The Master Servicer generally will be required to pay all expenses incurred
by it in connection with its servicing activities under the Pooling and
Servicing Agreement, and will not be entitled to reimbursement therefor except
as expressly provided in the Pooling and Servicing Agreement. In connection
therewith, the Master Servicer will be responsible for all fees of any
sub-servicers. See "Description of the Certificates -- Distributions -- Method,
Timing and Amount" herein and "The Pooling and Servicing Agreements --
Certificate Account" and "-- Servicing Compensation and Payment of Expenses" in
the Prospectus.
MAINTENANCE OF INSURANCE
To the extent permitted by the related Mortgage Loan and required by the
Servicing Standards, the Master Servicer will use its reasonable best efforts to
cause each Mortgagor to maintain, and if the Mortgagor does not so maintain,
shall itself maintain to the extent available at commercially reasonable rates
(as determined by the Master Servicer in accordance with Servicing Standards), a
fire and hazard insurance policy with extended coverage covering the related
Mortgaged Property. The coverage of each such policy will be in an amount that
is not less than the lesser of the full replacement cost of the improvements
securing such Mortgage Loan or the outstanding principal balance owing on such
Mortgage Loan, but in any event, in an amount sufficient to avoid the
application of any co-insurance clause unless otherwise noted in the related
Mortgage Loan documents. During all such times as the Mortgaged Property is
located in an area identified as a federally designated special flood hazard
area (and such flood insurance has been made available), the Master Servicer
will use its reasonable best efforts to cause each Mortgagor to maintain (to the
extent required by the related Mortgage Loan), and if the Mortgagor does not so
maintain, shall itself maintain to the extent available at commercially
reasonable rates (as determined by the Master Servicer in accordance with the
Servicing Standards), a flood insurance policy in an amount representing
coverage not less than the lesser of (i) the outstanding principal balance of
the related Mortgage Loan, and (ii) the maximum amount of insurance which is
available under the Flood Disaster Protection Act of 1973, as amended, but only
to the extent that the related Mortgage Loan permits the lender to require such
coverage and maintaining such coverage is consistent with the Servicing
Standards. The Master Servicer will also be required to maintain (or cause to be
maintained) fire and hazard insurance on each REO Property in an amount which is
at least equal to the lesser of (x) an amount necessary to avoid the application
of any co-insurance clause and (y) the full replacement cost of the improvements
on such REO Property. In addition, during all such times as the REO Property is
located in an area identified as a federally designated special flood hazard
area, the Master Servicer will cause to be maintained, to the extent available
at commercially reasonable rates (as determined by the Master Servicer in
accordance with the Servicing Standards), a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
in an amount representing coverage not less than the maximum amount of insurance
which is available under the Flood Disaster Protection Act of 1973, as amended.
The Pooling and Servicing Agreement provides that the Master Servicer
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may satisfy its obligations to cause each borrower to maintain a hazard
insurance policy by maintaining a blanket policy insuring against hazard losses
on the Mortgage Loans. Any losses incurred with respect to Mortgage Loans due to
uninsured risks (including earthquakes, mudflows and floods) or insufficient
hazard insurance proceeds may adversely affect payments to Certificateholders.
Any cost incurred by the Master Servicer in maintaining any such insurance
policy if the Mortgagor defaults on its obligation to do so shall be advanced by
the Master Servicer as a Servicing Advance and will be charged to the related
Mortgagor. No Mortgagor is required by the Mortgage Loan documents to maintain
earthquake insurance on any Mortgaged Property.
Such costs may be recovered by the Master Servicer from reimbursements
received from the Mortgagor or, if the Mortgagor does not pay such amounts, as
Servicing Advances as set forth in the Pooling and Servicing Agreement.
No pool insurance policy, special hazard insurance policy, bankruptcy bond,
repurchase bond or certificate guarantee insurance will be maintained with
respect to the Mortgage Loans, nor will any Mortgage Loan be subject to FHA
insurance.
THE EXTENSION ADVISER
Election of the Extension Adviser. The Class A, Class B, Class C and Class
D Certificateholders will be entitled to elect a representative (the "Extension
Adviser") from whom the Special Servicer will seek approval as described below.
Upon (i) the receipt by the Trustee of written requests for an election of an
Extension Adviser from such holders of such Certificates representing more than
50% of the Voting Rights of such Certificates or (ii) the resignation or removal
of the person acting as Extension Adviser, an election of a successor Extension
Adviser will be held commencing as soon as practicable thereafter. The Extension
Adviser may be removed at any time by the written vote of holders of such
Certificates representing more than 50% of the Voting Rights of such
Certificates. In the event that after the Closing Date an Extension Adviser
shall have resigned or been removed and a successor Extension Adviser shall not
have been elected, there shall be no Extension Adviser, and the provisions of
the Pooling and Servicing Agreement relating to the Special Servicer's right or
obligation to consult with or seek and/or obtain approval from an Extension
Adviser shall be of no effect during any such period that there is no Extension
Adviser.
The Special Servicer will not be required to take or refrain from taking
any action pursuant to instructions from the Extension Adviser that would cause
it to violate the Pooling and Servicing Agreement, including the Servicing
Standards, or the REMIC Provisions.
The initial Extension Adviser will be the Trustee or its designee.
Duties of the Extension Adviser. The Special Servicer will not be
permitted to grant any extension of the maturity of a Specially Serviced
Mortgage Loan beyond the third anniversary of such Mortgage Loan's original
maturity date, unless the Extension Adviser has approved such action in writing
within ten days after receiving from the Special Servicer written notice thereof
and sufficient information to make an informed decision (provided that if a
written objection to such extension from the Extension Adviser has not been
received by the Special Servicer within said ten day period, then the Extension
Adviser's approval will be deemed to have been given). In addition, the
Extension Adviser will confirm to its reasonable satisfaction that all
conditions precedent to granting any such extension set forth in the Pooling and
Servicing Agreement have been satisfied, as described under "-- Modifications,
Waiver and Amendments" below.
The fees and expenses of the Extension Adviser will be payable from the
Trust Fund.
Limitation on Liability of Extension Adviser. The Extension Adviser will
be acting solely as a representative of the interests of the Class of
Certificateholders that elected the Extension Adviser, and will have no
liability to the Trust or any other Class of Certificateholders for any action
taken, or for refraining from the taking of any action, in good faith pursuant
to the Pooling and Servicing Agreement, or for errors in judgment; provided that
the Extension Adviser will not be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
or duties. By its acceptance of a Certificate, each Certificate-
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holder confirms its understanding that the Extension Adviser may take actions
that favor the interest of one or more Classes of the Certificates over other
Classes of the Certificates, and that the Extension Adviser may have special
relationships and interests that conflict with those of holders of some Classes
of the Certificates and, absent willful misfeasance, bad faith, negligence or
reckless disregard of obligations or duties on the part of the Extension
Adviser, agrees to take no action against the Extension Adviser or any of its
officers, directors, employees, principals or agents as a result of such a
special relationship or conflict.
MODIFICATIONS, WAIVER AND AMENDMENTS
The Master Servicer may agree to extend the maturity date of a Mortgage
Loan for twelve months or less from or after the original maturity date of such
Mortgage Loan if: (i) the Master Servicer determines that such extension is in
the best interests of the Trust Fund; (ii) a payment default has occurred at
maturity of such Mortgage Loan or, in the judgment of the Master Servicer, is
imminent at maturity of the Mortgage Loan and will not be cured within sixty
days from the maturity date; (iii) the Master Servicer has received operating
statements from the related borrower for the related Mortgaged Property for the
most recent full calendar year for which operating statements are available and
for the current year to date and, based on such operating statements, the DSCR
of such Mortgage Loan has been and, in its reasonable judgment, is expected to
continue to be during the ensuing twelve months greater than or equal to 1.25x
(or 1.15x for LIHTC loans); (iv) except as contemplated in clause (ii) above, no
payment due from the related borrower on such Mortgage Loan has been 30 or more
days delinquent within the past twelve months; (v) the Master Servicer has
performed an inspection of the related Mortgaged Property within the last three
months or performs a new inspection of the related Mortgaged Property prior to
the contemplated extension; (vi) the Master Servicer has received from the
related borrower the last annual rent roll for the related Mortgaged Property
and a current rent roll for the related Mortgaged Property, both certified by
the borrower as being true and correct; (vii) the Master Servicer expressly
notifies the related borrower in writing that such extension is a one time
option and diligently discusses exit strategies with the borrower; and (viii)
the Special Servicer consents to such extension, which consent the Special
Servicer is required to use its best reasonable efforts to provide or withhold
within ten days after the Special Servicer is notified in writing by the Master
Servicer of such request for extension and has received sufficient information
from the Master Servicer to make an informed decision. The Special Servicer will
be entitled to rely, absent manifest error, on the information provided to it by
the Master Servicer without independent verification. However, no extension
entered into by the Master Servicer may be for a period of more than twelve
months from the original maturity date of such Mortgage Loan or shall extend the
maturity date beyond the earlier of (i) two years prior to the Rated Final
Distribution Date and (ii) in the case of a Mortgage Loan secured by a leasehold
estate, the date ten years prior to the termination of such leasehold estate. No
more than one such extension may be granted by the Master Servicer with respect
to any particular Mortgage Loan. Except as otherwise set forth in this
paragraph, the Master Servicer may not waive, modify or amend any provision of a
Mortgage Loan except for (i) the waiver of any due-on-sale clause or
due-on-encumbrance clause to the extent permitted in the Pooling and Servicing
Agreement, and (ii) any waiver, modification or amendment that would not be a
"significant modification" of the Mortgage Loan within the meaning of Treasury
Regulations Section 1.860G-2(b) and as to which the Master Servicer has provided
the Trustee with an opinion of counsel that such waiver, modification or
amendment will not constitute such a "significant modification."
If, but only if, the Special Servicer determines that a modification,
waiver or amendment (including the forgiveness or deferral of interest or
principal or the substitution or release of collateral or the pledge of
additional collateral) of the terms of a Specially Serviced Mortgage Loan with
respect to which a payment default or other material default has occurred or a
payment default is, in the Special Servicer's judgment, reasonably foreseeable,
is reasonably likely to produce a greater recovery on a present value basis (the
relevant discounting to be performed at the related Mortgage Rate) than
liquidation of such Specially Serviced Mortgage Loan, then the Special Servicer,
may, but is not required to, agree to a modification, waiver or amendment of
such Specially Serviced Mortgage Loan, subject to the restrictions and
limitations described below; provided, however, that the Extension Adviser must
approve or be deemed to approve such modification, waiver or amendment in the
case of an extension of the maturity of a Specially Serviced Mortgage Loan
beyond the third anniversary of such Mortgage Loan's original maturity date.
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The Special Servicer may not agree to a modification, waiver or amendment
of any term of any Specially Serviced Mortgage Loan if such modification, waiver
or amendment would:
(i) extend the maturity date of any such Specially Serviced Mortgage
Loan to a date occurring later than the earlier of (A) two years prior to
the Rated Final Distribution Date and (B) if such Specially Serviced
Mortgage Loan is secured by a leasehold estate, the date ten years prior to
the termination of such leasehold;
(ii) reduce the Net Mortgage Rate to less than the lesser of (A) the
original Net Mortgage Rate or (B) 7.830%; or
(iii) reduce any Yield Maintenance Charge, Prepayment Premium or
Lock-out Period.
Any payment of interest deferred as described herein will not, including
without limitation for purposes of calculating monthly distributions to
Certificateholders, be added to the unpaid principal balance of the related
Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit or
that such interest may actually be capitalized.
The Master Servicer or the Special Servicer, as the case may be, will
notify each other and the Trustee of any modification, waiver or amendment of
any term of any Mortgage Loan, and must deliver to the Trustee, for deposit in
the related Mortgage File, an original counterpart of the agreement related to
such modification, waiver or amendment, promptly following the execution
thereof. Copies of each agreement whereby any such modification, waiver or
amendment of any term of any Mortgage Loan is effected are to be available for
review during normal business hours at the offices of the Trustee. See
"Description of the Certificates -- Reports to Certificateholders; Certain
Available Information" herein.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Master Servicer will perform (at its own expense), or shall cause each
Sub-Servicer to perform (at its own expense), physical inspections of each
Mortgaged Property at such times and in such manner as are consistent with the
Servicing Standards, but in any event shall inspect each Mortgaged Property
securing a Mortgage Note with a Stated Principal Balance of (A) $2,000,000 or
more at least once every 12 months and (B) less than $2,000,000 at least once
every 24 months, in each case commencing in the calendar year 1998; provided,
however, that if any scheduled payment becomes more than 60 days delinquent on
the related Mortgage Loan, the Special Servicer shall inspect the related
Mortgaged Property soon as practicable thereafter (the cost of which inspection
shall be at the expense of the Trust Fund). The Special Servicer or the Master
Servicer, as applicable, will prepare a written report of each such inspection
describing the condition of the Mortgaged Property and specifying the existence
of any material vacancies in the Mortgaged Property, of any sale, transfer or
abandonment of the Mortgaged Property, of any material change in the condition
or value of the Mortgaged Property, or of any waste committed thereon.
With respect to each Mortgage Loan that requires the borrower to deliver
such statements, the Special Servicer or the Master Servicer, as applicable, is
also required to collect and review the annual operating statements of the
related Mortgaged Property. Most of the Mortgages obligate the related borrower
to deliver annual property operating statements. However, there can be no
assurance that any operating statements required to be delivered will in fact be
delivered, nor is the Special Servicer or the Master Servicer likely to have any
practical means of compelling such delivery in the case of an otherwise
performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to above
are to be available for review by Certificateholders during normal business
hours at the offices of the Trustee. See "Description of the
Certificates -- Reports to Certificateholders; Certain Available Information"
herein.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will represent in the aggregate the entire beneficial ownership
interest in a Trust Fund consisting of: (i) the Mortgage Loans and all payments
under and proceeds of the Mortgage Loans received after the Cut-off Date
(exclusive of payments of principal and interest due on or before the Cut-off
Date); (ii) any REO Property; (iii) such funds or assets as from time to time
are deposited in the Certificate Account, the Distribution Accounts and the REO
Account, if established; (iv) the rights of the mortgagee under all insurance
policies with respect to the Mortgage Loans; and (v) certain rights of the
Depositor under the Purchase Agreement relating to Mortgage Loan document
delivery requirements and the representations and warranties of the Mortgage
Loan Seller regarding the Mortgage Loans.
The Series 1996-1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of the following fourteen classes (each, a
"Class"): the Class A-1, Class A-2 and Class A-3 Certificates (collectively, the
"Class A Certificates"), the Class IO Certificates (the "Class IO
Certificates"), the Class B, Class C, Class D, Class E, Class F, Class G, Class
H, and Class UR Certificates, and the Class R and Class LR Certificates. The
Class A Certificates and the Class IO Certificates are referred to collectively
herein as the "Senior Certificates." The Class B, Class C, Class D, Class E,
Class F, Class G, Class H and Class UR Certificates are referred to collectively
herein as the "Subordinate Certificates." The Class B, Class C, Class D and
Class E Certificates are referred to collectively herein as the "Subordinate
Investment Grade Certificates." The Class R and Class LR Certificates are
referred to collectively herein as the "Residual Certificates."
Only the Class A, Class B, Class C, Class D and Class E Certificates are
offered hereby (collectively, the "Offered Certificates"). The Class IO, Class
F, Class G, Class H, Class UR, Class R and Class LR Certificates (collectively,
the "Non-Offered Certificates") have not been registered under the Securities
Act of 1933 and are not offered hereby.
The "Certificate Balance" of any Class of Certificates outstanding at any
time represents the maximum amount which the holders thereof are entitled to
receive as distributions allocable to principal from the cash flow on the
Mortgage Loans and the other assets in the Trust Fund. On each Distribution
Date, the Certificate Balance of each Class of Certificates will be reduced by
any distributions of principal actually made on, and any Collateral Support
Deficit actually allocated to, such Class of Certificates on such Distribution
Date, and will be increased by any Appraisal Reduction Amount actually allocated
to such Class of Certificates on such Distribution Date, but only to the extent
such Appraisal Reduction Amount is included in the Unscheduled Principal
Distribution Amount for such Distribution Date.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants in denominations of $10,000
initial Certificate Balance and integral multiples of $1,000 in excess thereof,
in the case of the Class A Certificates, and $250,000 initial Certificate
Balance and integral multiples of $1,000 in excess thereof, in the case of the
Subordinate Investment Grade Certificates. The "Percentage Interest" evidenced
by any Offered Certificate is equal to the initial denomination thereof as of
the Closing Date, divided by the initial Certificate Balance of the Class to
which it belongs.
The Offered Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The Depositor
has been informed by DTC that DTC's nominee will be Cede & Co. No Certificate
Owner will be entitled to receive a Definitive Certificate representing its
interest in such Class, except as set forth below under "-- Book-Entry
Registration of the Offered Certificates -- Definitive Certificates". Unless and
until Definitive Certificates are issued, all references to actions by holders
of the Offered Certificates will refer to actions taken by DTC upon instructions
received from Certificate Owners through its Participants, and all references
herein to payments, notices, reports and statements to holders of the Offered
Certificates will refer to payments notices, reports and statements to DTC or
Cede & Co., as the registered holder of the Offered Certificates, for
distribution to Certificate Owners through its Participants in
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accordance with DTC procedures. See "Description of the
Certificates -- Book-Entry Registration and Definitive Certificates" in the
Prospectus.
Until Definitive Certificates are issued, interests in any Class of Offered
Certificates will be transferred on the book-entry records of DTC and its
Participants. The Trustee will initially serve as registrar (in such capacity,
the "Certificate Registrar") for purposes of recording and otherwise providing
for the registration of the Offered Certificates and of transfers and exchanges
of the Definitive Certificates, if issued.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
General. Certificate Owners that are not Direct or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Offered Certificates may do so only through Direct and
Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal of and interest on the Offered Certificates from the
Trustee through DTC and its Direct and Indirect Participants. Accordingly,
Certificate Owners may experience delays in their receipt of payments. Unless
and until Definitive Certificates are issued, it is anticipated that the only
registered Certificateholder of the Offered Certificates will be Cede & Co., as
nominee of DTC. Certificate Owners will not be recognized by the Trustee or the
Master Servicer as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Certificate Owners will be permitted to receive
information furnished to Certificateholders and to exercise the rights of
Certificateholders only indirectly through DTC and its Direct and Indirect
Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Offered Certificates. Direct
and Indirect Participants with which Certificate Owners have accounts with
respect to the Offered Certificates similarly are required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will not
possess physical certificates evidencing their interests in the Offered
Certificates, the Rules provide a mechanism by which Certificate Owners, through
their Direct and Indirect Participants, will receive distributions and will be
able to transfer their interests in the Offered Certificates.
None of the Depositor, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Offered Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
Definitive Certificates. Definitive Certificates will be issued to
Certificate Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates."
Upon the occurrence of an event described in the Prospectus in the last
paragraph under "Description of the Certificates -- Book-Entry Registration and
Definitive Certificates," the Trustee is required to notify, through DTC, Direct
Participants who have ownership of Offered Certificates as indicated on the
records of DTC of the availability of Definitive Certificates. Upon surrender by
DTC of the definitive certificates representing the Offered Certificates and
upon receipt of instructions from DTC for re-registration, the Trustee will
reissue the Offered Certificates as Definitive Certificates issued in the
respective principal amounts owned by individual Certificate Owners, and
thereafter the Trustee and the Master Servicer will recognize the holders of
such Definitive Certificates as Certificateholders under the Pooling and
Servicing Agreement.
For additional information regarding DTC and Certificates maintained on the
book-entry records thereof, see "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates" in the Prospectus.
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DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
by the Trustee, to the extent of available funds, on the 20th day of each month
or, if any such 20th day is not a business day, then on the next succeeding
business day, commencing in June 1996 (each, a "Distribution Date"). All such
distributions (other than the final distribution on any Certificate) will be
made to the Certificateholders in whose names the Certificates are registered at
the close of business on each Record Date, which will be the last business day
of the month preceding the month in which the related Distribution Date occurs.
Each such distribution will be made by wire transfer in immediately available
funds to the account specified by the Certificateholder at a bank or other
entity having appropriate facilities therefor, if such Certificateholder will
have provided the Trustee with wiring instructions no less than five business
days prior to the related Record Date (which wiring instructions may be in the
form of a standing order applicable to all subsequent distributions) and is the
registered owner of Certificates with an aggregate initial Certificate Balance
of at least $5,000,000, or otherwise by check mailed to such Certificateholder.
The final distribution on any Certificate will be made in like manner, but only
upon presentation and surrender of such Certificate at the location that will be
specified in a notice of the pendency of such final distribution. All
distributions made with respect to a Class of Certificates will be allocated pro
rata among the outstanding Certificates of such Class based on their respective
Percentage Interests.
The Master Servicer shall establish and maintain an account (the
"Certificate Account") as described in the Pooling and Servicing Agreement. The
Master Servicer is required to deposit in the Certificate Account on a daily
basis all payments and collections due after the Cut-off Date and other amounts
received with respect to the Mortgage Loans, and will be permitted to make
withdrawals therefrom as set forth in the Pooling and Servicing Agreement.
The Trustee will establish and maintain an account (the "Lower-Tier
Distribution Account"), and a second account (the "Upper-Tier Distribution
Account," with the Lower-Tier Distribution Account, the "Distribution Accounts")
in the name of the Trustee and for the benefit of the Certificateholders. On
each Distribution Date, the Trustee will apply amounts on deposit in the
Upper-Tier Distribution Account (which will include all funds that were remitted
by the Master Servicer to the Trustee from the Certificate Account plus, among
other things, any P&I Advances less amounts, if any, distributable to the Class
LR Certificates as set forth in the Pooling and Servicing Agreement) generally
to make distributions of interest and principal from the Available Distribution
Amount to the Certificateholders as described herein. Each of the Certificate
Account and the Distribution Accounts will conform to certain eligibility
requirements set forth in the Pooling and Servicing Agreement.
The aggregate amount available for distribution to Certificateholders on
each Distribution Date (the "Available Distribution Amount") will, in general,
equal the sum of the following amounts:
(a) the total amount of all cash received on the Mortgage Loans and
any REO Properties that is on deposit in the Certificate Account and the
Lower-Tier Distribution Account as of the business day preceding the
related Servicer Remittance Date, exclusive of:
(i) all Monthly Payments collected but due on a Due Date subsequent
to the related Due Period,
(ii) all principal prepayments, Liquidation Proceeds, Insurance and
Condemnation Proceeds and other unscheduled recoveries received
subsequent to the related Due Period,
(iii) all amounts in the Certificate Account and Lower-Tier
Distribution Account that are due or reimbursable to any person other
than the Certificateholders,
(iv) all Prepayment Premiums and Yield Maintenance Charges,
(v) all amounts received with respect to any Mortgage Loan during
the related Due Period that represent recoveries from Liquidation
Proceeds or other final payment with respect to such Mortgage Loan of
Appraisal Reduction Amounts allocated to any Class or Classes of
Certificates with respect to such Mortgage Loan, and
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(vi) all amounts deposited in the Certificate Account and
Lower-Tier Distribution Account in error; and
(b) all P&I Advances made by the Master Servicer or the Trustee, as
applicable, with respect to such Distribution Date. See "The Pooling and
Servicing Agreements -- Certificate Account" in the Prospectus.
The "Due Period" for each Distribution Date will be the period that begins
on the second day of the month preceding the month in which such Distribution
Date occurs and ends on the first day of the month in which such Distribution
Date occurs. For purposes of the discussion in the Prospectus, the Due Period is
also the Prepayment Period. The "Determination Date" for each Distribution Date
is the 15th day of the month in which such Distribution Date occurs or, if any
such 15th day is not a business day, then the next succeeding business day.
Priority. On each Distribution Date, for so long as the Certificate
Balances of the Certificates have not been reduced to zero, the Trustee will
(except as otherwise described under "-- Termination; Retirement of
Certificates" below) apply amounts on deposit in the Upper-Tier Distribution
Account, to the extent of the Available Distribution Amount, in the following
order of priority:
first, to the Class A-l, Class A-2, Class A-3 and Class IO Certificates,
pro rata, in respect of interest, up to an amount equal to the aggregate
Interest Distribution Amount for such Classes;
second, (a) to the Class A-1 Certificates, in reduction of the Certificate
Balance thereof, an amount equal to the Principal Distribution Amount, until the
Certificate Balance of such Class is reduced to zero, (b) following reduction of
the Certificate Balance of the Class A-1 Certificates to zero, to the Class A-2
Certificates, in reduction of the Certificate Balance thereof, an amount equal
to the Principal Distribution Amount (or portion thereof remaining after
distributions on the Class A-1 Certificates on such Distribution Date), until
the Certificate Balance of such Class is reduced to zero, and (c) following
reduction of the Certificate Balances of the Class A-1 and Class A-2
Certificates to zero, to the Class A-3 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A-1 and
Class A-2 Certificates on such Distribution Date), until the Certificate Balance
of such Class is reduced to zero;
third, to the Class A-1, Class A-2 and Class A-3 Certificates, pro rata,
until all amounts of Collateral Support Deficit previously allocated to such
Classes, but not previously reimbursed, have been reimbursed in full;
fourth, to the Class B Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount for such Class;
fifth, following reduction of the Certificate Balances of the Class A
Certificates to zero, to the Class B Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A
Certificates on such Distribution Date), until the Certificate Balance of such
Class is reduced to zero;
sixth, to the Class B Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class B Certificates, but not previously
reimbursed, have been reimbursed in full;
seventh, to the Class C Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount for such Class;
eighth, following reduction of the Certificate Balances of the Class A and
Class B Certificates to zero, to the Class C Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A and
Class B Certificates on such Distribution Date), until the Certificate Balance
of such Class is reduced to zero;
ninth, to the Class C Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class C Certificates, but not previously
reimbursed, have been reimbursed in full;
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tenth, to the Class D Certificates, in respect of interest, up to an amount
equal to the aggregate Interest Distribution Amount for such Class;
eleventh, following reduction of the Certificate Balances of the Class A,
Class B and Class C Certificates to zero, to the Class D Certificates, in
reduction of the Certificate Balance thereof, an amount equal to the Principal
Distribution Amount (or portion thereof remaining after distributions on the
Class A, Class B and Class C Certificates on such Distribution Date), until the
Certificate Balance of such Class is reduced to zero;
twelfth, to the Class D Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class D Certificates, but not
previously reimbursed, have been reimbursed in full;
thirteenth, to the Class E Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount for such Class;
fourteenth, following reduction of the Certificate Balances of the Class A,
Class B, Class C and Class D Certificates to zero, to the Class E Certificates,
in reduction of the Certificate Balance thereof, an amount equal to the
Principal Distribution Amount (or portion thereof remaining after distributions
on the Class A, Class B, Class C and Class D Certificates on such Distribution
Date), until the Certificate Balance of such Class is reduced to zero;
fifteenth, to the Class E Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class E Certificates, but not
previously reimbursed, have been reimbursed in full;
sixteenth, to the Class F Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount for such Class;
seventeenth, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D and Class E Certificates to zero, to the Class F
Certificates, in reduction of the Certificate Balance thereof, an amount equal
to the Principal Distribution Amount (or portion thereof remaining after
distributions on the Class A, Class B, Class C, Class D and Class E Certificates
on such Distribution Date), until the Certificate Balance of such Class is
reduced to zero;
eighteenth, to the Class F Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class F Certificates, but not
previously reimbursed, have been reimbursed in full;
nineteenth, to the Class G Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount for such Class;
twentieth, following reduction of the Certificate Balances of the Class A,
Class B, Class C, Class D, Class E and Class F Certificates to zero, to the
Class G Certificates, in reduction of the Certificate Balance thereof, an amount
equal to the Principal Distribution Amount (or portion thereof remaining after
distributions on the Class A, Class B, Class C, Class D, Class E and Class F
Certificates on such Distribution Date), until the Certificate Balance of such
Class is reduced to zero;
twenty-first, to the Class G Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class G Certificates, but not
previously reimbursed, have been reimbursed in full;
twenty-second, to the Class H Certificates, in respect of interest, up to
an amount equal to the aggregate Interest Distribution Amount for such Class;
twenty-third, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D, Class E, Class F and Class G Certificates to zero,
to the Class H Certificates, in reduction of the Certificate Balance thereof, an
amount equal to the Principal Distribution Amount (or portion thereof remaining
after distributions on the Class A, Class B, Class C, Class D, Class E, Class F
and Class G Certificates on such Distribution Date), until the Certificate
Balance of such Class is reduced to zero;
twenty-fourth, to the Class H Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class H Certificates, but not
previously reimbursed, have been reimbursed in full;
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twenty-fifth, to the Class UR Certificates, in respect of interest, up to
an amount equal to the aggregate Interest Distribution Amount for such Class;
twenty-sixth, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D, Class E, Class F, Class G and Class H Certificates
to zero, to the Class UR Certificates, in reduction of the Certificate Balance
thereof, an amount equal to the Principal Distribution Amount (or portion
thereof remaining after distributions on the Class A, Class B, Class C, Class D,
Class E, Class F, Class G and Class H Certificates on such Distribution Date),
until the Certificate Balance of such Class is reduced to zero;
twenty-seventh, to the Class UR Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class UR Certificates,
but not previously reimbursed, have been reimbursed in full; and
twenty-eighth, to the Class R Certificates, the amount, if any, remaining
in the Upper-Tier Distribution Account with respect to such Distribution Date.
Reimbursement of previously allocated Collateral Support Deficit will not
constitute distributions of principal for any purpose and will not result in an
additional reduction in the Certificate Balance of the Class of Certificates in
respect of which any such reimbursement is made.
On and after the Distribution Date on which the Certificate Balances of the
Subordinate Certificates have all been reduced to zero (such date, the
"Cross-Over Date"), the Principal Distribution Amount will be distributed, pro
rata, among the Classes of Class A Certificates without regard to the priorities
set forth above.
Pass-Through Rates. The Pass-Through Rate applicable to each Class of
Offered Certificates for any Distribution Date will equal the rate per annum
specified on the cover of this Prospectus Supplement. The Pass-Through Rate for
the Class IO Certificates (the "Class IO Pass-Through Rate") for any
Distribution Date will equal the excess, if any, of (a) the weighted average of
the applicable Effective Net Mortgage Rates for the Mortgage Loans, weighted on
the basis of their respective Stated Principal Balances as of the preceding
Distribution Date (after giving effect to the distribution of principal on such
Distribution Date) or, in the case of the first Distribution Date, the Cut-off
Date, over (b) the weighted average of the Pass-Through Rates on all of the
other Certificates, weighted on the basis of their respective Certificate
Balances immediately prior to such Distribution Date. The Class IO Pass-Through
Rate for the first Distribution Date is expected to be approximately 0.52026%
per annum.
For purposes of calculating the Class IO Pass-Through Rate for any
Distribution Date, the applicable "Effective Net Mortgage Rate" for each
Mortgage Loan is: (a) if such Mortgage Loan accrues interest on the basis of a
360-day year consisting of twelve 30-day months (a "30/360 basis", which is the
basis of accrual for interest on the Certificates), the Net Mortgage Rate in
effect for such Mortgage Loan as of the commencement of the related Due Period;
and (b) if such Mortgage Loan does not accrue interest on a 30/360 basis, the
annualized rate at which interest would have to accrue during the one month
period preceding the Due Date for such Mortgage Loan during the related Due
Period on a 30/360 basis in order to produce the aggregate amount of interest
(adjusted to the actual Net Mortgage Rate) accrued during such period. The
Mortgage Loans listed as "Healthcare Loans" on Exhibit A to this Prospectus
Supplement are not calculated on a 30/360 basis. The "Net Mortgage Rate" for
each Mortgage Loan is equal to the related Mortgage Rate in effect from time to
time less the Aggregate Servicing Fee Rate.
Interest Distribution Amount. The "Interest Distribution Amount" of any
Class of Certificates for any Distribution Date is an amount equal to all
Distributable Certificate Interest in respect of such Class for such
Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates.
The "Distributable Certificate Interest" in respect of each Class of
Certificates (other than the Class R and Class LR Certificates) for each
Distribution Date represents that portion of the Accrued Certificate Interest in
respect of such Class of Certificates for such Distribution Date that is net of
such Class's allocable share (calculated as described below) of any Appraisal
Reduction Amounts allocated to such Class on such Distribution Date.
The "Accrued Certificate Interest" in respect of each Class of Certificates
(other than the Class R and Class LR Certificates) for each Distribution Date is
equal to one month's interest at the Pass-Through Rate
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applicable to such Class of Certificates for such Distribution Date accrued on
the related Certificate Balance or Notional Amount, as the case may be,
outstanding immediately prior to such Distribution Date. Accrued Certificate
Interest will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
Principal Distribution Amount. The "Principal Distribution Amount" for any
Distribution Date and any Class of Certificates, is an amount (but not more than
would be necessary to reduce the aggregate Certificate Balance of such Class to
zero) equal to the sum of (a) the Scheduled Principal Distribution Amount for
such Distribution Date and (b) the Unscheduled Principal Distribution Amount for
such Distribution Date.
The "Scheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of the principal portions of (a) all Monthly Payments
(excluding Balloon Payments) due during or, if and to the extent not previously
received or advanced and distributed to Certificateholders on a preceding
Distribution Date, prior to, the related Due Period and all Assumed Scheduled
Payments for the related Due Period, in each case to the extent paid by the
related borrower as of the business day preceding the related Servicer
Remittance Date or advanced by the Master Servicer or Trustee, as applicable,
and (b) all Balloon Payments to the extent received during the related Due
Period, in the case of clauses (a) and (b) to the extent included in the
Available Distribution Amount for such Distribution Date. The Scheduled
Principal Distribution Amount from time to time will include all late payments
of principal made by a borrower, including late payments in respect of a
delinquent Balloon Payment, regardless of the timing of such late payments,
except to the extent such late payments are otherwise reimbursable to the Master
Servicer for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of: (a) all voluntary prepayments of principal received
on the Mortgage Loans during the related Due Period; (b) any other collections
(exclusive of payments by borrowers) received on the Mortgage Loans and any REO
Properties during the related Due Period, whether in the form of Liquidation
Proceeds, Insurance and Condemnation Proceeds, net income, rents, and profits
from REO Property or otherwise, that were identified and applied by the Master
Servicer as recoveries of previously unadvanced principal of the related
Mortgage Loan; and (c) any Appraisal Reduction Amount for such Distribution
Date, but only to the extent available for distribution from interest paid with
respect to the related Mortgage Loan prior to the receipt of Liquidation
Proceeds or any other final payment thereon otherwise distributable on the
Subordinate Certificates to which the related Appraisal Reduction is allocated.
The "Assumed Scheduled Payment" for any Due Period and with respect to any
Mortgage Loan that is delinquent in respect of its Balloon Payment (including
any REO Loan as to which the Balloon Payment would have been past due), is an
amount equal to the sum of (a) the principal portion of the Monthly Payment that
would have been due on such Mortgage Loan on the related Due Date based on the
constant payment required by the related Mortgage Note or the original
amortization schedule thereof (as calculated with interest at the related
Mortgage Rate), if applicable, assuming such Balloon Payment has not become due,
after giving effect to any modification, and (b) interest on the Stated
Principal Balance of such Mortgage Loan at the applicable Net Mortgage Rate.
Final Recoveries of Appraisal Reduction Amounts. To the extent any amount
on a Mortgage Loan with respect to which an Appraisal Reduction was required is
recovered from Liquidation Proceeds or other final payment with respect to such
Mortgage Loan in excess of the Adjusted Principal Balance (after giving effect
to all other amounts previously collected with respect thereto after such
Appraisal Reduction), an amount equal to the lesser of such excess or the sum of
the Appraisal Reduction Amounts with respect to such Mortgage Loan will be
distributed on each Class of Certificates to which such Appraisal Reductions
have been allocated, in the order in which such Appraisal Reductions were so
allocated, up to the aggregate Appraisal Reduction Amounts allocated to such
Class with respect to such Mortgage Loan. The "Adjusted Principal Amount" with
respect to any Mortgage Loan is the excess of the unpaid principal balance of
such Mortgage Loan over the Appraisal Reduction related to such Mortgage Loan.
Certain Calculations with Respect to Individual Mortgage Loans. The Stated
Principal Balance of each Mortgage Loan outstanding at any time represents the
principal balance of such Mortgage Loan ultimately due and payable to the
Certificateholders. The "Stated Principal Balance" of each Mortgage Loan will
initially equal the Cut-off Date Balance thereof and, on each Distribution Date,
will be reduced by the portion
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of the Principal Distribution Amount for such date that is attributable to such
Mortgage Loan. The Stated Principal Balance of a Mortgage Loan may also be
reduced in connection with any forced reduction of the actual unpaid principal
balance thereof imposed by a court presiding over a bankruptcy proceeding which
the related borrower is the debtor. See "Certain Legal Aspects of Mortgage
Loans -- Foreclosure -- Bankruptcy Laws" in the Prospectus. If any Mortgage Loan
is paid in full or such Mortgage Loan (or any Mortgaged Property acquired in
respect thereof) is otherwise liquidated, then, as of the first Distribution
Date that follows the end of the Due Period in which such payment in full or
liquidation occurred, and notwithstanding that a loss may have occurred in
connection with any such liquidation, the Stated Principal Balance of such
Mortgage Loan shall be zero.
For purposes of calculating distributions on, and allocations of Collateral
Support Deficit to, the Certificates, as well as for purposes of calculating the
amount of Aggregate Servicing Fees payable each month, each REO Property will be
treated as if there exists with respect thereto an outstanding mortgage loan (an
"REO Loan"), and all references to "Mortgage Loan", "Mortgage Loans" and
"Mortgage Pool" herein and in the Prospectus, when used in such context, will be
deemed to also be references to or to also include, as the case may be, any "REO
Loans". Each REO Loan will generally be deemed to have the same characteristics
as its actual predecessor Mortgage Loan, including the same fixed Mortgage Rate
(and, accordingly, the same Net Mortgage Rate and Effective Net Mortgage Rate)
and the same unpaid principal balance and Stated Principal Balance. Amounts due
on such predecessor Mortgage Loan, including any portion thereof payable or
reimbursable to the Master Servicer, will continue to be "due" in respect of the
REO Loan; and amounts received in respect of the related REO Property, net of
payments to be made, or reimbursement to the Master Servicer or the Special
Servicer for payments previously advanced, in connection with the operation and
management of such property, generally will be applied by the Master Servicer as
if received on the predecessor Mortgage Loan.
ALLOCATION OF PREPAYMENT PREMIUMS AND YIELD MAINTENANCE CHARGES
For any Mortgage Loan and any Distribution Date, until the Certificate
Balances of the Class A-1, Class A-2, Class A-3 and Class B Certificates have
each been reduced to zero, (i) 80% of any Yield Maintenance Charge and any
Prepayment Premium actually received during the related Due Period with respect
to such Mortgage Loan will be distributed to the Class IO Certificates, and (ii)
the remaining 20% of any Yield Maintenance Charge and any Prepayment Premium
actually received during the related Due Period with respect to such Mortgage
Loan will be distributed pro rata among the Class A-1, Class A-2, Class A-3 and
Class B Certificates that are entitled to distribution of the Principal
Distribution Amount on such Distribution Date, in accordance with the portion of
the Principal Distribution Amount to which such Class is entitled relative to
such other Class A and Class B Certificates on such Distribution Date. Following
the reduction of the Certificate Balances of the Class A-1, Class A-2, Class A-3
and Class B Certificates to zero, 100% of any Yield Maintenance Charge and any
Prepayment Premium actually received during the related Due Period with respect
to such Mortgage Loan will be distributed to the Class IO Certificates. For a
description of Prepayment Premiums and Yield Maintenance Charges, see
"Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans -- Prepayment Provisions" herein. See also "Certain Legal Aspects
of the Mortgage Loans -- Default Interest and Limitations on Prepayments" in the
Prospectus regarding the enforceability of Yield Maintenance Charges and
Prepayment Premiums.
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ASSUMED FINAL DISTRIBUTION DATE; RATED FINAL DISTRIBUTION DATE
The "Assumed Final Distribution Date" with respect to any Class of Offered
Certificates is the Distribution Date on which the aggregate Certificate Balance
of such Class of Certificates would be reduced to zero based on the assumptions
set forth below. Such Distribution Date shall in each case be as follows:
<TABLE>
<CAPTION>
CLASS DESIGNATION ASSUMED FINAL DISTRIBUTION DATE
----------------------------------------------------------- -------------------------------
<S> <C>
Class A-1.................................................. September 2002
Class A-2.................................................. July 2005
Class A-3.................................................. December 2005
Class B.................................................... December 2005
Class C.................................................... January 2006
Class D.................................................... January 2006
Class E.................................................... February 2006
</TABLE>
The Assumed Final Distribution Dates set forth above were calculated
without regard to any delays in the collection of Balloon Payments and without
regard to a reasonable liquidation time with respect to any Mortgage Loans that
may become delinquent. Accordingly, in the event of defaults on the Mortgage
Loans, the actual final Distribution Date for one or more Classes of the Offered
Certificates may be later, and could be substantially later, than the related
Assumed Final Distribution Date(s).
