<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-66805
Prospectus Supplement
(To Prospectus dated May 20, 1999)
$1,093,048,075 (APPROXIMATE)
NATIONSLINK FUNDING CORPORATION
DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC
MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA
PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-SL
<TABLE>
<CAPTION>
<S> <C>
The Series 1999-SL Commercial Mortgage Pass-Through
CONSIDER CAREFULLY THE RISK Certificates will consist of the following classes:
FACTORS BEGINNING ON PAGE S-21
IN THIS PROSPECTUS SUPPLEMENT - senior certificates consisting of the Class A-1, Class
AND PAGE 10 IN THE ACCOMPANYING A-2, Class A-3, Class A-4, Class A-5, Class A-6 and
PROSPECTUS. Class A-1V Certificates;
Neither the certificates nor the
underlying mortgage loans are - junior certificates consisting of the Class B, Class C,
insured or guaranteed by any Class D, Class E, Class F, Class G and Class X Certificates;
governmental agency.
- certificates entitled to prepayment premiums consisting of
The certificates will represent the Class P Certificates; and
interests only in the trust and
will not represent interests in - the residual certificates consisting of the Class R
or obligations of NationsLink Certificates.
Funding Corporation or any of
its affiliates, including Bank Only the senior certificates and the Class B, Class C and
of America Corporation. Class D Certificates are offered hereby.
The trust's assets will consist primarily of 2,755 mortgage
loans and other property described in this prospectus
supplement and the accompanying prospectus. The mortgage
loans are secured by first liens on commercial and
multifamily properties. This prospectus supplement more
fully describes the offered certificates, as well as the
characteristics of the mortgage loans and the related
mortgaged properties.
</TABLE>
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
ASSUMED FINAL
INITIAL CERTIFICATE PASS-THROUGH DISTRIBUTION RATINGS
CLASS BALANCE(1) RATE DATE(4) (FITCH/MOODY'S)(5)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1............ $ 264,690,383 5.805% February 10, 2001 AAA/Aaa
Class A-2............ $ 75,459,076 6.096% December 10, 2001 AAA/Aaa
Class A-3............ $ 43,385,473 6.297% December 10, 2002 AAA/Aaa
Class A-4............ $ 101,223,518 6.654% February 10, 2006 AAA/Aaa
Class A-5............ $ 71,067,402 6.888% June 10, 2007 AAA/Aaa
Class A-6............ $ 85,328,198 6.608% April 10, 2007 AAA/Aaa
Class A-1V........... $ 325,206,513 (2) September 10, 2007 AAA/Aaa
Class B.............. $ 47,139,539 6.922%(3) January 10, 2008 AA/Aa2
Class C.............. $ 41,247,097 7.217%(3) May 10, 2008 A/A2
Class D.............. $ 38,300,876 7.559%(3) August 10, 2008 BBB/Baa2
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- --------------------
- --------------------- --------------------
RATED FINAL
DISTRIBUTION
CLASS DATE(6)
- --------------------- --------------------
<S> <C>
Class A-1............ November 10, 2030
Class A-2............ November 10, 2030
Class A-3............ November 10, 2030
Class A-4............ November 10, 2030
Class A-5............ November 10, 2030
Class A-6............ November 10, 2030
Class A-1V........... November 10, 2030
Class B.............. November 10, 2030
Class C.............. November 10, 2030
Class D.............. November 10, 2030
- -------------------------------------------
- -------------------------------------------
</TABLE>
(Footnotes to table on page S-4)
- --------------------------------------------------------------------------------
The underwriter, Banc of America Securities LLC, will purchase the offered
certificates from NationsLink Funding Corporation and will offer them to the
public at negotiated prices determined at the time of sale. It is expected that
delivery of the offered certificates will be made on or about May 27, 1999.
NationsLink Funding Corporation expects to receive from this offering
approximately 100.00% of the initial principal amount of the offered
certificates, plus (for all offered certificates other than the Class A-1V
Certificates) accrued interest from May 1, 1999, before deducting expenses
payable by NationsLink Funding Corporation.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE OFFERED SECURITIES OR DETERMINED
IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
BANC OF AMERICA SECURITIES LLC
May 20, 1999
<PAGE> 2
FOR MORE INFORMATION
NationsLink Funding
Corporation has filed with the
SEC additional registration
materials relating to the
certificates. You may read
and copy any of these
materials at the SEC's Public
Reference Room at the
following locations:
- SEC Public Reference
Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
- SEC Midwest Regional
Offices
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois
60661-2511
- SEC Northeast Regional
Office
7 World Trade Center
Suite 1300
New York, New York 10048
You may obtain information on
the operation of the Public
Reference Room by calling the
SEC at 1-800-SEC-0330. The
SEC also maintains an
Internet site that contains
reports, proxy and
information statements, and
other information that has
been filed electronically
with the SEC. The Internet
address is
http://www.sec.gov.
You may also contact
NationsLink Funding
Corporation in writing at
Bank of America Corporate
Center, 100 North Tryon
Street, Charlotte, North
Carolina 28255, or by
telephone at (704) 386-2400.
See also the sections
captioned "Available
Information" and
"Incorporation of Certain
Information by Reference"
appearing at the end of the
accompanying prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED
IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS..................... S-5
EXECUTIVE SUMMARY............................. S-6
SUMMARY OF PROSPECTUS SUPPLEMENT.............. S-8
RISK FACTORS.................................. S-21
Risks Related to the Certificates........... S-21
Lack of Control Over Trust Fund.......... S-21
Potential Conflicts of Interest.......... S-21
Interest Rates on the Class A-1V, Class
B, Class C and Class D Certificates Are
Subject to Limits...................... S-21
Impact of Basis Risk on Interest Rates on
Certificates and Credit Enhancement.... S-23
Impact of Mortgage Loan Grace Periods.... S-23
Yield Considerations..................... S-24
Prepayments and Repurchases.............. S-24
Convertible Loans........................ S-25
Borrower Default......................... S-25
Bankruptcy Proceedings................... S-26
Advance Interest and Other Payments...... S-26
Limited Liquidity and Market Value....... S-26
Subordination of Subordinate Offered
Certificates........................... S-27
Year 2000 Disruptions.................... S-27
Risks Related to the Mortgage Loans......... S-28
No Mortgage Assignments Until Recordation
Event.................................. S-28
Nature of the Mortgaged Properties....... S-29
Management............................... S-30
Balloon Payments......................... S-30
Modified Loans........................... S-31
Risks Particular to Office Properties.... S-31
Risks Particular to Retail Properties.... S-31
Risks Particular to Multifamily
Properties............................. S-32
Risks Particular to Restaurants.......... S-32
Risks Particular to Mobile Home Park
Properties............................. S-33
Risks Particular to Mini-Storage
Facilities............................. S-33
Risks Particular to Hotels............... S-33
Risks Particular to Senior Housing/Health
Care Properties........................ S-34
Risks of Subordinate Financing........... S-34
Recourse Considerations.................. S-34
Risks Related to Annual Operating
Statements............................. S-34
Environmental Considerations............. S-35
Leasehold Risks.......................... S-35
Zoning and Building Code Compliance...... S-35
Tax Considerations Related to
Foreclosure............................ S-35
Limitations on Enforceability of Cross-
Collateralization...................... S-36
Related Parties.......................... S-36
</TABLE>
S-1
<PAGE> 3
<TABLE>
<S> <C>
Geographic Concentration................. S-37
Changes in Concentrations................ S-37
Seismic Risks............................ S-37
Prepayment Premiums...................... S-38
Limited Information...................... S-38
Litigation............................... S-39
Other Risks................................. S-39
DESCRIPTION OF THE MORTGAGE POOL.............. S-40
General..................................... S-40
Certain Terms and Conditions of the Mortgage
Loans.................................... S-41
Due Dates................................ S-41
Mortgage Rates; Calculations of
Interest............................... S-41
Amortization of Principal................ S-43
Prepayment Provisions.................... S-43
"Due-on-Sale" and "Due-on-Encumbrance"
Provisions............................. S-44
Additional Mortgage Loan Information........ S-45
Delinquencies............................ S-45
Ground Leases............................ S-45
Subordinate Financing.................... S-45
Certain Underwriting Matters................ S-45
Environmental Assessments................ S-45
Appraisals and Market Studies............ S-46
Seismic Reviews.......................... S-46
Current Market Analysis.................. S-47