In addition, the Assumed Final Distribution Dates set forth above were
calculated on the basis of a 0% CPR. Since the rate of payment (including
prepayments) of the Mortgage Loans can be expected to exceed the scheduled rate
of payments, and could exceed such scheduled rate by a substantial amount, the
actual final Distribution Date for one or more Classes of the Offered
Certificates may be earlier, and could be substantially earlier, than the
related Assumed Final Distribution Date(s). The rate of payments (including
prepayments) on the Mortgage Loans will depend on the characteristics of the
Mortgage Loans, as well as on the prevailing level of interest rates and other
economic factors, and no assurance can be given as to actual payment experience.
The "Rated Final Distribution Date" for each Class of Offered Certificates
will be January 20, 2028, the first Distribution Date after the 24th month
following the end of the amortization term for the Mortgage Loan that, as of the
Cut-off Date, has the longest remaining amortization term.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
The rights of holders of the Class B, Class C, Class D, Class E, Class F,
Class G, Class H and Class UR Certificates (collectively, the "Subordinate
Certificates") to receive distributions of amounts collected or advanced on the
Mortgage Loans will be subordinated, to the extent described herein, to the
rights of holders of the Senior Certificates. Moreover, to the extent described
herein, the rights of the holders of the Class UR Certificates to receive
distributions will be subordinated to the rights of the Class H Certificates,
the rights of the holders of the Class H and Class UR Certificates will be
subordinated to the rights of the holders of the Class G Certificates, the
rights of the holders of the Class G, Class H and Class UR Certificates will be
subordinated to the rights of the holders of the Class F Certificates, the
rights of the holders of the Class F, Class G, Class H and Class UR Certificates
will be subordinated to the rights of the holders of the Class E Certificates,
the rights of the holders of the Class E, Class F, Class G, Class H and Class UR
Certificates will be subordinated to the rights of the holders of the Class D
Certificates, the rights of the holders of the Class D, Class E, Class F, Class
G, Class H and Class UR Certificates will be subordinated to the rights of the
holders of the Class C Certificates, and the rights of the holders of the Class
C, Class D, Class E, Class F, Class G, Class H and Class UR Certificates will be
subordinated to the rights of the holders of the Class B Certificates. This
subordination is intended to enhance the likelihood of timely receipt by the
holders of the Senior Certificates of the full amount of all interest payable in
respect of the Senior Certificates on each Distribution Date, and the ultimate
receipt by the holders of the Class A Certificates of principal in an amount
equal to the entire Certificate Balance of the Class A Certificates. Similarly,
but to decreasing degrees, this subordination is also intended to enhance the
likelihood of timely receipt by the holders of the Class B Certificates, the
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holders of the Class C Certificates, the holders of the Class D Certificates and
the holders of the Class E Certificates of the full amount of interest payable
in respect of such Classes of Certificates on each Distribution Date, and the
ultimate receipt by the holders of the Class B Certificates, the holders of the
Class C Certificates, the holders of the Class D Certificates and the holders of
Class E Certificates of principal equal to, in each case, the entire Certificate
Balance of such Class of Certificates. The protection afforded to the holders of
the Class E Certificates by means of the subordination of the Non-Offered
Certificates that are Subordinate Certificates (the "Non-Offered Subordinate
Certificates"), to the holders of the Class D Certificates by subordination of
the Class E Certificates and the Non-Offered Subordinate Certificates, to the
holders of the Class C Certificates by the subordination of the Class D, the
Class E Certificates and the Non-Offered Subordinate Certificates, to the
holders of the Class B Certificates by means of the subordination of the Class
C, the Class D, the Class E and the Non-Offered Subordinate Certificates and to
the holders of the Senior Certificates by means of the subordination of the
Subordinate Certificates, will be accomplished by the application of the
Available Distribution Amount on each Distribution Date in accordance with the
order of priority described under "-- Distributions" above. No other form of
Credit Support will be available for the benefit of the holders of the Offered
Certificates.
Allocation to the Class A Certificates (unless the Cross-Over Date has
occurred, first to the Class A-1 Certificates, then to the Class A-2
Certificates, and then to the Class A-3 Certificates), for so long as they are
outstanding, of the entire Principal Distribution Amount for each Distribution
Date will have the effect of reducing the aggregate Certificate Balance of the
Class A Certificates at a faster rate than the aggregate Stated Principal
Balance of the Mortgage Pool. Thus, as principal is distributed to the holders
of such Class A Certificates, the percentage interest in the Trust Fund
evidenced by such Class A Certificates will be decreased (with a corresponding
increase in the percentage interest in the Trust Fund evidenced by the
Subordinate Certificates), thereby increasing, relative to their respective
Certificate Balances, the subordination afforded such Class A Certificates by
the Subordinate Certificates. Following retirement of the Class A Certificates,
the successive allocation on each Distribution Date of the Principal
Distribution Amount to the Class B Certificates, the Class C Certificates, the
Class D Certificates and the Class E Certificates, in that order, in each case
for so long as they are outstanding, will provide a similar benefit to each such
Class of Certificates as to the relative amount of subordination afforded by the
outstanding Classes of Certificates with later alphabetical Class designations.
On each Distribution Date, immediately following the distributions to be
made to the Certificateholders on such date, the Trustee is to calculate the
amount, if any, by which (i) the aggregate Stated Principal Balance of the
Mortgage Loans expected to be outstanding immediately following such
Distribution Date is less than (ii) the aggregate Certificate Balance of the
Certificates after giving effect to distributions of principal on such
Distribution Date (any such deficit, "Collateral Support Deficit"). The Trustee
will be required to allocate any such Collateral Support Deficit among the
respective Classes of Certificates as follows: to the Class UR, Class H, Class
G, Class F, Class E, Class D, Class C, and Class B Certificates in that order,
and in each case until the remaining Certificate Balance of such Class has been
reduced to zero. Following the reduction of the Certificate Balances of all such
Classes to zero, the Trustee will be required to allocate any such Collateral
Support Deficit among the Classes of Class A Certificates, pro rata, until the
remaining Certificate Balances of such Classes have been reduced to zero.
Any Collateral Support Deficit allocated to a Class of Certificates will be
allocated among the respective Certificates of such Class in proportion to the
Percentage Interests evidenced thereby. In general, Collateral Support Deficit
will result from the occurrence of: (i) losses and other shortfalls on or in
respect of the Mortgage Loans, including as a result of defaults and
delinquencies thereon, Nonrecoverable Advances made in respect thereof, the
payment to the Special Servicer of any compensation as described in "Servicing
of the Mortgage Loans -- Servicing and Other Compensation and Payment of
Expenses" herein, and the payment to the Master Servicer of interest on Advances
and certain servicing expenses; and (ii) certain unanticipated, non-Mortgage
Loan specific expenses of the Trust Fund, including certain reimbursements to
the Trustee as described under "The Pooling and Servicing Agreements -- Certain
Matters Regarding the Trustee" in the Prospectus, certain reimbursements to the
Master Servicer and the Depositor as described under "The Pooling and Servicing
Agreements -- Certain Matters Regarding the Master Servicer and the Depositor"
in the
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Prospectus and certain federal, state and local taxes, and certain tax-related
expenses, payable out of the Trust Fund as described under "Certain Federal
Income Tax Consequences -- REMICs -- Prohibited Transactions Tax and Other
Taxes" in the Prospectus. Accordingly, the allocation of Collateral Support
Deficit as described above will constitute an allocation of losses and other
shortfalls experienced by the Trust Fund.
ADVANCES
On the business day immediately preceding each Distribution Date (the
"Servicer Remittance Date"), the Master Servicer will be obligated, subject to
the recoverability determination described below, to make advances (each, a "P&I
Advance") out of its own funds or, subject to the replacement thereof as
provided in the Pooling and Servicing Agreement, certain funds held in the
Certificate Account that are not required to be part of the Available
Distribution Amount for such Distribution Date, in an amount equal to the
aggregate of: (i) all Monthly Payments (net of the related servicing fee), other
than Balloon Payments, which were due on the Mortgage Loans during the related
Due Period and delinquent as of the business day preceding such Servicer
Remittance Date; and (ii) in the case of each Mortgage Loan delinquent in
respect of its Balloon Payment as of the business day preceding such Servicer
Remittance Date (including any REO Loan as to which the Balloon Payment would
have been past due), an amount equal to the Assumed Scheduled Payment therefor.
The Master Servicer's obligations to make P&I Advances in respect of any
Mortgage Loan or REO Property will continue through liquidation of such Mortgage
Loan or disposition of such REO Property, as the case may be. To the extent the
Master Servicer fails to make a P&I Advance that it is required to make under
the Pooling and Servicing Agreement, the Trustee will make such required P&I
Advance pursuant to the Pooling and Servicing Agreement.
The amount required to be advanced in respect of delinquent Monthly
Payments or Assumed Scheduled Payments on a Mortgage Loan with respect to any
Distribution Date that has been subject to an Appraisal Reduction Event will
equal the amount that would be required to be advanced by the Master Servicer
without giving effect to the Appraisal Reduction less any Appraisal Reduction
Amount for such Distribution Date. The Master Servicer will not be required to
make a P&I Advance for default interest, Yield Maintenance Charges or Prepayment
Premiums.
In addition to P&I Advances, the Master Servicer will also be obligated
(subject to the limitations described herein) to make advances ("Servicing
Advances"), in connection with the servicing and administration of any Mortgage
Loan in respect of which a default, delinquency or other unanticipated event has
occurred or is reasonably foreseeable or in connection with servicing and
administration of any REO Property, to pay delinquent real estate taxes,
assessments and hazard insurance premiums and to cover other similar costs and
expenses necessary to preserve the priority of or enforce the related Mortgage
or to maintain the related Mortgaged Property.
The Master Servicer or the Trustee, as applicable, will be entitled to
recover any Advance made out of its own funds from any amounts collected in
respect of the Mortgage Loan as to which such Advance was made, whether in the
form of late payments, Insurance and Condemnation Proceeds, Liquidation Proceeds
or otherwise ("Related Proceeds"). Notwithstanding the foregoing, neither the
Master Servicer nor the Trustee will be obligated to make any Advance that it
determines in its reasonable good faith judgment would, if made, not be
recoverable out of Related Proceeds (a "Nonrecoverable Advance"), and the Master
Servicer or the Trustee will be entitled to recover any Advance that it so
determines to be a Nonrecoverable Advance out of general funds on deposit in the
Certificate Account. The Trustee will be entitled to rely conclusively on any
non-recoverability determination of the Master Servicer. Nonrecoverable Advances
will represent a portion of the losses to be borne by the Certificateholders.
See "Description of the Certificates -- Advances in Respect of Delinquencies"
and "The Pooling and Servicing Agreements -- Certificate Account" in the
Prospectus.
In connection with its recovery of any Advance, each of the Master Servicer
and the Trustee will be entitled to be paid, out of any amounts then on deposit
in the Certificate Account, interest at the Prime Rate (the "Reimbursement
Rate") accrued on the amount of such Advance from the date made to but not
including the date of reimbursement. The "Prime Rate" shall be the rate, for any
day, set forth as such in The Wall Street Journal, New York edition.
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Each Distribution Date Statement delivered by the Trustee to the
Certificateholders will contain information relating to the amounts of Advances
made with respect to the related Distribution Date. See "Description of the
Certificates -- Reports to Certificateholders; Certain Available Information"
herein and "Description of Certificates -- Reports to Certificateholders" in the
Prospectus.
APPRAISAL REDUCTIONS
After an Appraisal Reduction Event has occurred, an Appraisal Reduction
will be calculated. An "Appraisal Reduction Event" will occur on the earliest of
(i) the third anniversary of the date on which an extension of the maturity date
of a Mortgage Loan becomes effective as a result of a modification of such
Mortgage Loan by the Special Servicer, which extension does not change the
amount of Monthly Payments on the Mortgage Loan, (ii) 90 days after an uncured
delinquency occurs in respect of a Mortgage Loan, (iii) 90 days after the date
on which a reduction in the amount of Monthly Payments on a Mortgage Loan, or a
change in any other material economic term of the Mortgage Loan, becomes
effective as a result of a modification of such Mortgage Loan by the Special
Servicer, (iv) 60 days after a receiver has been appointed, (v) immediately
after a borrower declares bankruptcy and (vi) immediately after a Mortgage Loan
becomes an REO Loan. The "Appraisal Reduction" for any Distribution Date and for
any Mortgage Loan as to which any Appraisal Reduction Event has occurred will be
an amount equal to the excess of (a) the outstanding Stated Principal Balance of
such Mortgage Loan over (b) the excess of (i) 90% of the appraised value of the
related Mortgaged Property as determined by one or more independent MAI
appraisals (the costs of which shall be paid by the Master Servicer as an
Advance) over (ii) the sum of (A) to the extent not previously advanced by the
Master Servicer or the Trustee, all unpaid interest on such Mortgage Loan at a
per annum rate equal to the Mortgage Rate, (B) all unreimbursed Advances and
interest thereon at the Reimbursement Rate in respect of such Mortgage Loan and
(C) all currently due and unpaid real estate taxes and assessments and insurance
premiums and all other amounts due and unpaid under the Mortgage Loan (which
tax, premiums and other amounts have not been the subject of an Advance by the
Servicer). Within 30 days after the Appraisal Reduction Event, the Master
Servicer will be required to obtain an independent MAI appraisal. On the first
Determination Date occurring on or after the delivery of such MAI appraisal, the
Master Servicer will be required to calculate and report to the Trustee the
Appraisal Reduction to take into account such appraisal.
For so long as any more senior Class of Certificates is outstanding, the
amount of interest otherwise required to be distributed on such Distribution
Date to each Class of Certificates to which an Appraisal Reduction is allocated
on such Distribution Date, will be reduced by the amount of interest accrued at
the applicable Pass-Through Rate on the portion of the Certificate Balance of
such Class equal to the Appraisal Reduction allocated to such Class or Classes
for such Distribution Date. The aggregate Appraisal Reduction will generally be
allocated on each Distribution Date, for purposes of determining distributions
in respect of interest on such Distribution Date to the Class UR, Class H, Class
G, Class F, Class E, Class D, Class C and Class B Certificates, in that order,
as well as for purposes of determining the identity of the Controlling Class and
Voting Rights and the amount of P&I Advances with respect to the related
Mortgage Loan. On any Distribution Date, an Appraisal Reduction that otherwise
would be allocated to a Class of Certificates will be allocated to the next most
subordinate Class to the extent that the amount of interest otherwise
distributable on such Class is less than the Appraisal Reduction Amount for such
Distribution Date. The portion of the interest that accrues on the Class B,
Class C, Class D, Class E, Class F, Class G, Class H, and Class UR Certificates
for each Interest Accrual Period (as defined in the Pooling and Servicing
Agreement) at the applicable Pass-Through Rate on the portion of the Certificate
Balance equal to the Appraisal Reduction allocated to such Class for such
Distribution Date will be the "Appraisal Reduction Amount" for such Distribution
Date. On each Distribution Date, the Appraisal Reduction Amount will be added to
the Certificate Balance of the related Class UR, Class H, Class G, Class F,
Class E, Class D, Class C and Class B Certificates, as the case may be, and will
be included in the Principal Distribution Amount for such Distribution Date.
Notwithstanding the foregoing, the total amount of Appraisal Reduction Amount so
added to the Certificate Balances of each such Subordinate Certificate and the
total amount of Appraisal Reduction Amount included in the Principal
Distribution Amount shall not exceed the total amount of interest received
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with respect to the related Mortgage Loan prior to receipt of Liquidation
Proceeds or any other final payment thereon that would otherwise be distributed
on such Subordinate Certificate.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
On each Distribution Date, the Trustee will be required to forward by mail
to each holder of an Offered Certificate a statement (a "Distribution Date
Statement") providing various items of information relating to distributions
made on such date with respect to the relevant Class and the recent status of
the Mortgage Pool. For a more detailed discussion of the particular items of
information to be provided in each Distribution Date Statement, as well as a
discussion of certain annual information reports to be furnished by the Trustee
to persons who at any time during the prior calendar year were holders of the
Offered Certificates, see "Description of the Certificates -- Reports to
Certificateholders" in the Prospectus.
The Pooling and Servicing Agreement requires that the Trustee make
available at its offices primarily responsible for administration of the Trust
Fund, during normal business hours, for review by any holder of an Offered
Certificate, the Depositor, the Master Servicer, the Special Servicer, the
Extension Adviser, any Rating Agency or any other person to whom the Trustee
believes such disclosure is appropriate, originals or copies of, among other
things, the following items: (a) the Pooling and Servicing Agreement and any
amendments thereto, (b) all Distribution Date Statements delivered to holders of
the relevant Class of Offered Certificates since the Closing Date, (c) all
officer's certificates delivered to the Trustee since the Closing Date as
described under "The Pooling and Servicing Agreements -- Evidence as to
Compliance" in the Prospectus, (d) all accountants' reports delivered to the
Trustee since the Closing Date as described under "The Pooling and Servicing
Agreements -- Evidence as to Compliance" in the Prospectus, (e) the most recent
property inspection report prepared by or on behalf of the Master Servicer or
the Special Servicer and delivered to the Trustee in respect of each Mortgaged
Property, (f) the most recent annual operating statements, if any, collected by
or on behalf of the Master Servicer or the Special Servicer and delivered to the
Trustee in respect of each Mortgaged Property, (g) copies of the Mortgage Loan
documents and (h) any and all modifications, waivers and amendments of the terms
of a Mortgage Loan entered into by the Master Servicer or the Special Servicer
and delivered to the Trustee. Copies of any and all of the foregoing items will
be available from the Trustee upon request; however, the Trustee will be
permitted to require payment of a sum sufficient to cover the reasonable costs
and expenses of providing such copies.
Until such time as Definitive Certificates are issued, notices and
statements required to be mailed to holders of Certificates will be available to
Certificate Owners of Offered Certificates only to the extent it is forwarded by
or otherwise available through DTC and its Participants. Conveyance of notices
and other communications by DTC to Participants, and by Participants to such
Certificate Owners, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time. The
Master Servicer, the Special Servicer, the Trustee, the Depositor, the REMIC
Administrator and the Certificate Registrar are required to recognize as
Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Offered Certificate Registrar. The
initial registered holder of the Offered Certificates will be Cede & Co. as
nominee for DTC.
The Master Servicer will provide Bloomberg, L.P. quarterly with certain
current information with respect to the Mortgaged Properties including current
and original net operating income, revenue, debt service coverage ratios and
occupancy rates, to the extent it has received such information from the
borrowers pursuant to the related loan documents.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, the
voting rights for the Certificates (the "Voting Rights") shall be allocated
among the respective Classes of Certificateholders as follows: each Class of
Certificates shall be entitled to the percentage of the Voting Rights equal to
the aggregate Certificate Balance of such Class divided by the aggregate
Certificate Balance of all Certificates. Neither the Class IO, the Class R nor
the Class LR Certificates will be entitled to any Voting Rights; provided,
however, that for purposes of determining Voting Rights, the Certificate Balance
of any Class shall be deemed to be reduced by
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the amount allocated to such Class of any Appraisal Reductions related to
Mortgage Loans as to which Liquidation Proceeds or other final payment has not
yet been received. Voting Rights allocated to a Class of Certificateholders
shall be allocated among such Certificateholders in proportion to the Percentage
Interests evidenced by their respective Certificates. Solely for purposes of
giving any consent, approval or waiver pursuant to the Pooling and Servicing
Agreement, neither the Master Servicer, the Special Servicer nor the Depositor
will be entitled to exercise any Voting Rights with respect to any Certificates
registered in its name, if such consent, approval or waiver would in any way
affect its compensation or obligations in such capacity under the Pooling and
Servicing Agreement.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property subject
thereto, and (ii) the purchase of all of the assets of the Trust Fund by the
Master Servicer or the Depositor. Written notice of termination of the Pooling
and Servicing Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at the office of the Certificate Registrar or other location
specified in such notice of termination.
Any such purchase by the Master Servicer or the Depositor of all the
Mortgage Loans and other assets in the Trust Fund is required to be made at a
price equal to the sum of (i) the aggregate Purchase Price of all the Mortgage
Loans (exclusive of REO Loans) then included in the Trust Fund and (ii) the
aggregate fair market value of all REO Properties then included in the Trust
Fund (which fair market value for any REO Property may be less than the Purchase
Price for the corresponding REO Loan), as determined by an appraiser selected
and mutually agreed upon by the Master Servicer and the Trustee, and approved by
more than 50% of the Voting Rights of the Classes of Certificates then
outstanding other than the Class UR Certificates, unless the Class UR
Certificates are the only Certificates outstanding. Such purchase will effect
early retirement of the then outstanding Offered Certificates, but the right of
the Master Servicer or the Depositor to effect such termination is subject to
the requirement that the then aggregate Stated Principal Balance of the Mortgage
Pool be less than 5% of the Initial Pool Balance.
On the final Distribution Date, the aggregate amount paid by the Master
Servicer or the Depositor, as the case may be, for the Mortgage Loans and other
assets in the Trust Fund (if the Trust Fund is to be terminated as a result of
the purchase described in the preceding paragraph), together with all other
amounts on deposit in the Certificate Account and not otherwise payable to a
person other than the Certificateholders (see "The Pooling and Servicing
Agreements -- Certificate Account" in the Prospectus), will be applied generally
as described above under "-- Distributions -- Priority", except that the
distributions of principal described thereunder will, in the case of each Class
of Certificates, be made, subject to available funds, in an amount equal to the
related Certificate Balance then outstanding.
THE TRUSTEE
The Chase Manhattan Bank, N.A. will act as Trustee on behalf of the
Certificateholders. The offices of the Trustee primarily responsible for the
administration of the Trust Fund are located at 4 Chase MetroTech Center,
Brooklyn, New York 11245. Pursuant to the Pooling and Servicing Agreement, the
Trustee will be entitled to withdraw from the Lower-Tier Distribution Account a
monthly fee (the "Trustee Fee"), which constitutes a portion of the Aggregate
Servicing Fees. See "The Pooling and Servicing Agreements -- The Trustee",
"-- Duties of the Trustee", "-- Certain Matters Regarding the Trustee" and
"-- Resignation and Removal of the Trustee" in the Prospectus.
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YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
Pass-Through Rate. The Pass-Through Rate applicable to each Class of
Offered Certificates for any Distribution Date will equal the rate set forth on
the cover of this Prospectus Supplement. See "Description of the Mortgage Pool"
herein and "-- Yield Considerations -- Rate and Timing of Principal Payments"
below.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on the Mortgage Loans (including principal
prepayments on the Mortgage Loans resulting from both voluntary prepayments by
the mortgagors and involuntary liquidations). The rate and timing of principal
payments on the Mortgage Loans will in turn be affected by the amortization
schedules thereof, the dates on which Balloon Payments are due and the rate and
timing of principal prepayments and other unscheduled collections thereon
(including for this purpose, collections made in connection with liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or purchases of Mortgage Loans out of the Trust Fund).
Prepayments and, assuming the respective stated maturity dates therefor have not
occurred, liquidations and purchases of the Mortgage Loans, will result in
distributions on the Offered Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may result
in significant delays in payments of principal on the Mortgage Loans (and,
accordingly, on the Offered Certificates) while work-outs are negotiated or
foreclosures are completed. See "Servicing of the Mortgage
Loans -- Modifications, Waivers and Amendments" herein and "The Pooling and
Servicing Agreements -- Realization Upon Defaulted Mortgage Loans" and "Certain
Legal Aspects of Mortgage Loans -- Foreclosure" in the Prospectus. Because the
rate of principal payments on the Mortgage Loans will depend on future events
and a variety of factors (as described below), no assurance can be given as to
such rate or the rate of principal prepayments in particular. The Depositor is
not aware of any relevant publicly available or authoritative statistics with
respect to the historical prepayment experience of a large group of mortgage
loans comparable to the Mortgage Loans.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn distributed
on such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on such Certificate could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on such Certificate could result in an
actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a payment of principal is made on an Offered Certificate
purchased at a discount or premium, the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments on such investor's Offered Certificates occurring at a rate
higher (or lower) than the rate anticipated by the investor during any
particular period would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will generally be borne: by the holders of the
Class UR, Class H, Class G, Class F, Class E, Class D, Class C and Class B
Certificates, in that order, and in each case to the extent of amounts otherwise
distributable in respect of such Class of Certificates. In the event of the
reduction of the Certificate Balances of all such Classes of Certificates to
zero, such losses and shortfalls will then be borne, pro rata, by the Class A-1,
Class A-2 and Class A-3 Certificates.
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Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Lock-out Periods, Prepayment Premiums
or Yield Maintenance Charges and amortization terms that require Balloon
Payments), the demographics and relative economic vitality of the areas in which
the Mortgaged Properties are located and the general supply and demand for
rental properties in such areas, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. See "Risk Factors" and "Description of
the Mortgage Pool" herein and "Risk Factors" and "Yield and Maturity
Considerations -- Yield and Prepayment Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. However, under all of the Mortgage Loans voluntary prepayments are subject
to Lock-out Periods and/or Prepayment Premiums and/or Yield Maintenance Charges.
See "Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans -- Prepayment Provisions."
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by Federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to which
a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until a date that is scheduled to be at least 19
days and as many as 22 days following the Due Dates for the Mortgage Loans
during the related Due Period, the effective yield to the holders of the Offered
Certificates will be lower than the yield that would otherwise be produced by
the applicable Pass-Through Rates and purchase prices (assuming such prices did
not account for such delay).
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates -- Distributions -- Priority" herein, if the portion of the
Available Distribution Amount distributable in respect of interest on any Class
of Offered Certificates on any Distribution Date is less than the Distributable
Certificate Interest then payable for such Class, the shortfall will be
distributable to holders of such Class of Certificates on subsequent
Distribution Dates, to the extent of available funds. Any such shortfall will
not bear interest, however, and will therefore negatively affect the yield to
maturity of such Class of Certificates for so long as it is outstanding.
WEIGHTED AVERAGE LIFE
The weighted average life of an Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
allocable to principal of such Certificate is distributed to the investor. The
weighted average life of an Offered Certificate will be influenced by, among
other things, the rate at which principal on the Mortgage Loans is paid or
otherwise collected, which may be in the form of scheduled amortization,
voluntary prepayments, Insurance and Condemnation Proceeds and Liquidation
Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the "Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of the pool of mortgage loans. As used in each of
the following tables, the column headed "0% CPR" assumes that none of the
Mortgage Loans is prepaid before maturity. The
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<PAGE> 66
columns headed "5% CPR", "10% CPR", "15% CPR" and "20% CPR" assume that
prepayments on the Mortgage Loans are made at those levels of CPR following the
expiration of any Yield Maintenance Period or, in the case of Mortgage Loans not
subject to a Yield Maintenance Period, any Lock-out Period. There is no
assurance, however, that prepayments of the Mortgage Loans will conform to any
level of CPR, and no representation is made that the Mortgage Loans will prepay
at the levels of CPR shown or at any other prepayment rate.
The following tables indicate the percentage of the initial Certificate
Balance of each Class of the Offered Certificates that would be outstanding
after each of the dates shown at various CPRs and the corresponding weighted
average life of each such Class of Certificates. The tables have been prepared
on the basis of the following assumptions, among others: (i) scheduled monthly
payments of principal and interest on the Mortgage Loans, in each case prior to
any prepayment of the loan, will be timely received (with no defaults) and will
be distributed on the 20th day of each month commencing in June 1996; (ii) the
Mortgage Rate in effect for each Mortgage Loan as of the Cut-off Date will
remain in effect to maturity; (iii) the monthly principal and interest payment
due for each Mortgage Loan on the first Due Date following the Cut-off Date will
continue to be due on each Due Date until maturity; (iv) any principal
prepayments on the Mortgage Loans will be received on their respective Due Dates
at the respective levels of CPR set forth in the tables; (v) the Mortgage Loan
Seller will not be required to repurchase any Mortgage Loan, and neither the
Master Servicer nor the Depositor will exercise its option to purchase all the
Mortgage Loans and thereby cause an early termination of the Trust Fund; and
(vi) the Closing Date is May 16, 1996. To the extent that the Mortgage Loans
have characteristics that differ from those assumed in preparing the tables set
forth below, a Class of Offered Certificates may mature earlier or later than
indicated by the tables. It is highly unlikely that the Mortgage Loans will
prepay at any constant rate until maturity or that all the Mortgage Loans will
prepay at the same rate. In addition, variations in the actual prepayment
experience and the balance of the Mortgage Loans that prepay may increase or
decrease the percentages of initial Certificate Balances (and weighted average
lives) shown in the following tables. Such variations may occur even if the
average prepayment experience of the Mortgage Loans were to equal any of the
specified CPR percentages. Investors are urged to conduct their own analyses of
the rates at which the Mortgage Loans may be expected to prepay. Based on the
foregoing assumptions, the following table indicates the resulting weighted
average lives of each Class of Offered Certificates and sets forth the
percentage of the initial Certificate Balance of such Class of the Offered
Certificates that would be outstanding after each of the dates shown at the
indicated CPRs.
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<PAGE> 67
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A-1 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 5% CPR 10% CPR 15% CPR 20% CPR
------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Initial Percent................ 100.0% 100.0% 100.0% 100.0% 100.0%
May 20, 1997................... 95.2 95.2 95.2 95.2 95.2
May 20, 1998................... 90.1 90.1 90.1 90.1 90.1
May 20, 1999................... 84.5 84.5 84.5 84.5 84.5
May 20, 2000................... 78.4 78.3 78.3 78.3 78.2
May 20, 2001................... 71.7 67.0 62.3 57.4 52.4
May 20, 2002................... 62.0 49.7 37.7 26.1 14.9
May 20, 2003................... 0 0 0 0 0
May 20, 2004................... 0 0 0 0 0
May 20, 2005................... 0 0 0 0 0
May 20, 2006................... 0 0 0 0 0
May 20, 2007................... 0 0 0 0 0
May 20, 2008................... 0 0 0 0 0
May 20, 2009................... 0 0 0 0 0
May 20, 2010................... 0 0 0 0 0
May 20, 2011................... 0 0 0 0 0
May 20, 2012................... 0 0 0 0 0
May 20, 2013................... 0 0 0 0 0
May 20, 2014................... 0 0 0 0 0
May 20, 2015................... 0 0 0 0 0
May 20, 2016................... 0 0 0 0 0
May 20, 2017................... 0 0 0 0 0
Weighted Average Life
(Years)(A)................... 5.21 5.08 4.94 4.81 4.68
Estimated First Principal...... 6/20/96 6/20/96 6/20/96 6/20/96 6/20/96
Estimated Maturity............. 9/20/02 9/20/02 9/20/02 9/20/02 7/20/02
</TABLE>
- ---------------
(A) The weighted average life of the Class A-1 Certificates is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class A-1 Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class A-1 Certificates.
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<PAGE> 68
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A-2 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 5% CPR 10% CPR 15% CPR 20% CPR
------------------------------ ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Initial Percent............... 100.0% 100.0% 100.0% 100.0% 100.0%
May 20, 1997.................. 100.0 100.0 100.0 100.0 100.0
May 20, 1998.................. 100.0 100.0 100.0 100.0 100.0
May 20, 1999.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2000.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2001.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2002.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2003.................. 26.4 21.9 17.3 12.7 7.9
May 20, 2004.................. 22.5 9.9 0 0 0
May 20, 2005.................. 15.1 0 0 0 0
May 20, 2006.................. 0 0 0 0 0
May 20, 2007.................. 0 0 0 0 0
May 20, 2008.................. 0 0 0 0 0
May 20, 2009.................. 0 0 0 0 0
May 20, 2010.................. 0 0 0 0 0
May 20, 2011.................. 0 0 0 0 0
May 20, 2012.................. 0 0 0 0 0
May 20, 2013.................. 0 0 0 0 0
May 20, 2014.................. 0 0 0 0 0
May 20, 2015.................. 0 0 0 0 0
May 20, 2016.................. 0 0 0 0 0
May 20, 2017.................. 0 0 0 0 0
Weighted Average Life
(Years)(A).................. 7.15 6.86 6.71 6.63 6.58
Estimated First Principal..... 9/20/02 9/20/02 9/20/02 9/20/02 7/20/02
Estimated Maturity............ 7/20/05 4/20/05 4/20/04 11/20/03 8/20/03
</TABLE>
- ---------------
(A) The weighted average life of the Class A-2 Certificates is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class A-2 Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class A-2 Certificates.
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<PAGE> 69
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A-3 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 5% CPR 10% CPR 15% CPR 20% CPR
---------------------------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Initial Percent............. 100.0% 100.0% 100.0% 100.0% 100.0%
May 20, 1997................ 100.0 100.0 100.0 100.0 100.0
May 20, 1998................ 100.0 100.0 100.0 100.0 100.0
May 20, 1999................ 100.0 100.0 100.0 100.0 100.0
May 20, 2000................ 100.0 100.0 100.0 100.0 100.0
May 20, 2001................ 100.0 100.0 100.0 100.0 100.0
May 20, 2002................ 100.0 100.0 100.0 100.0 100.0
May 20, 2003................ 100.0 100.0 100.0 100.0 100.0
May 20, 2004................ 100.0 100.0 95.6 73.4 51.9
May 20, 2005................ 100.0 91.8 58.1 27.2 0
May 20, 2006................ 0 0 0 0 0
May 20, 2007................ 0 0 0 0 0
May 20, 2008................ 0 0 0 0 0
May 20, 2009................ 0 0 0 0 0
May 20, 2010................ 0 0 0 0 0
May 20, 2011................ 0 0 0 0 0
May 20, 2012................ 0 0 0 0 0
May 20, 2013................ 0 0 0 0 0
May 20, 2014................ 0 0 0 0 0
May 20, 2015................ 0 0 0 0 0
May 20, 2016................ 0 0 0 0 0
May 20, 2017................ 0 0 0 0 0
Weighted Average Life
(Years)(A)................ 9.35 9.23 8.91 8.51 8.12
Estimated First Principal... 7/20/05 4/20/05 4/20/04 11/20/03 8/20/03
Estimated Maturity.......... 12/20/05 10/20/05 9/20/05 7/20/05 5/20/05
</TABLE>
- ---------------
(A) The weighted average life of the Class A-3 Certificates is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class A-3 Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class A-3 Certificates.
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<PAGE> 70
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS B CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 5% CPR 10% CPR 15% CPR 20% CPR
--------------------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Initial Percent............ 100.0% 100.0% 100.0% 100.0% 100.0%
May 20, 1997............... 100.0 100.0 100.0 100.0 100.0
May 20, 1998............... 100.0 100.0 100.0 100.0 100.0
May 20, 1999............... 100.0 100.0 100.0 100.0 100.0
May 20, 2000............... 100.0 100.0 100.0 100.0 100.0
May 20, 2001............... 100.0 100.0 100.0 100.0 100.0
May 20, 2002............... 100.0 100.0 100.0 100.0 100.0
May 20, 2003............... 100.0 100.0 100.0 100.0 100.0
May 20, 2004............... 100.0 100.0 100.0 100.0 100.0
May 20, 2005............... 100.0 100.0 100.0 100.0 96.4
May 20, 2006............... 0 0 0 0 0
May 20, 2007............... 0 0 0 0 0
May 20, 2008............... 0 0 0 0 0
May 20, 2009............... 0 0 0 0 0
May 20, 2010............... 0 0 0 0 0
May 20, 2011............... 0 0 0 0 0
May 20, 2012............... 0 0 0 0 0
May 20, 2013............... 0 0 0 0 0
May 20, 2014............... 0 0 0 0 0
May 20, 2015............... 0 0 0 0 0
May 20, 2016............... 0 0 0 0 0
May 20, 2017............... 0 0 0 0 0
Weighted Average Life
(Years)(A)............... 9.59 9.51 9.42 9.26 9.14
Estimated First
Principal................ 12/20/05 10/20/05 9/20/05 7/20/05 5/20/05
Estimated Maturity......... 12/20/05 12/20/05 10/20/05 10/20/05 7/20/05
</TABLE>
- ---------------
(A) The weighted average life of the Class B Certificates is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class B Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class B Certificates.
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<PAGE> 71
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS C CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 5% CPR 10% CPR 15% CPR 20% CPR
-------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent........... 100.0% 100.0% 100.0% 100.0% 100.0%
May 20, 1997.............. 100.0 100.0 100.0 100.0 100.0
May 20, 1998.............. 100.0 100.0 100.0 100.0 100.0
May 20, 1999.............. 100.0 100.0 100.0 100.0 100.0
May 20, 2000.............. 100.0 100.0 100.0 100.0 100.0
May 20, 2001.............. 100.0 100.0 100.0 100.0 100.0
May 20, 2002.............. 100.0 100.0 100.0 100.0 100.0
May 20, 2003.............. 100.0 100.0 100.0 100.0 100.0
May 20, 2004.............. 100.0 100.0 100.0 100.0 100.0
May 20, 2005.............. 100.0 100.0 100.0 100.0 100.0
May 20, 2006.............. 0 0 0 0 0
May 20, 2007.............. 0 0 0 0 0
May 20, 2008.............. 0 0 0 0 0
May 20, 2009.............. 0 0 0 0 0
May 20, 2010.............. 0 0 0 0 0
May 20, 2011.............. 0 0 0 0 0
May 20, 2012.............. 0 0 0 0 0
May 20, 2013.............. 0 0 0 0 0
May 20, 2014.............. 0 0 0 0 0
May 20, 2015.............. 0 0 0 0 0
May 20, 2016.............. 0 0 0 0 0
May 20, 2017.............. 0 0 0 0 0
Weighted Average Life
(Years)(A).............. 9.65 9.61 9.56 9.47 9.35
Estimated First
Principal............... 12/20/05 12/20/05 10/20/05 10/20/05 7/20/05
Estimated Maturity........ 1/20/06 1/20/06 12/20/05 12/20/05 10/20/05
</TABLE>
- ---------------
(A) The weighted average life of the Class C Certificates is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class C Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class C Certificates.
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<PAGE> 72
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS D CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 5% CPR 10% CPR 15% CPR 20% CPR
---------------------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent............. 100.0% 100.0% 100.0% 100.0% 100.0%
May 20, 1997................ 100.0 100.0 100.0 100.0 100.0
May 20, 1998................ 100.0 100.0 100.0 100.0 100.0
May 20, 1999................ 100.0 100.0 100.0 100.0 100.0
May 20, 2000................ 100.0 100.0 100.0 100.0 100.0
May 20, 2001................ 100.0 100.0 100.0 100.0 100.0
May 20, 2002................ 100.0 100.0 100.0 100.0 100.0
May 20, 2003................ 100.0 100.0 100.0 100.0 100.0
May 20, 2004................ 100.0 100.0 100.0 100.0 100.0
May 20, 2005................ 100.0 100.0 100.0 100.0 100.0
May 20, 2006................ 0 0 0 0 0
May 20, 2007................ 0 0 0 0 0
May 20, 2008................ 0 0 0 0 0
May 20, 2009................ 0 0 0 0 0
May 20, 2010................ 0 0 0 0 0
May 20, 2011................ 0 0 0 0 0
May 20, 2012................ 0 0 0 0 0
May 20, 2013................ 0 0 0 0 0
May 20, 2014................ 0 0 0 0 0
May 20, 2015................ 0 0 0 0 0
May 20, 2016................ 0 0 0 0 0
May 20, 2017................ 0 0 0 0 0
Weighted Average Life
(Years)(A)................ 9.68 9.68 9.66 9.62 9.56
Estimated First Principal... 1/20/06 1/20/06 12/20/05 12/20/05 10/20/05
Estimated Maturity.......... 1/20/06 1/20/06 1/20/06 1/20/06 12/20/05
</TABLE>
- ---------------
(A) The weighted average life of the Class D Certificates is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class D Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class D Certificates.
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<PAGE> 73
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS E CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 5% CPR 10% CPR 15% CPR 20% CPR
------------------------------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent............... 100.0% 100.0% 100.0% 100.0% 100.0%
May 20, 1997.................. 100.0 100.0 100.0 100.0 100.0
May 20, 1998.................. 100.0 100.0 100.0 100.0 100.0
May 20, 1999.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2000.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2001.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2002.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2003.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2004.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2005.................. 100.0 100.0 100.0 100.0 100.0
May 20, 2006.................. 0 0 0 0 0
May 20, 2007.................. 0 0 0 0 0
May 20, 2008.................. 0 0 0 0 0
May 20, 2009.................. 0 0 0 0 0
May 20, 2010.................. 0 0 0 0 0
May 20, 2011.................. 0 0 0 0 0
May 20, 2012.................. 0 0 0 0 0
May 20, 2013.................. 0 0 0 0 0
May 20, 2014.................. 0 0 0 0 0
May 20, 2015.................. 0 0 0 0 0
May 20, 2016.................. 0 0 0 0 0
May 20, 2017.................. 0 0 0 0 0
Weighted Average Life
(Years)(A).................. 9.70 9.68 9.68 9.68 9.67
Estimated First Principal..... 1/20/06 1/20/06 1/20/06 1/20/06 12/20/05
Estimated Maturity............ 2/20/06 2/20/06 1/20/06 1/20/06 1/20/06
</TABLE>
- ---------------
(A) The weighted average life of the Class E Certificates is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the date of issuance of the Class E Certificates to the
related Distribution Date, (ii) summing the results and (iii) dividing the
sum by the aggregate amount of the reductions in the principal balance of
such Class E Certificates.
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<PAGE> 74
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Certificates, Cadwalader, Wickersham & Taft,
counsel to the Depositor, will deliver its opinion that, assuming (i) the making
of appropriate elections, (ii) compliance with the provisions of the Pooling and
Servicing Agreement, and (iii) compliance with applicable changes in the Code,
including the REMIC Provisions, for federal income tax purposes, the Trust Fund
will qualify as two real estate mortgage investment conduits (the "Upper-Tier
REMIC" and the "Lower-Tier REMIC", respectively, and each, a "REMIC") within the
meaning of Sections 860A through 860G (the "REMIC Provisions") of the Code, and
(i) the Class A-1, Class A-2, Class A-3, Class IO, Class B, Class C, Class D,
Class E, Class F, Class G, Class H and Class UR Certificates evidence the
"regular interests" in the Upper-Tier REMIC and (ii) the Class R and Class LR
Certificates will be the sole class of "residual interests" in the Upper-Tier
REMIC and Lower-Tier REMIC, respectively, each within the meaning of the REMIC
Provisions in effect on the date hereof. The Offered Certificates are "REMIC
Regular Certificates" as defined with Prospectus.
Because they represent regular interests, each Class of Offered
Certificates generally will be treated as newly originated debt instruments for
federal income tax purposes. Holders of such Classes of Certificates will be
required to include in income all interest on such Certificates in accordance
with the accrual method of accounting, regardless of a Certificateholder's usual
method of accounting. It is anticipated that the Class D and Class E
Certificates will be issued with OID in an amount equal to the excess of the
initial Certificate Balances thereof over their respective issue prices
(including accrued interest). In addition, it is expected that the Class A-1,
Class A-2 and Class A-3 Certificates will be issued at a premium and that the
Class B and Class C Certificates will be issued with de minimis OID for federal
income tax purposes. The prepayment assumption that will be used in determining
the rate of accrual of OID and that may be used to amortize premium, if any, for
federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
a CPR of 0% (the "Prepayment Assumption"). No representation is made that the
Mortgage Loans will prepay at that rate or at any other rate. See "Certain
Federal Income Tax Consequences -- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" and "-- Premium" in the Prospectus.
Prepayment Premiums and Yield Maintenance Charges actually collected, will
be distributed among the holders of the respective Classes of Certificates as
described herein under "Description of the Certificates -- Allocation of
Prepayment Premiums and Yield Maintenance Charges". It is not entirely clear
under the Code when the amount of Prepayment Premiums or Yield Maintenance
Charges so allocated should be taxed to the holder of an Offered Certificate,
but it is not expected, for federal income tax reporting purposes, that
Prepayment Premiums and Yield Maintenance Charges will be treated as giving rise
to any income to the holder of an Offered Certificate prior to the Servicer's
actual receipt of a Prepayment Premium or Yield Maintenance Charge. It appears
that Prepayment Premiums, if any, will be treated as ordinary income rather than
capital gain. However, that is not entirely clear and Certificateholders should
consult their own tax advisers concerning the treatment of Prepayment Premiums
and Yield Maintenance Charges.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code and "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code, and interest (including
original issue discount, if any) on the Offered Certificates will be interest
described in Section 856(c)(3)(B) of the Code. Moreover, the Offered
Certificates will be "qualified mortgages" within the meaning of Section
860(A)(3) of the Code. The Offered Certificates will be treated as assets
described in Section 7701(a)(19)(c) of the Code only to the extent of the
Mortgages that are secured by Mortgage Properties that are conventional
multifamily properties and low income housing tax credit multifamily properties,
which as of the Cut-off Date represent 73.13% of the Mortgage Loans by unpaid
principal balance. See "Certain Federal Income Tax
Consequences -- REMICs -- Characterization of Investments in REMIC Certificates"
in the Prospectus.
NationsBanc Mortgage Capital Corporation, a Texas corporation that is the
Mortgage Loan Seller and the parent of the Depositor, will act as REMIC
Administrator for the Trust Fund. See "Certain Federal Income Tax
Consequences -- REMICs -- Reporting and Other Administrative Matters" and "The
Pooling and Servicing Agreements -- Certain Matters Regarding the Master
Servicer, the Special Servicer, the
S-74
<PAGE> 75
REMIC Administrator and the Depositor", " -- Events of Default" and " -- Rights
Upon Event of Default" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences -- REMICs" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated May 2, 1996 (the "Underwriting Agreement"), NationsBanc Capital Markets,
Inc. (the "Underwriter") has agreed to purchase and the Depositor has agreed to
sell to the Underwriter each Class of the Offered Certificates. It is expected
that delivery of the Offered Certificates will be made only in book-entry form
through the Same Day Funds Settlement System of DTC.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of its Certificates is subject to, among other
things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be approximately 99.469% of the initial aggregate
Certificate Balance of the Offered Certificates plus accrued interest thereon
from the Cut-off Date. The Underwriter may effect such transactions by selling
its Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter for whom they act as agent. In connection with the sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting compensation. The
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
As part of the plan of distribution, some or all of the Offered
Certificates may be deposited in a trust and interests in such trust may be sold
pursuant to this Prospectus Supplement and the Prospectus, as they may be
further supplemented.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act of
1933, as amended, or contribute to payments required to be made in respect
thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the monthly statements discussed in the Prospectus
under "Description of the Certificates -- Reports to Certificateholders," which
will include information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit enhancement. Except
as described herein under "Description of the Certificates -- Reports to
Certificateholders; Certain Available Information", there can be no assurance
that any additional information regarding the Offered Certificates will be
available through any other source. In addition, the Depositor is not aware of
any source through which price information about the Offered Certificates will
be generally available on an ongoing basis. The limited nature of such
information regarding the Offered Certificates may adversely affect the
liquidity of the Offered Certificates, even if a secondary market for the
Offered Certificates becomes available.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to market-making transactions in the
Offered Certificates with respect to which the Underwriter acts as principal.
The
S-75
<PAGE> 76
Underwriter may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor by Robert W. Long, Jr., Assistant General Counsel of NationsBank
Corporation. Certain legal matters relating to the Certificates will be passed
upon for the Underwriter by Cadwalader, Wickersham & Taft. Certain federal
income tax matters and other matters also will be passed upon for the Depositor
by Cadwalader, Wickersham & Taft.
RATING
It is a condition to issuance that the Offered Certificates be rated not
lower than the following ratings by DCR and S&P:
<TABLE>
<CAPTION>
CLASS DCR S&P
------ --- ---
<S> <C> <C>
A-1 AAA AAA
A-2 AAA AAA
A-3 AAA AAA
B AA+ AA
C AA- A
D BBB+ BBB
E BBB- *
</TABLE>
- ---------------
* Not rated by S&P.
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments required under the certificates. The ratings on the Offered
Certificates do not, however, constitute a statement regarding the likelihood or
frequency of prepayments (whether voluntary or involuntary) on the Mortgage
Loans. In addition, a rating does not address the likelihood or frequency of
voluntary or mandatory prepayments of Mortgage Loans, payments of Prepayment
Premiums or the corresponding effect on yield to investors.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the rating assigned thereto by DCR or S&P.
The ratings on the Offered 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.
S-76
<PAGE> 77
LEGAL INVESTMENT
None of the Offered Certificates will be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the Offered
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Offered Certificates,
is subject to significant interpretive uncertainties.
The Depositor makes no representation as to the proper characterization of
any class of Offered Certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase the Offered Certificates
under applicable legal investment or other restrictions. All institutions 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 Offered Certificates constitute legal investments for them or are subject to
investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to ERISA, or Section 4975 of the Code (each, a "Plan")
should review with its legal advisors whether the purchase or holding of Offered
Certificates 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 thereto.
The U.S. Department of Labor issued to NationsBank Corporation an
individual prohibited transaction exemption, Prohibited Transaction Exemption
93-31 58 Fed. Reg. 28,620 (May 14, 1993) (the "Exemption"), which generally
exempts from the application of the prohibited transaction provisions of Section
406 of ERISA, and the excise taxes imposed on such prohibited transactions
pursuant to Sections 4975(a) and (b) of the Code, certain transactions, among
others, relating to the servicing and operation of mortgage pools, such as the
Mortgage Pool, and the purchase, sale and holding of mortgage pass-through
certificates, such as the Senior Certificates, underwritten by an Underwriter
(as hereinafter defined), provided that certain conditions set forth in the
Exemption are satisfied. For purposes of this Section "ERISA Considerations",
the term "Underwriter" shall include (a) NationsBank Corporation, (b) any person
directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with NationsBank Corporation, and (c) any
member of the underwriting syndicate or selling group of which a person
described in (a) or (b) is a manager or co-manager with respect to the Senior
Certificates.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of the Senior
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Senior Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the
Senior Certificates must not be subordinated to the rights and interests
evidenced by the other certificates of the same trust. Third, the Senior
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by S&P, Moody's Investors Service, Inc.
("Moody's"), DCR or Fitch Investors Service, Inc. ("Fitch"). Fourth, the Trustee
cannot be an affiliate of any other member of the "Restricted Group", which
consists of any Underwriter, the Depositor, the Trustee, the Master Servicer,
the Special Servicer, any sub-servicer, and any mortgagor with respect to
Mortgage Loans constituting more than 5% of the aggregate unamortized principal
balance of the Mortgage Loans as of the date of initial issuance of the Senior
Certificates. Fifth, the sum of all payments made to and retained by the
Underwriter must represent not more than reasonable compensation for
underwriting the Senior Certificates; the sum of all payments made to and
retained by the Depositor pursuant to the assignment of the Mortgage Loans to
the Trust Fund must represent not more than the fair market value of such
obligations; and
S-77
<PAGE> 78
the sum of all payments made to and retained by the Master Servicer, the Special
Servicer and any sub-servicer must represent not more than reasonable
compensation for such person's services under the Pooling and Servicing
Agreement and reimbursement of such person's reasonable expenses in connection
therewith. Sixth, the investing Plan must be an accredited investor as defined
in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
Because the Class A Certificates are not subordinated to any other Class of
Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class A
Certificates that they be rated not lower than "AAA" by S&P and DCR. As of the
Closing Date, the fourth general condition set forth above will be satisfied
with respect to the Class A Certificates. A fiduciary of a Plan contemplating
purchasing a Class A Certificate in the secondary market must make its own
determination that, at the time of such purchase, the Class A Certificates
continue to satisfy the third and fourth general conditions set forth above. A
fiduciary of a Plan contemplating purchasing a Class A Certificate, whether in
the initial issuance of such Certificates or in the secondary market, must make
its own determination that the first, fifth and sixth general conditions set
forth above will be satisfied with respect to such Class A Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Standard & Poor's, Moody's, Duff & Phelps or Fitch for at least one year prior
to the Plan's acquisition of Class A Certificates; and (iii) certificates in
such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of Class A
Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1) (A) through (D) of the Code) in connection
with (i) the direct or indirect sale, exchange or transfer of Class A
Certificates in the initial issuance of Certificates between the Depositor or an
Underwriter and a Plan when the Depositor, the Underwriter, the Trustee, the
Master Servicer, the Special Servicer, a Sub-Servicer or a mortgagor is a Party
in Interest with respect to the investing Plan, (ii) the direct or indirect
acquisition or disposition in the secondary market of the Class A Certificates
by a Plan and (iii) the holding of Class A Certificates by a Plan. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of a Class A Certificate on
behalf of an "Excluded Plan" by any person who has discretionary authority or
renders investment advice with respect to the assets of such Excluded Plan. For
purposes hereof, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Senior Certificates in the initial issuance of Certificates between
the Depositor or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Mortgage Loans or (b) an affiliate of such a person,
(2) the direct or indirect acquisition or disposition in the secondary market of
Senior Certificates by a Plan and (3) the holding of Senior Certificates by a
Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1) (a) through (D) of
the Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan by
virtue of providing
S-78
<PAGE> 79
services to the Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of the Plan's ownership of Offered
Certificates.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that (i) the Class A Certificates constitute "certificates" for
purposes of the Exemption and (ii) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition to
making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions. See "ERISA Considerations" in
the Prospectus. A purchaser of a Class A Certificate should be aware, however,
that even if the conditions specified in one or more exemptions are satisfied,
the scope of relief provided by an exemption may not cover all acts which might
be construed as prohibited transactions.
BECAUSE THE CHARACTERISTICS OF THE CLASS B, CLASS C, CLASS D AND CLASS E
CERTIFICATES DO NOT MEET THE REQUIREMENTS OF THE EXEMPTION, THE PURCHASE OR
HOLDING OF SUCH CERTIFICATES BY A PLAN MAY RESULT IN PROHIBITED TRANSACTIONS OR
THE IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES. IN NO EVENT MAY ANY TRANSFER
OF A CLASS B, CLASS C, CLASS D OR CLASS E CERTIFICATE OR ANY INTEREST THEREIN BE
MADE TO A PLAN OR TO ANY PERSON WHO IS DIRECTLY OR INDIRECTLY PURCHASING SUCH
CERTIFICATE OR INTEREST THEREIN ON BEHALF OF, AS NAMED FIDUCIARY OF, AS TRUSTEE
OF, OR WITH ASSETS OF A PLAN, UNLESS THE PURCHASE AND HOLDING OF SUCH
CERTIFICATE OR INTEREST THEREIN IS EXEMPT FROM THE PROHIBITED TRANSACTION
PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE UNDER PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60, WHICH PROVIDES AN EXEMPTION FROM THE
PROHIBITED TRANSACTION RULES FOR CERTAIN TRANSACTIONS INVOLVING AN INSURANCE
COMPANY GENERAL ACCOUNT. ANY SUCH PLAN OR PERSON TO WHOM A TRANSFER OF ANY SUCH
CERTIFICATE OR INTEREST THEREIN IS MADE SHALL BE DEEMED TO HAVE REPRESENTED TO
THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, ANY
SUB-SERVICER AND ANY BORROWER WITH RESPECT TO THE MORTGAGE LOANS THAT THE
PURCHASE AND HOLDING OF SUCH CERTIFICATE OR INTEREST THEREIN IS SO EXEMPT ON THE
BASIS OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60. See "ERISA
Considerations" in the Prospectus. Any Plan fiduciary considering whether to
purchase an Offered Certificate 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.
S-79
<PAGE> 80
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
30/360 basis........................... S-55
Accrued Certificate Interest........... S-55
ADA.................................... S-18
Adjusted Principal Amount.............. S-56
Advances............................... S-10
Aggregate Servicing Fee Rate........... S-45
Aggregate Servicing Fees............... S-45
AMI.................................... S-44
AMRESCO................................ S-44
Appraisal Reduction.................... S-61
Appraisal Reduction Amount............. S-61
Appraisal Reduction Event.............. S-61
Asset Strategy Report.................. S-43
Assumed Scheduled Payment.............. S-56
Assumed Final Distribution Date........ S-58
Available Distribution Amount.......... S-8, S-52
Balloon Payment........................ S-7
Certificate Account.................... S-52
Certificate Balance.................... S-50
Certificate Owner...................... S-6
Certificate Registrar.................. S-51
Certificates........................... S-50
Class.................................. S-50
Class A Certificates................... S-50
Class IO Certificates.................. S-50
Class IO Pass-Through Rate............. S-55
Closing Date........................... Cover
Collateral Support Deficit............. S-11, S-59
Constant Prepayment Rate............... S-65
Controlling Class...................... S-44
Controlling Class Certificateholder.... S-44
CPR.................................... S-65
Cross-Over Date........................ S-55
Cut-off Date........................... Cover
Cut-off Date Balance................... S-18
DCR.................................... S-12
Debt Service Coverage Ratio............ S-27
Definitive Certificate................. S-6
Determination Date..................... S-53
Directing Certificateholder............ S-44
Distributable Certificate Interest..... S-8, S-55
Distribution Accounts.................. S-52
Distribution Date...................... S-52
Distribution Date Statement............ S-62
DSCR................................... S-27
DTC.................................... Cover
Due Date............................... S-7
Due Period............................. S-53
Effective Net Mortgage Rate............ S-55
ERISA.................................. S-13
Exemption.............................. S-55, S-77
Extension Adviser...................... S-47
Fitch.................................. S-77
Form 8-K............................... S-24
Hazardous Materials.................... S-40
Initial Pool Balance................... Cover
Interest Distribution Amount........... S-8, S-55
LIHTC.................................. S-42
Loan Disposition Fee................... S-45
Lock-out Period........................ S-21
Lower-Tier Distribution Account........ S-52, S-82
Lower Tier Interests................... S-8
Lower-Tier REMIC....................... S-8, S-74
LTV Ratio.............................. S-27
Master Servicing Fee................... S-45
Modification Fee....................... S-45
Monthly Payments....................... S-7
Moody's................................ S-77
Mortgage............................... S-18
Mortgage Loan Seller................... S-34
Mortgage Loans......................... Cover
Mortgage Note.......................... S-18
Mortgage Pool.......................... Cover
Mortgaged Property..................... S-6, S-18
Net Cash Flow.......................... S-27
Net Mortgage Rate...................... S-55
NMCC................................... S-34
NOI.................................... S-36
Non-Offered Certificates............... S-8, S-50
Non-Offered Subordinate Certificates... S-8, S-59
Nonrecoverable Advance................. S-10, S-60
Notional Amount........................ S-8
Offered Certificates................... S-50
P&I Advance............................ S-10, S-60
Pass-Through Rate...................... Cover
Percentage Interest.................... S-50
Plan................................... S-77
PLG.................................... S-36
Pooling and Servicing Agreement........ S-7
Prepayment Assumption.................. S-74
Prepayment Premiums.................... S-21
Prime Rate............................. S-60
Principal Distribution Amount.......... S-56
Purchase Agreement..................... S-6
Purchase Price......................... S-42
Qualified Anchor Tenant................ S-36
Rated Final Distribution Date.......... S-58
Reimbursement Rate..................... S-60
Related Proceeds....................... S-60
REMIC.................................. S-8, S-74
REMIC Administrator.................... S-5
REMIC Pool............................. Cover
REMIC Provisions....................... S-74
REMIC Regular Certificates............. S-74
REO Disposition Fee.................... S-46
REO Loan............................... S-57
REO Property........................... S-43
Residual Certificates.................. S-50
Restricted Group....................... S-77
Rules.................................. S-51
S&P.................................... S-12
Scheduled Principal Distribution
Amount............................... S-56
Section 42 Mortgage Loans.............. S-19
Senior Certificates.................... S-50
Servicer Remittance Date............... S-60
Servicing Advances..................... S-10, S-60
Servicing Standards.................... S-43
Special Servicing Fee.................. S-45
Specially Serviced Mortgage Assets..... S-43
Specially Serviced Mortgage Loans...... S-43
Stated Principal Balance............... S-56
Subordinate Certificates............... S-50, S-58
Subordinate Investment Grade
Certificates......................... S-50
Tax Credits............................ S-19
Trust Fund............................. Cover
Trustee Fee............................ S-63
Underwriter............................ S-75
Underwriting Agreement................. S-75
Unscheduled Principal Distribution
Amount............................... S-56
Upper-Tier Distribution Account........ S-52
Upper-Tier REMIC....................... S-8, S-74
Voting Rights.......................... S-62
Yield Maintenance Charge............... S-21
Yield Maintenance Period............... S-21
Yield Rate............................. S-22
Zoning Laws............................ S-18
</TABLE>
S-80
<PAGE> 81
EXHIBIT A
<TABLE>
<CAPTION>
NMCC
LOAN PROPERTY PROPERTY
NUMBER PROPERTY NAME TYPE PROPERTY ADDRESS CITY STATE ZIP CODE
- ------- ----------------------------------------------- --------------- ------------------------- -------------- ----- --------
<C> <S> <C> <C> <C> <C> <C>
COMMERCIAL
95111 River Park Plaza Retail US 270 and Tanner Road Malvern AR 72104
95112 MacArthur & 183 Shopping Center Retail 1111 and 1221 West
Airport Freeway Irving TX 75062
95115 Lake Worth Shopping Center Retail 6336 Lake Worth Boulevard Lake Worth TX 76135
95118 Celebration at Six Forks Shopping Center Retail 7339 Six Forks Road Raleigh NC 27609
95127 Girard Business Center Industrial/Flex 200-220 Girard Street Gaithersburg MD 20877
95116 Penn Branch Shopping Center Retail/Office 3200-3245 PA Avenue Washington DC 20020
95113 Bay Ridge Plaza Shopping Center Retail 889-895 Bay Ridge Avenue Annapolis MD 21403
951113 Colleyville Plaza Retail 5005 Colleyville
Boulevard Colleyville TX 76034
951218 Skyway Business Center Industrial/Flex 22nd Avenue and 31st
Street St. Petersburg FL 33712
951112 Crown Point Retail 1205 N. Eastman Road Kingsport TN 37664
951124 Northshore Plaza Retail 1500-1600 Wildcat Drive Portland TX 78374
951115 Conn. Avenue S.C. Retail 3500-3118 Connecticut
Avenue, N.W. Washington DC 20008
951116 Fredericksburg Shopping Center Retail Jefferson Davis Hwy.
(Rte. 1) & Fall Hill Ave. Fredericksburg VA 22401
951110 Biltmore Square Retail 2400 Franklin Pike Nashville TN 37204
951117 Woodford Square Shopping Center Retail 701 North Battlefield
Boulevard Chesapeake VA 23320
951611 Eleven Hundred Connecticut Avenue Off. Build. Office 1100 Connecticut Ave.,
N.W. Washington DC 20036
951223 Central Ohio Industrial Park Industrial 18 Allison Drive Shelby OH 44875
962127 La Place Fashion Centre Retail 2101 Richland Road Beachwood OH 44122
WEIGHTED AVERAGES FOR COMMERCIAL LOANS
HEALTH CARE
95131 Parkview Manor Nursing Home Healthcare/SNF 200 Nursing Home Lane Pikeville KY 40501
95142 Riverview Ridge Healthcare/ALF 300 Courtright Street Wilkes-Barre PA 18702
95149 Grace Personal Care Home of Douglasville Healthcare/ALF 8847 Hospital Drive Douglasville GA 30134
951419 Oak Grove Healthcare/SNF Route 8, Box 7 Rutherfordton NC 28752
951314 Hickory Creek of Moraine Nursing Center, Inc. Healthcare/SNF 3421 Pinnacle Road Moraine OH 45418
WEIGHTED AVERAGES FOR HEALTH CARE LOANS
MULTIFAMILY
2337930 Iroquois Apartments Multifamily 111 Old Hickory Boulevard
S.W. Nashville TN 37221
2316021 Orangewood Apartments Multifamily 5333 East Thomas Road Phoenix AZ 85018
4217009 Barrington Crossing Apartments Multifamily 1301 Park Place Boulevard Hurst TX 76053
2314027 Jamestown Apartments Multifamily 4320 Bull Creek Road Austin TX 78731
2305732 Royal Oaks Apartments Multifamily 206 Stratton Blvd. Ashland City TN 37015
2311228 Sundial Apartments Multifamily 55515 Alabama El Paso TX 79904
2302633 Commodore Apartments Multifamily 2308 21st Avenue South Nashville TN 37212
2304634 Studio Apartments Multifamily 801 Hillview Heights Nashville TN 37221
2212835 The Woodlands Apartments Multifamily 10010 Broadway San Antonio TX 78217
1320040 Preston Chase Apartments Multifamily 1034 Franklin Road Marietta GA 30067
4319608 La Verde Apartments Multifamily 1201-A Del Mar Court Richland WA 99352
1001 South Dahlia St. and
4313010 Aspen Court Apartments Multifamily 4747 East Mississippi
Ave. Glendale CO 80222
4208020 Hidden Oaks Apartments Multifamily 1800 Barbara Road River Oaks TX 76114
4203621 River Oaks Apartments Multifamily 1904 Roberts Cut Off Fort Worth TX 76114
4215204 Westlake Village Apartments Multifamily 1800 West Washington
Street Sherman TX 75092
4232122 Sundancer Apartments Multifamily 4250 East 29th Street Tucson AZ 85711
4215825 Park Glen Apartments Multifamily 7425 La Vista Drive Dallas TX 75214
4211423 Groton Towers Apartments Multifamily 39 Broad Street Extension Groton CT 06340
1210741 Sun Terrace Apartments Multifamily 1150 East Eight Street Tucson AZ 85719
2354329 Seahurst Village Apartments Multifamily 1101 S.W. 139th Street Burien WA 98166
1211542 The Pines Apartments Multifamily 4800-4860 Pine Street Philadelphia PA 19143
707-725 Princeton Blvd.,
4316802 Hallmark Apartments Multifamily and 1840-1844 Middlesex
St. Lowell MA 01851
1234439 Wildflower Apartments, Phase 1 Multifamily 6034 Pineland Road Dallas TX 75231
2217631 Post Oak Crossing Apartments Multifamily 3301 Fm Highway 1417 Sherman TX 75092
1215637 Brooksfield Apartments Multifamily 7577 Old Corpus Christi
1217243 The Victorian Apartments Multifamily Hwy. San Antonio TX 78223
9400 Coventry Square
Drive Houston TX 77099
2210736 The Sail Cloth Factory Apartments Multifamily 121 South Fremont Avenue Baltimore MD 21201
2310437 Brandywine Gardens Apartments Multifamily 1123 Brandywine Lane Norman OK 73071
1204545 Fairview Arms Apartments Multifamily 5219 Wynnefield Avenue Philadelphia PA 19131
4322828 Woodland Village Apartments Multifamily 813 West University
Avenue Flagstaff AZ 86001
4323924 Village Square Apartments Multifamily 102 Park Circle Sun Prairie WI 53590
4213026 Community Acres Apartments Multifamily 1805 Southwest 4th Court Ft. Lauderdale FL 33312
4230327 Palm Island Apartments Multifamily 401 West 34th Street Pompano Beach FL 33064
1214846 Riverside Apartments Multifamily 400 East Riverside Drive St. George UT 84790
4213631 Cypress Grove Apartments Multifamily 211 Republic Avenue Lafayette LA 70508
4230133 Jefferson Heights Apartments Multifamily 8939 Jefferson Highway Baton Rouge LA 70809
4211432 The Arbors at Signal Mountain Apartments Multifamily 751 Runyan Drive Chattanooga TN 37405
1220047 Buckingham Oaks Apartments Multifamily 934 S. Peoria Street Aurora CO 80012
2211638 Boardwalk Apartments Multifamily 6738 North 45th Avenue Glendale AZ 85301
1310048 Villas Continental Apartments Multifamily 2223 Astor Street Orange Park FL 32073
4211735 Sunrise Apartments Multifamily 2540 Hyancinth Street NE Salem OR 97307
1311249 Plaza South Apartments Multifamily 15529 Plaza South Drive Taylor MI 48180
1326450 Falcon Ridge Apartments Multifamily 5401 Boca Raton Blvd. Ft. Worth TX 76112
4314434 Hunter Oaks Apartments Multifamily 1401 U.S. Highway 80 West Clinton MS 39056
4314837 Skyline Apartments Multifamily 213 Skyline Circle Grand Prairie TX 75050
1228053 Wildflower III Apartments (Phase 3) Multifamily 6034 Pineland Dallas TX 75231
2313739 Haven Avenue Apartments Multifamily 736 W. 173rd St. and 735
W. 172nd St. New York NY 10032
1311836 Edgewood Apartments Multifamily 800 N. Nursery Road Irving TX 75061
3341507 La Serena Apartments Multifamily 18547 East Colima Avenue Los Angeles CA 91748
1315355 University Foothills Apartments Multifamily 3970 Covington Drive Reno NV 89503
1324856 Manor House Apartments Multifamily 1222 Commerce Street Dallas TX 75202
1350452 Larchmont West Apartments Multifamily 1233 Cribb Street Toledo OH 43612
1311257 Daluce Apartments Multifamily 1600 Pullen Road Tallahassee FL 32303
1309659 Jefferson Arms Apartments Multifamily 412 West Jefferson Street Tallahassee FL 32301
1306461 College Plaza Apartments Multifamily 405 West College Avenue Tallahassee FL 32301
1307158 Georgetown Apartments Multifamily 1324 NW 16th Avenue Gainesville FL 32605
6320001 Dominion House Multifamily 5099 Linbar Drive Nashville TN 37211
6338602 Hampton Village Multifamily 861 Franklin Road Marietta GA 30067
6322403 Park Dale Gardens Multifamily 9701 Dale Crest Drive Dallas TX 75220
6321805 Village at Wesley Chapel Multifamily 4396 Pleasant Point Drive Decatur GA 30334
6322006 Shadowbluff Multifamily 221 Plus Park Blvd. Nashville TN 37217
6328007 Lakes of Stone Mountain Multifamily 6355 Memorial Drive Stone Mountain GA 30083
6319208 West Isle Club Multifamily 3333 Duck Avenue Key West FL 33040
4805012 1344 University Avenue Multifamily 1344 University Avenue New York NY 11415
4807410 2765 Kingsbridge Terrace Multifamily 2765 Kingsbridge Terrace New York NY 10463
4802513 2396 Valentine Avenue Multifamily 2396 Valentine Avenue New York NY 10457
4803011 1354 Commonwealth Avenue Multifamily 1354 Commonwealth Avenue New York NY 10460
4804114 2773-79 Briggs Avenue Multifamily 2773-79 Briggs Avenue New York NY 10458
3814406 Westpark Apartments Multifamily 6900 Westpark Place Westminster CA 92683
5804808 90 Dillon Apartments MF (Sec. 42) 90 Dillon Road Hilton Head SC 29928
5829606 Pines at Prescott Apartments MF (Sec. 42) 1053 Sandretto Drive Prescott AZ 86301
WEIGHTED AVERAGES FOR MULTIFAMILY
WEIGHTED AVERAGES (POOL LEVEL):
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
MOST RECENT NUMBER OF ANTICIPATED
YEAR YEAR OCCUPANCY NET RENTABLE UNITS ORIGINAL PRINCIPAL LOAN BALANCE
BUILT RENOVATED (ESTIMATE) AREA(SF) (BEDS) BALANCE AT MATURITY
--------- --------- ----------- ------------ --------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1990-1992 N/A 91.60% 145,782 N/A $ 5,800,000 $ 4,748,754
1981 N/A 76.60% 80,964 N/A $ 3,000,000 $ 2,709,701
1982 N/A 90.00% 75,340 N/A $ 3,200,000 $ 2,629,654
1978-9 1985-6 99.50% 118,239 N/A $ 6,145,000 $ 5,040,986
1988-1989 N/A 97.60% 123,830 N/A $ 5,000,000 $ 4,440,510
1965 1992-1993 91.10% 82,450 N/A $ 2,400,000 $ 1,659,484
1974-1978 1990-1991 100.00% 64,614 N/A $ 3,700,000 $ 2,628,835
1960 1994 100.00% 20,683 N/A $ 1,350,000 $ 1,199,981
1975 1988 94.00% 192,750 N/A $ 2,700,000 $ 1,870,932
1984 N/A 94.60% 77,956 N/A $ 3,275,000 $ 2,636,895
79 and 81 1993 89.20% 122,742 N/A $ 2,870,000 $ 2,331,548
1920's 1960's 100.00% 20,808 N/A $ 2,400,000 $ 1,181,860
1960 1992 92.60% 94,083 N/A $ 4,425,000 $ 3,903,653
1990 N/A 95.00% 25,812 N/A $ 1,275,000 $ 888,609
1987 N/A 100.00% 83,923 N/A $ 4,275,000 $ 3,459,926
1967 1993 91.50% 155,309 N/A $ 3,500,000 $ 2,759,267
1941-1943 N/A 95.60% 2,497,660 N/A $ 6,500,000 $ 5,228,549
61, 68,
87 1987 97.00% 95,795 N/A $ 10,583,853 $ 8,636,392
-----
94.73%
=====
1980 N/A 97.50% 61,988 120 $ 3,850,000 $ 3,490,153
1992 1995 87.00% 32,562 105 $ 2,800,000 $ 1,162,749
1992 1993 100.00% 17,358 52 $ 1,600,000 $ 1,338,819
1994 N/A 94.00% 32,973 80 $ 3,000,000 $ 2,694,450
1981 MSU-1993 88.30% 48,643 150 $ 3,500,000 $ 2,886,059
----- --
92.88% 109
===== ===
1973 N/A 96.00% 466,870 379 $ 9,100,000 $ 8,092,402
1975 1993 98.00% 86,592 160 $ 2,600,000 $ 2,305,553
1977 1995 100.00% 158,472 170 $ 3,550,000 $ 3,308,170
1968 N/A 98.47% 97,070 140 $ 2,750,000 $ 2,440,894
1973 N/A 95.00% 49,250 57 $ 517,000 $ 460,612
1970-92 N/A 95.74% 84,304 112 $ 1,550,000 $ 1,379,150
1965 N/A 87.70% 16,900 26 $ 389,000 $ 346,572
1960 N/A 91.30% 17,760 46 $ 483,000 $ 430,321
1978 N/A 92.91% 85,206 128 $ 1,925,000 $ 1,792,313
1972 N/A 97.50% 199,604 200 $ 4,300,000 $ 3,813,030
1977 1992-94 90.10% 185,535 196 $ 4,500,000 $ 3,998,728
1971 1994 98.50% 83,571 130 $ 1,900,000 $ 1,691,012
1982 N/A 100.00% 52,040 80 $ 1,043,000 $ 975,005
74/82 N/A 94.50% 25,892 36 $ 457,000 $ 427,207
1976 1994 90.40% 120,416 152 $ 1,900,000 $ 1,802,322
75/82 1995 89.00% 129,318 321 $ 2,600,000 $ 2,419,274
1974 1989 92.70% 123,379 158 $ 2,775,000 $ 2,579,506
1973 1988 91.10% 88,005 114 $ 2,637,000 $ 2,460,787
1971 N/A 96.70% 80,450 107 $ 1,250,000 $ 1,030,766
1948 1994 95.60% 427,840 543 $ 13,450,000 $12,555,169
1910 1990 96.50% 86,102 115 $ 2,497,500 $ 2,322,437
1969 N/A 94.00% 108,990 168 $ 3,000,000 $ 2,678,197
1978 N/A 95.40% 243,088 344 $ 4,360,000 $ 4,061,989
1985 N/A 99.60% 146,700 176 $ 3,100,000 $ 2,891,302
1987 N/A 100.00% 110,520 156 $ 3,200,000 $ 2,984,207
1984 N/A 93.60% 125,408 172 $ 2,200,000 $ 2,051,642
1890+/- 1987 98.00% 71,642 107 $ 3,150,000 $ 2,928,459
1984 N/A 100.00% 71,240 104 $ 1,562,000 $ 1,385,105
1940 N/A 95.60% 35,900 45 $ 1,275,000 $ 1,186,820
1988 N/A 67.70% 134,868 228 $ 7,100,000 $ 6,318,576
1965 1993 89.89% 204,944 239 $ 5,250,000 $ 4,878,284
1966 1993-94 94.00% 106,408 130 $ 3,005,000 $ 2,787,568
1972 1993-94 96.80% 223,274 303 $ 7,500,000 $ 6,963,625
1985 N/A 92.60% 104,824 148 $ 4,000,000 $ 3,533,957
1985 N/A 98.00% 98,464 136 $ 2,850,000 $ 2,644,813
1972-74 1989 92.60% 234,460 301 $ 6,600,000 $ 6,124,828
1980 N/A 88.61% 116,910 114 $ 2,277,000 $ 2,113,066
1973 1990-94 95.00% 195,440 200 $ 5,034,000 $ 4,673,984
1971 1994-95 89.33% 92,920 116 $ 1,900,000 $ 1,764,571
1966-69 1992-95 97.00% 332,298 100 $ 3,900,000 $ 3,445,066
1971 1995 95.89% 63,680 117 $ 2,175,000 $ 2,015,249
1969-70 1989-90 99.10% 144,748 112 $ 2,000,000 $ 1,765,237
1984 N/A 87.20% 196,272 264 $ 2,450,000 $ 2,161,987
1974 1994-95 93.00% 125,200 144 $ 2,800,000 $ 2,469,763
1959 N/A 97.00% 127,613 148 $ 930,000 $ 820,673
1981 N/A 94.00% 212,856 280 $ 4,655,000 $ 4,314,232
1920 1993-95 97.81% 96,000 137 $ 2,505,000 $ 2,195,787
1967 N/A 99.00% 63,625 118 $ 750,000 $ 658,641
1971 1995 92.00% 337,675 415 $ 10,000,000 $ 8,794,415
1974 1992-95 100.00% 164,522 153 $ 4,500,000 $ 3,954,268
1984 N/A 98.40% 263,056 248 $ 4,390,000 $ 3,859,965
1951 N/A 90.10% 339,901 504 $ 5,450,000 $ 4,416,455
1974 N/A 97.30% 95,432 112 $ 2,680,000 $ 2,360,235
1963 N/A 100.00% 28,800 96 $ 825,000 $ 726,419
1965 N/A 98.40% 28,800 64 $ 611,250 $ 538,210
1966 N/A 100.00% 71,720 71 $ 1,100,000 $ 968,754
1971 N/A 97.00% 169,042 200 $ 3,700,000 $ 3,086,623
1973-74 N/A 90.34% 324,610 386 $ 8,100,000 $ 7,270,550
1976 N/A 94.20% 205,740 224 $ 3,000,000 $ 2,447,990
1973 1994 83.70% 254,208 218 $ 4,715,000 $ 3,866,063
1986 N/A 96.80% 160,340 220 $ 5,600,000 $ 4,925,870
1972 1995 95.48% 323,500 280 $ 7,200,000 $ 6,346,014
1989 N/A 95.90% 148,608 192 $ 11,400,000 $10,007,239
1920's N/A 100.00% 31,214 50 $ 800,000 $ 556,122
1928 N/A 100.00% 41,836 74 $ 1,275,000 $ 886,320
1920 N/A 96.00% 18,275 25 $ 440,000 $ 305,868
1928 N/A 100.00% 19,698 30 $ 477,000 $ 331,586
1918 N/A 100.00% 30,924 41 $ 825,000 $ 573,501
1961 N/A 92.20% 110,400 144 $ 5,265,000 $ 3,733,885
1994 N/A 98.50% 50,546 48 $ 1,350,000 $ 944,322
1994 N/A 100.00% 87,000 90 $ 1,632,000 $ 1,138,279
------ --
93.96% 237
===== ===
94.08%
<CAPTION>
CURRENT
PREPAYMENT PENALTY INTEREST RATE
-------------------------------------------------- -------------
<S> <C> <C>
6 Yrs. YM, 3%, 2%, 1%, 0% 8.439%
2 Yrs, LO, 3 Yrs. YM, 2%, 1% last 6 months free 9.420%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 8.593%
2 Yrs. LO, 3 Yrs. YM, 2%, 1%, last 6 months free 8.480%
2 Yrs. LO, 3 Yrs. YM, 2%, 1%, last 6 months free 8.290%
2 Yrs. LO, 3 Yrs. YM, 2%, 1%, last 6 months free 8.640%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 8.833%
2 Yrs. LO, 3 Yrs. YM, 2%, 1%, last 6 months free 8.340%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 7.990%
2 Yrs. LO, 3 Yrs. YM, 2%, 1%, last 6 months free 7.550%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 8.120%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 8.850%
2 Yrs. LO, 3 Yrs. YM, 2%, 1%, last 6 months free 7.880%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 8.180%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 7.970%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 6.980%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 7.730%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 8.300%
-----
8.227%
=====
5 Yrs. YM, 2%, 1%, last 6 months free 9.560%
10 Yrs. YM, 3%, 2%, 1%, last 7 years free 9.000%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 9.190%
2 Yrs. LO, 3 Yrs. YM, 2%, 1%, last 6 months free 8.870%
3 Yrs. LO, 4 Yrs. YM, 3%, 2%, 1%, last 6 months
free 8.630%
-----
9.052%
=====
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.610%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.460%
5 Yrs. YM, 2%, 1%, last 6 months free 8.500%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.510%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.710%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.640%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.710%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.710%
5 Yrs. YM, 2%, 1%, last 6 months free 8.430%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.460%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.570%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.654%
5 Yrs. YM, 2%, 1%, last 6 months free 8.760%
5 Yrs. YM, 2%, 1%, last 6 months free 8.760%
5 Yrs. YM, 2%, 1%, last 6 months free 10.133%
5 Yrs. YM, 2%, 1%, last 6 months free 8.380%
5 Yrs. YM, 2%, 1%, last 6 months free 8.300%
5 Yrs. YM, 2%, 1%, last 6 months free 8.614%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.740%
5 Yrs. YM. 2%, 1%, last 6 months free 8.640%
5 Yrs. YM, 2%, 1%, last 6 months free 8.330%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.820%
5 Yrs. YM, 2%, 1%, last 6 months free 8.480%
5 Yrs. YM, 2%, 1%, last 6 months free 8.570%
5 Yrs. YM, 2%, 1%, last 6 months free 8.560%
5 Yrs. YM, 2%, 1%, last 6 months free 8.560%
5 Yrs. YM, 2%, 1%, last 6 months free 8.310%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.460%
5 Yrs. YM, 2%, 1%, last 6 months free 8.410%
7 Yrs. YM, 3% 2%, 1%, last 6 months free 8.650%
5 Yrs. YM, 2%, 1%, last 6 months free 8.270%
5 Yrs. YM, 2%, 1%, last 6 months free 8.140%
5 Yrs. YM, 2%, 1%, last 6 months free 8.210%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.270%
5 Yrs. YM, 2%, 1%, last 6 months free 8.170%
5 Yrs. YM, 2%, 1%, last 6 months free 8.170%
5 Yrs. YM, 2%, 1%, last 6 months free 8.170%
5 Yrs. YM, 2%, 1%, last 6 months free 8.210%
5 Yrs. YM, 2%, 1%, last 6 months free 8.230%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.262%
5 Yrs. YM, 2%, 1%, last 6 months free 8.050%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.220%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.210%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.188%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.210%
5 Yrs. YM, 2%, 1%, last 6 months free 8.070%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 7.880%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 7.970%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.040%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.000%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.030%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 8.020%