Hazard, Liability and Other Insurance.... S-47
Assignment of the Mortgage Loans;
Repurchases.............................. S-48
Representations and Warranties;
Repurchases.............................. S-49
Changes in Mortgage Pool Characteristics.... S-51
THE MORTGAGE LOAN SELLER...................... S-52
Origination and Underwriting Practices...... S-52
The Mortgage Loan Seller's Loss
Experience............................... S-54
SERVICING OF THE MORTGAGE LOANS............... S-55
General..................................... S-55
The Master Servicer, the Primary Servicer
and the Special Servicer................. S-57
Sub-Servicers............................... S-58
Servicing and Other Compensation and Payment
of Expenses.............................. S-58
Evidence as to Compliance................... S-62
Modifications, Waivers, Amendments and
Consents................................. S-62
Sale of Defaulted Mortgage Loans............ S-63
REO Properties.............................. S-64
Inspections; Collection of Operating
Information.............................. S-64
Termination of the Special Servicer......... S-65
Termination of the Primary Servicer......... S-65
DESCRIPTION OF THE CERTIFICATES............... S-66
General..................................... S-66
Registration and Denominations.............. S-66
Certificate Balances and Notional Amount.... S-67
Pass-Through Rates.......................... S-67
Calculation of LIBOR........................ S-70
Distributions............................... S-70
</TABLE>
S-2
<PAGE> 4
<TABLE>
<S> <C>
General.................................. S-70
The Available Distribution Amount........ S-71
Application of the Available Distribution
Amount................................. S-72
Distributable Certificate Interest....... S-73
Principal Distribution Amounts........... S-74
Application of Fixed Rate Senior
Principal Distribution Amount.......... S-76
Application of Excess Cash Flow.......... S-77
Distributions of Prepayment Premiums..... S-78
Treatment of REO Properties.............. S-78
Subordination; Allocation of Losses and
Certain Expenses......................... S-78
P&I Advances................................ S-80
Reports to Certificateholders; Certain
Available Information.................... S-81
Trustee Reports.......................... S-81
Servicer Reports......................... S-82
Other Information........................ S-83
Voting Rights............................... S-84
Termination................................. S-84
THE TRUSTEE AND THE FISCAL AGENT.............. S-85
The Trustee.............................. S-85
The Fiscal Agent......................... S-86
Certain Matters Regarding the Trustee and
the Fiscal Agent....................... S-86
YIELD AND MATURITY CONSIDERATIONS............. S-86
Yield Considerations........................ S-86
General.................................. S-86
Excess Cash Flow......................... S-87
Rate and Timing of Principal Payments.... S-87
Losses and Shortfalls.................... S-88
Certain Relevant Factors................. S-88
Weighted Average Lives...................... S-89
USE OF PROCEEDS............................... S-95
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....... S-95
General..................................... S-95
Discount and Premium........................ S-95
Characterization of Investments in Offered
Certificates............................. S-95
Taxation of Basis Risk Arrangements......... S-96
Termination Payments..................... S-96
Application of the Straddle Rules........ S-97
Possible Taxes on Income From Foreclosure
Property................................. S-97
Reporting and Other Administrative
Matters.................................. S-97
CERTAIN ERISA CONSIDERATIONS.................. S-98
LEGAL INVESTMENT.............................. S-100
METHOD OF DISTRIBUTION........................ S-101
LEGAL MATTERS................................. S-101
RATINGS....................................... S-102
INDEX OF PRINCIPAL DEFINITIONS................ S-103
ANNEX A....................................... A-1
ANNEX B....................................... B-1
</TABLE>
S-3
<PAGE> 5
FOOTNOTES TO TABLE ON COVER OF PROSPECTUS SUPPLEMENT
(1) Subject to a variance of plus or minus 5%.
(2) The Pass-Through Rate applicable to the first interest accrual period for
the Class A-1V Certificates will be approximately 5.2525%. During each
interest accrual period thereafter, interest will accrue on the Class A-1V
Certificates at a rate equal to the lesser of (i) LIBOR as of the related
LIBOR Determination Date plus 0.35% per annum and (ii) an "available funds"
cap based on funds available therefor from interest then accrued on the
mortgage loans, but any interest reduction due to the imposition of such cap
will be deferred and payable on a later date when there is excess interest
available. The margin of 0.35% per annum will double to 0.70% per annum if
the optional termination is not exercised on the Call Date as described in
this prospectus supplement. See "Description of the
Certificates -- Pass-Through Rates" in this prospectus supplement.
(3) The Pass-Through Rate for any Class B, Class C or Class D Certificate on any
Distribution Date will not exceed an "available funds" cap based on funds
available therefor from interest then accrued on the mortgage loans, but any
interest reduction due to imposition of such cap will be deferred and
payable on a later date when there is excess interest available. See
"Description of the Certificates -- Pass-Through Rates" in this prospectus
supplement.
(4) The "Assumed Final Distribution Date" with respect to any class of offered
certificates is the Distribution Date on which the final distribution of
principal would occur for such class of certificates based upon the
assumptions, among others, that all mortgage loan payments are made when
due, that prepayments occur at 12% CPR (in the case of the Fixed Rate
Mortgage Loans) and at 16% CPR (in the case of the Adjustable Rate Mortgage
Loans) and otherwise based on the Maturity Assumptions (as described in this
prospectus supplement). The actual performance and experience of the
mortgage loans will likely differ from such assumptions. See "Yield and
Maturity Considerations" in this prospectus supplement.
(5) It is a condition to their issuance that the classes of offered certificates
be assigned ratings by Moody's Investors Service, Inc. ("Moody's") and Fitch
IBCA, Inc. ("Fitch"; and together with Moody's, the "Rating Agencies") not
lower than those set forth above. The ratings on the offered certificates do
not represent any assessments of (i) the likelihood or frequency of
voluntary or involuntary principal prepayments on the mortgage loans or (ii)
the degree to which such prepayments might differ from those originally
anticipated. Also a security rating does not represent any assessment of the
yield to maturity that investors may experience.
(6) The "Rated Final Distribution Date" for each class of offered certificates
has been set at the first Distribution Date that follows two years after the
end of the amortization term for the mortgage loan that, as of the Cut-off
Date, has the longest remaining amortization term, irrespective of its
scheduled maturity. See "Ratings" in this prospectus supplement.
S-4
<PAGE> 6
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. If the terms of the offered
certificates vary between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series 1999-SL and the trust in abbreviated form:
Executive Summary, which begins on page S-6 of this prospectus
supplement and shows certain characteristics of the offered certificates in
tabular form;
Summary of Prospectus Supplement, which begins on page S-8 of this
prospectus supplement and gives a brief introduction of the key features of
Series 1999-SL and the mortgage loans; and
Risk Factors, which begins on page S-21 of this prospectus supplement
and describes risks that apply to Series 1999-SL which are in addition to
those described in the accompanying prospectus with respect to the
securities issued by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
accompanying prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Principal Definitions" beginning on page S-103 in this prospectus
supplement. The capitalized terms used in the accompanying prospectus are
defined on the pages indicated under the caption "Index of Principal
Definitions" beginning on page 100 in the prospectus.
In this prospectus supplement, "we" refers to the Depositor, NationsLink
Funding Corporation, and "you" refers to a prospective investor in the offered
certificates.
---------------------
Until August 24, 1999 all dealers that buy, sell or trade the offered
certificates, whether or not participating in this offering, may be required to
deliver a prospectus supplement and the accompanying prospectus. This is in
addition to the dealers' obligation to deliver a prospectus supplement and the
accompanying prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
If and to the extent required by applicable law or regulation, this
prospectus supplement and the accompanying 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
is a principal. The underwriter may also act as agent in such transactions. Such
sales will be made at negotiated prices at the time of sale.
S-5
<PAGE> 7
EXECUTIVE SUMMARY
The following Executive Summary does not include all relevant information
relating to the offered certificates and the mortgage loans. In particular, the
Executive Summary does not address the risks and special considerations involved
with an investment in the offered certificates, and prospective investors should
carefully review the detailed information appearing elsewhere in this prospectus
supplement and in the accompanying prospectus before making any investment
decision. Certain capitalized terms used in this Executive 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APPROXI-
INITIAL MATE
CERTIFICATE PERCENTAGE PASS- WEIGHTED
BALANCE OR OF INITIAL TARGET THROUGH AVERAGE
NOTIONAL INITIAL POOL CREDIT CREDIT RATE AS LIFE
CLASS RATINGS(1) AMOUNT(2) BALANCE SUPPORT SUPPORT DESCRIPTION OF DELIVERY (YEARS)(5)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
- ---------------------------------------------------------------------------------------------------------------------
A-1 AAA/Aaa $ 264,690,383 22.460% 18.00% 21.00% Fixed Rate 5.805% 0.80
- ---------------------------------------------------------------------------------------------------------------------
A-2 AAA/Aaa $ 75,459,076 6.403% 18.00% 21.00% Fixed Rate 6.096% 2.00
- ---------------------------------------------------------------------------------------------------------------------
A-3 AAA/Aaa $ 43,385,473 3.681% 18.00% 21.00% Fixed Rate 6.297% 3.00
- ---------------------------------------------------------------------------------------------------------------------
A-4 AAA/Aaa $ 101,223,518 8.589% 18.00% 21.00% Fixed Rate 6.654% 5.00
- ---------------------------------------------------------------------------------------------------------------------
A-5 AAA/Aaa $ 71,067,402 6.030% 18.00% 21.00% Fixed Rate 6.888% 7.31
- ---------------------------------------------------------------------------------------------------------------------
A-6 AAA/Aaa $ 85,328,198 7.240% 18.00% 21.00% Fixed Rate(NAS) 6.608% 5.48
- ---------------------------------------------------------------------------------------------------------------------
A-1V AAA/Aaa $ 325,206,513 27.595% 18.00% 21.00% Variable Rate (3) 3.13
- ---------------------------------------------------------------------------------------------------------------------
B AA/Aa2 $ 47,139,539 4.000% 14.00% 17.00% Fixed Rate(4) 6.922% 5.42
- ---------------------------------------------------------------------------------------------------------------------
C A/A2 $ 41,247,097 3.500% 10.50% 13.50% Fixed Rate(4) 7.217% 5.55
- ---------------------------------------------------------------------------------------------------------------------
D BBB/Baa2 $ 38,300,876 3.250% 7.25% 10.25% Fixed Rate(4) 7.559% 5.66
- ---------------------------------------------------------------------------------------------------------------------
Private Certificates
- ---------------------------------------------------------------------------------------------------------------------
E BBB-/NR $ 20,623,548 1.750% 5.50% 8.50% Fixed Rate(4) 6.000% 5.73
- ---------------------------------------------------------------------------------------------------------------------
F BB/NR $ 47,139,539 4.000% 1.50% 4.50% Fixed Rate(4) 6.500% 5.89
- ---------------------------------------------------------------------------------------------------------------------
G BB-/NR $ 17,677,331 1.500% 0.00% 3.00% Fixed Rate(4) 6.500% 6.30
- ---------------------------------------------------------------------------------------------------------------------
X NR $1,178,488,493(6) N/A N/A N/A Notional N/A(7) 3.76
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------- ----------------
PRINCIPAL
WINDOW(5)
CLASS (MO./YR.)
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Offered
Certificates
- ---------------------------------------------------------------------------------------------------------------------
A-1 6/99-2/01
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A-2 2/01-12/01
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A-3 12/01-12/02
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A-4 12/02-2/06
- ---------------------------------------------------------------------------------------------------------------------
A-5 2/06-6/07
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A-6 7/01-4/07
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A-1V 6/99-9/07
- ---------------------------------------------------------------------------------------------------------------------
B 7/01-1/08
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C 7/01-5/08
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D 7/01-8/08
- ---------------------------------------------------------------------------------------------------------------------
Private
Certificates
- ---------------------------------------------------------------------------------------------------------------------
E 7/01-9/08
- ---------------------------------------------------------------------------------------------------------------------
F 7/01-10/09
- ---------------------------------------------------------------------------------------------------------------------
G 7/01-7/10
- ---------------------------------------------------------------------------------------------------------------------
X N/A
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Ratings shown are those of Fitch and Moody's, respectively.
(2) Subject to a variance of plus or minus 5%.
(3) The Pass-Through Rate applicable to the first interest accrual period for
the Class A-1V Certificates will be approximately 5.2525%. During each
interest accrual period thereafter, interest will accrue on the Class A-1V
Certificates at a rate equal to the lesser of (i) LIBOR as of the related
LIBOR Determination Date plus a 0.35% per annum and (ii) an "available
funds" cap, based on funds available therefor from interest then accrued on
the mortgage loans, but any interest reduction due to the imposition of such
cap will be deferred and payable on a later date when there is excess
interest available. The margin of 0.35% per annum will double to 0.70% per
annum if the optional termination is not exercised on the Call Date as
described in this prospectus supplement.
(4) The Pass-Through Rate for any Class B, Class C, Class D, Class E, Class F or
Class G Certificate on any Distribution Date will not exceed an "available
funds" cap based on funds available therefor from interest then accrued on
the mortgage loans, but any interest reduction due to the imposition of such
cap will be deferred and payable on a later date with interest where there
is excess interest available. See "Description of the Certificates --
Pass-Through Rates" in this prospectus supplement.
(5) Based on the Maturity Assumptions (as defined under "Yield and Maturity
Considerations" in this prospectus supplement), including prepayments at 12%
CPR for fixed rate mortgage loans and 16% CPR for adjustable rate mortgage
loans.
(6) Notional amount. The Class X Certificates will have no principal balance.
(7) On any Distribution Date, the Class X Certificates will generally be
entitled to any excess cash flow on the mortgage loans not applied to
distributions on other classes of certificates. See "Description of the
Certificates -- Pass-Through Rates" in this prospectus supplement.
S-6
<PAGE> 8
Below is certain information regarding the mortgage loans and the mortgaged
properties as of the Cut-off Date. Such information is described, and additional
information regarding the mortgage loans and the mortgaged properties is
contained, under "Description of the Mortgage Pool" in this prospectus
supplement.
MORTGAGE POOL CHARACTERISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS (APPROXIMATE)
- --------------- --------------
<S> <C>
Initial Pool Balance(1)...................... $1,183,164,569
Number of Mortgage Loans..................... 2,755
Average Cut-off Date Balance................. $429,461
Weighted Average Mortgage Rate............... 8.555%
Weighted Average Seasoning................... 50 months
Weighted Average Remaining Term to
Maturity................................... 94 months
Weighted Average Remaining Amortization
Term....................................... 209 months
Weighted Average Original Loan-to-Value
Ratio(2)................................... 62.5%
Weighted Average Cut-off Date Loan-to-Value
Ratio(3)................................... 55.5%
Weighted Average Estimated Current Loan-to-
Value Ratio(4)............................. 48.6%
Weighted Average Maturity Date Loan-to-Value
Ratio(5)................................... 32.7%
</TABLE>
- ---------------
(1) All mortgage loan principal balance information presented in this prospectus
supplement as of the Cut-off Date reflects the actual outstanding principal
balances of the mortgage loans as of March 31, 1999, rolled forward to the
Cut-off Date assuming receipt of all scheduled payments and no prepayments.
(2) Based on loan-to-value ratios at origination.
(3) Based on Cut-off Date balance and original appraisal values.
(4) Based on an extrapolation of value shown in a broker price opinion and the
Cut-off Date balance as described under "Description of the Mortgage
Pool -- Certain Underwriting Matters -- Current Market Analysis."
(5) Based on loan-to-value ratios at maturity of the mortgage loans based on
principal balances at maturity and original appraisal values.
S-7
<PAGE> 9
SUMMARY OF PROSPECTUS SUPPLEMENT
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY.
RELEVANT PARTIES AND DATES
DEPOSITOR
NationsLink Funding Corporation. The Depositor, a Delaware corporation, is
a subsidiary of NationsBank, N.A. The Depositor maintains its principal office
at Bank of America Corporate Center, 100 North Tryon Street, Charlotte, North
Carolina 28255. See "Method of Distribution" in this prospectus supplement.
Neither the Depositor nor any of its affiliates has insured or guaranteed the
Offered Certificates.
TRUSTEE
LaSalle Bank National Association. The Trustee will also act as REMIC
Administrator. See "The Trustee and the Fiscal Agent."
FISCAL AGENT
ABN AMRO BANK N.V. See "The Trustee and the Fiscal Agent."
MASTER SERVICER AND SPECIAL SERVICER
Banc One Mortgage Capital Markets, LLC, a Delaware limited liability
company. See "Servicing of the Mortgage Loans -- The Master Servicer, the
Primary Servicer and the Special Servicer" in this prospectus supplement.
MORTGAGE LOAN SELLER
Bank of America NT&SA. The Mortgage Loan Seller, a national banking
association. The Mortgage Loan Seller maintains its principal office at 555
California Street, San Francisco, California 94104. See "The Mortgage Loan
Seller" in this prospectus supplement.
The Mortgage Loan Seller, the Depositor and Banc of America Securities LLC
are all direct or indirect wholly-owned subsidiaries of Bank of America
Corporation, a Delaware corporation.
PRIMARY SERVICER
Bank of America NT&SA, the Mortgage Loan Seller, will also be the Primary
Servicer of the Mortgage Loans. The Primary Servicer maintains its principal
office for this purpose at 333 South Beaudry Avenue, Los Angeles, California
90017. See "Servicing of the Mortgage Loans" in this prospectus supplement.
CUT-OFF DATE
May 1, 1999.