3 Yrs. Lockout 4 Yrs. YM, 3%, 2%, 1%, last 6 mos.
free 8.110%
3 Yrs. Lockout 4 Yrs. YM, 3%, 2%, 1%, last 6 mos.
free 8.100%
3 Yrs. Lockout 4 Yrs. YM, 3%, 2%, 1%, last 6 mos.
free 8.100%
3 Yrs. Lockout 4 Yrs. YM, 3%, 2%, 1%, last 6 mos.
free 8.110%
7 Yrs. YM, 3%, 2%, 1%, last 90 days free 9.250%
7 Yrs. YM, 1%, 1%, 1%, last 90 days free 9.125%
7 Yrs. YM, 1%, 1%, 1% last 6 months free 8.300%
7 Yrs. YM, 1%, 1%, 1%, last 90 days free 8.500%
7 Yrs. YM, 3%, 2%, 1%, last 90 days free 8.050%
7 Yrs. YM, 1%, 1%, 1%, last 90 days free 8.150%
7 Yrs. YM, 3%, 2%, 1%, last 6 months free 7.950%
15 Yrs. YM, Last 3 years free 8.490%
15 Yrs. YM, Last 3 years free 8.490%
15 Yrs. YM, Last 3 years free 8.490%
15 Yrs. YM, Last 3 years free 8.490%
15 Yrs. YM, Last 3 years free 8.490%
15 Yrs. YM, Last 3 years free 8.980%
15 Yrs. Lockout, 2%, 1%, Last 12 months free 8.640%
17.5 Yrs. Lockout, Last 6 months free 8.570%
-----
8.389%
=====
8.383%
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
CASH FLOW UNDERWRITTEN 1995 CASH FLOW ACTUAL 1994 CASH FLOW ACTUAL
AFTER RESERVES DSCR AFTER CAP EX DSCR AFTER CAP EX DSCR
CURRENT MONTHLY AND LEASING ON AND LEASING ON 1995 AND LEASING ON 1994
DEBT SERVICE COMMISSIONS CASH FLOW COMMISSIONS CASH FLOW COMMISSIONS CASH FLOW
--------------- -------------- ------------ -------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 46,464.99 718,942 1.29 730,568 1.31 696,249 1.25
$ 26,044.26 422,112 1.35 480,938 1.54 486,512 1.56
$ 25,968.13 421,454 1.35 365,450 1.17 81,010 0.26
$ 53,249.98 824,139 1.29 956,267 1.50 878,558 1.37
$ 39,556.25 706,640 1.49 944,212 1.99 867,784 1.83
$ 23,831.12 348,202 1.22 542,869 1.90 468,671 1.64
$ 32,893.51 528,993 1.34 611,092 1.55 612,600 1.55
$ 10,725.39 187,943 1.46 218,339 1.70 178,842 1.39
$ 22,567.08 396,545 1.46 504,934 1.86 474,977 1.75
$ 26,483.39 512,394 1.61 534,780 1.68 459,868 1.45
$ 22,379.76 351,579 1.31 463,247 1.72 448,416 1.67
$ 24,128.71 384,444 1.33 371,869 1.28 407,471 1.41
$ 33,801.86 663,180 1.63 764,536 1.88 711,231 1.75
$ 10,807.88 167,699 1.29 182,509 1.41 161,970 1.25
$ 32,910.23 549,318 1.39 636,043 1.61 621,355 1.57
$ 24,692.64 1,639,052 5.53 2,359,254 7.96 2,485,846 8.39
$ 49,011.05 1,067,784 1.82 1,359,849 2.31 1,550,712 2.64
$ 83,802.23 1,257,035 1.25 1,435,085 1.43 847,215 0.84
--- --- ---
1.61 1.95 1.81
$ 34,154.47 620,245 1.51 576,962 1.41 684,652 1.67
$ 23,737.64 515,551 1.81 608,954 2.14 431,091 1.51
$ 13,776.86 304,231 1.84 300,320 1.82 243,521 1.47
$ 25,161.91 482,184 1.60 428,377 1.42 36,027 0.12
$ 28,788.95 693,103 2.01 693,103 2.01 936,151 2.71
--- ---
1.74 1.55
$ 70,681.77 1,194,097 1.41 1,341,711 1.58 970,382 1.14
$ 19,918.09 329,468 1.38 426,742 1.79 208,483 0.87
$ 27,296.43 418,912 1.28 419,413 1.28 429,732 1.31
$ 21,164.61 326,487 1.29 449,161 1.77 385,206 1.52
$ 4,052.48 67,685 1.39 91,412 1.88 45,389 0.93
$ 12,072.29 206,063 1.42 217,378 1.50 256,515 1.77
$ 3,049.16 50,842 1.39 58,484 1.60 50,124 1.37
$ 3,785.97 63,137 1.39 67,297 1.48 58,881 1.30
$ 14,706.19 235,285 1.33 284,980 1.61 224,741 1.27
$ 32,941.46 535,144 1.35 570,227 1.44 535,663 1.36
$ 34,824.60 766,208 1.83 557,809 1.33 755,614 1.81
$ 14,817.23 230,522 1.30 265,341 1.49 (295,294) (1.66)
$ 8,212.74 129,285 1.31 161,305 1.64 155,173 1.57
$ 3,598.49 58,383 1.35 70,789 1.64 68,098 1.58
$ 16,860.90 253,863 1.25 267,830 1.32 216,497 1.07
$ 19,771.06 318,339 1.34 352,503 1.49 266,608 1.12
$ 20,945.27 322,579 1.28 414,585 1.65 276,575 1.10
$ 20,489.68 369,133 1.50 385,423 1.57 N/A N/A
$ 10,268.30 172,414 1.40 272,586 2.21 175,860 1.43
$104,756.30 1,708,458 1.36 1,699,349 1.35 1,650,084 1.31
$ 18,903.53 330,829 1.46 351,436 1.55 378,311 1.67
$ 23,751.16 398,164 1.40 544,752 1.91 448,170 1.57
$ 33,462.85 600,531 1.50 691,205 1.72 633,942 1.58
$ 23,990.28 373,207 1.30 397,159 1.38 381,343 1.32
$ 24,741.43 399,772 1.35 425,945 1.43 427,752 1.44
$ 17,009.73 264,414 1.30 N/A N/A 145,068 0.71
$ 23,797.90 364,383 1.28 439,649 1.54 347,519 1.22
$ 11,966.18 189,760 1.32 251,623 1.75 221,245 1.54
$ 9,722.44 154,633 1.33 167,948 1.44 169,638 1.45
$ 55,349.41 945,322 1.42 908,466 1.37 959,772 1.45
$ 39,515.34 617,741 1.30 581,897 1.23 579,532 1.22
$ 22,343.60 367,816 1.37 389,812 1.45 353,655 1.32
$ 56,134.23 906,190 1.35 869,592 1.29 709,587 1.05
$ 30,106.92 464,386 1.29 506,920 1.40 547,032 1.51
$ 21,251.02 321,687 1.26 319,588 1.25 314,136 1.23
$ 49,212.90 766,229 1.30 768,240 1.30 817,892 1.38
$ 16,978.45 256,595 1.26 275,275 1.35 253,365 1.24
$ 37,677.30 602,758 1.33 916,629 2.03 431,770 0.95
$ 14,247.36 245,733 1.44 215,595 1.26 N/A N/A
$ 29,332.30 444,138 1.26 481,633 1.37 478,577 1.36
$ 16,035.26 252,485 1.31 258,646 1.34 319,985 1.66
$ 14,983.17 292,937 1.63 191,787 1.07 191,528 1.07
$ 18,337.18 296,727 1.35 266,231 1.21 199,640 0.91
$ 20,913.55 334,505 1.33 333,074 1.33 276,174 1.10
$ 6,960.64 122,789 1.47 N/A N/A 142.988 1.71
$ 34,384.17 613,374 1.49 N/A N/A 684,918 1.66
$ 18,171.68 294,896 1.35 373,383 1.71 303,351 1.39
$ 5,487.56 111,834 1.70 143,475 2.18 103,360 1.57
$ 73,655.50 1,381,307 1.56 1,147,086 1.30 1,496,193 1.69
$ 33,019.41 533,744 1.35 614,223 1.55 590,240 1.49
$ 32,304.12 552,040 1.42 552,075 1.42 472,641 1.22
$ 42,136.22 671,866 1.33 658,749 1.30 593,342 1.17
$ 19,870.79 313,490 1.31 325,497 1.37 343,037 1.44
$ 6,111.17 97,488 1.33 115,855 1.58 102,387 1.40
$ 4,527.82 74,107 1.36 92,774 1.71 65,999 1.21
$ 8,155.92 128,805 1.32 149,502 1.53 147,282 1.50
$ 31,686.17 534,046 1.40 637,919 1.68 534,010 1.40
$ 65,904.27 1,029,683 1.30 1,113,068 1.41 1,020,928 1.29
$ 23,753.83 411,472 1.44 458,866 1.61 427,464 1.50
$ 37,966.46 586,349 1.29 579,388 1.27 420,840 0.92
$ 41,286.18 774,701 1.56 826,642 1.67 594,697 1.20
$ 53,585.87 923,838 1.44 856,988 1.33 N/A N/A
$ 83,252.15 1,425,437 1.43 1,440,424 1.44 1,413,791 1.42
$ 6,145.64 97,136 1.32 116,671 1.58 138,932 1.88
$ 9,794.61 159,707 1.36 211,543 1.80 179,198 1.52
$ 3,380.10 56,953 1.40 56,265 1.39 46,740 1.15
$ 3,664.34 60,771 1.38 61,052 1.39 66,068 1.50
$ 6,337.69 114,888 1.51 115,999 1.53 116,041 1.53
$ 42,287.64 652,216 1.29 675,281 1.33 749,866 1.48
$ 10,514.57 146,626 1.16 158,708 1.26 N/A N/A
$ 12,629.72 176,370 1.17 205,063 1.35 N/A N/A
---
1.38
---
1.45
---
<CAPTION>
1993 CASH FLOW ACTUAL
AFTER CAP EX DSCR
AND LEASING ON 1993 APPRAISED
COMMISSIONS CASH FLOW VALUE (MAI)
-------------- --------- -----------
<S> <C> <C> <C> <C>
638,683 1.15 $7,700,000
364,353 1.17 $4,050,000
373,262 1.20 $4,300,000
972,284 1.52 $8,420,000
937,314 1.97 $8,750,000
420,023 1.47 $4,450,000
611,800 1.55 $5,600,000
N/A N/A $2,000,000
546,208 2.02 $4,400,000
399,864 1.26 $5,000,000
454,821 1.69 $4,100,000
358,845 1.24 $5,000,000
665,786 1.64 $7,100,000
261,265 2.01 $1,750,000
591,178 1.50 $6,300,000
2,102,241 7.09 $22,400,000
1,543,733 2.62 $13,200,000
1,097,718 1.09 $15,100,000
---
1.79
540,842 1.32 $5,300,000
44,804 0.16 $5,100,000
102,959 0.62 $2,700,000
N/A N/A $4,100,000
755,269 2.19 $7,300,000
985,232 1.16 $13,500,000
170,126 0.71 $4,000,000
N/A N/A $4,740,000
331,137 1.30 $3,700,000
79,850 1.64 $ 900,000
252,742 1.74 $2,400,000
53,068 1.45 $ 620,000
25,452 0.56 $ 670,000
199,929 1.13 $2,700,000
498,304 1.26 $5,800,000
685,347 1.64 $7,840,000
N/A N/A $2,800,000
N/A N/A $1,428,000
N/A N/A $ 690,000
N/A N/A $2,564,000
282,280 1.19 $4,086,000
252,530 1.00 $4,000,000
N/A N/A $3,500,000
N/A N/A $1,800,000
1,542,399 1.23 $18,000,000
279,487 1.23 $3,330,000
341,087 1.20 $4,200,000
465,966 1.16 $6,100,000
367,971 1.28 $4,353,000
225,637 0.76 $4,400,000
184,954 0.91 $3,050,000
316,900 1.11 $4,200,000
190,519 1.33 $2,200,000
159,078 1.36 $1,700,000
821,932 1.24 $10,500,000
475,216 1.00 $7,000,000
313,063 1.17 $4,100,000
464,529 0.69 $10,600,000
554,819 1.54 $5,870,000
N/A N/A $4,000,000
N/A N/A $8,800,000
N/A N/A $3,300,000
504,222 1.12 $6,800,000
N/A N/A $3,100,000
405,230 1.15 $5,200,000
N/A N/A $2,900,000
N/A N/A $3,075,000
125,973 0.57 $3,450,000
N/A N/A $4,000,000
N/A N/A $1,175,000
556,448 1.35 $6,000,000
372,073 1.71 $3,350,000
93,433 1.42 $1,350,000
1,509,399 1.71 $14,200,000
463,394 1.17 $6,350,000
394,117 1.02 $7,600,000
448,801 0.89 $7,600,000
320,420 1.34 $3,350,000
77,924 1.06 $1,350,000
62,133 1.14 $ 925,000
139,922 1.43 $1,700,000
458,979 1.21 $5,100,000
774,968 0.98 $11,200,000
353,616 1.24 $4,000,000
N/A N/A $6,325,000
391,508 0.79 $8,375,000
N/A N/A $10,300,000
1,304,044 1.31 $15,200,000
118,934 1.61 $1,075,000
145,380 1.24 $1,700,000
66,129 1.63 $ 600,000
66,759 1.52 $ 700,000
93,578 1.23 $1,100,000
807,955 1.59 $7,400,000
N/A N/A $1,690,000
N/A N/A $1,920,000
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
END OF UNDERWRITTEN
TERM FUNDED ANN. RES. PER ANN. RES.
ORIGINAL BALANCE BALANCE INITIAL DEPOSIT BED OR PSF PER UNIT ORIGINATION MATURITY
LTV (MAI) LTV (MAI) TO RESERVES NON-MULTIFAMILY (MULTIFAMILY) DATE DATE
---------------- --------- --------------- -------------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
75.32% 61.67% 14,300 $ 0.11 N/A 09/06/95 10/01/2005
74.07% 66.91% 173,474 $ 0.22 N/A 08/25/95 09/01/2002
74.42% 61.15% 170,306 $ 0.39 N/A 09/06/95 10/01/2005
72.98% 59.87% 55,313 $ 0.11 N/A 11/14/95 12/01/2002
57.14% 50.75% 3,750 $ 0.19 N/A 12/01/95 12/01/2002
53.93% 37.29% 5,625 $ 0.20 N/A 12/14/95 01/01/2003
66.07% 46.94% 18,429 $ 0.30 N/A 10/27/95 11/01/2005
67.50% 59.99% 4,906 $ 0.23 N/A 11/09/95 12/01/2002
61.36% 42.52% 12,750 $ 0.16 N/A 12/19/95 01/01/2006
65.50% 52.74% 6,250 $ 0.10 N/A 12/28/95 01/01/2003
70.00% 56.87% 106,950 $ 0.17 N/A 01/02/96 02/01/2006
48.00% 23.64% 15,375 $ 0.73 N/A 12/28/95 01/01/2006
62.32% 54.98% 0 $ 0.16 N/A 01/12/96 02/01/2003
72.86% 50.78% 0 $ 0.05 N/A 01/11/96 02/01/2006
67.86% 54.92% 61,563 $ 0.15 N/A 01/22/96 02/01/2006
15.63% 12.32% 0 $ 0.00 N/A 01/30/96 02/01/2006
49.24% 39.61% 100,000 $ 0.10 N/A 01/30/96 02/01/2006
70.09% 57.19% 45,000 $ 0.40 N/A 03/01/96 04/01/2006
------ ---
63.09% $ 0.21
72.64% 65.85% 60,000 $ 150 N/A 07/21/95 08/01/2002
54.90% 22.80% 800 $ 100 N/A 10/19/95 11/01/2015
59.26% 49.59% 0 $ 346 N/A 11/22/95 12/01/2005
73.17% 65.72% 10,000 $ 120 N/A 12/22/95 01/01/2003
47.95% 39.54% 35,000 $ 204 N/A 01/05/96 02/01/2006
------ ---
62.06% $ 169
67.41% 59.94% 382,000 N/A $ 200 06/12/95 07/01/2005
65.00% 57.64% 0 N/A $ 160 06/03/95 07/01/2005
74.89% 69.79% 50,000 N/A $ 225 06/13/95 07/01/2002
74.32% 65.97% 0 N/A $ 271 07/10/95 08/01/2005
57.44% 51.18% 99,000 N/A $ 150 06/12/95 07/01/2005
64.58% 57.46% 0 N/A $ 220 07/05/95 08/01/2005
62.74% 55.90% 0 N/A $ 221 06/12/95 07/01/2005
72.09% 64.23% 500 N/A $ 245 06/12/95 07/01/2005
71.30% 66.38% 83,000 N/A $ 150 06/06/95 07/01/2002
74.14% 65.74% 50,000 N/A $ 250 07/18/95 08/01/2005
57.40% 51.00% 0 N/A $ 200 06/14/95 07/01/2005
67.86% 60.39% 20,000 N/A $ 250 05/31/95 06/01/2005
73.04% 68.28% 45,000 N/A $ 175 05/19/95 06/01/2002
66.23% 61.91% 30,000 N/A $ 175 05/19/95 06/01/2002
74.10% 70.29% 0 N/A $ 150 01/05/95 02/01/2002
63.63% 59.21% 0 N/A $ 200 06/21/95 07/01/2002
69.38% 64.49% 75,000 N/A $ 200 06/19/95 07/01/2002
75.34% 70.31% 33,000 N/A $ 200 07/28/95 08/01/2002
69.44% 57.26% 20,000 N/A $ 250 09/26/95 10/01/2005
74.72% 69.75% 135,000 N/A $ 150 08/31/95 09/01/2002
75.00% 69.74% 19,550 N/A $ 170 09/13/95 10/01/2002
71.43% 63.77% 55,000 N/A $ 250 08/03/95 09/01/2005
71.48% 66.59% 5,000 N/A $ 200 08/29/95 09/01/2002
71.22% 66.42% 0 N/A $ 150 08/30/95 09/01/2002
72.73% 67.82% 20,000 N/A $ 150 08/10/95 09/01/2002
72.13% 67.27% 25,000 N/A $ 150 08/10/95 09/01/2002
75.00% 69.73% 20,000 N/A $ 150 09/11/95 10/01/2002
71.00% 62.96% 14,000 N/A $ 200 09/21/95 10/01/2005
75.00% 69.81% 17,000 N/A $ 180 10/03/95 11/01/2002
67.62% 60.18% 10,000 N/A $ 300 09/26/95 10/01/2005
75.00% 69.69% 62,400 N/A $ 226 10/13/95 11/01/2002
73.29% 67.99% 32,000 N/A $ 250 10/17/95 11/01/2002
70.75% 65.69% 60,000 N/A $ 200 10/19/95 11/01/2002
68.14% 60.20% 50,000 N/A $ 225 10/24/95 11/01/2005
71.25% 66.12% 25,000 N/A $ 175 10/30/95 11/01/2002
75.00% 69.60% 100,000 N/A $ 200 10/30/95 11/01/2002
69.00% 64.03% 20,000 N/A $ 175 10/30/95 11/01/2002
74.03% 68.74% 50,000 N/A $ 300 10/30/95 11/01/2002
61.29% 56.92% 0 N/A $ 205 11/01/95 12/01/2002
75.00% 66.25% 20,000 N/A $ 200 11/01/95 12/01/2005
75.00% 69.49% 50,000 N/A $ 223 11/13/95 12/01/2002
65.04% 57.41% 0 N/A $ 275 11/15/95 12/01/2005
71.01% 62.67% 15,000 N/A $ 200 11/14/95 12/01/2005
70.00% 61.74% 35,000 N/A $ 225 11/28/95 12/01/2005
79.15% 69.84% 40,000 N/A $ 200 12/05/95 01/01/2006
77.58% 71.90% 10,000 N/A $ 190 11/21/95 12/01/2002
74.78% 65.55% 0 N/A $ 272 12/11/95 01/01/2006
55.56% 48.79% 23,000 N/A $ 175 12/11/95 01/01/2006
70.42% 61.93% 80,000 N/A $ 375 12/06/95 01/01/2006
70.87% 62.27% 38,250 N/A $ 250 12/18/95 01/01/2006
57.76% 50.79% 65,000 N/A $ 275 12/22/95 01/01/2006
71.71% 58.11% 95,000 N/A $ 220 12/21/95 01/01/2006
80.00% 70.45% 0 N/A $ 200 12/27/95 01/01/2006
61.11% 53.81% 6,500 N/A $ 250 12/27/95 01/01/2006
66.08% 58.18% 0 N/A $ 250 12/27/95 01/01/2006
64.71% 56.99% 18,000 N/A $ 250 12/27/95 01/01/2006
72.55% 60.52% 0 N/A $ 251 04/10/95 05/01/2005
72.32% 64.92% 30,000 N/A $ 258 05/26/95 06/01/2005
75.00% 61.20% 0 N/A $ 225 06/08/95 07/01/2005
74.55% 61.12% 50,000 N/A $ 305 09/08/95 10/01/2005
66.87% 58.82% 0 N/A $ 237 11/07/95 12/01/2005
69.90% 61.61% 0 N/A $ 190 11/10/95 12/01/2005
75.00% 65.84% 0 N/A $ 281 12/19/95 01/01/2006
74.42% 51.73% 8,750 N/A $ 200 11/03/95 12/01/2013
75.00% 52.14% 11,100 N/A $ 195 11/03/95 12/01/2013
73.33% 50.98% 5,000 N/A $ 205 11/03/95 12/01/2013
68.14% 47.37% 5,250 N/A $ 225 11/03/95 12/01/2013
75.00% 52.14% 4,100 N/A $ 205 11/03/95 12/01/2013
71.15% 50.46% 43,000 N/A $ 300 05/18/95 06/01/2013
79.88% 55.88% 0 N/A $ 150 07/06/95 08/01/2013
85.00% 59.29% 0 N/A $ 150 06/20/95 07/01/2013
------ ------ ---
71.38% $ 23* $ 226
====== ======== =====
69.11% * This is a rounded per unit per year weighted average initial deposit to the
------ replacement reserve account. $22.93 per unit per year of loan term.
<CAPTION>
AMORTIZATION (ORIGINAL) LOAN CURRENT UNPAID
PERIOD BALANCE PER SF PRINCIPAL BAL.
(MONTHS) OR PER UNIT (5/1/96)
------------ --------------- ---------------
<S> <C> <C> <C> <C>
300 $ 39.79 $ 5,759,416.36
300 $ 37.05 $ 2,979,488.99
300 $ 42.47 $ 3,178,161.06
240 $ 51.97 $ 6,095,174.18
300 $ 40.38 $ 4,974,578.25
180 $ 29.11 $ 2,373,511.14
240 $ 57.26 $ 3,665,418.51
300 $ 65.27 $ 1,343,191.58
240 $ 14.01 $ 2,681,457.51
240 $ 42.01 $ 3,251,264.44
300 $ 23.38 $ 2,861,061.51
180 $115.34 $ 2,373,999.29
300 $ 47.03 $ 4,410,673.26
240 $ 49.40 $ 1,268,606.72
300 $ 50.94 $ 4,261,358.48
300 $ 22.54 $ 3,486,921.32
300 $ 2.60 $ 6,478,441.07
300 $110.48 $ 10,573,255.65
------ ---------------
$ 50.33 $ 72,015,979.32
300 $32,083 $ 3,820,848.42
300 $26,667 $ 2,784,692.09
300 $30,769 $ 1,593,099.85
300 $37,500 $ 2,988,668.49
300 $23,333 $ 3,489,060.25
------ ---------------
$29,936 $ 14,676,369.10
360 $24,011 $ 9,044,333.54
360 $16,250 $ 2,583,605.68
360 $20,882 $ 3,527,795.42
360 $19,643 $ 2,734,605.72
360 $ 9,070 $ 513,900.90
360 $13,839 $ 1,541,548.91
360 $14,962 $ 386,668.14
360 $10,500 $ 480,104.75
360 $15,039 $ 1,912,788.25
360 $21,500 $ 4,275,684.18
360 $22,959 $ 4,472,248.77
360 $14,615 $ 1,887,282.33
360 $13,038 $ 1,036,166.99
360 $12,694 $ 454,006.01
360 $12,500 $ 1,886,993.71
360 $ 8,100 $ 2,583,339.18
360 $17,563 $ 2,756,929.46
360 $23,132 $ 2,622,546.20
300 $11,682 $ 1,241,670.84
360 $24,770 $ 13,385,050.48
360 $21,717 $ 2,486,301.93
360 $17,857 $ 2,986,035.43
360 $12,674 $ 4,338,250.27
360 $17,614 $ 3,084,815.61
360 $20,513 $ 3,184,293.95
360 $12,791 $ 2,189,202.12
360 $29,439 $ 3,135,819.05
360 $15,019 $ 1,555,178.51
360 $28,333 $ 1,270,195.63
360 $31,140 $ 7,070,169.39
360 $21,967 $ 5,229,647.62
360 $23,115 $ 2,993,040.69
360 $24,752 $ 7,470,570.25
360 $27,027 $ 3,984,493.45
360 $20,956 $ 2,838,726.00
360 $21,927 $ 6,573,891.73
360 $19,974 $ 2,267,992.65
360 $25,170 $ 5,014,246.72
360 $16,379 $ 1,893,833.36
360 $39,000 $ 3,887,424.02
360 $18,590 $ 2,167,679.27
360 $17,857 $ 1,993,495.65
360 $ 9,280 $ 2,442,016.01
360 $19,444 $ 2,790,834.69
360 $ 6,284 $ 927,583.78
360 $16,625 $ 4,639,395.05
360 $18,285 $ 2,498,043.13
360 $ 6,356 $ 747,954.49
360 $24,096 $ 9,973,109.26
360 $29,412 $ 4,487,801.05
360 $17,702 $ 4,378,171.12
300 $10,813 $ 5,426,921.71
360 $23,929 $ 2,672,894.54
360 $ 8,594 $ 822,808.25
360 $ 9,551 $ 609,626.11
360 $15,493 $ 1,097,083.59
300 $18,500 $ 3,660,363.49
360 $20,984 $ 8,050,739.73
300 $13,393 $ 2,969,009.30
300 $21,628 $ 4,682,332.56
360 $25,455 $ 5,581,151.24
360 $25,714 $ 7,176,250.24
360 $59,375 $ 11,368,782.89
360 $16,000 $ 797,537.19
360 $17,230 $ 1,271,074.93
360 $17,600 $ 438,645.47
360 $15,900 $ 475,531.55
360 $20,122 $ 822,460.24
360 $36,563 $ 5,232,017.52
360 $28,125 $ 1,342,639.42
360 $18,133 $ 1,621,935.57
---------------
$235,947,286.88
===============
$ 322,639,635
---------------
Average Loan Size $ 3,432,336.55
---------------
</TABLE>
<PAGE> 85
PROSPECTUS
NATIONSLINK FUNDING CORPORATION
MORTGAGE PASS-THROUGH CERTIFICATES
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series. The Offered Certificates of any
series, together with any other mortgage pass-through certificates of such
series, are collectively referred to herein as the "Certificates".
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund" to be formed by NationsLink(SM) Funding Corporation (the
"Depositor") and consisting primarily of a segregated pool (a "Mortgage Asset
Pool") of various types of multifamily and commercial mortgage loans ("Mortgage
Loans"), mortgage-backed securities ("MBS") that evidence interests in, or that
are secured by pledges of, one or more of various types of multifamily or
commercial mortgage loans, or a combination of Mortgage Loans and MBS
(collectively, "Mortgage Assets"). If so specified in the related Prospectus
Supplement, the Trust Fund for a series of Certificates may include letters of
credit, insurance policies, guarantees, reserve funds or other types of credit
support, or any combination thereof, and also interest rate exchange agreements
and other financial assets, or any combination thereof. See "Description of the
Trust Funds", "Description of the Certificates" and "Description of Credit
Support".
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments) on
the Mortgage Assets in the related Trust Fund and the timing of receipt of such
payments as described herein and in the related Prospectus Supplement. See
"Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates -- Termination".
(cover continued on next page)
------------------------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS
AFFILIATES, INCLUDING NATIONSBANK CORPORATION, THE DEPOSITOR'S
ULTIMATE PARENT. NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE
ASSETS WILL BE GUARANTEED OR INSURED BY THE DEPOSITOR OR ANY OF
ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
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.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING ON PAGE 15
HEREIN UNDER THE CAPTION "RISK FACTORS" AND SUCH INFORMATION AS MAY BE SET FORTH
UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE
PURCHASING ANY OFFERED CERTIFICATE.
The Offered Certificates of any series may be offered through one or more
different methods, including offerings through underwriters, which may include
NationsBanc Capital Markets, Inc., an affiliate of the Depositor, as described
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if it does develop, that it
will continue. Unless otherwise provided in the related Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Certificates of any series unless
accompanied by the Prospectus Supplement for such series.
The date of this Prospectus is May 2, 1996
<PAGE> 86
(cover continued)
As described in the related Prospectus Supplement, the Certificates of each
series, including the Offered Certificates of such series, may consist of one or
more classes of Certificates that: (i) provide for the accrual of interest
thereon based on a fixed, variable or adjustable interest rate; (ii) are senior
or subordinate to one or more other classes of Certificates in entitlement to
certain distributions on the Certificates; (iii) are entitled to distributions
of principal, with disproportionate, nominal or no distributions of interest;
(iv) are entitled to distributions of interest, with disproportionate, nominal
or no distributions of principal; (v) provide for distributions of interest
thereon or principal thereof that commence only following the occurrence of
certain events, such as the retirement of one or more other classes of
Certificates of such series; (vi) provide for distributions of principal thereof
to be made, from time to time or for designated periods, at a rate that is
faster (and, in some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund; or
(vii) provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or other
methodology. Distributions in respect of the Certificates of each series will be
made on a monthly, quarterly, semi-annual, annual or other periodic basis as
specified in the related Prospectus Supplement. See "Description of the
Certificates".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
"real estate mortgage investment conduit" (each, a "REMIC") for federal income
tax purposes. If applicable, the Prospectus Supplement for a series of
Certificates will specify which class or classes of such series of Certificates
will be considered to be regular interests in the related REMIC and which class
of Certificates or other interests will be designated as the residual interest
in the related REMIC. See "Certain Federal Income Tax Consequences".
2
<PAGE> 87
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to each series of Offered Certificates will, among other things, set forth, as
and to the extent appropriate: (i) a description of the class or classes of such
Offered Certificates, including the payment provisions with respect to each such
class, the aggregate principal amount, if any, of each such class, the rate at
which interest accrues from time to time, if at all, with respect to each such
class or the method of determining such rate, and whether interest with respect
to each such class will accrue from time to time on its aggregate principal
amount, if any, or on a specified notional amount, if at all; (ii) information
with respect to any other classes of Certificates of the same series; (iii) the
respective dates on which distributions are to be made; (iv) information as to
the assets, including the Mortgage Assets, constituting the related Trust Fund
(all such assets, with respect to the Certificates of any series, the "Trust
Assets"); (v) the circumstances, if any, under which the related Trust Fund may
be subject to early termination; (vi) additional information with respect to the
method of distribution of such Offered Certificates; (vii) whether one or more
REMIC elections will be made and the designation of the "regular interests" and
"residual interests" in each REMIC to be created and the identity of the person
(the "REMIC Administrator") responsible for the various tax-related duties in
respect of each REMIC to be created; (viii) the initial percentage ownership
interest in the related Trust Fund to be evidenced by each class of Certificates
of such series; (ix) information concerning the Trustee (as defined herein) of
the related Trust Fund; (x) if the related Trust Fund includes Mortgage Loans,
information concerning the Master Servicer and any Special Servicer (each as
defined herein) of such Mortgage Loans and the circumstances under which all or
a portion, as specified, of the servicing of a Mortgage Loan would transfer from
the Master Servicer to the Special Servicer; (xi) information as to the nature
and extent of subordination of any class of Certificates of such series,
including a class of Offered Certificates; and (xii) whether such Offered
Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Offered Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Midwest
Regional Offices located as follows: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, Seven
World Trade Center, Suite 1300, New York, New York 10048.
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or any related Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or any other person. Neither the delivery of this Prospectus or
any related Prospectus Supplement nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there has been no
change in the information herein since the date hereof or therein since the date
thereof. This Prospectus and any related Prospectus Supplement are not an offer
to sell or a solicitation of an offer to buy any security in any jurisdiction in
which it is unlawful to make such offer or solicitation.
The Master Servicer, the Trustee or another specified person will cause to
be provided to registered holders of the Offered Certificates of each series
periodic unaudited reports concerning the related Trust Fund. If beneficial
interests in a class or series of Offered Certificates are being held and
transferred in book-entry format through the facilities of The Depository Trust
Company ("DTC") as described herein, then unless otherwise provided in the
related Prospectus Supplement, such reports will be sent on behalf of the
related Trust Fund to a nominee of DTC as the registered holder of the Offered
Certificates. Conveyance of notices
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<PAGE> 88
and other communications by DTC to its participating organizations, and directly
or indirectly through such participating organizations to the beneficial owners
of the applicable Offered Certificates, will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time. See "Description of the Certificates -- Reports to
Certificateholders" and "-- Book-Entry Registration and Definitive
Certificates".
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. The Depositor intends to make a
written request to the staff of the Commission that the staff either (i) issue
an order pursuant to Section 12(h) of the Exchange Act exempting the Depositor
from certain reporting requirements under the Exchange Act with respect to each
Trust Fund or (ii) state that the staff will not recommend that the Commission
take enforcement action if the Depositor fulfills its reporting obligations as
described in its written request. If such request is granted, the Depositor will
file or cause to be filed with the Commission as to each Trust Fund the periodic
unaudited reports to holders of the Offered Certificates referenced in the
preceding paragraph; however, because of the nature of the Trust Funds, it is
unlikely that any significant additional information will be filed. In addition,
because of the limited number of Certificateholders expected for each series,
the Depositor anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first fiscal year for
the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, prior
to the termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the offering
of one or more classes of Offered Certificates, upon written or oral request of
such person, a copy of any or all documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one or
more of such classes of such Offered Certificates, other than the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Such requests to the Depositor should be directed in writing
to its principal executive offices at the NationsBank Corporate Center,
Charlotte, North Carolina 28255, or by telephone at (704) 386-2400.
4
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT................................................................. 3
AVAILABLE INFORMATION................................................................. 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 4
SUMMARY OF PROSPECTUS................................................................. 8
RISK FACTORS.......................................................................... 15
Limited Liquidity of Offered Certificates........................................... 15
Limited Assets...................................................................... 15
Credit Support Limitations.......................................................... 16
Effect of Prepayments on Average Life of Certificates............................... 16
Effect of Prepayments on Yield of Certificates...................................... 18
Limited Nature of Ratings........................................................... 18
Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans... 18
Inclusion of Delinquent and Nonperforming Mortgage Loans in a Mortgage Asset Pool... 21
DESCRIPTION OF THE TRUST FUNDS........................................................ 22
General............................................................................. 22
Mortgage Loans...................................................................... 22
MBS................................................................................. 26
Certificate Accounts................................................................ 27
Credit Support...................................................................... 27
Cash Flow Agreements................................................................ 27
YIELD AND MATURITY CONSIDERATIONS..................................................... 27
General............................................................................. 27
Pass-Through Rate................................................................... 27
Payment Delays...................................................................... 28
Certain Shortfalls in Collections of Interest....................................... 28
Yield and Prepayment Considerations................................................. 28
Weighted Average Life and Maturity.................................................. 30
Other Factors Affecting Yield, Weighted Average Life and Maturity................... 30
THE DEPOSITOR......................................................................... 32
DESCRIPTION OF THE CERTIFICATES....................................................... 32
General............................................................................. 32
Distributions....................................................................... 33
Distributions of Interest on the Certificates....................................... 34
Distributions of Principal of the Certificates...................................... 35
Distributions on the Certificates in Respect of Prepayment Premiums or in Respect
of Equity Participations......................................................... 35
Allocation of Losses and Shortfalls................................................. 36
Advances in Respect of Delinquencies................................................ 36
Reports to Certificateholders....................................................... 37
Voting Rights....................................................................... 38
Termination......................................................................... 38
Book-Entry Registration and Definitive Certificates................................. 39
THE POOLING AND SERVICING AGREEMENTS.................................................. 40
General............................................................................. 40
Assignment of Mortgage Loans; Repurchases........................................... 41
Representations and Warranties; Repurchases......................................... 42
</TABLE>
5
<PAGE> 90
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Collection and Other Servicing Procedures........................................... 43
Sub-Servicers....................................................................... 45
Certificate Account................................................................. 45
Modifications, Waivers and Amendments of Mortgage Loans............................. 48
Realization Upon Defaulted Mortgage Loans........................................... 48
Hazard Insurance Policies........................................................... 49
Due-on-Sale and Due-on-Encumbrance Provisions....................................... 50
Servicing Compensation and Payment of Expenses...................................... 51
Evidence as to Compliance........................................................... 51
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator
and the Depositor................................................................ 52
Events of Default................................................................... 53
Rights Upon Event of Default........................................................ 54
Amendment........................................................................... 54
List of Certificateholders.......................................................... 55
The Trustee......................................................................... 55
Duties of the Trustee............................................................... 55
Certain Matters Regarding the Trustee............................................... 56
Resignation and Removal of the Trustee.............................................. 56
DESCRIPTION OF CREDIT SUPPORT......................................................... 56
General............................................................................. 56
Subordinate Certificates............................................................ 57
Insurance or Guarantees with Respect to Mortgage Loans.............................. 57
Letter of Credit.................................................................... 57
Certificate Insurance and Surety Bonds.............................................. 58
Reserve Funds....................................................................... 58
Credit Support with respect to MBS.................................................. 58
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS............................................... 58
General............................................................................. 59
Types of Mortgage Instruments....................................................... 59
Leases and Rents.................................................................... 59
Personalty.......................................................................... 60
Foreclosure......................................................................... 60
Bankruptcy Laws..................................................................... 63
Environmental Considerations........................................................ 64
Due-on-Sale and Due-on-Encumbrance Provisions....................................... 66
Junior Liens; Rights of Holders of Senior Liens..................................... 66
Subordinate Financing............................................................... 67
Default Interest and Limitations on Prepayments..................................... 68
Applicability of Usury Laws......................................................... 68
Certain Laws and Regulations........................................................ 68
Americans with Disabilities Act..................................................... 69
Soldiers' and Sailors' Civil Relief Act of 1940..................................... 69
Forfeitures in Drug and RICO Proceedings............................................ 69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 70
General............................................................................. 70
REMICs.............................................................................. 71
Grantor Trust Funds................................................................. 86
</TABLE>
6
<PAGE> 91
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STATE AND OTHER TAX CONSEQUENCES...................................................... 95
ERISA CONSIDERATIONS.................................................................. 95
General............................................................................. 95
Plan Asset Regulations.............................................................. 95
Consultation With Counsel........................................................... 96
Tax Exempt Investors................................................................ 96
LEGAL INVESTMENT...................................................................... 96
USE OF PROCEEDS....................................................................... 98
METHOD OF DISTRIBUTION................................................................ 98
LEGAL MATTERS......................................................................... 99
FINANCIAL INFORMATION................................................................. 99
RATING................................................................................ 99
INDEX OF PRINCIPAL DEFINITIONS........................................................ 101
</TABLE>
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<PAGE> 92
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
SECURITIES OFFERED......... Mortgage pass-through certificates.
DEPOSITOR.................. NationsLink(SM) Funding Corporation, a Delaware
corporation and a wholly-owned subsidiary of
NationsBanc Mortgage Capital Corporation, a Texas
corporation. See "The Depositor".