RATED FINAL DISTRIBUTION DATE
For all classes of certificates, November 10, 2030.
S-8
<PAGE> 10
DELIVERY DATE
On or about May 27, 1999.
RECORD DATE
With respect to each class of Offered Certificates and each Distribution
Date, the last business day of the calendar month immediately preceding the
month in which such Distribution Date occurs.
DISTRIBUTION DATE
The 10th day of each month or, if any such 10th day is not a business day,
the next succeeding business day, commencing in June 1999.
DETERMINATION DATE
The 3rd day of each month or, if any such 3rd day is not a business day,
the immediately preceding business day, except that if such preceding business
day would not be in the same month, then the Determination Date will be the
first business day of the month.
COLLECTION PERIOD
With respect to any Distribution Date, the period that begins immediately
following the Determination Date in the calendar month preceding the month in
which such Distribution Date occurs (or, in the case of the initial Distribution
Date, that began immediately following the Cut-off Date) and ends on and
includes the Determination Date in the calendar month in which such Distribution
Date occurs.
DUE PERIOD
With respect to any Distribution Date, the period that begins on the 2nd
day of the month preceding the month in which such Distribution Date occurs and
ends on and includes the 1st day of the month in which such Distribution Date
occurs.
MORTGAGE LOANS
GENERAL
The mortgage loans were originated by the Mortgage Loan Seller, affiliated
entities and predecessor companies. Mortgage loans originated by such entities
have generally been originated with a view to holding such loans in the lender's
portfolio, and in most cases are seasoned loans. While origination and
underwriting policies varied based on the time of origination and the identity
of the original lender, such policies in effect since the Mortgage Loan Seller's
merger with Security Pacific National Bank in 1992 have been relatively
consistent and are described in this prospectus supplement under the heading
"Mortgage Loan Seller". Approximately 85.0% of the mortgage loans, by Initial
Pool Balance, were originated during or after 1992.
The Mortgage Loans were selected from the Mortgage Loan Seller's general
commercial mortgage loan portfolio, subject to a limitation that each mortgage
loan have a current principal balance of less than $1.5 million. Other criteria
for selection included a 12 to 180 month remaining term to maturity, no current
bankruptcy or major delinquency, no loans over 30 days delinquent in the
preceding 12 months and a satisfactory current risk rating and, for adjustable
rate loans, standard indices for determination of the mortgage rate. No adverse
selection was made with respect to the mortgage loans, and in general the
mortgage loans compare favorably with the Mortgage Loan Seller's overall
portfolio in terms of original loan-to value ratios and mortgage rates. To the
best of the Mortgage Loan Seller's knowledge, the mortgage loans have not
experienced any losses.
S-9
<PAGE> 11
THE MORTGAGE POOL
The pool of mortgage loans will consist of 2,755 multifamily and commercial
mortgage loans, with an aggregate Cut-off Date Balance of approximately
$1,183,164,569, subject to a variance of plus or minus 5%. All numerical
information provided herein with respect to the mortgage loans is provided on an
approximate basis. All weighted average information provided herein with respect
to the mortgage loans reflects weighting by related Cut-off Date Balance. Unless
otherwise noted, all percentages of the mortgage pool (or of any specified group
of mortgage loans within the mortgage pool) in this prospectus supplement are
approximate percentages by aggregate Cut-off Date Balance. See "Description of
the Mortgage Pool -- Changes in Mortgage Pool Characteristics" in this
prospectus supplement.
The mortgage pool consists of two groups. Loan Group 1 consists of the
mortgage loans bearing fixed interest rates on the Cut-off Date, and Loan Group
2 consists of the mortgage loans bearing adjustable interest rates on the
Cut-off Date. Loan Group 1 has an aggregate Cut-off Date Balance of
$853,171,734, and Loan Group 2 has an aggregate Cut-off Date Balance of
$329,992,835, including $126,424,304 of mortgage loans convertible at the option
of the borrower into fixed rates, each such amount being subject to a variance
of plus or minus 5%.
The "Cut-off Date Balance" of each mortgage loan is the unpaid principal
balance of such mortgage loan as of the Cut-off Date, after application of all
payments of principal due on or before such date, whether or not received. The
principal balance of each mortgage loan as of the Cut-off Date has been
determined using the actual principal balance at March 31, 1999, rolled forward
assuming receipt of all scheduled payments and no prepayments. The Cut-off Date
Balances of the mortgage loans range from $25,651 to $1,490,462, and the average
Cut-off Date Balance is $429,461. Mortgage Rate information with respect to the
Adjustable Rate Mortgage Loans is as of March 31, 1999.
The mortgage loans had the following additional characteristics as of the
Cut-off Date.
SELECTED MORTGAGE LOAN CHARACTERISTICS(1)
<TABLE>
<S> <C>
Range of Mortgage Rates
-- Fixed Rate Mortgage Loans............................ 7.130% to 14.500%
-- Adjustable Rate Mortgage Loans....................... 6.800% to 11.250%
-- All Mortgage Loans................................... 6.800% to 14.500%
Weighted Average Mortgage Rate
-- Fixed Rate Mortgage Loans............................ 8.759%
-- Adjustable Rate Mortgage Loans....................... 8.028%
-- All Mortgage Loans................................... 8.555%
Range of Mortgage Loan Seasoning
-- Fixed Rate Mortgage Loans............................ 6 to 310 months
-- Adjustable Rate Mortgage Loans....................... 7 to 269 months
-- All Mortgage Loans................................... 6 to 310 months
Weighted Average Mortgage Loan Seasoning
-- Fixed Rate Mortgage Loans............................ 46 months
-- Adjustable Rate Mortgage Loans....................... 61 months
-- All Mortgage Loans................................... 50 months
Range of Remaining Term to Stated Maturity................
-- Fixed Rate Mortgage Loans............................ 11 to 175 months
-- Adjustable Rate Mortgage Loans....................... 11 to 173 months
-- All Mortgage Loans................................... 11 to 175 months
Weighted Average Remaining Term to Stated Maturity
-- Fixed Rate Mortgage Loans............................ 100 months
-- Adjustable Rate Mortgage Loans....................... 78 months
-- All Mortgage Loans................................... 94 months
</TABLE>
S-10
<PAGE> 12
<TABLE>
<S> <C>
Range of Remaining Amortization Terms
-- Fixed Rate Mortgage Loans............................ 8 to 354 months
-- Adjustable Rate Mortgage Loans....................... 17 to 352 months
-- All Mortgage Loans................................... 8 to 354 months
Weighted Average Remaining Amortization Term
-- Fixed Rate Mortgage Loans............................ 206 months
-- Adjustable Rate Mortgage Loans....................... 217 months
-- All Mortgage Loans................................... 209 months
Range of Original Loan-to-Value Ratios(2)................. 10.6% to 80.0%
Weighted Average Original Loan-to-Value Ratio(2).......... 62.5%
Range of Cut-off Date Loan-to-Value Ratios(3)............. 3.1% to 77.8%
Weighted Average Cut-off Date Loan-to-Value Ratio(3)...... 55.5%
Range of Estimated Current Loan-to-Value Ratios(4)........ 1.8% to 77.6%
Weighted Average Estimated Current Loan-to-Value
Ratio(4)................................................ 48.6%
Range of Maturity Date Loan-to-Value Ratios(5)............ 0.0% to 74.8%
Weighted Average Maturity Date Loan-to-Value Ratios(5).... 32.7%
</TABLE>
- ---------------
(1) All Mortgage Rates are stated per annum.
(2) Based on loan-to-value ratios at origination.
(3) Based on Cut-off Date balance and original appraisal values.
(4) Based on an extrapolation of value shown in a broker price opinion and the
Cut-off Date balance as described under "Description of the Mortgage
Pool -- Certain Underwriting Matters -- Current Market Analysis."
(5) Based on maturity date mortgage loan balance and original appraisal values.
Set forth below are the number of mortgage loans, and the approximate
percentage of the Initial Pool Balance secured by such mortgage loans, located
in the three states with the highest concentrations:
GEOGRAPHIC CONCENTRATION
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE INITIAL POOL
STATE/COUNTY LOANS BALANCE
- ------------ --------- ------------
<S> <C> <C>
California.................................................. 1,814 63.9%
Los Angeles............................................... 538 17.6
Orange.................................................... 150 5.4
Santa Clara............................................... 102 4.5
Alameda................................................... 121 4.5
San Diego................................................. 111 4.3
Other Counties............................................ 792 27.5
Washington.................................................. 471 18.0
King...................................................... 241 9.7
Snohomish................................................. 35 1.9
Pierce.................................................... 44 1.4
Spokane................................................... 27 0.8
Clark..................................................... 14 0.6
Other Counties............................................ 110 3.6
Nevada...................................................... 140 6.0
</TABLE>
The remaining mortgage loans are located throughout 9 other states, with no
more than 5.3% of the Initial Pool Balance secured by mortgage loans located in
any such other jurisdiction.