TRUSTEE.................... The trustee (the "Trustee") for each series of
Certificates will be named in the related
Prospectus Supplement. See "The Pooling and
Servicing Agreements -- The Trustee".
MASTER SERVICER............ If a Trust Fund includes Mortgage Loans, then the
master servicer (the "Master Servicer") for the
corresponding series of Certificates will be named
in the related Prospectus Supplement. The Master
Servicer for any series of Certificates may be an
affiliate of the Depositor. See "The Pooling and
Servicing Agreements -- Certain Matters Regarding
the Master Servicer, the Special Servicer, the
REMIC Administrator and the Depositor".
SPECIAL SERVICER........... If a Trust Fund includes Mortgage Loans, then the
special servicer (the "Special Servicer") for the
corresponding series of Certificates will be named,
or the circumstances under which a Special Servicer
may be appointed will be described, in the related
Prospectus Supplement. The Special Servicer for any
series of Certificates may be the Master Servicer
or an affiliate of the Depositor. See "The Pooling
and Servicing Agreements -- Collection and Other
Servicing Procedures".
MBS ADMINISTRATOR.......... If a Trust Fund includes MBS, then the entity
responsible for administering such MBS (the "MBS
Administrator") will be named in the related
Prospectus Supplement. If an entity other than the
Trustee and the Master Servicer is the MBS
Administrator, such entity will be herein referred
to as the "Manager". The Manager for any series of
Certificates may be an affiliate of the Depositor.
REMIC ADMINISTRATOR........ The person (the "REMIC Administrator") responsible
for the various tax-related administration duties
for a series of Certificates as to which one or
more REMIC elections have been made, will be named
in the related Prospectus Supplement. Any REMIC
Administrator may be an affiliate of the Depositor
and/or may also be acting as Master Servicer,
Special Servicer, Trustee or MBS Administrator. See
"Certain Federal Income Tax
Consequences -- REMICs -- Reporting and Other
Administrative Matters."
THE MORTGAGE ASSETS........ The Mortgage Assets will be the primary assets of
any Trust Fund. The Mortgage Assets with respect to
each series of Certificates will, in general,
consist of a pool of mortgage loans ("Mortgage
Loans") secured by first or junior liens on, or
security interests in, without limitation, (i)
residential properties consisting of five or more
rental or cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment buildings
or other residential structures ("Multifamily
Properties") or
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<PAGE> 93
(ii) office buildings, retail stores and
establishments, hotels or motels, nursing homes,
hospitals or other health care-related facilities,
recreational vehicle and mobile home parks,
warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial plants,
parking lots, entertainment or sports arenas,
restaurants, marinas, mixed use or various other
types of income-producing properties or unimproved
land ("Commercial Properties"). However, no one of
the following types of Commercial Properties will
represent security for a material concentration of
the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is
formed: (i) restaurants; (ii) entertainment or
sports arenas; or (iii) marinas. The Mortgage
Loans will not be guaranteed or insured by the
Depositor or any of its affiliates or, unless
otherwise provided in the related Prospectus
Supplement, by any governmental agency or
instrumentality or by any other person. If so
specified in the related Prospectus Supplement,
some Mortgage Loans may be delinquent or
nonperforming as of the date the related Trust
Fund is formed.
As and to the extent described in the related
Prospectus Supplement, a Mortgage Loan (i) may
provide for no accrual of interest or for accrual
of interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its term or
that adjusts from time to time, or that may be
converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a
fixed to an adjustable Mortgage Rate, (ii) may
provide for level payments to maturity or for
payments that adjust from time to time to
accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and may
permit negative amortization, (iii) may be fully
amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its
stated maturity date, (iv) may prohibit over its
term or for a certain period prepayments and/or
require payment of a premium or a yield maintenance
payment in connection with certain prepayments and
(v) may provide for payments of principal, interest
or both, on due dates that occur monthly,
quarterly, semi-annually or at such other interval
as is specified in the related Prospectus
Supplement. Each Mortgage Loan will have had an
original term to maturity of not more than 40
years. No Mortgage Loan will have been originated
by the Depositor; however, some or all of the
Mortgage Loans in any Trust Fund may have been
originated by an affiliate of the Depositor. See
"Description of the Trust Funds -- Mortgage Loans".
If any Mortgage Loan, or group of related Mortgage
Loans, constitutes a concentration of credit risk,
financial statements or other financial information
with respect to the related Mortgaged Property or
Mortgaged Properties will be included in the
related Prospectus Supplement. See "Description of
the Trust Funds -- Mortgage Loans -- Mortgage Loan
Information in Prospectus Supplements".
If and to the extent specified in the related
Prospectus Supplement, the Mortgage Assets with
respect to a series of Certificates may also
include, or consist of, mortgage participations,
mortgage pass-through certificates and/or other
mortgage-backed securities (collectively, "MBS"),
that evidence an interest in, or are secured by a
pledge of, one or more mortgage loans that conform
to the descriptions of the Mortgage Loans contained
herein and which may or may not be issued, insured
or
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<PAGE> 94
guaranteed by the United States or an agency or
instrumentality thereof. See "Description of the
Trust Funds -- MBS".
THE CERTIFICATES........... Each series of Certificates will be issued in one
or more classes pursuant to a pooling and servicing
agreement or other agreement specified in the
related Prospectus Supplement (in any case, a
"Pooling and Servicing Agreement") and will
represent in the aggregate the entire beneficial
ownership interest in the related Trust Fund.
As described in the related Prospectus Supplement,
the Certificates of each series, including the
Offered Certificates of such series, may consist of
one or more classes of Certificates that, among
other things: (i) are senior (collectively, "Senior
Certificates") or subordinate (collectively,
"Subordinate Certificates") to one or more other
classes of Certificates in entitlement to certain
distributions on the Certificates; (ii) are
entitled to distributions of principal, with
disproportionate, nominal or no distributions of
interest (collectively, "Stripped Principal
Certificates"); (iii) are entitled to distributions
of interest, with disproportionate, nominal or no
distributions of principal (collectively, "Stripped
Interest Certificates"); (iv) provide for
distributions of interest thereon or principal
thereof that commence only after the occurrence of
certain events, such as the retirement of one or
more other classes of Certificates of such series;
(v) provide for distributions of principal thereof
to be made, from time to time or for designated
periods, at a rate that is faster (and, in some
cases, substantially faster) or slower (and, in
some cases, substantially slower) than the rate at
which payments or other collections of principal
are received on the Mortgage Assets in the related
Trust Fund; (vi) provide for distributions of
principal thereof to be made, subject to available
funds, based on a specified principal payment
schedule or other methodology; or (vii) provide for
distribution based on collections on the Mortgage
Assets in the related Trust Fund attributable to
prepayment premiums, yield maintenance payments or
equity participations.
If so specified in the related Prospectus
Supplement, a series of Certificates may include
one or more "Controlled Amortization Classes",
which will entitle the holders thereof to receive
principal distributions according to a specified
principal payment schedule. Although prepayment
risk cannot be eliminated entirely for any class of
Certificates, a Controlled Amortization Class will
generally provide a relatively stable cash flow so
long as the actual rate of prepayment on the
Mortgage Loans in the related Trust Fund remains
relatively constant at the rate, or within the
range of rates, of prepayment used to establish the
specific principal payment schedule for such
Certificates. Prepayment risk with respect to a
given Mortgage Asset Pool does not disappear,
however, and the stability afforded to a Controlled
Amortization Class comes at the expense of one or
more other classes of the same series, any of which
other classes may also be a class of Offered
Certificates. See "Risk Factors -- Effect of
Prepayments on Average Life of Certificates" and
"-- Effect of Prepayments on Yield of
Certificates".
Each class of Certificates, other than certain
classes of Stripped Interest Certificates and
certain classes of REMIC Residual Certificates (as
defined herein), will have an initial stated
principal amount (a "Certificate Balance"); and
each class of Certificates, other than certain
classes of Stripped Principal Certificates and
certain classes of REMIC
10
<PAGE> 95
Residual Certificates, will accrue interest on
its Certificate Balance or, in the case of certain
classes of Stripped Interest Certificates, on a
notional amount (a "Notional Amount"), based on a
fixed, variable or adjustable interest rate (a
"Pass-Through Rate"). The related Prospectus
Supplement will specify the Certificate Balance,
Notional Amount and/or Pass-Through Rate (or, in
the case of a variable or adjustable Pass-Through
Rate, the method for determining such rate), as
applicable, for each class of Offered
Certificates.
If so specified in the related Prospectus
Supplement, a class of Certificates may have two or
more component parts, each having characteristics
that are otherwise described herein as being
attributable to separate and distinct classes.
The Certificates will not be guaranteed or insured
by the Depositor or any of its affiliates, by any
governmental agency or instrumentality or by any
other person or entity, unless otherwise provided
in the related Prospectus Supplement. See "Risk
Factors -- Limited Assets".
DISTRIBUTIONS OF INTEREST
ON THE CERTIFICATES........ Interest on each class of Offered Certificates
(other than certain classes of Stripped Principal
Certificates and certain classes of REMIC Residual
Certificates) of each series will accrue at the
applicable Pass-Through Rate on the Certificate
Balance or, in the case of certain classes of
Stripped Interest Certificates, the Notional Amount
thereof outstanding from time to time and will be
distributed to Certificateholders as provided in
the related Prospectus Supplement (each of the
specified dates on which distributions are to be
made, a "Distribution Date"). Distributions of
interest with respect to one or more classes of
Certificates (collectively, "Accrual Certificates")
may not commence until the occurrence of certain
events, such as the retirement of one or more other
classes of Certificates, and interest accrued with
respect to a class of Accrual Certificates prior to
the occurrence of such an event will either be
added to the Certificate Balance thereof or
otherwise deferred as described in the related
Prospectus Supplement. Distributions of interest
with respect to one or more classes of Certificates
may be reduced to the extent of certain
delinquencies, losses and other contingencies
described herein and in the related Prospectus
Supplement. See "Risk Factors -- Effect of
Prepayments on Average Life of Certificates" and
"-- Effect of Prepayments on Yield of
Certificates", "Yield and Maturity
Considerations -- Certain Shortfalls in Collections
of Interest" and "Description of the
Certificates -- Distributions of Interest on the
Certificates".
DISTRIBUTIONS OF PRINCIPAL
OF THE CERTIFICATES........ Each class of Certificates of each series (other
than certain classes of Stripped Interest
Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance. The
Certificate Balance of a class of Certificates
outstanding from time to time will represent the
maximum amount that the holders thereof are then
entitled to receive in respect of principal from
future cash flow on the assets in the related Trust
Fund. The initial aggregate Certificate Balance of
all classes of a series of Certificates will not be
greater than the outstanding principal balance of
the related Mortgage Assets as of a specified date
(the "Cut-off Date"), after application of
scheduled payments due on or before such date,
whether or not received. As and to the extent
described in
11
<PAGE> 96
each Prospectus Supplement, distributions of
principal with respect to the related series of
Certificates will be made on each Distribution
Date to the holders of the class or classes of
Certificates of such series then entitled thereto
until the Certificate Balances of such
Certificates have been reduced to zero.
Distributions of principal with respect to one or
more classes of Certificates: (i) may be made at a
rate that is faster (and, in some cases,
substantially faster) or slower (and, in some
cases, substantially slower) than the rate at
which payments or other collections of principal
are received on the Mortgage Assets in the related
Trust Fund; (ii) may not commence until the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of the same series; (iii) may be
made, subject to certain limitations, based on a
specified principal payment schedule; or (iv) may
be contingent on the specified principal payment
schedule for another class of the same series and
the rate at which payments and other collections
of principal on the Mortgage Assets in the related
Trust Fund are received. Unless otherwise
specified in the related Prospectus Supplement,
distributions of principal of any class of Offered
Certificates will be made on a pro rata basis
among all of the Certificates of such class. See
"Description of the Certificates -- Distributions
of Principal of the Certificates".
CREDIT SUPPORT AND CASH
FLOW AGREEMENTS............ If so provided in the related Prospectus
Supplement, partial or full protection against
certain defaults and losses on the Mortgage Assets
in the related Trust Fund may be provided to one or
more classes of Certificates of the related series
in the form of subordination of one or more other
classes of Certificates of such series, which other
classes may include one or more classes of Offered
Certificates, or by one or more other types of
credit support, such as a letter of credit,
insurance policy, guarantee, reserve fund or
another type of credit support, or a combination
thereof (any such coverage with respect to the
Certificates of any series, "Credit Support"). If
so provided in the related Prospectus Supplement, a
Trust Fund may include: (i) guaranteed investment
contracts pursuant to which moneys held in the
funds and accounts established for the related
series will be invested at a specified rate; or
(ii) certain other agreements, such as interest
rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to
reduce the effects of interest rate fluctuations on
the Mortgage Assets or on one or more classes of
Certificates (any such agreement, in the case of
clause (i) or (ii), a "Cash Flow Agreement").
Certain relevant information regarding any
applicable Credit Support or Cash Flow Agreement
will be set forth in the Prospectus Supplement for
a series of Offered Certificates. See "Risk
Factors -- Credit Support Limitations",
"Description of the Trust Funds -- Credit Support"
and "-- Cash Flow Agreements" and "Description of
Credit Support".
ADVANCES................... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund includes
Mortgage Loans, the Master Servicer, the Special
Servicer, the Trustee, any provider of Credit
Support and/or any other specified person may be
obligated to make, or have the option of making,
certain advances with respect to delinquent
scheduled payments of principal and/or interest on
such Mortgage Loans. Any such advances made with
respect to a particular Mortgage Loan will be
reimbursable
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<PAGE> 97
from subsequent recoveries in respect of such
Mortgage Loan and otherwise to the extent
described herein and in the related Prospectus
Supplement. See "Description of the Certificates
-- Advances in Respect of Delinquencies". If and
to the extent provided in the Prospectus
Supplement for a series of Certificates, any
entity making such advances may be entitled to
receive interest thereon for a specified period
during which certain or all of such advances are
outstanding, payable from amounts in the related
Trust Fund. See "Description of the Certificates
-- Advances in Respect of Delinquencies". If a
Trust Fund includes MBS, any comparable advancing
obligation of a party to the related Pooling and
Servicing Agreement, or of a party to the related
MBS Agreement, will be described in the related
Prospectus Supplement.
OPTIONAL TERMINATION....... If so specified in the related Prospectus
Supplement, a series of Certificates may be subject
to optional early termination through the
repurchase of the Mortgage Assets in the related
Trust Fund by the party or parties specified
therein, under the circumstances and in the manner
set forth therein. If so provided in the related
Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes
of Certificates by a specified percentage or amount
or upon a specified date, a party specified therein
may be authorized or required to solicit bids for
the purchase of all of the Mortgage Assets of the
related Trust Fund, or of a sufficient portion of
such Mortgage Assets to retire such class or
classes, under the circumstances and in the manner
set forth therein. See "Description of the
Certificates -- Termination".
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............. The Certificates of each series will constitute or
evidence ownership of either (i) "regular
interests" ("REMIC Regular Certificates") and
"residual interests" ("REMIC Residual
Certificates") in a Trust Fund, or a designated
portion thereof, treated as a REMIC under Sections
860A through 860G of the Internal Revenue Code of
1986 (the "Code"), or (ii) interests ("Grantor
Trust Certificates") in a Trust Fund treated as a
grantor trust (or a partnership) under applicable
provisions of the Code.
Investors are advised to consult their tax advisors
and to review "Certain Federal Income Tax
Consequences" herein and in the related Prospectus
Supplement.
ERISA CONSIDERATIONS....... Fiduciaries of employee benefit plans and certain
other retirement plans and arrangements, including
individual retirement accounts, annuities, Keogh
plans, and collective investment funds and separate
accounts in which such plans, accounts, annuities
or arrangements are invested, that are subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code, should review with their legal advisors
whether the purchase or holding of Offered
Certificates could give rise to a transaction that
is prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the Code. See
"ERISA Considerations" herein and in the related
Prospectus Supplement.
LEGAL INVESTMENT........... The Offered Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984,
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as amended ("SMMEA"), only if so specified in
the related Prospectus Supplement. Investors whose
investment authority is subject to legal
restrictions should consult their legal advisors
to determine whether and to what extent the
Offered Certificates constitute legal investments
for them. See "Legal Investment" herein and in the
related Prospectus Supplement.
RATING..................... At their respective dates of issuance, each class
of Offered Certificates will be rated not lower
than investment grade by one or more nationally
recognized statistical rating agencies (each, a
"Rating Agency"). See "Rating" herein and in the
related Prospectus Supplement.
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RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly pertain
to and be influenced by the characteristics or behavior of the mortgage loans
underlying any MBS included in such Trust Fund.
LIMITED LIQUIDITY OF OFFERED CERTIFICATES
General. The Offered Certificates of any series may have limited or no
liquidity. Accordingly, an investor may be forced to bear the risk of its
investment in any Offered Certificates for an indefinite period of time.
Furthermore, except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the Offered
Certificates of each series are subject to early retirement only under certain
specified circumstances described herein and in the related Prospectus
Supplement. See "Description of the Certificates -- Termination".
Lack of a Secondary Market. There can be no assurance that a secondary
market for the Offered Certificates of any series will develop or, if it does
develop, that it will provide holders with liquidity of investment or that it
will continue for as long as such Certificates remain outstanding. The
Prospectus Supplement for any series of Offered Certificates may indicate that
an underwriter specified therein intends to establish a secondary market in such
Offered Certificates; however, no underwriter will be obligated to do so. Any
such secondary market may provide less liquidity to investors than any
comparable market for securities that evidence interests in single-family
mortgage loans. Unless otherwise provided in the related Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
Limited Nature of Ongoing Information. The primary source of ongoing
information regarding the Offered Certificates of any series, including
information regarding the status of the related Mortgage Assets and any Credit
Support for such Certificates, will be the periodic reports to
Certificateholders to be delivered pursuant to the related Pooling and Servicing
Agreement as described herein under the heading "Description of the
Certificates -- Reports to Certificateholders". There can be no assurance that
any additional ongoing information regarding the Offered Certificates of any
series will be available through any other source. The limited nature of such
information in respect of a series of Offered Certificates may adversely affect
the liquidity thereof, even if a secondary market for such Certificates does
develop.
Sensitivity to Fluctuations in Prevailing Interest Rates. Insofar as a
secondary market does develop with respect to any series of Offered Certificates
or class thereof, the market value of such Certificates will be affected by
several factors, including the perceived liquidity thereof, the anticipated cash
flow thereon (which may vary widely depending upon the prepayment and default
assumptions applied in respect of the underlying Mortgage Loans) and prevailing
interest rates. The price payable at any given time in respect of certain
classes of Offered Certificates (in particular, a class with a relatively long
average life, a Companion Class (as defined herein) or a class of Stripped
Interest Certificates or Stripped Principal Certificates) may be extremely
sensitive to small fluctuations in prevailing interest rates; and the relative
change in price for an Offered Certificate in response to an upward or downward
movement in prevailing interest rates may not necessarily equal the relative
change in price for such Offered Certificate in response to an equal but
opposite movement in such rates. Accordingly, the sale of Offered Certificates
by a holder in any secondary market that may develop may be at a discount from
the price paid by such holder. The Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis.
LIMITED ASSETS
Unless otherwise specified in the related Prospectus Supplement, neither
the Offered Certificates of any series nor the Mortgage Assets in the related
Trust Fund will be guaranteed or insured by the Depositor or any of its
affiliates, by any governmental agency or instrumentality or by any other person
or entity; and no Offered Certificate of any series will represent a claim
against or security interest in the Trust Funds for any other
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<PAGE> 100
series. Accordingly, if the related Trust Fund has insufficient assets to make
payments on a series of Offered Certificates, no other assets will be available
for payment of the deficiency, and the holders of one or more classes of such
Offered Certificates will be required to bear the consequent loss. Furthermore,
certain amounts on deposit from time to time in certain funds or accounts
constituting part of a Trust Fund, including the Certificate Account and any
accounts maintained as Credit Support, may be withdrawn under certain
conditions, if and to the extent described in the related Prospectus Supplement,
for purposes other than the payment of principal of or interest on the related
series of Certificates. If and to the extent so provided in the Prospectus
Supplement for a series of Certificates consisting of one or more classes of
Subordinate Certificates, on any Distribution Date in respect of which losses or
shortfalls in collections on the Mortgage Assets have been incurred, all or a
portion of the amount of such losses or shortfalls will be borne first by one or
more classes of the Subordinate Certificates, and, thereafter, by the remaining
classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
CREDIT SUPPORT LIMITATIONS
Limitations Regarding Types of Losses Covered. The Prospectus Supplement
for a series of Certificates will describe any Credit Support provided with
respect thereto. Use of Credit Support will be subject to the conditions and
limitations described herein and in the related Prospectus Supplement. Moreover,
such Credit Support may not cover all potential losses; for example, Credit
Support may or may not cover loss by reason of fraud or negligence by a mortgage
loan originator or other parties. Any such losses not covered by Credit Support
may, at least in part, be allocated to one or more classes of Offered
Certificates.
Disproportionate Benefits to Certain Classes and Series. A series of
Certificates may include one or more classes of Subordinate Certificates (which
may include Offered Certificates), if so provided in the related Prospectus
Supplement. Although subordination is intended to reduce the likelihood of
temporary shortfalls and ultimate losses to holders of Senior Certificates, the
amount of subordination will be limited and may decline under certain
circumstances. In addition, if principal payments on one or more classes of
Offered Certificates of a series are made in a specified order of priority, any
related Credit Support may be exhausted before the principal of the later paid
classes of Offered Certificates of such series has been repaid in full. As a
result, the impact of losses and shortfalls experienced with respect to the
Mortgage Assets may fall primarily upon those classes of Offered Certificates
having a later right of payment. Moreover, if a form of Credit Support covers
the Offered Certificates of more than one series and losses on the related
Mortgage Assets exceed the amount of such Credit Support, it is possible that
the holders of Offered Certificates of one (or more) such series will be
disproportionately benefited by such Credit Support to the detriment of the
holders of Offered Certificates of one (or more) other such series.
Limitations Regarding the Amount of Credit Support. The amount of any
applicable Credit Support supporting one or more classes of Offered
Certificates, including the subordination of one or more other classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies and losses on the underlying Mortgage Assets and certain
other factors. There can, however, be no assurance that the loss experience on
the related Mortgage Assets will not exceed such assumed levels. See
"Description of the Certificates -- Allocation of Losses and Shortfalls" and
"Description of Credit Support". If the losses on the related Mortgage Assets do
exceed such assumed levels, the holders of one or more classes of Offered
Certificates will be required to bear such additional losses.
EFFECT OF PREPAYMENTS ON AVERAGE LIFE OF CERTIFICATES
As a result of prepayments on the Mortgage Loans in any Trust Fund, the
amount and timing of distributions of principal and/or interest on the Offered
Certificates of the related series may be highly unpredictable. Prepayments on
the Mortgage Loans in any Trust Fund will result in a faster rate of principal
payments on one or more classes of the related series of Certificates than if
payments on such Mortgage Loans were made as scheduled. Thus, the prepayment
experience on the Mortgage Loans in a Trust Fund may affect the average life of
one or more classes of Certificates of the related series, including a class of
Offered Certificates. The rate of principal payments on pools of mortgage loans
varies among pools and from time to
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<PAGE> 101
time is influenced by a variety of economic, demographic, geographic, social,
tax and legal factors. For example, if prevailing interest rates fall
significantly below the Mortgage Rates borne by the Mortgage Loans included in a
Trust Fund, then, subject to the particular terms of the Mortgage Loans (e.g.,
provisions that prohibit voluntary prepayments during specified periods or
impose penalties in connection therewith) and the ability of borrowers to obtain
new financing, principal prepayments on such Mortgage Loans are likely to be
higher than if prevailing interest rates remain at or above the rates borne by
those Mortgage Loans. Conversely, if prevailing interest rates rise
significantly above the Mortgage Rates borne by the Mortgage Loans included in a
Trust Fund, then principal prepayments on such Mortgage Loans are likely to be
lower than if prevailing interest rates remain at or below the mortgage rates
borne by those Mortgage Loans. There can be no assurance as to the actual rate
of prepayment on the Mortgage Loans in any Trust Fund or that such rate of
prepayment will conform to any model described herein or in any Prospectus
Supplement. As a result, depending on the anticipated rate of prepayment for the
Mortgage Loans in any Trust Fund, the retirement of any class of Certificates of
the related series could occur significantly earlier or later, and the average
life thereof could be significantly shorter or longer, than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any class of Certificates of the related
series will depend on the terms and provisions of such Certificates. A class of
Certificates, including a class of Offered Certificates, may provide that on any
Distribution Date the holders of such Certificates are entitled to a pro rata
share of the prepayments on the Mortgage Loans in the related Trust Fund that
are distributable on such date, to a disproportionately large share (which, in
some cases, may be all) of such prepayments, or to a disproportionately small
share (which, in some cases, may be none) of such prepayments. A class of
Certificates that entitles the holders thereof to a disproportionately large
share of the prepayments on the Mortgage Loans in the related Trust Fund
increases the likelihood of early retirement of such class ("Call Risk") if the
rate of prepayment is relatively fast; while a class of Certificates that
entitles the holders thereof to a disproportionately small share of the
prepayments on the Mortgage Loans in the related Trust Fund increases the
likelihood of an extended average life of such class ("Extension Risk") if the
rate of prepayment is relatively slow. As and to the extent described in the
related Prospectus Supplement, the respective entitlements of the various
classes of Certificateholders of any series to receive payments (and, in
particular, prepayments) of principal of the Mortgage Loans in the related Trust
Fund may vary based on the occurrence of certain events (e.g., the retirement of
one or more classes of Certificates of such series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to such Mortgage
Loans).
A series of Certificates may include one or more Controlled Amortization
Classes, which will entitle the holders thereof to receive principal
distributions according to a specified principal payment schedule. Although
prepayment risk cannot be eliminated entirely for any class of Certificates, a
Controlled Amortization Class will generally provide a relatively stable cash
flow so long as the actual rate of prepayment on the Mortgage Loans in the
related Trust Fund remains relatively constant at the rate, or within the range
of rates, of prepayment used to establish the specific principal payment
schedule for such Certificates. Prepayment risk with respect to a given Mortgage
Asset Pool does not disappear, however, and the stability afforded to a
Controlled Amortization Class comes at the expense of one or more Companion
Classes of the same series, any of which Companion Classes may also be a class
of Offered Certificates. In general, and as more specifically described in the
related Prospectus Supplement, a Companion Class may entitle the holders thereof
to a disproportionately large share of prepayments on the Mortgage Loans in the
related Trust Fund when the rate of prepayment is relatively fast, and/or may
entitle the holders thereof to a disproportionately small share of prepayments
on the Mortgage Loans in the related Trust Fund when the rate of prepayment is
relatively slow. As and to the extent described in the related Prospectus
Supplement, a Companion Class absorbs some (but not all) of the Call Risk and/or
Extension Risk that would otherwise belong to the related Controlled
Amortization Class if all payments of principal of the Mortgage Loans in the
related Trust Fund were allocated on a pro rata basis.
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EFFECT OF PREPAYMENTS ON YIELD OF CERTIFICATES
A series of Certificates may include one or more classes of Offered
Certificates offered at a premium or discount. Yields on such classes of
Certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the Mortgage Loans in the related Trust Fund and, where the
amount of interest payable with respect to a class is disproportionately large,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might fail to recover its original investment
under some prepayment scenarios. The extent to which the yield to maturity of
any class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Certificates are purchased at a discount or
premium and the amount and timing of distributions thereon. An investor should
consider, in the case of any Offered Certificate purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield. See "Yield and Maturity Considerations". See also "Certain
Legal Aspects of the Mortgage Loans -- Default Interest and Limitations on
Prepayments" herein regarding the enforceability of Prepayment Premiums.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Offered Certificates
will reflect only its assessment of the likelihood that holders of such Offered
Certificates will receive payments to which such Certificateholders are entitled
under the related Pooling and Servicing Agreement. Such rating will not
constitute an assessment of the likelihood that principal prepayments on the
related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the related Trust Fund. Furthermore, such rating
will not address the possibility that prepayment of the related Mortgage Loans
at a higher or lower rate than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that an investor that
purchases an Offered Certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios. Hence, a rating
assigned by a Rating Agency does not guarantee or ensure the realization of any
anticipated yield on a class of Offered Certificates.
The amount, type and nature of Credit Support, if any, provided with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of the Certificates of such
series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. As a result, the
Credit Support required in respect of the Offered Certificates of any series may
be insufficient to fully protect the holders thereof from losses on the related
Mortgage Asset Pool. See "Description of Credit Support" and "Rating".
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS
General. The payment performance of the Offered Certificates of any series
will be directly related to the payment performance of the underlying Mortgage
Loans. Set forth below is a discussion of certain factors that will affect the
full and timely payment of the Mortgage Loans in any Trust Fund. In addition, a
description of certain material considerations associated with investments in
mortgage loans is included herein under "Certain Legal Aspects of Mortgage
Loans".
The Offered Certificates will be directly or indirectly backed by mortgage
loans secured by Multifamily Properties and/or Commercial Properties. Mortgage
loans made on the security of Multifamily or Commercial Property may have a
greater likelihood of delinquency and foreclosure, and a greater likelihood of
loss in the event thereof, than loans made on the security of an owner-occupied
single-family property. See
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"Description of the Trust Funds -- Mortgage Loans -- Default and Loss
Considerations with Respect to the Mortgage Loans". The ability of a borrower to
repay a loan secured by an income-producing property typically is dependent
primarily upon the successful operation of such property rather than upon the
existence of independent income or assets of the borrower; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. If the net operating income of the property is
reduced (for example, if rental or occupancy rates decline or real estate tax
rates or other operating expenses increase), the borrower's ability to repay the
loan may be impaired. A number of the Mortgage Loans may be secured by liens on
owner-occupied Mortgaged Properties or on Mortgaged Properties leased to a
single tenant or in which only a few tenants produce a material amount of the
rental income. As the primary component of Net Operating Income, rental income
(and maintenance payments from tenant stockholders of a Cooperative) and the
value of any Mortgaged Property are subject to the vagaries of the applicable
real estate market and/or business climate. Properties typically leased,
occupied or used on a short-term basis, such as health care-related facilities,
hotels and motels, and mini-warehouse and self-storage facilities, tend to be
affected more rapidly by changes in market or business conditions than do
properties leased, occupied or used for longer periods, such as (typically)
warehouses, retail stores, office buildings and industrial plants. Commercial
Loans may be secured by owner-occupied Mortgaged Properties or Mortgaged
Properties leased to a single tenant. Accordingly, a decline in the financial
condition of the mortgagor or single tenant, as applicable, may have a
disproportionately greater effect on the Net Operating Income from such
Mortgaged Properties than would be the case with respect to Mortgaged Properties
with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the Net Operating Income and the
value of the Mortgaged Property and the risk of default on the related Mortgage
Loan. As may be further described in the related Prospectus Supplement, in some
cases leases of Mortgaged Properties may provide that the lessee, rather than
the mortgagor, is responsible for payment of certain of these expenses ("Net
Leases"); however, because leases are subject to default risks as well when a
tenant's income is insufficient to cover its rent and operating expenses, the
existence of such "net of expense" provisions will only temper, not eliminate,
the impact of expense increases on the performance of the related Mortgage Loan.
Additional considerations may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals and nursing homes are subject to significant governmental
regulation of the ownership, operation, maintenance and financing of health care
institutions. Hotel and motel properties are often operated pursuant to
franchise, management or operating agreements that may be terminable by the
franchisor or operator, and the transferability of a hotel's operating, liquor
and other licenses upon a transfer of the hotel, whether through purchase or
foreclosure, is subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans. It is anticipated that some
or all of the Mortgage Loans included in any Trust Fund will be nonrecourse
loans or loans for which recourse may be restricted or unenforceable. As to any
such Mortgage Loan, recourse in the event of borrower default will be limited to
the specific real property and other assets, if any, that were pledged to secure
the Mortgage Loan. However, even with respect to those Mortgage Loans that
provide for recourse against the borrower and its assets generally, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the borrower will be sufficient to permit a recovery in
respect of a defaulted Mortgage Loan in excess of the liquidation value of the
related Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans --
Foreclosure -- Anti-Deficiency Legislation".
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Limitations on Enforceability of Cross-Collateralization. A Mortgage Pool
may include groups of Mortgage Loans which are cross-collateralized and
cross-defaulted. These arrangements are designed primarily to ensure that all of
the collateral pledged to secure the respective Mortgage Loans in a cross-
collateralized group, and the cash flows generated thereby, are available to
support debt service on, and ultimate repayment of, the aggregate indebtedness
evidenced by those Mortgage Loans. These arrangements thus seek to reduce the
risk that the inability of one or more of the Mortgaged Properties securing any
such group of Mortgage Loans to generate net operating income sufficient to pay
debt service will result in defaults and ultimate losses.
If the Mortgaged Properties securing a group of cross-collateralized
Mortgage Loans are not all owned by the same entity, creditors of one or more of
the related borrowers could challenge the cross-collateralization arrangement as
a fraudulent conveyance. Generally, under federal and state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and was then insolvent, was rendered
insolvent by such obligation or transfer or had unreasonably small capital for
its business. Accordingly, a creditor seeking to enforce remedies against a
Mortgaged Property subject to such cross-collateralization to repay such
creditor's claim against the related borrower could assert (i) that such
borrower was insolvent at the time the cross-collateralized Mortgage Loans were
made and (ii) that such borrower did not, when it allowed its property to be
encumbered by a lien securing the indebtedness represented by the other Mortgage
Loans in the group of cross-collateralized Mortgage Loans, receive fair
consideration or reasonably equivalent value for, in effect, "guaranteeing" the
performance of the other borrowers. Although the borrower making such
"guarantee" may be receiving "guarantees" from each of the other borrowers in
return, there can be no assurance that such exchanged "guarantees" would be
found to constitute fair consideration or be of reasonably equivalent value.
The cross-collateralized Mortgage Loans may be secured by mortgage liens on
Mortgaged Properties located in different states. Because of various state laws
governing foreclosure or the exercise of a power of sale and because, in
general, foreclosure actions are brought in state court, and the courts of one
state cannot exercise jurisdiction over property in another state, it may be
necessary upon a default under any such Mortgage Loan to foreclose on the
related Mortgaged Properties in a particular order rather than simultaneously in
order to ensure that the lien of the related Mortgages is not impaired or
released.
Increased Risk of Default Associated With Balloon Payments. Certain of the
Mortgage Loans included in a Trust Fund may be nonamortizing or only partially
amortizing over their terms to maturity and, thus, will require substantial
payments of principal and interest (that is, balloon payments) at their stated
maturity. Mortgage Loans of this type involve a greater likelihood of default
than self-amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan or
to sell the related Mortgaged Property. The ability of a borrower to accomplish
either of these goals will be affected by a number of factors, including the
value of the related Mortgaged Property, the level of available mortgage rates
at the time of sale or refinancing, the borrower's equity in the related
Mortgaged Property, the financial condition and operating history of the
borrower and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain residential properties), Medicaid and Medicare reimbursement
rates (with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the Depositor
nor any of its affiliates will be required to refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or the Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. See "The Pooling and Servicing
Agreements -- Realization Upon Defaulted Mortgage Loans". While the Master
Servicer or the Special Servicer generally will be required to determine that
any such extension or modification is reasonably likely to produce a greater
recovery than liquidation, taking into account the time value of money, there
can be no assurance that any such extension or modification will in fact
increase the present value of receipts from or proceeds of the affected Mortgage
Loans.
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Lender Difficulty in Collecting Rents Upon the Default and/or Bankruptcy of
Borrower. Each Mortgage Loan included in any Trust Fund secured by Mortgaged
Property that is subject to leases typically will be secured by an assignment of
leases and rents pursuant to which the mortgagor assigns to the mortgagee its
right, title and interest as lessor under the leases of the related Mortgaged
Property, and the income derived therefrom, as further security for the related
Mortgage Loan, while retaining a license to collect rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect rents. Some state laws may require that the lender take
possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
borrower, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of Mortgage Loans -- Leases and Rents".
Limitations on Enforceability of Due-on-Sale and Debt-Acceleration
Clauses. Mortgages may contain a due-on-sale clause, which permits the lender
to accelerate the maturity of the Mortgage Loan if the borrower sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or nonmonetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
Risk of Liability Arising From Environmental Conditions. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, a lender may be liable, as
an "owner" or "operator", for costs of addressing releases or threatened
releases of hazardous substances at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by the
borrower or a prior owner. A lender also risks such liability on foreclosure of
the mortgage. See "Certain Legal Aspects of Mortgage Loans -- Environmental
Considerations".
Lack of Insurance Coverage for Certain Special Hazard Losses. Unless
otherwise specified in a Prospectus Supplement, the Master Servicer and Special
Servicer for the related Trust Fund will be required to cause the borrower on
each Mortgage Loan in such Trust Fund to maintain such insurance coverage in
respect of the related Mortgaged Property as is required under the related
Mortgage, including hazard insurance; provided that, as and to the extent
described herein and in the related Prospectus Supplement, each of the Master
Servicer and the Special Servicer may satisfy its obligation to cause hazard
insurance to be maintained with respect to any Mortgaged Property through
acquisition of a blanket policy. In general, the standard form of fire and
extended coverage policy covers physical damage to or destruction of the
improvements of the property by fire, lightning, explosion, smoke, windstorm and
hail, and riot, strike and civil commotion, subject to the conditions and
exclusions specified in each policy. Although the policies covering the
Mortgaged Properties will be underwritten by different insurers under different
state laws in accordance with different applicable state forms, and therefore
will not contain identical terms and conditions, most such policies typically do
not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mudflows), wet or dry rot, vermin, domestic animals
and certain other kinds of risks. Unless the related Mortgage specifically
requires the mortgagor to insure against physical damage arising from such
causes, then, to the extent any consequent losses are not covered by Credit
Support, such losses may be borne, at least in part, by the holders of one or
more classes of Offered Certificates of the related series. See "The Pooling and
Servicing Agreements -- Hazard Insurance Policies".
INCLUSION OF DELINQUENT AND NONPERFORMING MORTGAGE LOANS IN A MORTGAGE ASSET
POOL
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past due
or are nonperforming. If so specified in the related Prospectus
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Supplement, the servicing of such Mortgage Loans will be performed by the
Special Servicer; however, the same entity may act as both Master Servicer and
Special Servicer. Credit Support provided with respect to a particular series of
Certificates may not cover all losses related to such delinquent or
nonperforming Mortgage Loans, and investors should consider the risk that the
inclusion of such Mortgage Loans in the Trust Fund may adversely affect the rate
of defaults and prepayments in respect of the subject Mortgage Asset Pool and
the yield on the Offered Certificates of such series. See "Description of the
Trust Funds -- Mortgage Loans -- General".
DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each Trust Fund will consist of (i) various types of
multifamily or commercial mortgage loans ("Mortgage Loans"), (ii) mortgage
participations, pass-through certificates or other mortgage-backed securities
("MBS") that evidence interests in, or that are secured by pledges of, one or
more of various types of multifamily or commercial mortgage loans or (iii) a
combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). Each
Trust Fund will be established by the Depositor. Each Mortgage Asset will be
selected by the Depositor for inclusion in a Trust Fund from among those
purchased, either directly or indirectly, from a prior holder thereof (a
"Mortgage Asset Seller"), which prior holder may or may not be the originator of
such Mortgage Loan or the issuer of such MBS and may be an affiliate of the
Depositor. The Mortgage Assets will not be guaranteed or insured by the
Depositor or any of its affiliates or, unless otherwise provided in the related
Prospectus Supplement, by any governmental agency or instrumentality or by any
other person. The discussion below under the heading "-- Mortgage Loans", unless
otherwise noted, applies equally to mortgage loans underlying any MBS included
in a particular Trust Fund.
MORTGAGE LOANS
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("Multifamily Properties") or (ii) office buildings,
retail stores and establishments, hotels or motels, nursing homes, hospitals or
other health care-related facilities, recreational vehicle and mobile home
parks, warehouse facilities, mini-warehouse facilities, self-storage facilities,
industrial plants, parking lots, entertainment or sports arenas, restaurants,
marinas, mixed use or various other types of income-producing properties or
unimproved land ("Commercial Properties"). The Multifamily Properties may
include mixed commercial and residential structures and apartment buildings
owned by private cooperative housing corporations ("Cooperatives"). However, no
one of the following types of Commercial Properties will represent security for
a material concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed: (i) restaurants; (ii)
entertainment or sports arenas; (iii) marinas; or (iv) nursing homes, hospitals
or other health care-related facilities. Unless otherwise specified in the
related Prospectus Supplement, each Mortgage will create a first priority
mortgage lien on a borrower's fee estate in a Mortgaged Property. If a Mortgage
creates a lien on a borrower's leasehold estate in a property, then, unless
otherwise specified in the related Prospectus Supplement, the term of any such
leasehold will exceed the term of the Mortgage Note by at least ten years.