S-11
<PAGE> 13
Set forth below are the number of mortgage loans, and the approximate
percentage of the Initial Pool Balance secured by such mortgage loans, operated
for each indicated purpose:
PROPERTY TYPE
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE INITIAL POOL
TYPE LOANS BALANCE(1)
- ---- --------- ------------
<S> <C> <C>
Industrial.................................................. 864 32.8%
Office...................................................... 737 25.2
Retail...................................................... 413 14.4
Multifamily................................................. 374 14.0
Mixed Use................................................... 226 8.1
Restaurant.................................................. 69 1.6
Mobile Home................................................. 20 1.5
Special Purpose............................................. 21 0.9
Mini-Storage................................................ 19 0.9
Hotel/Motel................................................. 9 0.5
Health Care................................................. 3 0.0
----- -----
Total....................................................... 2,755 100.0%
===== =====
</TABLE>
- ---------------
(1) The sum of the percentages in this column may not equal 100% due to
rounding.
S-12
<PAGE> 14
Set forth below are the number of mortgage loans, and the approximate
percentage of the Initial Pool Balance secured by such mortgage loans,
originated in each year indicated. Origination dates in the table below are
based on the initial date of origination, not the date of any subsequent
modification.
YEAR OF MORTGAGE ORIGINATION
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
YEAR OF MORTGAGE INITIAL POOL
ORIGINATION LOANS BALANCE(1)
----------- --------- ------------
<S> <C> <C>
1998........................................................ 546 21.7%
1997........................................................ 441 19.9
1996........................................................ 481 19.5
1995........................................................ 248 10.9
1994........................................................ 169 7.5
1993........................................................ 117 3.4
1992........................................................ 44 2.2
1991........................................................ 52 1.4
1990........................................................ 59 1.5
1989........................................................ 15 0.3
1988........................................................ 64 1.9
Prior to 1988............................................... 519 9.9
----- ------
Total....................................................... 2,755 100.0%
===== ======
</TABLE>
- ---------------
(1) The sum of the percentages in this column may not equal 100% due to
rounding.
On or before the Delivery Date, the Mortgage Loan Seller, at the direction
of the Depositor, will transfer all of the mortgage loans, without recourse, to
the Trustee for the benefit of holders of the certificates (the
"Certificateholders") pursuant to a single blanket assignment in the pooling
agreement. In connection with such transfer, the Mortgage Loan Seller will make
certain representations and warranties regarding the characteristics of the
mortgage loans. As described in more detail later in this prospectus supplement,
the Mortgage Loan Seller will be obligated to cure any material breach of any
such representation or warranty made by the Mortgage Loan Seller with respect to
the mortgage loans or repurchase the affected mortgage loan. See "Description of
the Mortgage Pool -- Assignment of the Mortgage Loans; Repurchases" and
"-- Representations and Warranties; Repurchases" in this prospectus supplement.
As described under "Description of the Mortgage Pool -- Assignment of Mortgage
Loans; Repurchases" in this prospectus supplement, no individual assignments of
the mortgages securing the mortgage loans will be prepared or recorded until the
occurrence of a Recordation Event.
The Mortgage Loan Seller will sell the mortgage loans without recourse and
will have no obligations with respect to the Offered Certificates other than
pursuant to the representations, warranties and repurchase obligations
referenced above. The Depositor will make no representations or warranties with
respect to the mortgage loans and will have no obligation to repurchase or
replace mortgage loans with deficient documentation or which are otherwise
defective. See "Description of the Mortgage Pool" and "Risk Factors -- Risks
Related to the Mortgage Loans" in this prospectus supplement and "Description of
the Trust Funds" and "Certain Legal Aspects of Mortgage Loans" in the
accompanying prospectus.
The Master Servicer, the Primary Servicer and, if circumstances require,
the Special Servicer, will service and administer the mortgage loans pursuant to
the pooling agreement (as defined below). See "Servicing of the Mortgage Loans"
in this prospectus supplement and "The Pooling and Servicing Agreements" in the
accompanying prospectus. The compensation to be received by the Primary Servicer
and the Master Servicer (including Primary Servicing Fees and Master Servicing
Fees) and the Special Servicer (including Special Servicing Fees, Liquidation
Fees and Workout Fees) for their services is described in this prospectus
supplement under "Servicing of the Mortgage Loans -- Servicing and Other
Compensation and Payment of Expenses".
S-13
<PAGE> 15
OFFERED SECURITIES
THE OFFERED CERTIFICATES; CERTIFICATE BALANCES AND PASS-THROUGH RATES
We are offering ten classes of Commercial Mortgage Pass-Through
Certificates (collectively, the "Offered Certificates") to you as part of Series
1999-SL, namely the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-1V, Class B, Class C and Class D Certificates. The Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates are referred to
as the "Fixed Rate Senior Certificates" in this prospectus supplement. The Fixed
Rate Senior Certificates, collectively with the Class A-1V Certificates, are
referred to as the "Senior Certificates." Your certificates will have the
approximate aggregate initial principal amount or notional amount indicated in
the chart on the cover of this prospectus supplement, subject to a variance of
plus or minus 5%, and will accrue interest at an annual rate (the "Pass-Through
Rate") indicated in the chart on the cover of this prospectus supplement. The
Pass-Through Rate for any Class A-1V, Class B, Class C or Class D Certificate on
any Distribution Date will not exceed the "available funds" cap based on funds
available therefor from interest then accrued on the mortgage loans. See
"Description of the Certificates -- Pass-Through Rates" in this prospectus
supplement. Interest on the Offered Certificates will be calculated based on a
360-day year consisting of twelve 30-day months, or a 30/360 basis, except that
interest calculated with respect to the Class A-1V Certificates will be based on
a 360-day year and the actual number of days elapsed.
Series 1999-SL consists of a total of sixteen classes of certificates, the
following six of which are not being offered through this prospectus supplement
and the accompanying prospectus: Class E, Class F, Class G, Class X, Class P and
Class R (collectively, the "Private Certificates"). The Offered Certificates and
the Class E, Class F and Class G Certificates are referred to as the "Principal
Balance Certificates." The Pass-Through Rates applicable to each of the Class E,
Class F and Class G Certificates for each Distribution Date are set forth on
page S-6 hereof. The Class X Certificates will be entitled to any excess cash
flow on the mortgage loans, subject to a deferral of such amount to the extent
such funds are applied to payment of principal of any Class of certificates. See
"Description of the Certificates -- Pass-Through Rates" in this prospectus
supplement. The Class R Certificates (the "REMIC Residual Certificates") will
not have a Certificate Balance or a Notional Amount.
The Offered Certificates and the Private Certificates will represent
beneficial ownership interests in a trust created by NationsLink Funding
Corporation. The trust's assets will primarily be 2,755 mortgage loans secured
by primarily first liens on commercial and multifamily properties.
DISTRIBUTIONS
The total of all payments or other collections (or advances in lieu
thereof) on or in respect of the mortgage loans (but excluding prepayment
premiums) that are available for distributions of interest on and principal of
the Offered Certificates on any Distribution Date is herein referred to as the
"Available Distribution Amount" for such date. See "Description of the
Certificates -- Distributions -- The Available Distribution Amount" in this
prospectus supplement.
On each Distribution Date, the Trustee will apply the Available
Distribution Amount for such date for the following purposes and in the
following order of priority:
A. Amount and Order of Distributions
First, Senior Classes: To interest on the Fixed Rate Senior Certificates
and Class A-1V Certificates, pro rata, in accordance with their interest
entitlements, including interest deferred from prior periods due to the
imposition of "available funds caps" on their interest rates to the extent
currently payable, together with interest on such amounts, and interest due in
prior periods and not paid.
Second, Senior Classes: To the extent of amounts then required to be
distributed as principal on the Fixed Rate Senior Certificates and Class A-1V
Certificates (such principal entitlements determined generally first, to reduce
the principal balance of the Class A-1V Certificates to an amount equal to the
current principal balance of the Adjustable Rate Loans, and then to pay the
Fixed Rate Senior Certificates in full before paying other classes, all subject
to reallocation upon satisfaction of certain step-down tests), payment of such
S-14
<PAGE> 16
principal to be made pro rata in accordance with such principal entitlements, in
each case until such class is reduced to zero.
Third, Class B: To Class B as follows: (a) to interest on Class B in the
amount of its interest entitlement, including interest deferred from prior
periods due to the imposition of an available funds cap on its interest rate to
the extent currently payable, together with interest on such amounts, together
with interest due in prior periods and not paid; and (b) to principal on Class B
in the amount of its principal entitlement.
Fourth, Class C: To Class C in a manner analogous to the Class B
allocations of the third step.
Fifth, Class D: To Class D in a manner analogous to the Class B
allocations of the third step.
Sixth, Private Certificates: To the Private Certificates other than the
Class X and Class P Certificates in a manner analogous to the Class B
allocations of the third step.
Seventh, Excess Cash Flow. Finally, any remaining Available Distribution
Amount (other than gains on foreclosure property) in excess of prior losses and
shortfalls (the "Excess Cash Flow") will be applied
- first, to pay principal of the Principal Balance Certificates in the
amount of any principal losses to the extent certain
overcollateralization tests are not satisfied after taking such losses
into account,
- second, to reimburse the Fiscal Agent, the Trustee, the Master
Servicer, the Primary Servicer and the Special Servicer for servicing
advances made by them and remaining unreimbursed, together with
interest on such advances, and
- third, until applicable overcollateralization tests are satisfied and
any time thereafter if such tests are not satisfied, to pay principal
to the Principal Balance Certificates.
To the extent applicable overcollateralization tests are met and maintained, the
remaining Excess Cash Flow will generally be paid to the Class X Certificates.
Payments of principal made to the Principal Balance Certificates from Excess
Cash Flow will be allocated among classes of Certificates in the same manner as
principal paid from the Available Distribution Amount is allocated.
Distributions of principal to the Fixed Rate Senior Certificates described
in priorities Second and Seventh above will be paid first, to the Class A-6
Certificates in the amounts described in this prospectus supplement (which
amounts are zero prior to June 2001) and thereafter, sequentially to Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates, in each
case until such class has been paid in full. However, distributions to Senior
Classes referred to in priority Second above will be made pro rata among the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class A-1V
Certificates when the Certificate Balances of the Subordinate Certificates have
been reduced to zero and in any event on the final Distribution Date as
described under "Description of the Certificates -- Distributions -- The
Available Distribution Amount" in this prospectus supplement.
B. Interest and Principal Entitlements
A description of each class of Certificates' interest entitlement can be
found in "Description of the Certificates -- Distributions -- Distributable
Certificate Interest" in this prospectus supplement. As described in such
section, there are circumstances in which your interest entitlement for a
distribution date could be less than one full month's interest at the
Pass-Through Rate on your certificate's principal amount. Further, to the extent
the Pass-Through Rate for the Class A-1V, Class B, Class C or Class D
Certificates was limited by imposition of the applicable "available funds cap,"
any interest deferred as a result will be carried forward and paid, with
interest, as part of the interest entitlement on a subsequent Distribution Date
to the extent there is sufficient interest accrued on the mortgage loans (net of
trustee and servicer fees) in excess of current accrued certificate interest to
pay such amounts.
The amount of principal required to be distributed to the classes entitled
to principal on a particular distribution date also can be found in "Description
of the Certificates -- Distributions -- Principal Distribution Amounts" and
"-- Application of Excess Cash Flow" in this prospectus supplement. None of the
Offered
S-15
<PAGE> 17
Certificates will be entitled to receive any prepayment consideration or yield
maintenance premiums received on the mortgage loans.
SUBORDINATION AND OVERCOLLATERALIZATION
A. General
The chart below describes the manner in which the rights of various classes
will be senior to the rights of other classes. Entitlement to receive principal
and interest on any Distribution Date is depicted in descending order. The
manner in which mortgage loan losses are allocated is depicted in ascending
order.
Senior Certificates
|
Class B
|
Class C
|
Class D
|
Private Certificates
In addition, Excess Cash Flow (to the extent not used to cover current
interest shortfalls and losses or to cover servicing advances) will be applied
to principal of the Certificates until designated target credit enhancement
levels of all Principal Balance Certificates are met, including in particular
that the aggregate principal balance of the Certificates is less than the
aggregate principal balance of the mortgage loans by an overcollateralization
target (the "OC Target") initially equal to 3% of the Cut-off Date principal
balance of the mortgage loans and, on and after the distribution date in July
2001, equal to at least the greater of 4.5% of the then current aggregate
principal balance of the mortgage loans and 1% of the aggregate Cut-off Date
principal balance of the mortgage loans. Thereafter, Excess Cash Flow (to the
extent not used to cover current losses or to cover servicing advances) will
again be applied to principal of the Certificates to the extent the aggregate
current principal balance of the mortgage loans does not exceed the current
principal balance of the Certificates by such OC Target or any Principal Balance
Certificates otherwise do not meet their target credit enhancement levels. Any
losses on mortgage loans not covered by Excess Cash Flow will first be applied
to reduce the amount of any such overcollateralization before reducing the
principal balance of any Class of Certificates.
No other form of credit enhancement will be available for the benefit of
the holders of the Offered Certificates.
See "Description of the Certificates -- Subordination; Allocation of Losses
and Certain Expenses" in this prospectus supplement.
S-16
<PAGE> 18
B. Shortfalls in Available Funds
The following types of shortfalls in available funds will be allocated in
the same manner as mortgage loan losses:
- shortfalls resulting from additional compensation which the Primary
Servicer, the Master Servicer or the Special Servicer is entitled to
receive;
- shortfalls resulting from interest accrued on advances of principal and
interest and on servicing advances made by the Primary Servicer, the
Master Servicer, the Special Servicer, the Trustee or the Fiscal Agent
while such advances remain outstanding;
- shortfalls resulting from extraordinary expenses of the trust; and
- shortfalls resulting from a reduction of a mortgage loan's interest rate
by a bankruptcy court or from other unanticipated or default-related
expenses of the trust.
See "Description of the Certificates -- Distributions" in this prospectus
supplement.
ADVANCES OF PRINCIPAL AND INTEREST
A. P&I Advances
The pooling agreement requires the Primary Servicer (or, if it fails to do
so, the Master Servicer, the Trustee or the Fiscal Agent) to advance (each, a
"P&I Advance") delinquent monthly mortgage loan payments with respect to any
Non-Specially Serviced Mortgage Loan if it determines that the advance will be
recoverable, and similarly requires the Special Servicer to make P&I Advances
with respect to Specially Serviced Mortgage Loans. To the extent either fails to
do so, the Master Servicer, the Trustee or the Fiscal Agent is required to make
such P&I Advances. Any payment that is delinquent beyond the applicable grace
period for the related mortgage loan will only be advanced to the extent such
delinquency would result in a shortfall in interest payable to any class other
than the Class X Certificates and the then most subordinate Class of Principal
Balance Certificates. The Primary Servicer or the Special Servicer, as the case
may be, will not be required to advance balloon payments due at maturity or
interest in excess of a mortgage loan's regular interest rate. Neither the
Primary Servicer nor the Special Servicer is required to advance prepayment or
yield maintenance premiums. If the Primary Servicer makes an advance, the
Primary Servicer will not advance its servicing fee, but will advance the
Trustee's fee and the Master Servicer's fee. P&I Advances of payments which are
delinquent beyond applicable grace periods will be reimbursed prior to any
distribution of interest to the then most subordinate class of certificates. All
P&I Advances will in any event be reimbursable from late collections,
liquidation proceeds and certain other receipts on the related mortgage loans or
if such advances are deemed nonrecoverable.
B. Property Protection Advances
The Primary Servicer or the Special Servicer or, if either it fails to do
so, the Master Servicer, the Trustee or the Fiscal Agent, may also be required
to make advances to pay delinquent real estate taxes, assessments and hazard
insurance premiums and similar expenses necessary to protect and maintain the
mortgaged property, to maintain the lien on the mortgaged property or enforce
the related mortgage loan documents ("Servicing Advances," and, collectively
with P&I Advances, "Advances"), but will be entitled to reimbursement for such
advances from Excess Cash Flow (to the extent not used to cover current losses)
on any Distribution Date, as well as from related collections on the mortgage
loans if any such advances are deemed nonrecoverable. The Special Servicer will
be required to make Servicing Advances on Specially Serviced Mortgage Loans and
REO Properties, and the Primary Servicer will be required to make Servicing
Advances on other mortgage loans.
C. Interest on Advances
The Primary Servicer, the Master Servicer, the Special Servicer, the
Trustee, and the Fiscal Agent as applicable, will be entitled to interest as
described in this prospectus supplement on any Advances they make,
S-17
<PAGE> 19
other than for P&I Advances by the Primary Servicer of payments not delinquent
past applicable grace periods. Interest accrued on outstanding Advances may
result in reductions in amounts otherwise payable on the certificates.