Unless otherwise specified in the related Prospectus Supplement, each Mortgage
Loan will have been originated by a person (the "Originator") other than the
Depositor; however, the Originator may be or may have been an affiliate of the
Depositor.
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related senior liens ("Senior Liens") may not be
included in the Mortgage Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
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a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgage Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to such Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and any Senior Liens or purchase the Mortgaged Property subject to such Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Certificates of
the related series bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not obtained and satisfied. Moreover, deficiency
judgments may not be available in certain jurisdictions, or the particular
Mortgage Loan may be a nonrecourse loan, which means that, absent special facts,
recourse in the case of default will be limited to the Mortgaged Property and
such other assets, if any, that were pledged to secure repayment of the Mortgage
Loan.
If so specified in the related Prospectus Supplement, the Mortgage Assets
for a particular series of Certificates may include Mortgage Loans that are
delinquent or nonperforming as of the date such Certificates are issued. In that
case, the related Prospectus Supplement will set forth, as to each such Mortgage
Loan, available information as to the period of such delinquency or
nonperformance, any forbearance arrangement then in effect, the condition of the
related Mortgaged Property and the ability of the Mortgaged Property to generate
income to service the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage
Loans. Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied
single-family homes. The repayment of a loan secured by a lien on an
income-producing property is typically dependent upon the successful operation
of such property (that is, its ability to generate income). Moreover, as noted
above, some or all of the Mortgage Loans included in a particular Trust Fund may
be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the likelihood
of default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at any given
time is the ratio of (i) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments of principal and/or interest on the Mortgage Loan and any other loans
senior thereto that are secured by the related Mortgaged Property. Unless
otherwise defined in the related Prospectus Supplement, "Net Operating Income"
means, for any given period, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than (i)
noncash items such as depreciation and amortization, (ii) capital expenditures
and (iii) debt service on the related Mortgage Loan or on any other loans that
are secured by such Mortgaged Property. The Net Operating Income of a Mortgaged
Property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related Mortgage Loan at any given time. As the
primary source of the operating revenues of a nonowner occupied,
income-producing property, rental income (and, with respect to a Mortgage Loan
secured by a Cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a small number of tenants. Thus,
the Net Operating Income of such a Mortgaged Property may depend
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substantially on the financial condition of the borrower or a tenant, and
Mortgage Loans secured by liens on such properties may pose a greater likelihood
of default and loss than loans secured by liens on Multifamily Properties or on
multi-tenant Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a factor
in evaluating the likelihood of loss if a property must be liquidated following
a default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (ii) the Value of the related Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, the "Value" of a
Mortgaged Property will be its fair market value as determined by an appraisal
of such property conducted by or on behalf of the Originator in connection with
the origination of such loan. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a Mortgaged Property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
Mortgage Loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure of
the likelihood of liquidation loss in a pool of Mortgage Loans. For example, the
value of a Mortgaged Property as of the date of initial issuance of the related
series of Certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement method (the cost
of replacing the property at such date), the income capitalization method (a
projection of value based upon the property's projected net cash flow), or upon
a selection from or interpolation of the values derived from such methods. Each
of these appraisal methods can present analytical difficulties. It is often
difficult to find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections of
income and expense and the selection of an appropriate capitalization rate and
discount rate. Where more than one of these appraisal methods are used and
provide significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of the likelihood of default and loss, is
even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors -- Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans -- General"
and "-- Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Increased Risk of Default Associated With Balloon Payments".
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Payment Provisions of the Mortgage Loans. All of the Mortgage Loans will
(i) have had original terms to maturity of not more than 40 years and (ii)
provide for scheduled payments of principal, interest or both, to be made on
specified dates ("Due Dates") that occur monthly, quarterly, semi-annually or
annually. A Mortgage Loan (i) may provide for no accrual of interest or for
accrual of interest thereon at a Mortgage Rate that is fixed over its term or
that adjusts from time to time, or that may be converted at the borrower's
election from an adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide for level payments to maturity or for
payments that adjust from time to time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain events, and may permit negative
amortization, (iii) may be fully amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its stated maturity date, and (iv)
may prohibit over its term or for a certain period prepayments (the period of
such prohibition, a "Lock-out Period" and its date of expiration, a "Lock-out
Date") and/or require payment of a premium or a yield maintenance payment (a
"Prepayment Premium") in connection with certain prepayments, in each case as
described in the related Prospectus Supplement. A Mortgage Loan may also contain
a provision that entitles the lender to a share of appreciation of the related
Mortgaged Property, or profits realized from the operation or disposition of
such Mortgaged Property or the benefit, if any, resulting from the refinancing
of the Mortgage Loan (any such provision, an "Equity Participation"), as
described in the related Prospectus Supplement. See "Certain Legal Aspects of
the Mortgage Loans -- Default Interest and Limitations on Prepayments" in the
Prospectus regarding the enforceability of Prepayment Premiums.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable, will generally
include the following: (i) the aggregate outstanding principal balance and the
largest, smallest and average outstanding principal balance of the Mortgage
Loans, (ii) the type or types of property that provide security for repayment of
the Mortgage Loans, (iii) the earliest and latest origination date and maturity
date of the Mortgage Loans, (iv) the original and remaining terms to maturity of
the Mortgage Loans, or the respective ranges thereof, and the weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the
Loan-to-Value Ratios of the Mortgage Loans (either at origination or as of a
more recent date), or the range thereof, and the weighted average of such
Loan-to-Value Ratios, (vi) the Mortgage Rates borne by the Mortgage Loans, or
the range thereof, and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vii) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted average gross
margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including, without limitation,
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage Loans
(either at origination or as of a more recent date), or the range thereof, and
the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If the
Depositor is unable to provide the specific information described above at the
time Offered Certificates of a series are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of those Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Commission within fifteen days following such issuance.
If any Mortgage Loan, or group of related Mortgage Loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related Mortgaged Property or Mortgaged
Properties will be included in the related Prospectus Supplement.
If and to the extent available and relevant to an investment decision in
the Offered Certificates of the related series, information regarding the
prepayment experience of a Master Servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related Prospectus
Supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a Master Servicer's servicing
portfolio may
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be so materially different from those of the related Mortgage Asset Pool that
such prepayment experience would not be meaningful to an investor. For example,
differences in geographic dispersion, property type and/or loan terms (e.g.,
mortgage rates, terms to maturity and/or prepayment restrictions) between the
two pools of loans could render the Master Servicer's prepayment experience
irrelevant. Because of the nature of the assets to be serviced and administered
by a Special Servicer, no comparable prepayment information will be presented
with respect to the Special Servicer's multifamily and/or commercial mortgage
loan servicing portfolio.
MBS
MBS may include (i) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality thereof)
mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (ii) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal
National Mortgage Association ("FNMA"), the Governmental National Mortgage
Association ("GNMA") or the Federal Agricultural Mortgage Corporation ("FAMC"),
provided that, unless otherwise specified in the related Prospectus Supplement,
each MBS will evidence an interest in, or will be secured by a pledge of,
mortgage loans that conform to the descriptions of the Mortgage Loans contained
herein.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a Mortgage Asset
Pool: (a) either will (i) have been previously registered under the Securities
Act of 1933, as amended, (ii) be exempt from such registration requirements or
(iii) have been held for at least the holding period specified in Rule 144(k)
under the Securities Act of 1933, as amended; and (b) will have been acquired
(other than from the Depositor or an affiliate thereof) in bona fide secondary
market transactions.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will be parties
to the MBS Agreement, generally together with a trustee (the "MBS Trustee") or,
in the alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, the MBS Servicer or the MBS
Trustee on the dates specified in the related Prospectus Supplement. The MBS
Issuer or the MBS Servicer or another person specified in the related Prospectus
Supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related Prospectus Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount(s) and type of the MBS to
be included in the Trust Fund, (ii) the original and remaining term(s) to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate(s) of
the MBS or the formula for determining such rate(s), (iv) the payment
characteristics of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as
applicable, of each of the MBS, (vi) a description of the related credit
support, if any, (vii) the circumstances under which the related 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 type of mortgage loans underlying the MBS and, to
the extent available to the Depositor and appropriate under the circumstances,
such other information in respect of the underlying mortgage loans
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described under "-- Mortgage Loans -- Mortgage Loan Information in Prospectus
Supplements", and (x) the characteristics of any cash flow agreements that
relate to the MBS.
CERTIFICATE ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund will be
deposited to the extent described herein and in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements -- Certificate Account".
CREDIT SUPPORT
If so provided in the Prospectus Supplement for a series of Certificates,
partial or full protection against certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided to one or more classes of
Certificates of such series in the form of subordination of one or more other
classes of Certificates of such series or by one or more other types of Credit
Support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination thereof. The amount and types of Credit
Support, the identity of the entity providing it (if applicable) and related
information with respect to each type of Credit Support, if any, will be set
forth in the Prospectus Supplement for a series of Certificates. See "Risk
Factors -- Credit Support Limitations" and "Description of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the Prospectus Supplement for a series of Certificates,
the related Trust Fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets on one or more classes of Certificates.
The principal terms of any such Cash Flow Agreement, including, without
limitation, provisions relating to the timing, manner and amount of payments
thereunder and provisions relating to the termination thereof, will be described
in the related Prospectus Supplement. The related Prospectus Supplement will
also identify the obligor under the Cash Flow Agreement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors -- Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a Trust Fund that consists solely of Mortgage Loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of Certificates as will the characteristics and behavior
of comparable Mortgage Loans, the effect may differ due to the payment
characteristics of the MBS. If a Trust Fund includes MBS, the related Prospectus
Supplement will discuss the effect, if any, that the payment characteristics of
the MBS may have on the yield to maturity and weighted average lives of the
Offered Certificates of the related series.
PASS-THROUGH RATE
The Certificates of any class within a series may have a fixed, variable or
adjustable Pass-Through Rate, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to any series of Certificates will specify the
Pass-Through Rate for each class of Offered Certificates of such series or, in
the case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if
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any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one or
more classes of Offered Certificates; and whether the distributions of interest
on the Offered Certificates of any class will be dependent, in whole or in part,
on the performance of any obligor under a Cash Flow Agreement.
PAYMENT DELAYS
With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related Trust
Fund are due and the Distribution Date on which such payments are passed through
to Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
Certificates and distributable thereon on any Distribution Date will generally
correspond to interest accrued on the Mortgage Loans to their respective Due
Dates during the related Due Period. A "Due Period" will be a specified time
period (generally corresponding in length to the period between Distribution
Dates) and all scheduled payments on the Mortgage Loans in the related Trust
Fund that are due during a given Due Period will, to the extent received by a
specified date (the "Determination Date") or otherwise advanced by the related
Master Servicer, Special Servicer or other specified person, be distributed to
the holders of the Certificates of such series on the next succeeding
Distribution Date. Consequently, if a prepayment on any Mortgage Loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. The
related Prospectus Supplement will also describe any amounts available to offset
such shortfalls.
YIELD AND PREPAYMENT CONSIDERATIONS
A Certificate's yield to maturity will be affected by the rate of principal
payments on the Mortgage Loans in the related Trust Fund and the allocation
thereof to reduce the principal balance (or notional amount, if applicable) of
such Certificate. The rate of principal payments on the Mortgage Loans in any
Trust Fund will in turn be affected by the amortization schedules thereof
(which, in the case of ARM Loans, may change periodically to accommodate
adjustments to the Mortgage Rates thereon), the dates on which any balloon
payments are due, and the rate of principal prepayments thereon (including for
this purpose, voluntary prepayments by borrowers and also prepayments resulting
from liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the related Mortgaged Properties, or purchases of Mortgage Loans out
of the related Trust Fund). Because the rate of principal prepayments on the
Mortgage Loans in any Trust Fund will depend on future events and a variety of
factors (as described below), no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the Notional Amount
thereof). An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans in the related Trust Fund could result
in an actual yield to such investor that is lower than the
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anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases an
Offered Certificate at a discount (or premium), and principal payments are made
in reduction of the principal balance or notional amount of such investor's
Offered Certificates at a rate slower (or faster) than the rate anticipated by
the investor during any particular period, any consequent adverse effects on
such investor's yield would not be fully offset by a subsequent like increase
(or decrease) in the rate of principal payments.
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (ii) equal the Certificate
Balances of one or more of the other classes of Certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the Mortgage Loans in any Trust
Fund may be affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area in
which the Mortgaged Properties are located, the quality of management of the
Mortgaged Properties, the servicing of the Mortgage Loans, possible changes in
tax laws and other opportunities for investment. In general, those factors which
increase the attractiveness of selling a Mortgaged Property or refinancing a
Mortgage Loan or which enhance a borrower's ability to do so, as well as those
factors which increase the likelihood of default under a Mortgage Loan, would be
expected to cause the rate of prepayment in respect of any Mortgage Asset Pool
to accelerate. In contrast, those factors having an opposite effect would be
expected to cause the rate of prepayment of any Mortgage Asset Pool to slow.
The rate of principal payments on the Mortgage Loans in any Trust Fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by Prepayment Premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its Mortgage Loan, thereby slowing the rate of
prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan. Therefore, as prevailing market interest rates decline, prepayment speeds
would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax
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depreciation benefits. The Depositor makes no representation as to the
particular factors that will affect the prepayment of the Mortgage Loans in any
Trust Fund, as to the relative importance of such factors, as to the percentage
of the principal balance of such Mortgage Loans that will be paid as of any date
or as to the overall rate of prepayment on such Mortgage Loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average life
of one or more classes of the Certificates of such series. Unless otherwise
specified in the related Prospectus Supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of Certificates of any
series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of Mortgage Loans due to default,
casualties or condemnations affecting the related Mortgaged Properties and
purchases of Mortgage Loans out of the related Trust Fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model. CPR represents
an assumed constant rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of mortgage loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the Mortgage Loans included in any Trust Fund will
conform to any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series with a Certificate Balance,
and the percentage of the initial Certificate Balance of each such class that
would be outstanding on specified Distribution Dates, based on the assumptions
stated in such Prospectus Supplement, including assumptions that prepayments on
the related Mortgage Loans are made at rates corresponding to various
percentages of CPR or SPA, or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions will illustrate the sensitivity of the
weighted average lives of the Certificates to various assumed prepayment rates
and will not be intended to predict, or to provide information that will enable
investors to predict, the actual weighted average lives of the Certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a possibility that Mortgage Loans that
require balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or
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adverse conditions in the market where the property is located. In order to
minimize losses on defaulted Mortgage Loans, the Master Servicer or the Special
Servicer, to the extent and under the circumstances set forth herein and in the
related Prospectus Supplement, may be authorized to modify Mortgage Loans that
are in default or as to which a payment default is imminent. Any defaulted
balloon payment or modification that extends the maturity of a Mortgage Loan may
delay distributions of principal on a class of Offered Certificates and thereby
extend the weighted average life of such Certificates and, if such Certificates
were purchased at a discount, reduce the yield thereon.
Negative Amortization. The weighted average life of a class of
Certificates can be affected by Mortgage Loans that permit negative amortization
to occur (that is, Mortgage Loans that provide for the current payment of
interest calculated at a rate lower than the rate at which interest accrues
thereon, with the unpaid portion of such interest being added to the related
principal balance). Negative amortization on one or more Mortgage Loans in any
Trust Fund may result in negative amortization on the Offered Certificates of
the related series. The related Prospectus Supplement will describe, if
applicable, the manner in which negative amortization in respect of the Mortgage
Loans in any Trust Fund is allocated among the respective classes of
Certificates of the related series. The portion of any Mortgage Loan negative
amortization allocated to a class of Certificates may result in a deferral of
some or all of the interest payable thereon, which deferred interest may be
added to the Certificate Balance thereof. In addition, an ARM Loan that permits
negative amortization would be expected during a period of increasing interest
rates to amortize at a slower rate (and perhaps not at all) than if interest
rates were declining or were remaining constant. Such slower rate of Mortgage
Loan amortization would correspondingly be reflected in a slower rate of
amortization for one or more classes of Certificates of the related series.
Accordingly, the weighted average lives of Mortgage Loans that permit negative
amortization (and that of the classes of Certificates to which any such negative
amortization would be allocated or that would bear the effects of a slower rate
of amortization on such Mortgage Loans) may increase as a result of such
feature.
Negative amortization may occur in respect of an ARM Loan that (i) limits
the amount by which its scheduled payment may adjust in response to a change in
its Mortgage Rate, (ii) provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or (iii) provides for constant scheduled
payments notwithstanding adjustments to its Mortgage Rate. Accordingly, during a
period of declining interest rates, the scheduled payment on such a Mortgage
Loan may exceed the amount necessary to amortize the loan fully over its
remaining amortization schedule and pay interest at the then applicable Mortgage
Rate, thereby resulting in the accelerated amortization of such Mortgage Loan.
Any such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those classes of Certificates entitled to a portion of the
principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Certificate was
purchased at a premium or a discount and (ii) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the notional amount thereof).
See "-- Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or
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shortfalls in collections arising out of defaults on the Mortgage Loans in the
related Trust Fund and the timing of such losses and shortfalls. In general, the
earlier that any such loss or shortfall occurs, the greater will be the negative
effect on yield for any class of Certificates that is required to bear the
effects thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (ii)
establishing a priority of payments among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Assets in the
related Trust Fund, one or more classes of Certificates of any series, including
one or more classes of Offered Certificates of such series, may provide for
distributions of principal thereof from (i) amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates, (ii) Excess Funds or (iii) any other amounts described in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, "Excess Funds" will, in general, represent that portion
of the amounts distributable in respect of the Certificates of any series on any
Distribution Date that represent (i) interest received or advanced on the
Mortgage Assets in the related Trust Fund that is in excess of the interest
currently accrued on the Certificates of such series, or (ii) Prepayment
Premiums, payments from Equity Participations or any other amounts received on
the Mortgage Assets in the related Trust Fund that do not constitute interest
thereon or principal thereof.
The amortization of any class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce the
yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources is likely to have any material
effect on the rate at which such Certificates are amortized and the consequent
yield with respect thereto.
THE DEPOSITOR
NationsLink(SM) Funding Corporation, a Delaware corporation (the
"Depositor"), was organized on December 13, 1995 for the limited purpose of
acquiring, owning and transferring Mortgage Assets and selling interests therein
or bonds secured thereby. The Depositor is a subsidiary of NationsBanc Mortgage
Capital Corporation, a Texas corporation. The Depositor maintains its principal
office at NationsBank Corporate Center, Charlotte, North Carolina 28255. Its
telephone number is (704) 386-2400.
Unless otherwise noted in the related Prospectus Supplement, neither the
Depositor nor any of the Depositor's affiliates will insure or guarantee
distributions on the Certificates of any series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related Pooling and Servicing
Agreement. As described in the related Prospectus Supplement, the Certificates
of each series, including the Offered Certificates of such series, may consist
of one or more classes of Certificates that, among other things: (i) provide for
the accrual of interest on the Certificate Balance or Notional Amount thereof at
a fixed, variable or adjustable rate; (ii) constitute Senior Certificates
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or Subordinate Certificates; (iii) constitute Stripped Interest Certificates or
Stripped Principal Certificates; (iv) provide for distributions of interest
thereon or principal thereof that commence only after the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such series; (v) provide for distributions of principal thereof to be made, from
time to time or for designated periods, at a rate that is faster (and, in some
cases, substantially faster) or slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal are
received on the Mortgage Assets in the related Trust Fund; (vi) provide for
distributions of principal thereof to be made, subject to available funds, based
on a specified principal payment schedule or other methodology; or (vii) provide
for distributions based on collections on the Mortgage Assets in the related
Trust Fund attributable to Prepayment Premiums and Equity Participations.
If so specified in the related Prospectus Supplement, a class of
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct classes. For example, a class of Certificates may have a Certificate
Balance on which it accrues interest at a fixed, variable or adjustable rate.
Such class of Certificates may also have certain characteristics attributable to
Stripped Interest Certificates insofar as it may also entitle the holders
thereof to distributions of interest accrued on a Notional Amount at a different
fixed, variable or adjustable rate. In addition, a class of Certificates may
accrue interest on one portion of its Certificate Balance at one fixed, variable
or adjustable rate and on another portion of its Certificate Balance at a
different fixed, variable or adjustable rate.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related Prospectus
Supplement. As provided in the related Prospectus Supplement, one or more
classes of Offered Certificates of any series may be issued in fully registered,
definitive form (such Certificates, "Definitive Certificates") or may be offered
in book-entry format (such Certificates, "Book-Entry Certificates") through the
facilities of DTC. The Offered Certificates of each series (if issued as
Definitive Certificates) may be transferred or exchanged, subject to any
restrictions on transfer described in the related Prospectus Supplement, at the
location specified in the related Prospectus Supplement, without the payment of
any service charges, other than any tax or other governmental charge payable in
connection therewith. Interests in a class of Book-Entry Certificates will be
transferred on the book-entry records of DTC and its participating
organizations. If so specified in the related Prospectus Supplement,
arrangements may be made for clearance and settlement through CEDEL Bank,
Societe Anonyme, or the Euroclear System (in Europe) if they are participants in
DTC.
DISTRIBUTIONS
Distributions on the Certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "Available Distribution Amount" for any series of Certificates
and any Distribution Date will refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the
Mortgage Assets and any other assets included in the related Trust Fund that are
available for distribution to the holders of Certificates of such series on such
date. The particular components of the Available Distribution Amount for any
series and Distribution Date will be more specifically described in the related
Prospectus Supplement. In general, the Distribution Date for a series of
Certificates will be the 25th day of each month (or, if any such 25th day is not
a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of Certificates is issued.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
in
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proportion to the respective Percentage Interests evidenced thereby unless
otherwise specified in the related Prospectus Supplement. Payments will be made
either by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has provided the person required to make
such payments with wiring instructions no later than the related Record Date or
such other date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, such Certificateholder holds
Certificates in the requisite amount or denomination specified therein), or by
check mailed to the address of such Certificateholder as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of any class of Certificates (whether Definitive Certificates or
Book-Entry Certificates) will be made only upon presentation and surrender of
such Certificates at the location specified in the notice to Certificateholders
of such final distribution. The undivided percentage interest (the "Percentage
Interest") represented by an Offered Certificate of a particular class will be
equal to the percentage obtained by dividing the initial principal balance or
notional amount of such Certificate by the initial Certificate Balance or
Notional Amount of such class.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each class of Offered Certificates. Unless otherwise
specified in the related Prospectus Supplement, interest on the Certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of Certificates (other
than a class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date or under the
circumstances specified in the related Prospectus Supplement, and other than any
class of Stripped Principal Certificates or REMIC Residual Certificates that is
not entitled to any distributions of interest) will be made on each Distribution
Date based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of that portion, if any, of the
Available Distribution Amount allocable to such class on such Distribution Date.
Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the Certificate Balance thereof on each
Distribution Date or otherwise deferred as described in the related Prospectus
Supplement. With respect to each class of Certificates (other than certain
classes of Stripped Interest Certificates and certain classes of REMIC Residual
Certificates), the "Accrued Certificate Interest" for each Distribution Date
will be equal to interest at the applicable Pass-Through Rate accrued for a
specified period (generally the most recently ended calendar month) on the
outstanding Certificate Balance of such class of Certificates immediately prior
to such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the Accrued Certificate Interest for each Distribution Date on a
class of Stripped Interest Certificates will be similarly calculated except that
it will accrue on a Notional Amount that is either (i) based on the principal
balances of some or all of the Mortgage Assets in the related Trust Fund or (ii)
equal to the Certificate Balances of one or more other classes of Certificates
of the same series. Reference to a Notional Amount with respect to a class of
Stripped Interest Certificates is solely for convenience in making certain
calculations and does not represent the right to receive any distributions of
principal. If so specified in the related Prospectus Supplement, the amount of
Accrued Certificate Interest that is otherwise distributable on (or, in the case
of Accrual Certificates, that may otherwise be added to the Certificate Balance
of) one or more classes of the Certificates of a series may be reduced to the
extent that any Prepayment Interest Shortfalls, as described under "Yield and
Maturity Considerations -- Certain Shortfalls in Collections of Interest",
exceed the amount of any sums that are applied to offset the amount of such
shortfalls. The particular manner in which such shortfalls will be allocated
among some or all of the classes of Certificates of that series will be
specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including
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delinquencies, losses and deferred interest on or in respect of the Mortgage
Assets in the related Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a class of Certificates by reason of the
allocation to such class of a portion of any deferred interest on or in respect
of the Mortgage Assets in the related Trust Fund will result in a corresponding
increase in the Certificate Balance of such class. See "Risk Factors -- Effect
of Prepayments on Average Life of Certificates" and "-- Effect of Prepayments on
Yield of Certificates" and "Yield and Maturity Considerations -- Certain
Shortfalls in Collections of Interest".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will be
entitled to receive as principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a class of Certificates will be reduced by distributions
of principal made thereon from time to time and, if and to the extent so
provided in the related Prospectus Supplement, further by any losses incurred in
respect of the related Mortgage Assets allocated thereto from time to time. In
turn, the outstanding Certificate Balance of a class of Certificates may be
increased as a result of any deferred interest on or in respect of the related
Mortgage Assets being allocated thereto from time to time, and will be
increased, in the case of a class of Accrual Certificates prior to the
Distribution Date on which distributions of interest thereon are required to
commence, by the amount of any Accrued Certificate Interest in respect thereof
(reduced as described above). The initial aggregate Certificate Balance of all
classes of a series of Certificates will not be greater than the aggregate
outstanding principal balance of the related Mortgage Assets as of a specified
date (the "Cut-off Date"), after application of scheduled payments due on or
before such date, whether or not received. The initial Certificate Balance of
each class of a series of Certificates will be specified in the related
Prospectus Supplement. As and to the extent described in the related Prospectus
Supplement, distributions of principal with respect to a series of Certificates
will be made on each Distribution Date to the holders of the class or classes of
Certificates of such series entitled thereto until the Certificate Balances of
such Certificates have been reduced to zero. Distributions of principal with
respect to one or more classes of Certificates may be made at a rate that is
faster (and, in some cases, substantially faster) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates may not commence until the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
the same series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of Certificates
(each such class, a "Controlled Amortization Class") may be made, subject to
available funds, based on a specified principal payment schedule. Distributions
of principal with respect to one or more other classes of Certificates (each
such class, a "Companion Class") may be contingent on the specified principal
payment schedule for a Controlled Amortization Class of the same series and the
rate at which payments and other collections of principal on the Mortgage Assets
in the related Trust Fund are received. Unless otherwise specified in the
related Prospectus Supplement, distributions of principal of any class of
Offered Certificates will be made on a pro rata basis among all of the
Certificates of such class.
DISTRIBUTIONS ON THE CERTIFICATES IN RESPECT OF PREPAYMENT PREMIUMS OR IN
RESPECT OF EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums or
payments in respect of Equity Participations received on or in connection with
the Mortgage Assets in any Trust Fund will be distributed on each Distribution
Date to the holders of the class of Certificates of the related series entitled
thereto in accordance with the provisions described in such Prospectus
Supplement. Alternatively, such items may be retained by the Depositor or any of
its affiliates or by any other specified person and/or may be excluded as Trust
Assets.
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ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (ii)
establishing a priority of payments among such classes of Certificates. See
"Description of Credit Support".
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, the Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such Mortgage Loans during the related Due Period and were delinquent
on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts drawn under any fund
or instrument constituting Credit Support) respecting which such advances were
made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including, in
the case of a series that includes one or more classes of Subordinate
Certificates, if so identified, collections on other Mortgage Assets in the
related Trust Fund that would otherwise be distributable to the holders of one
or more classes of such Subordinate Certificates. No advance will be required to
be made by a Master Servicer, Special Servicer or Trustee if, in the judgment of
the Master Servicer, Special Servicer or Trustee, as the case may be, such
advance would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the related
series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the Mortgage Loans in the related Trust Fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related Pooling and
Servicing Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling and Servicing Agreement
or of a party to the related MBS Agreement.
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REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders of
each class of the Offered Certificates of a series, a Master Servicer, Manager
or Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth, among
other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of
Offered Certificates that was applied to reduce the Certificate Balance
thereof;
(ii) the amount of such distribution to holders of such class of
Offered Certificates that was applied to pay Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such
class of Offered Certificates that was allocable to (A) Prepayment Premiums
and (B) payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are
entitled;
(v) if the related Trust Fund includes Mortgage Loans, the aggregate
amount of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if
payable directly out of the related Trust Fund, by any Special Servicer and
any Sub-Servicer) and, if the related Trust Fund includes MBS, the amount
of administrative compensation received by the MBS Administrator;
(vii) information regarding the aggregate principal balance of the
related Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage Loans
that are delinquent;
(ix) if the related Trust Fund includes Mortgage Loans, information
regarding the aggregate amount of losses incurred and principal prepayments
made with respect to such Mortgage Loans during the related "Prepayment
Period", which is the specified period, generally corresponding in length
to the period between Distribution Dates, during which prepayments and
other unscheduled collections on the Mortgage Loans in the related Trust
Fund must be received in order to be distributed on a particular
Distribution Date;
(x) the Certificate Balance or Notional Amount, as the case may be, of
such class of Certificates at the close of business on such Distribution
Date, separately identifying any reduction in such Certificate Balance or
Notional Amount due to the allocation of any losses in respect of the
related Mortgage Assets, any increase in such Certificate Balance or
Notional Amount due to the allocation of any negative amortization in
respect of the related Mortgage Assets and any increase in the Certificate
Balance of a class of Accrual Certificates, if any, in the event that
Accrued Certificate Interest has been added to such balance;
(xi) if such class of Offered Certificates has a variable Pass-Through
Rate or an adjustable Pass-Through Rate, the Pass-Through Rate applicable
thereto for such Distribution Date and, if determinable, for the next
succeeding Distribution Date;
(xii) the amount deposited in or withdrawn from any reserve fund on
such Distribution Date, and the amount remaining on deposit in such reserve
fund as of the close of business on such Distribution Date;
(xiii) if the related Trust Fund includes one or more instruments of
Credit Support, such as a letter of credit, an insurance policy and/or a
surety bond, the amount of coverage under each such instrument as of the
close of business on such Distribution Date; and
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(xiv) the amount of Credit Support being afforded by any classes of
Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of Offered Certificates or as a percentage.
The Prospectus Supplement for each series of Certificates may describe
additional information to be included in reports to the holders of the Offered
Certificates of such series.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer, Manager or Trustee for a series of Certificates, as the case
may be, will be required to furnish to each person who at any time during the
calendar year was a holder of an Offered Certificate of such series a statement
containing the information set forth in subclauses (i)-(iii) above, aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Code as are from time to time in force. See,
however, "-- Book-Entry Registration and Definitive Certificates" below.
If the Trust Fund for a series of Certificates includes MBS, the ability of
the related Master Servicer, Manager or Trustee, as the case may be, to include
in any Distribution Date Statement information regarding the mortgage loans
underlying such MBS will depend on the reports received with respect to such
MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that series
in connection with distributions made to them.
VOTING RIGHTS
The voting rights evidenced by each series of Certificates (as to such
series, the "Voting Rights") will be allocated among the respective classes of
such series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related Pooling and
Servicing Agreement and as otherwise specified in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements -- Amendment". The holders
of specified amounts of Certificates of a particular series will have the right
to act as a group to remove the related Trustee and also upon the occurrence of
certain events which if continuing would constitute an Event of Default on the
part of the related Master Servicer, Special Servicer or REMIC Administrator.
See "The Pooling and Servicing Agreements -- Events of Default", "-- Rights Upon
Event of Default" and "-- Resignation and Removal of the Trustee".
TERMINATION
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates will terminate following (i) the final payment or other
liquidation of the last Mortgage Asset subject thereto or the disposition of all
property acquired upon foreclosure of any Mortgage Loan subject thereto and (ii)
the payment (or provision for payment) to the Certificateholders of that series
of all amounts required to be paid to them pursuant to such Pooling and
Servicing Agreement. Written notice of termination of a Pooling and Servicing
Agreement will be given to each Certificateholder of the related series, and the
final distribution will be made only upon presentation and surrender of the
Certificates of such series at the location to be specified in the notice of
termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the Mortgage Assets in the related Trust Fund by the party or parties
specified therein, under the circumstances and in the manner set forth therein.
If so provided in the related Prospectus Supplement upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount or upon a specified date, a party designated
therein may be authorized or required to solicit bids for the purchase of all
the Mortgage Assets of the related Trust Fund, or
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of a sufficient portion of such Mortgage Assets to retire such class or classes,
under the circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of the Offered Certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global Certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants", which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate Owners
are expected to receive written confirmations providing details of such
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which each Certificate Owner entered into the
transaction. Transfers of ownership interests in the Book-Entry Certificates are
to be accomplished by entries made on the books of Participants acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the Book-Entry Certificates, except in
the event that use of the book-entry system for the Book-Entry Certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Depositor or any Trustee, Master Servicer, Special Servicer or
Manager), subject to any statutory or regulatory requirements as may be in
effect from time to time. Accordingly, under a book-entry system, Certificate
Owners may receive payments after the related Distribution Date.
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Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling and Servicing
Agreement) of Book-Entry Certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as Certificateholders under the
Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise the rights of Certificateholders under the related Pooling and
Servicing Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Depositor has been informed that DTC will
take action permitted to be taken by a Certificateholder under a Pooling and
Servicing Agreement only at the direction of one or more Direct Participants to
whose account with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in Book-Entry Certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and the Depositor is unable to locate a
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC will
be required to notify all Direct Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the Trustee for the related series or other
designated party will be required to issue to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the holders of such Definitive Certificates will be recognized as
"Certificateholders" under and within the meaning of the related Pooling and
Servicing Agreement.
THE POOLING AND SERVICING AGREEMENTS
GENERAL
The Certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the Depositor, the Trustee, the Master Servicer, the
Special Servicer and, if one or more REMIC elections have been made with respect
to the Trust Fund, the REMIC Administrator. However, a Pooling and Servicing
Agreement that relates to a Trust Fund that includes MBS may include a Manager
as a party, but may not include a Master Servicer, Special Servicer or other
servicer as a party. All parties to each Pooling and Servicing Agreement under
which Certificates of a series are issued will be identified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement, an
affiliate of the Depositor, or the Mortgage Asset Seller or an affiliate
thereof, may perform the functions of Master Servicer, Special Servicer, Manager
or REMIC Administrator. If so specified in the related Prospectus Supplement,
the Master Servicer may also perform the duties of Special Servicer, and the
Master Servicer, the Special Servicer or the Trustee may also perform the duties
of REMIC Administrator. Any party to a Pooling and Servicing Agreement or any
affiliate thereof may own Certificates issued thereunder; however, unless other
specified in the related Prospectus Supplement, except with respect to required
consents to certain amendments to a Pooling and Servicing Agreement,
Certificates issued thereunder that are held by the Master Servicer or Special
Servicer for the related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the related
Trust Fund. The following summaries describe certain provisions that may appear
in a Pooling and Servicing
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Agreement under which Certificates that evidence interests in Mortgage Loans
will be issued. The Prospectus Supplement for a series of Certificates will
describe any provision of the related Pooling and Servicing Agreement that
materially differs from the description thereof contained in this Prospectus
and, if the related Trust Fund includes MBS, will summarize all of the material
provisions of the related Pooling and Servicing Agreement. The summaries herein
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Pooling and Servicing
Agreement for each series of Certificates and the description of such provisions
in the related Prospectus Supplement. The Depositor will provide a copy of the
Pooling and Servicing Agreement (without exhibits) that relates to any series of
Certificates without charge upon written request of a holder of a Certificate of
such series addressed to it at its principal executive offices specified herein
under "The Depositor".
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Loans to
be included in the related Trust Fund, together with, unless otherwise specified
in the related Prospectus Supplement, all principal and interest to be received
on or with respect to such Mortgage Loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to or at the
direction of the Depositor in exchange for the Mortgage Loans and the other
assets to be included in the Trust Fund for such series. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule generally will include detailed information
that pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include the address of the related Mortgaged Property
and type of such property; the Mortgage Rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap information; the original
and remaining term to maturity; the amortization term; and the original and
outstanding principal balance.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will, as to each Mortgage Loan to be included in a
Trust Fund, deliver, or cause to be delivered, to the related Trustee (or to a
custodian appointed by the Trustee as described below) the Mortgage Note
endorsed, without recourse, either in blank or to the order of such Trustee (or
its nominee), the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office), an assignment
of the Mortgage in blank or to the Trustee (or its nominee) in recordable form,
together with any intervening assignments of the Mortgage with evidence of
recording thereon (except for any such assignment not returned from the public
recording office), and, if applicable, any riders or modifications to such
Mortgage Note and Mortgage, together with certain other documents at such times
as set forth in the related Pooling and Servicing Agreement. Such assignments
may be blanket assignments covering Mortgages on Mortgaged Properties located in
the same county, if permitted by law. Notwithstanding the foregoing, a Trust
Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor delivers, or causes to be delivered,
to the related Trustee (or such custodian) a copy or a duplicate original of the
Mortgage Note, together with an affidavit certifying that the original thereof
has been lost or destroyed. In addition, if the Depositor cannot deliver, with
respect to any Mortgage Loan, the Mortgage or any intervening assignment with
evidence of recording thereon concurrently with the execution and delivery of
the related Pooling and Servicing Agreement because of a delay caused by the
public recording office, the Depositor will deliver, or cause to be delivered,
to the related Trustee (or such custodian) a true and correct photocopy of such
Mortgage or assignment as submitted for recording. The Depositor will deliver,
or cause to be delivered, to the related Trustee (or such custodian) such
Mortgage or assignment with evidence of recording indicated thereon after
receipt thereof from the public recording office. If the Depositor cannot
deliver, with respect to any Mortgage Loan, the Mortgage or any intervening
assignment with evidence of recording thereon concurrently with the execution
and delivery of the related Pooling and Servicing Agreement because such
Mortgage or assignment has been lost, the Depositor will deliver, or cause to be
delivered, to the related Trustee (or such custodian) a true and correct
photocopy of such Mortgage or assignment with evidence of recording thereon.
Unless otherwise specified in the related Prospectus Supplement, assignments of
Mortgage to the Trustee (or its nominee) will be recorded in the appropriate
public recording office, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
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Trustee's interests in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the originator of
such Mortgage Loan.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates will be required to review the Mortgage Loan documents delivered to
it within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such series. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be missing or defective,
and such omission or defect, as the case may be, materially and adversely
affects the interests of the Certificateholders of the related series, the
Trustee (or such custodian) will be required to notify the Master Servicer, the
Special Servicer and the Depositor, and one of such persons will be required to
notify the relevant Mortgage Asset Seller. In that case, and if the Mortgage
Asset Seller cannot deliver the document or cure the defect within a specified
number of days after receipt of such notice, then, except as otherwise specified
below or in the related Prospectus Supplement, the Mortgage Asset Seller will be
obligated to repurchase the related Mortgage Loan from the Trustee at a price
generally equal to the unpaid principal balance thereof, together with accrued
but unpaid interest through a date on or about the date of purchase, or at such
other price as will be specified in the related Prospectus Supplement (in any
event, the "Purchase Price"). If so provided in the Prospectus Supplement for a
series of Certificates, a Mortgage Asset Seller, in lieu of repurchasing a
Mortgage Loan as to which there is missing or defective loan documentation, will
have the option, exercisable upon certain conditions and/or within a specified
period after initial issuance of such series of Certificates, to replace such
Mortgage Loan with one or more other mortgage loans, in accordance with
standards that will be described in the Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation will constitute the sole remedy to holders of the Certificates of any
series or to the related Trustee on their behalf for missing or defective
Mortgage Loan documentation, and neither the Depositor nor, unless it is the
Mortgage Asset Seller, the Master Servicer or the Special Servicer will be
obligated to purchase or replace a Mortgage Loan if a Mortgage Asset Seller
defaults on its obligation to do so.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund and to maintain possession of and, if applicable, to review
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Certificates will be set forth in the related Prospectus
Supplement. Any such custodian may be an affiliate of the Depositor.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Depositor will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Pooling and Servicing
Agreement; (ii) the enforceability of the related Mortgage Note and Mortgage and
the existence of title insurance insuring the lien priority of the related
Mortgage; (iii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iv) the
payment status of the Mortgage Loan. It is expected that in most cases the
Warranting Party will be the Mortgage Asset Seller; however, the Warranting
Party may also be an affiliate of the Mortgage Asset Seller, the Depositor or an
affiliate of the Depositor, the Master Servicer, the Special Servicer or another
person acceptable to the Depositor. The Warranting Party, if other than the
Mortgage Asset Seller, will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that the Master Servicer and/or
Trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related Prospectus Supplement, it will be
obligated to repurchase such
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Mortgage Loan from the Trustee at the applicable Purchase Price. If so provided
in the Prospectus Supplement for a series of Certificates, a Warranting Party,
in lieu of repurchasing a Mortgage Loan as to which a breach has occurred, will
have the option, exercisable upon certain conditions and/or within a specified
period after initial issuance of such series of Certificates, to replace such
Mortgage Loan with one or more other mortgage loans, in accordance with
standards that will be described in the Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation will constitute the sole remedy available to holders of the
Certificates of any series or to the related Trustee on their behalf for a
breach of representation and warranty by a Warranting Party, and neither the
Depositor nor the Master Servicer, in either case unless it is the Warranting
Party, will be obligated to purchase or replace a Mortgage Loan if a Warranting
Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the Depositor will not
include any Mortgage Loan in the Trust Fund for any series of Certificates if
anything has come to the Depositor's attention that would cause it to believe
that the representations and warranties made in respect of such Mortgage Loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the Mortgage Loans
in any Trust Fund were made will be specified in the related Prospectus
Supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer and the Special Servicer for any Mortgage Pool, directly or through
Sub-Servicers, will each be obligated under the related Pooling and Servicing
Agreement to service and administer the Mortgage Loans in such Mortgage Pool for
the benefit of the related Certificateholders, in accordance with applicable law
and further in accordance with the terms of such Pooling and Servicing
Agreement, such Mortgage Loans and any instrument of Credit Support included in
the related Trust Fund. Subject to the foregoing, the Master Servicer and the
Special Servicer will each have full power and authority to do any and all
things in connection with such servicing and administration that it may deem
necessary and desirable.