See "Description of the Certificates -- P&I Advances" and "Servicing of the
Mortgage Loans -- Servicing and Other Compensation and Payment of Expenses" in
this prospectus supplement and "Description of the Certificates -- Advances in
Respect of Delinquencies" and "The Pooling and Servicing
Agreements -- Certificate Account" in the accompanying prospectus.
OTHER ASPECTS OF THE CERTIFICATES
A. Denominations
The Senior Certificates will be offered in minimum denominations of $10,000
initial principal amount. The Offered Certificates, other than the Senior
Certificates, will be offered in minimum denominations of $100,000 initial
principal amount. Investments in excess of the minimum denominations may be made
in multiples of $1.
B. Registration, Clearance and Settlement
Each class of Offered Certificates will be registered in the name of Cede &
Co., as nominee of The Depository Trust Company ("DTC"). We may elect to
terminate the book-entry system through DTC with respect to all or any portion
of any class of the Offered Certificates.
See "Description of the Certificates -- Registration and Denominations" in
this prospectus supplement and in the accompanying prospectus.
OPTIONAL TERMINATION
At its option, the Primary Servicer may purchase all of the mortgage loans
and REO Properties, and thereby effect a termination of the Trust and early
retirement of the then-outstanding certificates, 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 first such Distribution Date is
referred to in this prospectus supplement as the "Call Date." If the Primary
Servicer does not exercise such option on the Call Date, the holder or holders
(other than the Depositor or the Mortgage Loan Seller) of certificates
representing a majority interest in the Controlling Class will have such option.
If such holder or holders do not exercise such option on the Call Date, the
Master Servicer will have such option. If such option is not exercised on the
Call Date, the margin of 0.35% used to determine the Pass-Through Rate of the
Class A-1V Certificates will double to 0.70%. See "Description of the
Certificates -- Termination" in this prospectus supplement and in the
accompanying prospectus.
TAX STATUS
We will make elections to treat designated portions of the Trust as one or
more separate REMICs for federal income tax purposes. In the opinion of counsel,
such portions of the Trust will qualify for this treatment. A portion of the
Trust, which includes the prepayment premiums and certain interest distributable
to holders of the Offered Certificates or certain private certificates at their
respective LIBOR-based or fixed rates in excess of the weighted average mortgage
rate (net of the fee rates payable to the Primary Servicer, the Master Servicer
and the Trustee) of the mortgage loans, will be treated as a grantor trust.
Pertinent federal income tax consequences of an investment in the Offered
Certificates include:
- Each class of Offered Certificates will represent "regular interests" in
a REMIC and interests in a grantor trust.
- The regular interests will be treated as newly originated debt
instruments and the interests in the grantor trust will represent
notional principal contracts for federal income tax purposes.
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- You will be required to report income on the Offered Certificates in
accordance with the accrual method of accounting.
- One or more classes of Offered Certificates may be issued with original
issue discount for federal income tax purposes, which generally requires
you to report income in advance of the related cash distributions.
See "Certain Federal Income Tax Consequences" in this prospectus supplement and
in the accompanying prospectus.
ERISA CONSIDERATIONS
Subject to important considerations described under "Certain ERISA
Considerations" in this prospectus supplement and in the accompanying
prospectus, the Senior Certificates may be purchased by persons investing assets
of employee benefit plans or individual retirement accounts.
THE CLASS B, CLASS C AND CLASS D CERTIFICATES MAY NOT BE PURCHASED BY, OR
TRANSFERRED TO, AN EMPLOYEE BENEFIT PLAN OR INDIVIDUAL RETIREMENT ACCOUNT, OR
ANY PERSON INVESTING THE ASSETS OF AN EMPLOYEE BENEFIT PLAN OR INDIVIDUAL
RETIREMENT ACCOUNT. (THIS PROHIBITION DOES NOT APPLY TO AN INSURANCE COMPANY
INVESTING ASSETS OF ITS GENERAL ACCOUNT UNDER CIRCUMSTANCES WHICH WOULD QUALIFY
FOR AN EXEMPTION UNDER SECTION III OF PROHIBITED TRANSACTION CLASS EXEMPTION
95-60.)
See "Certain ERISA Considerations" in this prospectus supplement and in the
accompanying prospectus.
LEGAL INVESTMENT
The Senior Certificates and Class B Certificates will constitute "mortgage
related securities" within the meaning of SMMEA so long as those certificates
are rated in one of the two highest rating categories by one or more rating
agencies. None of the other Classes of Offered Certificates will constitute
"mortgage related securities" within the meaning of SMMEA.
See "Legal Investment" in this prospectus supplement and in the
accompanying prospectus.
CERTIFICATE RATINGS
It is a requirement for issuance of the Offered Certificates that they
receive credit ratings no lower than the following credit ratings from Moody's
and Fitch (together, the "Rating Agencies"):
<TABLE>
<CAPTION>
CLASS MOODY'S FITCH
----- ------- -----
<S> <C> <C>
Class A-1................................................... Aaa AAA
Class A-2................................................... Aaa AAA
Class A-3................................................... Aaa AAA
Class A-4................................................... Aaa AAA
Class A-5................................................... Aaa AAA
Class A-6................................................... Aaa AAA
Class A-1V.................................................. Aaa AAA
Class B..................................................... Aa2 AA
Class C..................................................... A2 A
Class D..................................................... Baa2 BBB
</TABLE>
The Rating Agencies' ratings of the Offered Certificates address the
likelihood of the timely payment of interest and the ultimate repayment of
principal by the Rated Final Distribution Date. A security rating does not
address the likelihood or the frequency of voluntary or involuntary principal
prepayments or receipt or prepayment premiums, default interest or penalties.
For a description of the limitations of the ratings of the Offered
Certificates, see "Ratings" in this prospectus supplement.
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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. Any such revision, if negative, or withdrawal of a rating could
have a material adverse effect on the affected class of Offered Certificates.
See "Ratings" in this prospectus supplement and "Rating" in the accompanying
prospectus.
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RISK FACTORS
You should carefully consider the following risks before making an
investment decision. In particular, distributions on your certificates will
depend on payments received on and other recoveries with respect to the mortgage
loans. Therefore, you should carefully consider the risk factors relating to the
mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to your certificates. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair your investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
RISKS RELATED TO THE CERTIFICATES
LACK OF CONTROL OVER TRUST FUND
You and other certificateholders generally do not have the right to make
decisions with respect to the administration of the trust. See "Servicing of the
Mortgage Loans -- General" in this prospectus supplement. Such decisions are
generally made, subject to the express terms of the pooling agreement, by the
Primary Servicer, the Master Servicer, the Trustee or the Special Servicer, as
applicable. Any decision made by one of those parties in respect of the trust,
even if such party determines it to be in your best interests, may be contrary
to the decision that you or other certificateholders would have made and may
negatively affect your interests.
POTENTIAL CONFLICTS OF INTEREST
The Special Servicer will have considerable latitude in determining whether
to liquidate or modify defaulted mortgage loans. See "Servicing of the Mortgage
Loans -- Modifications, Waivers, Amendments and Consents" in this prospectus
supplement.
The Special Servicer or an affiliate has purchased certain of the private
certificates. This could cause a conflict between the Special Servicer's duties
to the Trust under the pooling agreement and its interest as a holder of a
certificate. However, the pooling 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, the Special Servicer or
any affiliate of the Special Servicer. See "Servicing of the Mortgage Loans --
General" in this prospectus supplement.
The Primary Servicer or the Depositor or any of their affiliates may
maintain certain banking or other relationships with borrowers under the
mortgage loans or their affiliates, and proceeds of the mortgage loans may, in
certain limited cases, be used by such borrowers or their affiliates in whole or
in part to pay indebtedness owed to the Mortgage Loan Seller, the Depositor or
such other entities. This could cause a conflict between the Primary Servicer's
duties to the Trust under the pooling agreement and its interest in these
banking and other relationships. However, the pooling agreement provides that
the mortgage loans will be administered in accordance with the servicing
standards, without regard to any relationship that the Primary Servicer may have
with any borrower.