As part of its servicing duties, each of the Master Servicer and the
Special Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such Mortgage Loans
and held for its own account, provided (i) such procedures are consistent with
the terms of the related Pooling and Servicing Agreement and (ii) do not impair
recovery under any instrument of Credit Support included in the related Trust
Fund. Consistent with the foregoing, the Master Servicer and the Special
Servicer will each be permitted, in its discretion, unless otherwise specified
in the related Prospectus Supplement, to waive any Prepayment Premium, late
payment charge or other charge in connection with any Mortgage Loan.
The Master Servicer and the Special Servicer for any Trust Fund, either
separately or jointly, directly or through Sub-Servicers, will also be required
to perform as to the Mortgage Loans in such Trust Fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) Mortgaged Properties acquired on behalf of such
Trust Fund through foreclosure, deed-in-lieu of foreclosure or otherwise (each,
an "REO Property"); and maintaining servicing records relating to such Mortgage
Loans. The related Prospectus Supplement will specify when and the extent to
which servicing of a Mortgage Loan is to be transferred from the Master Servicer
to the Special Servicer. In general, and subject to the discussion in the
related Prospectus Supplement, a Special Servicer will be responsible for the
servicing and administration of: (i) Mortgage Loans that are delinquent in
respect of a specified number of scheduled payments; (ii) Mortgage Loans as to
which the related borrower has entered into or consented to bankruptcy,
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appointment of a receiver or conservator or similar insolvency proceeding, or
the related borrower has become the subject of a decree or order for such a
proceeding which shall have remained in force undischarged or unstayed for a
specified number of days; and (iii) REO Properties. If so specified in the
related Prospectus Supplement, a Pooling and Servicing Agreement also may
provide that if a default on a Mortgage Loan has occurred or, in the judgment of
the related Master Servicer, a payment default is reasonably foreseeable, the
related Master Servicer may elect to transfer the servicing thereof, in whole or
in part, to the related Special Servicer. Unless otherwise provided in the
related Prospectus Supplement, when the circumstances no longer warrant a
Special Servicer's continuing to service a particular Mortgage Loan (e.g., the
related borrower is paying in accordance with the forbearance arrangement
entered into between the Special Servicer and such borrower), the Master
Servicer will resume the servicing duties with respect thereto. If and to the
extent provided in the related Pooling and Servicing Agreement and described in
the related Prospectus Supplement, a Special Servicer may perform certain
limited duties in respect of Mortgage Loans for which the Master Servicer is
primarily responsible (including, if so specified, performing property
inspections and evaluating financial statements); and a Master Servicer may
perform certain limited duties in respect of any Mortgage Loan for which the
Special Servicer is primarily responsible (including, if so specified,
continuing to receive payments on such Mortgage Loan (including amounts
collected by the Special Servicer)), making certain calculations with respect to
such Mortgage Loan and making remittances and preparing certain reports to the
Trustee and/or Certificateholders with respect to such Mortgage Loan. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be responsible for filing and settling claims in respect of particular
Mortgage Loans under any applicable instrument of Credit Support. See
"Description of Credit Support".
A mortgagor's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Special Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Special
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Special Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Certificateholders of the related series
may vary considerably depending on the particular Mortgage Loan, the Mortgaged
Property, the mortgagor, the presence of an acceptable party to assume the
Mortgage Loan and the laws of the jurisdiction in which the Mortgaged Property
is located. If a mortgagor files a bankruptcy petition, the Special Servicer may
not be permitted to accelerate the maturity of the Mortgage Loan or to foreclose
on the related Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans -- Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. In general, the Master Servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectability of, the related Mortgage
Loan. Any fee collected by the Master Servicer for processing such request will
be retained by the Master Servicer as additional servicing compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus
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Supplement, the Master Servicer also will be required to notify any superior
lienholder in writing of the existence of the Mortgage Loan and request
notification of any action (as described below) to be taken against the
mortgagor or the Mortgaged Property by the superior lienholder. If the Master
Servicer is notified that any superior lienholder has accelerated or intends to
accelerate the obligations secured by the related Senior Lien, or has declared
or intends to declare a default under the mortgage or the promissory note
secured thereby, or has filed or intends to file an election to have the related
Mortgaged Property sold or foreclosed, then, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer and the Special Servicer will
each be required to take, on behalf of the related Trust Fund, whatever actions
are necessary to protect the interests of the related Certificateholders and/or
to preserve the security of the related Mortgage Loan, subject to the
application of the REMIC Provisions. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer or Special Servicer, as applicable,
will be required to advance the necessary funds to cure the default or reinstate
the Senior Lien, if such advance is in the best interests of the related
Certificateholders and the Master Servicer or Special Servicer, as applicable,
determines such advances are recoverable out of payments on or proceeds of the
related Mortgage Loan.
SUB-SERVICERS
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related Pooling and Servicing
Agreement. A Sub-Servicer for any series of Certificates may be an affiliate of
the Depositor. Unless otherwise provided in the related Prospectus Supplement,
each sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must provide for servicing of the applicable Mortgage
Loans consistent with the related Pooling and Servicing Agreement. The Master
Servicer and Special Servicer in respect of any Mortgage Asset Pool will each be
required to monitor the performance of Sub-Servicers retained by it and will
have the right to remove a Sub-Servicer retained by it at any time it considers
such removal to be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether the Master Servicer's or Special
Servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such Master
Servicer or Special Servicer would be reimbursed under a Pooling and Servicing
Agreement. See "-- Certificate Account" and "-- Servicing Compensation and
Payment of Expenses".
CERTIFICATE ACCOUNT
General. The Master Servicer, the Trustee and/or the Special Servicer
will, as to each Trust Fund that includes Mortgage Loans, establish and maintain
or cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each Rating
Agency that has rated any one or more classes of Certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
noninterest-bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in United States government securities and
other obligations that are acceptable to each Rating Agency that has rated any
one or more classes of Certificates of the related series ("Permitted
Investments"). Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in a Certificate Account will be
paid to the related Master Servicer, Trustee or Special Servicer as additional
compensation. A Certificate Account may be maintained with the related Master
Servicer, Special Servicer, Trustee or Mortgage Asset Seller or with a
depository institution that is an affiliate of any of the foregoing or of the
Depositor, provided that it complies with applicable Rating Agency standards. If
permitted by the applicable Rating Agency or Agencies, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other
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funds representing payments on mortgage loans owned by the related Master
Servicer or Special Servicer or serviced by either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, the following
payments and collections received or made by the Master Servicer, the Trustee or
the Special Servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each Trust Fund that includes Mortgage Loans, within a certain period following
receipt (in the case of collections on or in respect of the Mortgage Loans) or
otherwise as provided in the related Pooling and Servicing Agreement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
including any default interest collected, in each case net of any portion
thereof retained by the Master Servicer or the Special Servicer as its
servicing compensation or as compensation to the Trustee;
(iii) all proceeds received under any hazard, title or other insurance
policy that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan or in connection with the full or partial
condemnation of a Mortgaged Property (other than proceeds applied to the
restoration of the property or released to the related borrower)
(collectively, "Insurance and Condemnation Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted
Mortgage Loans or property acquired in respect thereof, by foreclosure or
otherwise (such amounts, together with those amounts listed in clause (vii)
below, "Liquidation Proceeds"), together with the net operating income
(less reasonable reserves for future expenses) derived from the operation
of any Mortgaged Properties acquired by the Trust Fund through foreclosure
or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates;
(v) any advances made with respect to delinquent scheduled payments of
principal and interest on the Mortgage Loans;
(vi) any amounts paid under any Cash Flow Agreement;
(vii) all proceeds of the purchase of any Mortgage Loan, or property
acquired in respect thereof, by the Depositor, any Mortgage Asset Seller or
any other specified person as described under "-- Assignment of Mortgage
Loans; Repurchases" and "-- Representations and Warranties; Repurchases",
all proceeds of the purchase of any defaulted Mortgage Loan as described
under "-- Realization Upon Defaulted Mortgage Loans", and all proceeds of
any Mortgage Asset purchased as described under "Description of the
Certificates -- Termination";
(viii) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or the Special Servicer and
is not otherwise retained by the Depositor or another specified person, any
payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations with respect to the
Mortgage Loans;
(ix) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy as
described under "-- Hazard Insurance Policies";
(x) any amount required to be deposited by the Master Servicer, the
Special Servicer or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer, the Special Servicer or
the Trustee, as the case may be, of funds held in the Certificate Account;
and
(xi) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling and Servicing Agreement and
described in the related Prospectus Supplement.
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Withdrawals. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement, a Master
Servicer, Trustee or Special Servicer may make withdrawals from the Certificate
Account for each Trust Fund that includes Mortgage Loans for any of the
following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to pay the Master Servicer or the Special Servicer any servicing
fees not previously retained thereby, such payment to be made out of
payments and other collections of interest on the particular Mortgage Loans
as to which such fees were earned;
(iii) to reimburse the Master Servicer, the Special Servicer or any
other specified person for unreimbursed advances of delinquent scheduled
payments of principal and interest made by it, and certain unreimbursed
servicing expenses incurred by it, with respect to Mortgage Loans in the
Trust Fund and properties acquired in respect thereof, such reimbursement
to be made out of amounts that represent late payments collected on the
particular Mortgage Loans, Liquidation Proceeds and Insurance and
Condemnation Proceeds collected on the particular Mortgage Loans and
properties, and net income collected on the particular properties, with
respect to which such advances were made or such expenses were incurred or
out of amounts drawn under any form of Credit Support with respect to such
Mortgage Loans and properties, or if in the judgment of the Master
Servicer, the Special Servicer or such other person, as applicable, such
advances and/or expenses will not be recoverable from such amounts, such
reimbursement to be made from amounts collected on other Mortgage Loans in
the same Trust Fund or, if and to the extent so provided by the related
Pooling and Servicing Agreement and described in the related Prospectus
Supplement, only from that portion of amounts collected on such other
Mortgage Loans that is otherwise distributable on one or more classes of
Subordinate Certificates of the related series;
(iv) if and to the extent described in the related Prospectus
Supplement, to pay the Master Servicer, the Special Servicer or any other
specified person interest accrued on the advances and servicing expenses
described in clause (iii) above incurred by it while such remain
outstanding and unreimbursed;
(v) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and for
any containment, clean-up or remediation of hazardous wastes and materials
present on such Mortgaged Properties, as described under "-- Realization
Upon Defaulted Mortgage Loans";
(vi) to reimburse the Master Servicer, the Special Servicer, the REMIC
Administrator, the Depositor, the Trustee, or any of their respective
directors, officers, employees and agents, as the case may be, for certain
expenses, costs and liabilities incurred thereby, as and to the extent
described under "-- Certain Matters Regarding the Master Servicer, the
Special Servicer, the REMIC Administrator and the Depositor" and
"-- Certain Matters Regarding the Trustee";
(vii) if and to the extent described in the related Prospectus
Supplement, to pay the fees of the Trustee, the REMIC Administrator and any
provider of Credit Support;
(viii) if and to the extent described in the related Prospectus
Supplement, to reimburse prior draws on any form of Credit Support;
(ix) to pay the Master Servicer, the Special Servicer or the Trustee,
as appropriate, interest and investment income earned in respect of amounts
held in the Certificate Account as additional compensation;
(x) to pay any servicing expenses not otherwise required to be
advanced by the Master Servicer, the Special Servicer or any other
specified person;
(xi) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the Trust Fund or its assets or
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transactions, as and to the extent described under "Certain Federal Income Tax
Consequences -- REMICs -- Prohibited Transactions Tax and Other Taxes";
(xii) to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling and Servicing Agreement for the benefit of
Certificateholders;
(xiii) to make any other withdrawals permitted by the related Pooling
and Servicing Agreement and described in the related Prospectus Supplement;
and
(xiv) to clear and terminate the Certificate Account upon the
termination of the Trust Fund.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The Master Servicer and the Special Servicer may each agree to modify,
waive or amend any term of any Mortgage Loan serviced by it in a manner
consistent with the applicable Servicing Standard; provided that, unless
otherwise set forth in the related Prospectus Supplement, the modification,
waiver or amendment (i) will not affect the amount or timing of any scheduled
payments of principal or interest on the Mortgage Loan, (ii) will not, in the
judgment of the Master Servicer or the Special Servicer, as the case may be,
materially impair the security for the Mortgage Loan or reduce the likelihood of
timely payment of amounts due thereon and (iii) will not adversely affect the
coverage under any applicable instrument of Credit Support. Unless otherwise
provided in the related Prospectus Supplement, the Special Servicer also may
agree to any other modification, waiver or amendment if, in its judgment, (i) a
material default on the Mortgage Loan has occurred or a payment default is
imminent, (ii) such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Mortgage Loan, taking into
account the time value of money, than would liquidation and (iii) such
modification, waiver or amendment will not adversely affect the coverage under
any applicable instrument of Credit Support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a Mortgage Loan has occurred, the Special Servicer, on
behalf of the Trustee, may at any time institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise. Unless otherwise specified in the
related Prospectus Supplement, the Special Servicer may not, however, acquire
title to any Mortgaged Property, have a receiver of rents appointed with respect
to any Mortgaged Property or take any other action with respect to any Mortgaged
Property that would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Special Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b) there
are no circumstances or conditions present at the Mortgaged Property that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(ii) the Special Servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (i)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value of
money, than not taking such actions. See "Certain Legal Aspects of Mortgage
Loans -- Environmental Considerations".
A Pooling and Servicing Agreement may grant to the Master Servicer, the
Special Servicer, a provider of Credit Support and/or the holder or holders of
certain classes of the related series of Certificates a right of first refusal
to purchase from the Trust Fund, at a predetermined price (which, if less than
the Purchase Price, will
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be specified in the related Prospectus Supplement), any Mortgage Loan as to
which a specified number of scheduled payments are delinquent. In addition,
unless otherwise specified in the related Prospectus Supplement, the Special
Servicer may offer to sell any defaulted Mortgage Loan if and when the Special
Servicer determines, consistent with its normal servicing procedures, that such
a sale would produce a greater recovery, taking into account the time value of
money, than would liquidation of the related Mortgaged Property. In the absence
of any such sale, the Special Servicer will generally be required to proceed
against the related Mortgaged Property, subject to the discussion above.
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property within two years of acquisition, unless
(i) the Internal Revenue Service (the "IRS") grants an extension of time to sell
such property or (ii) the Trustee receives an opinion of independent counsel to
the effect that the holding of the property by the Trust Fund for more than two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund (or any designated portion thereof) to fail
to qualify as a REMIC under the Code at any time that any Certificate is
outstanding. Subject to the foregoing and any other tax-related limitations, the
Special Servicer will generally be required to attempt to sell any Mortgaged
Property so acquired on the same terms and conditions it would if it were the
owner. Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Special Servicer will also be required to ensure
that the Mortgaged Property is administered so that it constitutes "foreclosure
property" within the meaning of Code Section 860G(a)(8) at all times, that the
sale of such property does not result in the receipt by the Trust Fund of any
income from nonpermitted assets as described in Code Section 860F(a)(2)(B), and
that the Trust Fund does not derive any "net income from foreclosure property"
within the meaning of Code Section 860G(c)(2), with respect to such property. If
the Trust Fund acquires title to any Mortgaged Property, the Special Servicer,
on behalf of the Trust Fund, may retain an independent contractor to manage and
operate such property. The retention of an independent contractor, however, will
not relieve the Special Servicer of its obligation to manage such Mortgaged
Property as required under the related Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted Mortgage Loan
are less than the outstanding principal balance of the defaulted Mortgage Loan
plus interest accrued thereon plus the aggregate amount of reimbursable expenses
incurred by the Special Servicer and/or the Master Servicer in connection with
such Mortgage Loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting Credit Support, the Trust Fund will realize
a loss in the amount of such shortfall. The Special Servicer and/or the Master
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted Mortgage Loan, prior to the distribution of such
Liquidation Proceeds to Certificateholders, any and all amounts that represent
unpaid servicing compensation in respect of the Mortgage Loan, unreimbursed
servicing expenses incurred with respect to the Mortgage Loan and any
unreimbursed advances of delinquent payments made with respect to the Mortgage
Loan. In addition, if and to the extent set forth in the related Prospectus
Supplement, amounts otherwise distributable on the Certificates may be further
reduced by interest payable to the Master Servicer and/or Special Servicer on
such servicing expenses and advances.
If any Mortgaged Property suffers damage such that the proceeds, if any, of
the related hazard insurance policy are insufficient to restore fully the
damaged property, neither the Special Servicer nor the Master Servicer will be
required to expend its own funds to effect such restoration unless (and to the
extent not otherwise provided in the related Prospectus Supplement) it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Special Servicer or the Master Servicer, as the case may be, for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance and Condemnation Proceeds, Liquidation Proceeds and/or amounts drawn
on any instrument or fund constituting Credit Support.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer (or the Special
Servicer with respect to Mortgage Loans serviced thereby) to
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use reasonable efforts to cause each Mortgage Loan borrower to maintain a hazard
insurance policy that provides for such coverage as is required under the
related Mortgage or, if the Mortgage permits the holder thereof to dictate to
the borrower the insurance coverage to be maintained on the related Mortgaged
Property, such coverage as is consistent with the Master Servicer's (or Special
Servicer's) normal servicing procedures. Unless otherwise specified in the
related Prospectus Supplement, such coverage generally will be in an amount
equal to the lesser of the principal balance owing on such Mortgage Loan and the
replacement cost of the related Mortgaged Property. The ability of a Master
Servicer (or Special Servicer) to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information concerning covered
losses is furnished by borrowers. All amounts collected by a Master Servicer (or
Special Servicer) under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the borrower in
accordance with the Master Servicer's (or Special Servicer's) normal servicing
procedures and/or to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the related Certificate Account. The Pooling
and Servicing Agreement may provide that the Master Servicer (or Special
Servicer) may satisfy its obligation to cause each borrower to maintain such a
hazard insurance policy by maintaining a blanket policy insuring against hazard
losses on the Mortgage Loans in a Trust Fund. If such blanket policy contains a
deductible clause, the Master Servicer (or Special Servicer) will be required,
in the event of a casualty covered by such blanket policy, to deposit in the
related Certificate Account all additional sums that would have been deposited
therein under an individual policy but were not because of such deductible
clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer (or Special Servicer) will determine whether to exercise any right the
Trustee may have under any such provision in a manner consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or Special
Servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans -- Due-on-Sale
and Due-on-Encumbrance".
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund, including
Mortgage Loans serviced by the related Special Servicer. If and to the extent
described in the related Prospectus Supplement, a Special Servicer's primary
compensation with respect to a series of Certificates may consist of any or all
of the following components: (i) a specified portion of the interest payments on
each Mortgage Loan in the related Trust Fund, whether or not serviced by it;
(ii) an additional specified portion of the interest payments on each Mortgage
Loan then currently serviced by it; and (iii) subject to any specified
limitations, a fixed percentage of some or all of the collections and proceeds
received with respect to each Mortgage Loan which was at any time serviced by
it, including Mortgage Loans for which servicing was returned to the Master
Servicer. Insofar as any portion of the Master Servicer's or Special Servicer's
compensation consists of a specified portion of the interest payments on a
Mortgage Loan, such compensation will generally be based on a percentage of the
principal balance of such Mortgage Loan outstanding from time to time and,
accordingly, will decrease with the amortization of the Mortgage Loan. As
additional compensation, a Master Servicer or Special Servicer may be entitled
to retain all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the related Certificate
Account. A more detailed description of each Master Servicer's and Special
Servicer's compensation will be provided in the related Prospectus Supplement.
Any Sub-Servicer will receive as its sub-servicing compensation a portion of the
servicing compensation to be paid to the Master Servicer or Special Servicer
that retained such Sub-Servicer.
In addition to amounts payable to any Sub-Servicer, a Master Servicer or
Special Servicer may be required, to the extent provided in the related
Prospectus Supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related Trust Fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the Trustee and any custodians appointed thereby and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing 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 after the Cut-off Date, there will be furnished to the related Trustee
a report of a firm of independent certified public accountants stating that (i)
it has obtained a letter of representation regarding certain matters from the
management of the Master Servicer which includes an assertion that the Master
Servicer has complied with certain minimum mortgage loan servicing standards (to
the extent applicable to commercial and multifamily mortgage loans), identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America, with respect to the Master
Servicer's servicing of commercial and multifamily mortgage loans during the
most recently completed calendar year and (ii) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that, in the opinion of such firm, such standards require it to report. In
rendering its report such firm may rely, as to the matters relating to the
direct servicing of commercial and multifamily mortgage loans by Sub-Servicers,
upon comparable reports of firms of independent public accountants rendered on
the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those Sub-Servicers.
The Prospectus Supplement may provide that additional reports of independent
certified public accountants relating to the servicing of mortgage loans may be
required to be delivered to the Trustee.
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Each Pooling and Servicing Agreement will also 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 after the Cut-off Date, the Master Servicer and
Special Servicer shall each deliver to the related Trustee an annual statement
signed by one or more officers of the Master Servicer or the Special Servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the Master Servicer or the Special Servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status thereof. Such
statement may be provided as a single form making the required statements as to
more than one Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer or Special Servicer may be obtained by Certificateholders upon
written request to the Trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE REMIC
ADMINISTRATOR AND THE DEPOSITOR
Any entity serving as Master Servicer, Special Servicer or REMIC
Administrator under a Pooling and Servicing Agreement may be an affiliate of the
Depositor and may have other normal business relationships with the Depositor or
the Depositor's affiliates. Unless otherwise specified in the Prospectus
Supplement for a series of Certificates, the related Pooling and Servicing
Agreement will permit the Master Servicer, the Special Servicer and any REMIC
Administrator to resign from its obligations thereunder only upon a
determination that such obligations 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. No such resignation will become effective until the
Trustee or other successor has assumed the obligations and duties of the
resigning Master Servicer, Special Servicer or REMIC Administrator, as the case
may be, under the Pooling and Servicing Agreement. The Master Servicer and
Special Servicer for each Trust Fund will be required to maintain a fidelity
bond and errors and omissions policy or their equivalent that provides coverage
against losses that may be sustained as a result of an officer's or employee's
misappropriation of funds or errors and omissions, subject to certain
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions permitted by the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will further provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator, the Depositor, any
extension adviser or any director, officer, employee or agent of any of them
will be under any liability to the related Trust Fund or Certificateholders for
any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the Master Servicer, the Special Servicer, the REMIC Administrator, the
Depositor, any extension adviser or any such person will be protected against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of obligations or duties thereunder
or by reason of reckless disregard of such obligations and duties. Unless
otherwise specified in the related Prospectus Supplement, each Pooling and
Servicing Agreement will further provide that the Master Servicer, the Special
Servicer, the REMIC Administrator, the Depositor, any extension adviser and any
director, officer, employee or agent of any of them will be entitled to
indemnification by the related Trust Fund against any loss, liability or expense
incurred in connection with any legal action that relates to such Pooling and
Servicing Agreement or the related series of Certificates; provided, however,
that such indemnification will not extend to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of obligations or duties under such Pooling and Servicing Agreement,
or by reason of reckless disregard of such obligations or duties. In addition,
each Pooling and Servicing Agreement will provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator, any extension adviser
or the Depositor will be under any obligation to appear in, prosecute or defend
any legal action that is not incidental to its respective responsibilities under
the Pooling and Servicing Agreement and that in its opinion may involve it in
any expense or liability. However, each of the Master Servicer, the Special
Servicer, the REMIC Administrator, any extension adviser and the Depositor will
be permitted, in the exercise of its discretion, to undertake any
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such action that it may deem necessary or desirable with respect to the
enforcement and/or protection of the rights and duties of the parties to the
Pooling and Servicing Agreement and the interests of the related series of
Certificateholders thereunder. In such event, the legal expenses and costs of
such action, and any liability resulting therefrom, will be expenses, costs and
liabilities of the related series of Certificateholders, and the Master
Servicer, the Special Servicer, the REMIC Administrator, any extension adviser
or the Depositor, as the case may be, will be entitled to charge the related
Certificate Account therefor.
Any person into which the Master Servicer, the Special Servicer, the REMIC
Administrator or the Depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the Master Servicer, the
Special Servicer, the REMIC Administrator or the Depositor is a party, or any
person succeeding to the business of the Master Servicer, the Special Servicer,
the REMIC Administrator or the Depositor, will be the successor of the Master
Servicer, the Special Servicer, the REMIC Administrator or the Depositor, as the
case may be, under the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC Administrator will not be responsible for any willful
misconduct or negligence on the part of any such agent or attorney appointed by
it with due care.
EVENTS OF DEFAULT
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling and Servicing
Agreement will include, without limitation, (i) any failure by the Master
Servicer to distribute or cause to be distributed to the Certificateholders of
such series, or to remit to the Trustee for distribution to such
Certificateholders, any amount required to be so distributed or remitted,
pursuant to, and at the time specified by, the terms of the Pooling and
Servicing Agreement, (ii) any failure by the Special Servicer to remit to the
Master Servicer or the Trustee, as applicable, any amount required to be so
remitted, pursuant to, and at the time specified by, the terms of the Pooling
and Servicing Agreement; (iii) any failure by the Master Servicer or the Special
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the related Pooling and Servicing Agreement,
which failure continues unremedied for thirty days (fifteen days in the case of
a failure to pay the premium for any insurance policy required to be maintained
under the Pooling and Servicing Agreement) after written notice thereof has been
given to the Master Servicer or the Special Servicer, as the case may be, by any
other party to the related Pooling and Servicing Agreement, or to the Master
Servicer or the Special Servicer, as the case may be, with a copy to each other
party to the related Pooling and Servicing Agreement, by Certificateholders
entitled to not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such series; (iv) any failure by
a REMIC Administrator (if other than the Trustee) duly to observe or perform in
any material respect any of its covenants or obligations under the related
Pooling and Servicing Agreement, which failure continues unremedied for thirty
days after written notice thereof has been given to the REMIC Administrator by
any other party to the related Pooling and Servicing Agreement, or to the REMIC
Administrator, with a copy to each other party to the related Pooling and
Servicing Agreement, by Certificateholders entitled to not less than 25% (or
such other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such series; and (v) certain events of insolvency,
readjustment of debt, marshaling of assets and liabilities, or similar
proceedings in respect of or relating to the Master Servicer, the Special
Servicer or the REMIC Administrator (if other than the Trustee), and certain
actions by or on behalf of the Master Servicer, the Special Servicer or the
REMIC Administrator (if other than the Trustee) indicating its insolvency or
inability to pay its obligations. Material variations to the foregoing Events of
Default (other than to add thereto or shorten cure periods or eliminate notice
requirements) will be specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, when a single entity
acts as Master Servicer, Special Servicer and REMIC Administrator, or in any two
of the foregoing capacities, for any Trust Fund, an Event of Default in one
capacity will constitute an Event of Default in each capacity.
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RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Master Servicer, the
Special Servicer or a REMIC Administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the Depositor or the Trustee will be authorized, and at the
direction of Certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related Prospectus Supplement) of
the Voting Rights for such series, the Trustee will be required, to terminate
all of the rights and obligations of the defaulting party as Master Servicer,
Special Servicer or REMIC Administrator, as applicable, under the Pooling and
Servicing Agreement, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Master
Servicer, Special Servicer or REMIC Administrator, as applicable, under the
Pooling and Servicing Agreement (except that if the defaulting party is required
to make advances thereunder regarding delinquent Mortgage Loans, but the Trustee
is prohibited by law from obligating itself to make such advances, or if the
related Prospectus Supplement so specifies, the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related Prospectus Supplement, if the Trustee
is unwilling or unable so to act, it may (or, at the written request of
Certificateholders of the related series entitled to not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series, it will be required to) appoint, or petition a court of
competent jurisdiction to appoint, a loan servicing institution or other entity
that (unless otherwise provided in the related Prospectus Supplement) is
acceptable to each applicable Rating Agency to act as successor to the Master
Servicer, Special Servicer or REMIC Administrator, as the case may be, under the
Pooling and Servicing Agreement. Pending such appointment, the Trustee will be
obligated to act in such capacity.
If the same entity is acting as both Trustee and REMIC Administrator, it
may be removed in both such capacities as described under "-- Resignation and
Removal of the Trustee" below.
No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the Trustee written notice
of default and the continuance thereof and unless the holders of Certificates of
any class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity and the Trustee for sixty days after receipt of
such request and indemnity has neglected or refused to institute any such
proceeding. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the Pooling and Servicing Agreement or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Certificates covered by
such Pooling and Servicing Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of Certificates covered by such Pooling and
Servicing Agreement, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein which may be inconsistent with any other provision therein
or to correct any error, (iii) to change the timing and/or nature of deposits in
the Certificate Account, provided that (A) such change would not adversely
affect in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (B) such change would not result in the
withdrawal, downgrade or qualification of any of the then-current ratings on the
Certificates, as evidenced by a letter from each applicable Rating Agency, (iv)
if a REMIC election has been made with respect to the related Trust Fund, to
modify, eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund (or any designated
portion thereof) as a REMIC or to avoid or minimize the risk of imposition of
any tax on the related Trust Fund, provided that the Trustee has received an
opinion of counsel to the effect that (1) such action is necessary or desirable
to maintain such qualification or to avoid or minimize such risk, and (2) such
action will not adversely affect in any material respect the interests of any
holder of Certificates covered by the
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Pooling and Servicing Agreement, or (B) to restrict the transfer of the REMIC
Residual Certificates, provided that the Depositor has determined that the
then-current ratings of the classes of the Certificates that have been rated
will not be withdrawn, downgraded or qualified, as evidenced by a letter from
each applicable Rating Agency, and that any such amendment will not give rise to
any tax with respect to the transfer of the REMIC Residual Certificates to a
non-permitted transferee (See "Certain Federal Income Tax
Consequences -- REMICs -- Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations" herein), (v) to make any other provisions
with respect to matters or questions arising under such Pooling and Servicing
Agreement or any other change, provided that such action will not adversely
affect in any material respect the interests of any Certificateholder, or (vi)
to amend specified provisions that are not material to holders of any class of
Certificates offered hereunder.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each class affected
thereby evidencing, in each case, not less than 66 2/3% (or such other
percentage specified in the related Prospectus Supplement) of the aggregate
Percentage Interests constituting such class 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
the holders of Certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on a Certificate of any class without the consent of the holder
of such Certificate or (ii) reduce the aforesaid percentage of Certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all Certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if one or more REMIC elections have been
made with respect to the related Trust Fund, the Trustee will not be required to
consent to any amendment to a Pooling and Servicing Agreement without having
first received an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Master Servicer, the Special Servicer, the
Depositor, the Trustee or any other specified person in accordance with such
amendment will not result in the imposition of a tax on the related Trust Fund
or cause such Trust Fund (or any designated portion thereof) to fail to qualify
as a REMIC.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
Trustee or other specified person will afford such Certificateholders access
during normal business hours to the most recent list of Certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, then such
person, if not the registrar for such series of Certificates, will be required
to request from such registrar a current list and to afford such requesting
Certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in the
related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Depositor and its affiliates and
with any Master Servicer, Special Servicer or REMIC Administrator and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
such Certificates or any underlying Mortgage Asset or related document and will
not be accountable for the use or application by or on behalf of any Master
Servicer or Special Servicer of any funds paid to the Master Servicer or Special
Servicer in respect of the Certificates or
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the underlying Mortgage Assets. If no Event of Default has occurred and is
continuing, the Trustee for each series of Certificates will be required to
perform only those duties specifically required under the related Pooling and
Servicing Agreement. However, upon receipt of any of the various certificates,
reports or other instruments required to be furnished to it pursuant to the
related Pooling and Servicing Agreement, a Trustee will be required to examine
such documents and to determine whether they conform to the requirements of such
agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of its duties thereunder either directly or by or through agents or
attorneys, and the Trustee will not be responsible for any willful misconduct or
negligence on the part of any such agent or attorney appointed by it with due
care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Depositor will be obligated to appoint
a successor Trustee. The Trustee may also be removed at any time by the holders
of Certificates of the applicable series evidencing not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series. 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. Notwithstanding anything herein to the
contrary, if any entity is acting as both Trustee and REMIC Administrator, then
any resignation or removal of such entity as the Trustee will also constitute
the resignation or removal of such entity as REMIC Administrator, and the
successor trustee will serve as successor to the REMIC Administrator as well.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit Support may be provided with respect to one or more classes of the
Certificates of any series or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or another
method of Credit Support described in the related Prospectus Supplement, or any
combination of the foregoing. If and to the extent so provided in the related
Prospectus Supplement, any of the foregoing forms of Credit Support may provide
credit enhancement for more than one series of Certificates.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee payment to Certificate-
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holders of all amounts to which they are entitled under the related Pooling and
Servicing Agreement. If losses or shortfalls occur that exceed the amount
covered by the related Credit Support or that are of a type not covered by such
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers the Offered
Certificates of more than one series and losses on the related Mortgage Assets
exceed the amount of such Credit Support, it is possible that the holders of
Offered Certificates of one (or more) such series will be disproportionately
benefited by such Credit Support to the detriment of the holders of Offered
Certificates of one (or more) other such series.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor, if
any, under any instrument of Credit Support. See "Risk Factors -- Credit Support
Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of certain
types of losses or shortfalls. The related Prospectus Supplement will set forth
information concerning the method and amount of subordination provided by a
class or classes of Subordinate Certificates in a series and the circumstances
under which such subordination will be available.
If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate class or classes of Certificates of the related
series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. The related Prospectus
Supplement will describe the nature of such default risks and the extent of such
coverage.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or other financial institution (which may be an affiliate of the Depositor)
specified in such Prospectus Supplement (the "Letter of Credit Bank"). Under a
letter of credit, the Letter of Credit Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of some or all of the related
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws only in
the event of certain types of losses and shortfalls. The amount available under
the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The
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obligations of the Letter of Credit Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund.
CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies or surety bonds provided
by one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Certificates of the related series, timely
distributions of interest or distributions of principal on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. The related Prospectus
Supplement will describe any limitations on the draws that may be made under any
such instrument.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered (to the extent of available funds) by one or
more reserve funds in which cash, a letter of credit, Permitted Investments, a
demand note or a combination thereof will be deposited, in the amounts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a series may also be funded over time by a
specified amount of certain collections received on the related Mortgage Assets.
Amounts on deposit in any reserve fund for a series will be applied for the
purposes, in the manner, and to the extent specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, reserve funds
may be established to provide protection only against certain types of losses
and shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained therein may be released from the
reserve fund under the conditions and to the extent specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the Trust Fund unless
otherwise specified in the related Prospectus Supplement.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the Mortgage Loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds -- Mortgage Loans". For purposes of the
following discussion, "Mortgage Loan" includes a mortgage loan underlying an
MBS.
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GENERAL
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the related instrument, the law of the state in which
the real property is located, certain federal laws and, in some deed of trust
transactions, the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
nonbankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and
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therefore cannot be used by the bankruptcy debtor without lender's consent or a
hearing at which the lender's interest in the room rates is given adequate
protection (e.g., the lender receives cash payments from otherwise unencumbered
funds or a replacement lien on unencumbered property, in either case equal in
value to the amount of room rates that the debtor proposes to use, or other
similar relief). See "-- Bankruptcy Laws".
In the case of office and retail properties, the bankruptcy or insolvency
of a major tenant or a number of smaller tenants may have an adverse impact on
the Mortgaged Properties affected and the income produced by such Mortgaged
Properties. Under bankruptcy law, a tenant has the option of assuming
(continuing), or rejecting (terminating) or, subject to certain conditions,
assigning to a third party any unexpired lease. If the tenant assumes its lease,
the tenant must cure all defaults under the lease and provide the landlord with
adequate assurance of its future performance under the lease. If the tenant
rejects the lease, the landlord's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be limited to the amount owed for unpaid pre-petition
lease payments unrelated to the rejection, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but not
to exceed three years' lease payments). If the tenant assigns its lease, the
tenant must cure all defaults under the lease and the proposed assignee must
demonstrate adequate assurance of future performance under the lease.
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain
Provisions. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure
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actions. These principles are generally designed to relieve borrowers from the
effects of mortgage defaults perceived as harsh or unfair. Relying on such
principles, a court may alter the specific terms of a loan to the extent it
considers necessary to prevent or remedy an injustice, undue oppression or
overreaching, or may require the lender to undertake affirmative actions to
determine the cause of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's and have required that lenders
reinstate loans or recast payment schedules in order to accommodate borrowers
who are suffering from a temporary financial disability. In other cases, courts
have limited the right of the lender to foreclose in the case of a nonmonetary
default, such as a failure to adequately maintain the mortgaged property or an
impermissible further encumbrance of the mortgaged property. Finally, some
courts have addressed the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
borrower receive notice in addition to statutorily-prescribed minimum notice.
For the most part, these cases have upheld the reasonableness of the notice
provisions or have found that a public sale under a mortgage providing for a
power of sale does not involve sufficient state action to trigger constitutional
protections.
In addition, some states may have statutory protection such as the right of
the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears (without regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, may be nonrecourse. See "Risk
Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Limited Recourse Nature of the Mortgage Loans".) Thereafter,
subject to the borrower's right in some states to remain in possession during a
redemption period, the lender will become the owner of the property and have
both the benefits and burdens of ownership, including the obligation to pay debt
service on any senior mortgages, to pay taxes, to obtain casualty insurance and
to make such repairs as are necessary to render the property suitable for sale.
The costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease 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.
Moreover, because of the expenses associated with acquiring, owning and
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selling a mortgaged property, a lender could realize an overall loss on a
mortgage loan even if the mortgaged property is sold at foreclosure, or resold
after it is acquired through foreclosure, for an amount equal to the full
outstanding principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted 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 because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal 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 may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee could lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, requires the lessor to grant
the mortgagee a new lease if the existing lease is rejected in a bankruptcy
proceeding, permits the leasehold estate to be assigned to
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and by the leasehold mortgagee or the purchaser at a foreclosure sale, and
contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
Cooperative Shares. Mortgage Loans may be secured by a security interest
on the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner tenants. Such loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. Such a loan typically is subordinate to the mortgage, if any,
on the Cooperative's building which, if foreclosed, could extinguish the equity
in the building and the proprietary leases of the dwelling units derived from
ownership of the shares of the Cooperative. Further, transfer of shares in a
Cooperative are subject to various regulations as well as to restrictions under
the governing documents of the Cooperative, and the shares may be canceled in
the event that associated maintenance charges due under the related proprietary
leases are not paid. Typically, a recognition agreement between the lender and
the Cooperative provides, among other things, the lender with an opportunity to
cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor and
the method, manner, time, place and terms of the sale. 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. A recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of the
Cooperative to receive sums due under the proprietary leases.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce
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the borrower's assignment of rents and leases. In addition to the inclusion of
hotel revenues within the definition of "cash collateral" as noted previously in
the section entitled "-- Leases and Rents", the amendments provide that a
pre-petition security interest in rents or hotel revenues extends (unless the
bankruptcy court orders otherwise based on the equities of the case) to such
post-petition rents or revenues and is intended to overrule those cases that
held that a security interest in rents is unperfected under the laws of certain
states until the lender has taken some further action, such as commencing
foreclosure or obtaining a receiver prior to activation of the assignment of
rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and circumstances not wholly in existence at the
time a loan is originated or transferred to the Trust Fund, the application of
any of these doctrines to one or more of the mortgagors in the context of the
bankruptcy of one or more of their affiliates could result in material
impairment of the rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity", "single
purpose entity" or bankruptcy remote entity" in the Prospectus Supplement, the
activities that may be conducted by such mortgagor and its ability to incur debt
are restricted by the applicable Mortgage or the organizational documents of
such mortgagor in such manner as is intended to make the likelihood of a
bankruptcy proceeding being commenced by or against such mortgagor remote, and
such mortgagor has been organized and is designed to operate in a manner such
that its separate existence should be respected notwithstanding a bankruptcy
proceeding in respect of one or more affiliated entities of such mortgagor.
However, the Depositor makes no representation as to the likelihood of the
institution of a bankruptcy proceeding by or in respect of any mortgagor or the
likelihood that the separate existence of any mortgagor would be respected if
there were to be a bankruptcy proceeding in respect of any affiliated entity of
a mortgagor.
ENVIRONMENTAL CONSIDERATIONS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
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Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
participated in the management of such mortgaged property or the operations of
the borrower. Such liability may exist even if the lender did not cause or
contribute to the contamination and regardless of whether the lender has
actually taken possession of a mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest".
In general, what constitutes participation in the management of a mortgaged
property or the business of a borrower to render the secured creditor exemption
unavailable to a lender is based upon judicial interpretation of the statutory
language, and court decisions have been inconsistent in this matter. The Court
of Appeals for the Eleventh Circuit has suggested that the mere capacity of the
lender to influence a borrower's disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the secured
creditor exemption to the lender. However, the Court of Appeals for the Ninth
Circuit disagreed with the Eleventh Circuit and held that there must be some
degree of "actual management" of a facility on the part of a lender in order to
bar its reliance on the secured creditor exemption. In addition, certain cases
decided in the First Circuit and the Fourth Circuit have held that lenders were
entitled to the secured creditor exemption, notwithstanding a lender's taking
title to a mortgaged property through foreclosure or deed in lieu of
foreclosure.
CERCLA's "innocent landowner" defense may be available to a lender that has
taken title to a mortgaged property and has performed an appropriate
environmental site assessment that does not disclose existing contamination and
that meets other requirements of the defense. However, it is unclear whether the
environmental site assessment must be conducted upon loan origination, prior to
foreclosure, or both, and uncertainty exists as to what kind of environmental
site assessment must be performed in order to qualify for the defense.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsured liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on a borrower. Such costs may jeopardize the
borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or
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operator who created the environmental hazard, but that individual or entity may
be without substantial assets. Accordingly, it is possible that such costs could
become a liability of the Trust Fund and occasion a loss to the
Certificateholders.
To reduce the likelihood of such a loss, unless otherwise specified in the
related Prospectus Supplement, the Pooling and Servicing Agreement will provide
that neither the Master Servicer nor the Special Servicer, acting on behalf of
the Trustee, may acquire title to a Mortgaged Property or take over its
operation unless the Special Servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as described
under "The Pooling and Servicing Agreements -- Realization Upon Defaulted
Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related Senior Liens may not be included in the
Mortgage Pool. In addition to the risks faced by the holder of a first lien,
holders of Mortgage Loans secured by junior liens also face the risk that
adequate funds will not be received in connection with a foreclosure on the
related Mortgaged Property to satisfy fully both the Senior Liens and the
Mortgage Loan. In the event that a holder of a Senior Lien forecloses on a
Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgaged Property, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. In the event that such proceeds from a foreclosure or similar
sale of the related
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Mortgaged Property are insufficient to satisfy all Senior Liens and the Mortgage
Loan in the aggregate, the Trust Fund, as the holder of the junior lien, and,
accordingly, holders of one or more classes of the Certificates of the related
series bear (i) the risk of delay in distributions while a deficiency judgment
against the borrower is obtained and (ii) the risk of loss if the deficiency
judgment is not realized upon. Moreover, deficiency judgments may not be
available in certain jurisdictions or the Mortgage Loan may be nonrecourse.
The rights of the Trust Fund (and therefore the Certificateholders), as
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 rents, hazard insurance and condemnation
proceeds and to cause the property securing the Mortgage Loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the Master Servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers 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 mortgage 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 senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed to the extent the
junior mortgage or deed of trust so provides. The laws of certain states may
limit the ability of mortgagees or beneficiaries to apply the proceeds of hazard
insurance and partial condemnation awards to the secured indebtedness. In such
states, the mortgagor or trustor must be allowed to use the proceeds of hazard
insurance to repair the damage unless the security of the mortgagee or
beneficiary has been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
SUBORDINATE FINANCING
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is
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subjected to additional risk. First, the borrower may have difficulty servicing
and repaying multiple loans. Moreover, if the subordinate financing permits
recourse to the borrower (as is frequently the case) and the senior loan does
not, a borrower may have more incentive to repay sums due on the subordinate
loan. Second, acts of the senior lender that prejudice the junior lender or
impair the junior lender's security may create a superior equity in favor of the
junior lender. For example, if the borrower and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the senior
loan, the senior lender may lose its priority to the extent any existing junior
lender is harmed or the borrower is additionally burdened. Third, if the
borrower defaults on the senior loan and/or any junior loan or loans, the
existence of junior loans and actions taken by junior lenders can impair the
security available to the senior lender and can interfere with or delay the
taking of action by the senior lender. Moreover, the bankruptcy of a junior
lender may operate to stay foreclosure or similar proceedings by the senior
lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for prepayment fees
or yield maintenance penalties if the obligation is paid prior to maturity or
prohibit such prepayment for a specified period. In certain states, there are or
may be specific limitations upon the late charges which a lender may collect
from a mortgagor for delinquent payments. Certain states also limit the amounts
that a lender may collect from a mortgagor as an additional charge if the loan
is prepaid. The enforceability under the laws of a number of states and the
Bankruptcy Code of provisions providing for prepayment fees of penalties upon,
or prohibition of, an involuntary prepayment is unclear, and no assurance can be
given that, at the time a prepayment premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any state
to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
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AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) 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. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer or
Special Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application of
the Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of Certificates, and would not be covered by
advances or, unless otherwise specified in the related Prospectus Supplement,
any form of Credit Support provided in connection with such Certificates. In
addition, the Relief Act imposes limitations that would impair the ability of
the Master Servicer or Special Servicer to foreclose on an affected Mortgage
Loan during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Offered
Certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the Depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth herein. Counsel
to the Depositor for each series will be Thacher Proffitt & Wood or Cadwalader,
Wickersham & Taft, and a copy of the legal opinion of such counsel rendered in
connection with any series of Certificates will be filed by the Depositor with
the Commission on a Current Report on Form 8-K within 15 days after the Closing
Date for such series of Certificates. This discussion is directed primarily to
Certificateholders that hold the Certificates as "capital assets" within the
meaning of Section 1221 of the Code (although portions thereof may also apply to
Certificateholders who do not hold Certificates as "capital assets") and it does
not purport to discuss all federal income tax consequences that may be
applicable to the individual circumstances of particular investors, some of
which (such as banks, insurance companies and foreign investors) may be subject
to special treatment under the Code. Further, the authorities on which this
discussion, and the opinion referred to below, are based are subject to change
or differing interpretations, which could apply retroactively. Prospective
investors should note that no rulings have been or will be sought from the
Internal Revenue Service (the "IRS") with respect to any of the federal income
tax consequences discussed below, and no assurance can be given the IRS will not
take contrary positions. Taxpayers and preparers of tax returns (including those
filed by any REMIC or other issuer) should be aware that under applicable
Treasury regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (i) is given with
respect to events that have occurred at the time the advice is rendered and is
not given with respect to the consequences of contemplated actions, and (ii) is
directly relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their tax advisors and tax return preparers regarding
the preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein. In addition to the federal income tax
consequences described herein, potential investors are advised to consider the
state and local tax consequences, if any, of the purchase, ownership and
disposition of Offered Certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of Offered Certificates.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that the REMIC Administrator will elect to have treated as a
real estate mortgage investment conduit ("REMIC") under Sections 860A through
860G (the "REMIC Provisions") of the Code, and (ii) Grantor Trust Certificates
representing interests in a Trust Fund ("Grantor Trust Fund") as to which no
such election will be made. The Prospectus Supplement for each series of
Certificates will indicate whether a REMIC election (or elections) will be made
for the related Trust Fund and, if such an election is to be made, will identify
all "regular interests" and "residual interests" in the REMIC. For purposes of
this tax discussion, references to a "Certificateholder" or a "holder" are to
the beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements other than guaranteed
investment contracts are included in a Trust Fund, the anticipated material tax
consequences associated with such Cash Flow Agreements also will be discussed in
the related Prospectus Supplement. See "Description of the Trust Funds -- Cash
Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations
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issued thereunder (the "REMIC Regulations"). The OID Regulations do not
adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICS
Classification of REMICs. Upon the issuance of each series of REMIC
Certificate, counsel to the Depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Trust Fund (or each applicable portion thereof)
will qualify as a REMIC and the REMIC Certificates offered with respect thereto
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in that REMIC within the meaning of the REMIC Provisions.
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of REMIC Certificates,
to the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of counsel to the Depositor for the applicable
series as specified in the related Prospectus Supplement, subject to any
qualifications set forth herein. In addition, counsel to the Depositor have
prepared or reviewed the statements in this Prospectus under the heading
"Certain Federal Income Tax Consequences -- REMICs," and are of the opinion that
such statements are correct in all material respects. Such statements are
intended as an explanatory discussion of the possible effects of the
classification of any Trust Fund (or applicable portion thereof) as a REMIC for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, each investor is advised to consult its own tax advisors with
regard to the tax consequences to it of investing in REMIC Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust Fund as
a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related Prospectus Supplement, the REMIC Certificates
will be " qualifying real property loans" within the meaning of Section 593(d)
of the Code, "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code. The determination as to the percentage of the REMIC's
assets that constitute assets described in the foregoing sections of the Code
will be made with respect to each calendar quarter based on the average adjusted
basis of each category of the assets held by the REMIC during such calendar
quarter. The REMIC Administrator will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations.
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The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and any property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale, and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections of the Code)
otherwise would receive the same treatment as the Mortgage Loans for purposes of
all of the foregoing sections of the Code. In addition, in some instances
Mortgage Loans may not be treated entirely as assets described in the foregoing
sections of the Code. If so, the related Prospectus Supplement will describe the
Mortgage Loans that may not be so treated. The REMIC Regulations do provide,
however, that cash received from payments on Mortgage Loans held pending
distribution is considered part of the Mortgage Loans for purposes of Sections
593(d) and 856(c)(5)(A) of the Code, and Treasury regulations provide that real
property acquired by foreclosure constitutes "qualifying real property loans"
for purposes of section 593(d) of the Code.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax purposes. As to
each such series of REMIC Certificates, in the opinion of counsel to the
Depositor, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor nor any other person will
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make any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date"), the issue price for such class will be the fair market
value of such class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated interest".
"Qualified stated interest" is interest that is unconditionally payable at least
annually (during the entire term of the instrument) at a single fixed rate, or
at a "qualified floating rate", an "objective rate", a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate", or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such REMIC
Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on a
Distribution Date, in some cases, as a consequence of this "long first accrual
period", some or all interest payments may be required to be included in the
stated redemption price of the REMIC Regular Certificate and accounted for as
original issue discount. Because interest on REMIC Regular Certificates must in
any event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
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price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See
"-- Taxation of Owners of REMIC Regular Certificates -- Market Discount" below
for a description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (i) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (ii) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (i) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the Mortgage Loans being prepaid at a
rate equal to the Prepayment Assumption, (ii) using a discount rate equal to the
original yield to maturity of the Certificate and (iii) taking into account
events (including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain
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upon receipt of each distribution representing stated redemption price. In
particular, under Section 1276 of the Code such a Certificateholder generally
will be required to allocate the portion of each such distribution representing
stated redemption price first to accrued market discount not previously included
in income, and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If made,
such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies. In addition, the OID Regulations permit a
Certificateholder to elect to accrue all interest and discount (including de
minimis market or original issue discount) in income as interest, and to
amortize premium, based on a constant yield method. If such an election were
made with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "-- Taxation of Owners of
REMIC Regular Certificates -- Premium" below. Each of these elections to accrue
interest, discount and premium with respect to a Certificate on a constant yield
method or as interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "-- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market
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discount accrued to the date of disposition under one of the foregoing methods,
less any accrued market discount previously reported as ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount" above. The Committee Report states that the
same rules that apply to accrual of market discount (which rules will require
use of a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its Certificate Balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"-- Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the Mortgage Loans or as debt
instruments issued by the REMIC.
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A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "-- Taxable Income
of the REMIC" and will be taxable to the REMIC Residual Certificateholders
without regard to the timing or amount of cash distributions by the REMIC until
the REMIC's termination. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to limitations under Section 469 of the Code on the
deductibility of "passive losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions",
residual interests without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return. Such disparity between income and
distributions may not be offset by corresponding losses or reductions of income
attributable to the REMIC Residual Certificateholder until subsequent tax years
and, then, may not be completely offset due to changes in the Code, tax rates or
character of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby),
amortization of any premium on the Mortgage Loans, bad debt losses with respect
to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
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For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"-- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount". The issue price of a REMIC Certificate received in exchange for an
interest in the Mortgage Loans or other property will equal the fair market
value of such interests in the Mortgage Loans or other property. Accordingly, if
one or more classes of REMIC Certificates are retained initially rather than
sold, the REMIC Administrator may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the Mortgage
Loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "-- Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "-- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount", except that the de minimis rule and
the adjustments for subsequent holders of REMIC Regular Certificates (including
any other class of REMIC Certificates constituting "regular interests" in the
REMIC not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the net
amount of interest deductions that are allowed the REMIC in each taxable year
with respect to the REMIC Regular Certificates of such class will be reduced by
an amount equal to the portion of the Issue Premium that is considered to be
amortized or repaid in that year. Although the matter is not entirely certain,
it is likely that Issue Premium would be amortized under a constant yield method
in a manner analogous to the method of accruing original issue discount
described above under "-- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-- Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on
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miscellaneous itemized deductions imposed on individuals by Section 67 of the
Code (which allows such deductions only to the extent they exceed in the
aggregate two percent of the taxpayer's adjusted gross income) will not be
applied at the REMIC level so that the REMIC will be allowed deductions for
servicing, administrative and other noninterest expenses in determining its
taxable income. All such expenses will be allocated as a separate item to the
holders of REMIC Certificates, subject to the limitation of Section 67 of the
Code. See "-- Possible Pass-Through of Miscellaneous Itemized Deductions" below.
If the deductions allowed to the REMIC exceed its gross income for a calendar
quarter, such excess will be the net loss for the REMIC for that calendar
quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "-- Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "-- Taxation of Owners of REMIC
Residual Certificates -- General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will, with an exception discussed below for certain REMIC
Residual Certificates held by thrift institutions, be subject to federal income
tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder.
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The daily accruals of a REMIC Residual Certificateholder will be determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the "long-term Federal rate" in
effect on the Closing Date. For this purpose, the adjusted issue price of a
REMIC Residual Certificate as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Certificate, increased by the sum
of the daily accruals for all prior quarters and decreased (but not below zero)
by any distributions made with respect to such REMIC Residual Certificate before
the beginning of such quarter. The issue price of a REMIC Residual Certificate
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the REMIC Residual Certificates were sold. The
"long-term Federal 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.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-- Foreign
Investors in REMIC Certificates" below.
As an exception to the general rules described above, thrift institutions
are allowed to offset their excess inclusions with unrelated deductions, losses
or loss carryovers, but only if the REMIC Residual Certificates are considered
to have "significant value". The REMIC Regulations provide that in order to be
treated as having significant value, the REMIC Residual Certificates must have
an aggregate issue price at least equal to two percent of the aggregate issue
prices of all of the related REMIC's Regular and Residual Certificates. In
addition, based on the Prepayment Assumption, the anticipated weighted average
life of the REMIC Residual Certificates must equal or exceed 20 percent of the
anticipated weighted average life of the REMIC, based on the Prepayment
Assumption and on any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Although it
has not done so, the Treasury also has authority to issue regulations that would
treat the entire amount of income accruing on a REMIC Residual Certificate as an
excess inclusion if the REMIC Residual Certificates are considered not to have
"significant value". The related Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered to have "significant
value" under the REMIC Regulations; provided, however, that any disclosure that
a REMIC Residual Certificate will have "significant value" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will have "significant value" for purposes of the
above-described rules. The above-described exception for thrift institutions
applies only to those residual interests held directly by, and deductions,
losses and loss carryovers incurred by, such institutions (and not by other
members of an affiliated group of corporations filing a consolidated income tax
return with such thrift institution) or by certain wholly-owned direct
subsidiaries of such institutions formed or operated exclusively in connection
with the organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and
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on any required or permitted clean up calls, or required liquidation provided
for in the REMIC's organizational documents, (1) the present value of the
expected future distributions (discounted using the "applicable Federal rate"
for obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-- Foreign Investors in REMIC Certificates" below
for additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. On December 28, 1993, the IRS released temporary
regulations (the "Mark-to-Market Regulations") relating to the requirement that
a securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a "negative value" REMIC Residual Certificate is not
treated as a security and thus generally may not be marked to market. This
exclusion from the mark-to-market requirement is expanded to include all REMIC
Residual Certificates under proposed Treasury regulations published January 4,
1995 which provide that any REMIC Residual Certificate issued after January 4,
1995 will not be treated as a security and therefore generally may not be marked
to market. Prospective purchasers of a REMIC Residual Certificate should consult
their tax advisors regarding the possible application of the mark-to-market
requirement to REMIC Residual Certificates.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a
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taxpayer's adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
such amount or (ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income reportable by
REMIC Certificateholders that are subject to the limitations of either Section
67 or Section 68 of the Code may be substantial. Furthermore, in determining the
alternative minimum taxable income of such a holder of a REMIC Certificate that
is an individual, estate or trust, or a "pass-through entity" beneficially owned
by one or more individuals, estates or trusts, no deduction will be allowed for
such holder's allocable portion of servicing fees and other miscellaneous
itemized deductions of the REMIC, even though an amount equal to the amount of
such fees and other deductions will be included in such holder's gross income.
Accordingly, such REMIC Certificates may not be appropriate investments for
individuals, estates, or trusts, or pass-through entities beneficially owned by
one or more individuals, estates or trusts. Such prospective investors should
consult with their tax advisors prior to making an investment in such
Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "-- Taxation of Owners of REMIC Residual Certificates -- Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
Prospectus provides for a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of 28%. No such
rate differential exists for corporations. In addition, the distinction between
a capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be a
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate), determined as of
the date of purchase of such REMIC Regular Certificate, over (ii) the amount of
ordinary income actually includible in the seller's income prior to such sale.
In addition, gain recognized on the sale of a REMIC Regular Certificate by a
seller who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount" and "-- Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued
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on the taxpayer's net investment at 120% of the appropriate "applicable Federal
rate" at the time the taxpayer enters into the conversion transaction, subject
to appropriate reduction for prior inclusion of interest and other ordinary
income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property", determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related REMIC Administrator, Master Servicer, Special Servicer, Manager or
Trustee, in any case out of its own funds, provided that such person has
sufficient assets to do so, and provided further that such tax arises out of a
breach of such person's obligations under the related Pooling and Servicing
Agreement and in respect of compliance with applicable laws and regulations. Any
such tax not borne by a REMIC Administrator, a Master Servicer, Special
Servicer, Manager or Trustee will be charged against the related Trust Fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate) of
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the total anticipated excess inclusions with respect to such REMIC Residual
Certificate for periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The anticipated excess inclusions
must be determined as of the date that the REMIC Residual Certificate is
transferred and must be based on events that have occurred up to the time of
such transfer, the Prepayment Assumption and any required or permitted clean up
calls or required liquidation provided for in the REMIC's organizational
documents. Such a tax generally would be imposed on the transferor of the REMIC
Residual Certificate, except that where such transfer is through an agent for a
disqualified organization, the tax would instead be imposed on such agent.
However, a transferor of a REMIC Residual Certificate would in no event 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. Moreover, an entity will not
qualify as a REMIC unless there are reasonable arrangements designed to ensure
that (i) residual interests in such entity are not held by disqualified
organizations and (ii) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and certain other provisions that are intended to meet
this requirement will be included in each Pooling and Servicing Agreement, and
will be discussed in any Prospectus Supplement relating to the offering of any
REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the REMIC
Administrator, which generally will hold at least a nominal amount of REMIC
Residual Certificates, will file REMIC federal income tax returns on behalf of
the related REMIC, and will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects.
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As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC tax return may require a
REMIC Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury regulations, the name and address of such person and
other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other nonindividuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to REMIC Residual Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the REMIC's assets
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC Administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a United States Person (as defined below) and is not subject to
federal income tax as a result of any direct or indirect connection to the
United States in addition to its ownership of a REMIC Regular Certificate will
not, unless otherwise disclosed in the related Prospectus Supplement, be subject
to United States federal income or withholding tax in respect of a distribution
on a REMIC Regular Certificate, provided that the holder
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complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the Certificateholder under
penalties of perjury, certifying that such Certificateholder is not a United
States Person and providing the name and address of such Certificateholder). For
these purposes, "United States 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 whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States. It is possible that the IRS may assert that the foregoing tax
exemption should not apply with respect to a REMIC Regular Certificate held by a
REMIC Residual Certificateholder that owns directly or indirectly a 10% or
greater interest in the REMIC Residual Certificates. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the Depositor for such
series, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Grantor Trust Certificates, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of counsel to the Depositor for the applicable series as specified
in the related Prospectus Supplement, subject to any qualifications set forth
herein. In addition, counsel to the Depositor have prepared or reviewed the
statements in this Prospectus under the heading "Certain Federal Income Tax
Consequences -- Grantor Trust Funds," and are of the opinion that such
statements are correct in all material respects. Such statements are intended as
an explanatory discussion of the possible effects of the classification of the
Grantor Trust Fund as a grantor trust for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
Grantor Trust Certificates.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
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Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "qualifying real property loans" within the meaning of Section
593(d) of the Code; (ii) "loans . . . secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code; (iii)
"obligation[s] (including any participation or Certificate of beneficial
ownership therein) which . . . [are] principally secured by an interest in real
property" within the meaning of Section 860G(a)(3) of the Code; and (iv) "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code. In
addition, counsel to the Depositor will deliver an opinion that interest on
Grantor Trust Fractional Interest Certificates will to the same extent be
considered "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Section 856(c)(3)(B) of the
Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of Mortgage Loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code, "qualifying real property loans" within
the meaning of Section 593(d) of the Code, and "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(A) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
Depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material should consult their tax advisors regarding
whether the Grantor Trust Strip Certificates, and the income therefrom, will be
so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the
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IRS and Certificateholders on a method that allocates such expenses among
classes of Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related Prospectus Supplement will include information regarding servicing fees
paid to a Master Servicer, a Special Servicer, any Sub-Servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- If Stripped Bond Rules Do Not Apply" for a definition
of "qualified stated interest". In general, the amount of such income that
accrues in any month would equal the product of such holder's adjusted basis in
such Grantor Trust Fractional Interest Certificate at the beginning of such
month (see "-- Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the Mortgage Loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the Mortgage Loans will not include any payments made in respect of
any ownership interest in the Mortgage Loans retained by the Depositor, the
Master Servicer, the Special Servicer, any Sub-Servicer or their respective
affiliates, but will include such Certificateholder's share of any reasonable
servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
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In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the Mortgage Loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See
"-- REMICs -- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount" above. It is unclear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative initial
offering price for each class of Certificates. However, neither the Depositor
nor any other person will make any representation that the Mortgage Loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "-- Taxation of Owners of
Grantor Trust Fractional Interest Certificates -- If Stripped Bond Rules Do Not
Apply" and "-- Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
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The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. For a definition of "stated redemption price," see "-- Taxation of
Owners of REMIC Regular Certificates -- Original Issue Discount" above. In
general, the issue price of a Mortgage Loan will be the amount received by the
borrower from the lender under the terms of the Mortgage Loan, less any "points"
paid by the borrower, and the stated redemption price of a Mortgage Loan will
equal its principal amount, unless the Mortgage Loan provides for an initial
"teaser," or below-market interest rate. The determination as to whether
original issue discount will be considered to be de minimis will be calculated
using the same test as in the REMIC discussion. See "-- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal the issue price
of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the Trustee
or Master Servicer, as applicable, will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder may reasonably
request from time to time with respect to original issue discount accruing on
Grantor Trust Fractional Interest Certificates. See "-- Grantor Trust Reporting"
below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount", that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued
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with original issue discount, at a purchase price less than its adjusted issue
price (as defined above). If market discount is in excess of a de minimis amount
(as described below), the holder generally will be required to include in income
in each month the amount of such discount that has accrued (under the rules
described in the next paragraph) through such month that has not previously been
included in income, but limited, in the case of the portion of such discount
that is allocable to any Mortgage Loan, to the payment of stated redemption
price on such Mortgage Loan that is received by (or, in the case of accrual
basis Certificateholders, due to) the Trust Fund in that month. A
Certificateholder may elect to include market discount in income currently as it
accrues (under a constant yield method based on the yield of the Certificate to
such holder) rather than including it on a deferred basis in accordance with the
foregoing under rules similar to those described in "-- Taxation of Owners of
REMIC Regular Interests -- Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii) in the case
of a Mortgage Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "-- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" above within the exception that it is
less likely that a prepayment assumption will be used for purposes of such rules
with respect to the Mortgage Loans.
Further, under the rules described above in "-- REMICs -- Taxation of
Owners of REMIC Regular Certificates -- Market Discount", any discount that is
not original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market discount
not yet includible in income, unless an election has been made to report market
discount currently as it accrues. This rule applies without regard to the
origination dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment
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assumption and a Mortgage Loan prepays in full, the holder of a Grantor Trust
Fractional Interest Certificate acquired at a premium should recognize a loss
equal to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to the Mortgage Loan. If a
prepayment assumption is used to amortize such premium, it appears that such a
loss would be unavailable. Instead, if a prepayment assumption is used, a
prepayment should be treated as a partial payment of the stated redemption price
of the Grantor Trust Fractional Interest Certificate and accounted for under a
method similar to that described for taking account of original issue discount
on REMIC Regular Certificates. See "-- REMICs -- Taxation of Owners of REMIC
Regular Certificates -- Original Issue Discount" above. It is unclear whether
any other adjustments would be required to reflect differences between the
prepayment assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "-- Taxation of Owners of Grantor
Trust Fractional Interest Certificates -- If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "-- Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such
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information returns or reports, even if otherwise accepted as accurate by the
IRS, will in any event be accurate only as to the initial Certificateholders of
each series who bought at that price. Prospective purchasers of the Grantor
Trust Strip Certificates should consult their tax advisors regarding the use of
the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under the
OID Regulations, debt instruments providing for contingent payments are not
subject to the same rules as debt instruments providing for noncontingent
payments, but no final regulations have been promulgated with respect to
contingent payment debt instruments. Proposed regulations were promulgated on
December 16, 1994 regarding contingent payment debt instruments. As in the case
of the OID Regulations, such proposed regulations do not specifically address
securities, such as the Grantor Trust Strip Certificates, that are subject to
the stripped bond rules of Section 1286 of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply a "noncontingent bond method." Under that method, the issuer of a Grantor
Trust Strip Certificate would determine a projected payment schedule with
respect to such Grantor Trust Strip Certificate. Holders of Grantor Trust Strip
Certificates would be bound by the issuer's projected payment schedule, which
would consist of all noncontingent payments and a projected amount for each
contingent payment based on the projected yield (as described below) of the
Grantor Trust Strip Certificate. The projected amount of each payment would be
determined so that the projected payment schedule reflected the projected yield
reasonably expected to be received by the holder of a Grantor Trust Strip
Certificate. The projected yield referred to above would be a reasonable rate,
not less than the "applicable Federal rate" that, as of the issue date,
reflected general market conditions, the credit quality of the issuer, and the
terms and conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield, and would add to, or subtract
from, such income any variation between the payment actually received in such
month and the payment originally projected to be made in such month.
In the absence of final Treasury regulations relating to debt instruments
providing for contingent payments, a projected payment schedule under the
"noncontingent bond method" is not intended to be provided to holders.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
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income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides a top marginal
tax rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee or Master Servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the Master Servicer, the Special Servicer or any Sub-Servicer, and
such other customary factual information as the Depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described above in
"-- REMICs -- Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "-- REMICs -- Foreign Investors in REMIC Certificates"
above applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related Prospectus
Supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related Mortgage
Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
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STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain 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 (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Offered Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code; collectively, "Parties in Interest")
who have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Assets and other assets included in a related Trust Fund to be deemed
assets of such Plan. Section 2510.3-101 of the regulations (the "Plan Asset
Regulations") of the United States Department of Labor (the "DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets include
both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions not applicable here apply, or
unless the equity participation in the entity by "benefit plan investors" (i.e.,
Plans and certain employee benefit plans not subject to ERISA) is not
"significant", both as defined therein. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if 25%
or more of the value of any class of equity interests in the entity is held by
benefit plan investors. Equity participation in a Trust Fund will be significant
on any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Assets and other assets included in a Trust Fund
constitute Plan assets, then
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any party exercising management or discretionary control regarding those assets,
such as the Master Servicer, any Special Servicer, any Sub-Servicer, the
Trustee, the obligor under any credit enhancement mechanism, or certain
affiliates thereof may be deemed to be a Plan "fiduciary" and thus subject to
the fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code with respect to the investing Plan. In addition, if the
Mortgage Assets and other assets included in a Trust Fund constitute Plan
assets, the purchase of Certificates by a Plan, as well as the operation of the
Trust Fund, may constitute or involve a prohibited transaction under ERISA or
the Code.
The Plan Asset Regulations provide that where a Plan acquires a "guaranteed
governmental mortgage pool certificate", the Plan's assets include such
certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" FHLMC Certificates, GNMA Certificates and FNMA
Certificates, but do not include FAMC Certificates. Accordingly, even if such
MBS (other than FAMC Certificates) included in a Trust Fund were deemed to be
assets of Plan investors, the mortgages underlying such MBS (other than FAMC
Certificates) would not be treated as assets of such Plans. Private label
mortgage participations, mortgage pass-through certificates, FAMC Certificates
or other mortgage-backed securities are not "guaranteed governmental mortgage
pool certificates" within the meaning of the Plan Asset Regulations. Potential
Plan investors should consult their counsel and review the ERISA discussion in
the related Prospectus Supplement before purchasing any such Certificates.
In considering an investment in the Offered Certificates, a Plan fiduciary
should consider the availability of prohibited transaction exemptions
promulgated by the DOL including, among others, Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving Plans and
certain broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts
certain transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; and PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest. There can be no assurance that
any of these class exemptions will apply with respect to any particular Plan
investment in the Certificates or, even if it were deemed to apply, that any
exemption would apply to all prohibited transactions that may occur in
connection with such investment. The Prospectus Supplement with respect to a
series of Certificates may contain additional information regarding the
availability of other exemptions with respect to the Certificates offered
thereby.
CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase Offered Certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection therewith.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences -- REMICs -- Taxation
of Owners of REMIC Residual Certificates -- Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related Prospectus Supplement, the Offered
Certificates will constitute "mortgage related securities" for purposes of
SMMEA. Generally, only classes of Offered Certificates that (i) are rated in one
of the two highest rating categories by one or more Rating Agencies and (ii) are
part of a series
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evidencing interests in a Trust Fund consisting of loans secured by a single
parcel of real estate upon which is located a dwelling or mixed residential and
commercial structure, such as certain Multifamily Loans, and originated by types
of Originators specified in SMMEA, will be "mortgage related securities" for
purposes of SMMEA. "Mortgage related securities" are legal investments 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 persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, insurance companies and pension funds created pursuant
to or existing under the laws of the United States or of any state, the
authorized investments of which are subject to state regulation). Under SMMEA,
if a state enacted legislation prior to October 3, 1991 that specifically limits
the legal investment authority of any such entities with respect to "mortgage
related securities", Offered Certificates would constitute legal investments for
entities subject to such legislation only to the extent provided in such
legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such 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.
Upon the issuance of final implementing regulations under the Riegle
Community Development and Regulatory Improvement Act of 1994 and subject to any
limitations such regulations may impose, a modification of the definition of
"mortgage related securities" will become effective to expand the types of loans
to which such securities may relate to include loans secured by "one or more
parcels of real estate upon which is located one or more commercial structures".
In addition, the related legislative history states that this expanded
definition includes multifamily residential loans secured by more than one
parcel of real estate upon which is located more than one structure. Until
September 23, 2001 any state may enact legislation limiting the extent to which
"mortgage related securities" under this expanded definition would constitute
legal investments under that state's laws.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (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 (as defined herein). 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 Certificates, including Offered Certificates, will be
treated as high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision (the "OTS") issued a
bulletin, entitled "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Offered Certificates. 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 Offered Certificates. Similar policy statements have been issued by
regulators having jurisdiction over other types of depository institutions.
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<PAGE> 182
There may be other restrictions on the ability of certain investors either
to purchase certain classes of Offered Certificates or to purchase any class of
Offered Certificates representing more than a specified percentage of the
investor's assets. The Depositor will make no representations as to the proper
characterization of any class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Offered Certificates under applicable legal investment restrictions.
These uncertainties may adversely affect the liquidity of any class of Offered
Certificates. 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 legal advisors in
determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Depositor to the purchase of Trust Assets or will
be used by the Depositor to cover expenses related thereto. The Depositor
expects to sell the Certificates from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Certificates of a particular series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters, which may include NationsBanc Capital
Markets, Inc. ("NationsBanc"), an affiliate of the Depositor;
2. By placements by the Depositor with institutional investors through
dealers; and
3. By direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, the Offered
Certificates of a series may be offered in whole or in part to the seller of the
related Mortgage Assets that would comprise the Trust Fund for such
Certificates.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
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. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of Offered Certificates of a particular series
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 Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be
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underwriters in connection with such Certificates, and any discounts or
commissions received by them from the Depositor and any profit on the resale of
Offered Certificates by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
the Offered Certificates of any series 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 Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Offered Certificates of such series.
The Depositor anticipates that the Offered Certificates will be sold
primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
Offered Certificates. Holders of Offered Certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by NationsBanc in connection with offers and sales
related to market-making transactions in Offered Certificates previously offered
hereunder in transactions with respect to which NationsBanc acts as principal.
NationsBanc may also act as agent in such transactions. Sales may be made a
negotiated prices determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor by Robert W. Long, Jr., Assistant General Counsel of NationsBank
Corporation. Certain legal matters relating to the Certificates will be passed
upon for the underwriter or underwriters by Thacher Proffitt & Wood or
Cadwalader, Wickersham & Taft. Certain federal income tax matters and other
matters will be passed upon for the Depositor by Thacher Proffitt & Wood or
Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement. The Depositor has determined that its financial statements will not
be material to the offering of any Offered Certificates.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Certificateholders might
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suffer a lower than anticipated yield, and, in addition, holders of Stripped
Interest Certificates might, in extreme cases fail to recoup their initial
investments. Furthermore, ratings on mortgage pass-through certificates do not
address the price of such certificates or the suitability of such certificates
to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Accrual Certificates.......... 11
Accrued Certificate
Interest.................... 34
ADA........................... 69
ARM Loans..................... 25
Available Distribution
Amount...................... 33
Book-Entry Certificates....... 33
Call Risk..................... 17
Cash Flow Agreement........... 12
CERCLA........................ 65
Certificate Account........... 27
Certificate Balance........... 10
Certificate Owner............. 39
Certificateholder............. 40
Closing Date.................. 73
Code.......................... 13
Commercial Properties......... 9, 22
Commission.................... 3
Committee Report.............. 72
Companion Class............... 35
Contributions Tax............. 83
Controlled Amortization
Class....................... 10, 35
Cooperatives.................. 22
CPR........................... 30
Credit Support................ 12
Crime Control Act............. 69
Cut-off Date.................. 11, 35
Debt Service Coverage Ratio... 23
Definitive Certificates....... 33
Depositor..................... cover, 32
Determination Date............ 28, 33
Direct Participants........... 39
Distribution Date............. 11
Distribution Date Statement... 37
DOL........................... 95
DTC........................... 3
Due Dates..................... 25
Due Period.................... 28
Equity Participation.......... 25
ERISA......................... 13, 95
Events of Default............. 53
Excess Funds.................. 32
Exchange Act.................. 4
Extension Risk................ 17
FAMC.......................... 26
FHLMC......................... 26
FNMA.......................... 26
GNMA.......................... 26
Garn Act...................... 66
Grantor Trust Certificates.... 13
Grantor Trust Fractional
Interest Certificate........ 86
Grantor Trust Fund............ 70
Grantor Trust Strip
Certificate................. 86
Indirect Participants......... 39
Insurance and Condemnation
Proceeds.................... 46
IRS........................... 49
Issue Premium................. 78
Letter of Credit Bank......... 57
Liquidation Proceeds.......... 46
Loan-to-Value Ratio........... 24
Lock-out Date................. 25
Lock-out Period............... 25
Manager....................... 8
Mark-to-Market Regulations.... 81
Master Servicer............... 8
MBS........................... 9, 22
MBS Administrator............. 8
MBS Agreement................. 26
MBS Issuer.................... 26
MBS Servicer.................. 26
MBS Trustee................... 26
Mortgage...................... 22
Mortgage Asset Seller......... 22
Mortgage Asset Pool........... cover
Mortgage Assets............... cover, 22
Mortgage Loans................ cover, 8, 22
Mortgage Notes................ 22
Mortgage Rate................. 9
Mortgaged Properties.......... 22
Multifamily Properties........ 8, 22
NationsBanc................... 98
Net Leases.................... 24
Net Operating Income.......... 23
Nonrecoverable Advance........ 36
Notional Amount............... 11
OID Regulations............... 70
Offered Certificates.......... cover
Originator.................... 22
OTS........................... 97
Participants.................. 39
Parties in Interest........... 95
Pass-Through Rate............. 11
Percentage Interest........... 34
</TABLE>
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<TABLE>
<S> <C>
Permitted Investments......... 45
Plan Asset Regulations........ 95
Plans......................... 95
Policy Statement.............. 97
Pooling and Servicing
Agreement................... 10
Prepayment Assumption......... 72
Prepayment Interest
Shortfall................... 28
Prepayment Period............. 37
Prepayment Premium............ 25
Prohibited Transactions Tax... 83
Prospectus Supplement......... cover
PTCE.......................... 96
Purchase Price................ 42
Rating Agency................. 14
Record Date................... 33
Related Proceeds.............. 36
Relief Act.................... 69
REMIC......................... 2, 70
REMIC Administrator........... 8
REMIC Certificates............ 70
REMIC Provisions.............. 70
REMIC Regular Certificates.... 13
REMIC Regulations............. 71
REMIC Residual Certificates... 13
REO Property.................. 43
Residual Owner................ 96
RICO.......................... 69
Senior Certificates........... 10
Senior Liens.................. 22
SMMEA......................... 14
SPA........................... 30
Special Servicer.............. 8
Stripped Interest
Certificates................ 10
Stripped Principal
Certificates................ 10
Subordinate Certificates...... 10
Sub-Servicer.................. 45
Sub-Servicing Agreement....... 45
Tax Exempt Investor........... 96
Tiered REMICs................. 72
Title V....................... 68
Trust Assets.................. 3
Trustee....................... 8
UBTI.......................... 96
UCC........................... 59
United States Person.......... 86
Value......................... 24
Voting Rights................. 38
Warranting Party.............. 42
</TABLE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND 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 UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE 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 ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary.................................. S-5
Risk Factors............................. S-14
Description of the Mortgage Pool......... S-18
Servicing of the Mortgage Loans.......... S-42
Description of the Certificates.......... S-50
Yield and Maturity Considerations........ S-64
Certain Federal Income Tax
Consequences........................... S-74
Method of Distribution................... S-75
Legal Matters............................ S-76
Rating................................... S-76
Legal Investment......................... S-77
ERISA Considerations..................... S-77
Index of Principal Definitions........... S-80
PROSPECTUS
Prospectus Supplement.................... 3
Available Information.................... 3
Incorporation of Certain Information by
Reference.............................. 4
Summary of Prospectus.................... 8
Risk Factors............................. 15
Description of the Trust Funds........... 22
Yield and Maturity Considerations........ 27
The Depositor............................ 32
Description of the Certificates.......... 32
The Pooling and Servicing Agreements..... 40
Description of Credit Support............ 56
Certain Legal Aspects of Mortgage
Loans.................................. 58
Certain Federal Income Tax
Consequences........................... 70
State and Other Tax Consequences......... 95
ERISA Considerations..................... 95
Legal Investment......................... 96
Use of Proceeds.......................... 98
Method of Distribution................... 98
Legal Matters............................ 99
Financial Information.................... 99
Rating................................... 99
Index of Principal Definitions........... 101
</TABLE>
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NATIONSLINK
FUNDING
CORPORATION
$287,149,271
COMMERCIAL
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 1996-1
CLASS A-1 CERTIFICATES $70,980,719
CLASS A-2 CERTIFICATES $96,791,890
CLASS A-3 CERTIFICATES $51,622,341
CLASS B CERTIFICATES $16,131,981
CLASS C CERTIFICATES $19,358,378
CLASS D CERTIFICATES $17,745,179
CLASS E CERTIFICATES $14,518,783
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PROSPECTUS SUPPLEMENT
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NATIONSBANC
CAPITAL MARKETS, INC.
May 2, 1996
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