INTEREST RATES ON THE CLASS A-1V, CLASS B, CLASS C AND CLASS D CERTIFICATES ARE
SUBJECT TO LIMITS
While interest will generally accrue on the Class A-1V Certificates at a
rate equal to LIBOR plus 0.35%, the interest rate on the Class A-1V Certificates
is subject to an "available funds" cap rate as described under "Description of
the Certificates -- Pass-Through Rates" in this Prospectus Supplement, which cap
rate, when adjusted to an effective rate based on a 360-day year of 30-day
months, will never be lower than the weighted
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\average mortgage rate (net of the fee rates payable to the Primary Servicer,
the Master Servicer and the Trustee, and adjusted for mortgage loans which do
not accrue interest on the basis of a 360-day year of 30-day months) of the
mortgage loans (the "Weighted Average Net Mortgage Rate"). Similarly, while
interest will generally accrue on the Class B, Class C and Class D Certificates
at a fixed rate, the interest rate on such certificates is subject to caps based
on "available funds" accrued as interest on the mortgage loans and available for
payment of interest on such certificates, which cap rates similarly will never
be lower than the Weighted Average Net Mortgage Rate. The effective available
funds cap rate for the Class A-1V Certificates during the first full accrual
period after the Cut-off Date (using mortgage rates of Adjustable Rate Mortgage
Loans as of April 30, 1999) was 13.3739% as of May 20, 1999. The effective
available funds cap rates, during the first full accrual period of all Offered
Certificates, for the Class B, Class C and Class D Certificates, determined on
the same basis for the same date, was 54.906%, 62.750% and 67.577% higher than
the corresponding uncapped fixed pass-through rates for such Classes. Such
differences may be reduced or eliminated, and the Class A-1V, Class B, Class C
or Class D Certificates may become subject to such caps, because:
- the indices on which interest on the mortgage loans in Loan
Group 2 accrues vary, while the pass-through rate on the
Class A-1V Certificates is based on one-month LIBOR;
- the mortgage interest rates of such mortgage loans are subject to
periodic and lifetime caps;
- the pass-through rate of the Class A-1V Certificates adjusts monthly
while the mortgage rates of many mortgage loans adjust less
frequently, and therefore may not increase as quickly as increases of
the pass-through rate of the Class A-1V Certificates in times of
rising interest rates, and
- there may be disproportionate prepayments between mortgage loans in
Loan Group 2 which tend to have higher interest rates relative to
LIBOR and those which tend to have lower interest rates.
- there may be disproportionate principal payments of mortgage loans in
Loan Group 1 with higher mortgage interests, or generally that bear
fixed mortgage rates (net of servicing and trustee fee rates) that are
higher than the Weighted Average Net Mortgage Rate.
- the optional termination right may not be exercised and the margin
above LIBOR applicable to the Pass-Through Rate for the Class A-1V
Certificates may double.
For any Distribution Date, accrued interest available to pay interest at a
rate above the Weighted Average Net Mortgage Rate for the related Accrual Period
to certificates subject to an available funds cap (the "Available Accrued
Interest") will include any interest due on the mortgage loans (net of servicing
and trustee fees) in the related Collection Period which is in excess of
interest accrued on the Principal Balance Certificates during the related
Accrual Periods at the lesser of (a) the Pass-Through Rate for such Certificates
assumed, for this purpose, to be interest at the uncapped LIBOR-based rate, in
the case of the Class A-1V Certificates, and at the applicable uncapped fixed
rate, in the case of the Subordinate Certificates (the "Uncapped Pass-Through
Rate" for each such Class) and (b) the Weighted Average Net Mortgage Rate, but
reduced by any interest in excess of the Weighted Average Net Mortgage Rate
accrued on any Class of Fixed Rate Senior Certificates. The Available Accrued
Interest will be allocated sequentially, first to the Class A-1V Certificates,
then in order to the Class B, Class C, Class D and Private Certificates, to
cover any shortfall between interest accrued at the Uncapped Pass-Through Rate
and interest at the Weighted Average Net Mortgage Rate on each such Class, with
the effect that the more subordinate classes of certificates bear the first risk
of reduction of their Pass-Through Rate below their Uncapped Pass-Through Rates,
down to as low as the Weighted Average Net Mortgage Rate. Nevertheless, to the
extent more subordinate classes of certificates have uncapped fixed interest
rates that are below the Weighted Average Net Mortgage Rate, they will not
become subject to an available funds cap, and more senior classes may be the
first to have their Pass-Through Rates affected by an available funds cap.
If interest on the Class A-1V, Class B, Class C, Class D or Private
Certificates on a Distribution Date becomes subject to such a cap, the
difference between the applicable Uncapped Pass-Through Rate and the rate
actually paid (together with interest thereon at the related Uncapped
Pass-Through Rate) will constitute
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an "Interest Carryover". Any Interest Carryover will be payable only to the
extent interest accrued on the mortgage loans (net of servicing and trustee
fees) later exceeds interest on the Fixed Rate Senior Certificates at their
Pass-Through Rates and on the remaining Principal Balance Certificates at their
respective Uncapped Pass-Through Rates, such excess interest to be applied
sequentially to outstanding Interest Carryovers of the Class A-1V, Class B,
Class C, Class D and Private Certificates. Such Interest Carryover may remain
unpaid on the final Distribution Date. If the interest payment to the Class
A-1V, Class B, Class C or Class D Certificates for a Distribution Date is
reduced by the imposition of such cap, or the difference between such cap rate
and the Uncapped Pass-Through Rate becomes small enough that investors may
anticipate imposition of such cap in the future, the value of the Class A-1V,
Class B, Class C or Class D Certificates may be temporarily or permanently
reduced.
IMPACT OF BASIS RISK ON INTEREST RATES ON CERTIFICATES AND CREDIT ENHANCEMENT
The rate at which the credit enhancement from overcollateralization grows
as a result of application of Excess Cash Flow to principal of the certificates
will vary depending on the amount of Excess Cash Flow on each Distribution Date,
and the amount by which such Excess Cash Flow available for credit enhancement
is reduced by application of Excess Cash Flow to cover current losses or to
cover servicing advances. Excess Cash Flow will be affected by any current
losses and unadvanced delinquencies, but will also be affected by the difference
between the weighted average mortgage rate (net of fee rates payable to the
Primary Servicer, the Master Servicer, the Special Servicer, the Trustee and the
Fiscal Agent) of the mortgage loans and the weighted average pass-through rate
of the Principal Balance Certificates, as well as the difference between the
aggregate principal balance of the mortgage loans and the aggregate principal
balance of the Certificates. Accordingly, Excess Cash Flow may be reduced, and
the rate of growth of credit enhancement through overcollateralization may be
slowed, due to, among other things, variations in the difference between LIBOR
and the Indices for the mortgage loans in Loan Group 2, variations in the
interest rate adjustment dates and interest rate maximums for such mortgage
loans relative to those for the Class A-1V Certificates, differences in the
number of days for interest accrual periods for payments on mortgage loans and
Interest Accrual Periods for corresponding Distribution Dates for the Offered
Certificates, the existence of fixed-rate mortgage loans in Loan Group 1 with
Net Mortgage Interest Rates (as defined herein) that are below the weighted
average of the Pass-Through Rates for the Classes of Principal Balance
Certificates other than the Class A-1V Certificates (the "Fixed Rate
Certificates"), and net shortfalls in interest collected on Principal
Prepayments (as defined in this prospectus supplement) or late Balloon Payments.
Certain of the Adjustable Rate Mortgage Loans originally provided for an
index based on a prime rate or cost of funds quoted by a financial institution
that no longer exists, or another index that no longer exists. In those cases,
we have selected an index that we viewed as comparable. Such new index may
result in a mortgage rate that is higher or lower than would have been the case
with the previous index.
IMPACT OF MORTGAGE LOAN GRACE PERIODS
The Mortgage Loans have grace periods for monthly payments ranging from 0
to 30 days. In many of such cases, such grace periods run past the Determination
Date following the Due Period in which such monthly payment is due. If borrowers
pay at the end of such grace periods rather than on the due dates for such
monthly payments, the Primary Servicer (or Special Servicer, if it is a
Specially Serviced Mortgage Loan) will be required to make a P&I Advance for
such monthly payment (and monthly servicing reports will show significant P&I
Advances as a result) even though the borrower is not technically delinquent
under the terms of its mortgage loan and the mortgage loans will not be shown as
delinquent in such reports. To the extent such grace period runs past the date
on which the Primary Servicer or Special Servicer, as the case may be, must
remit funds (including P&I Advances) to the Master Servicer (which generally is
the business day preceding each Distribution Date) and borrowers pay at the end
of such grace period, then the Primary Servicer or Special Servicer, as
applicable, will be required to make such P&I Advances from their own funds.
However, no interest will accrue on such P&I Advances made by the Primary
Servicer until after the end of the related grace period.
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YIELD CONSIDERATIONS
The yield on any offered certificate will depend on (a) the price at which
such certificate is purchased by an investor and (b) the rate, timing and amount
of distributions on such certificate. The rate, timing and amount of
distributions on any offered certificate will, in turn, depend on, among other
things:
- the Pass-Through Rate for such certificate;
- the rate and timing of principal payments (including principal
prepayments) and other principal collections on or in respect of the
mortgage loans and the extent to which such amounts are to be applied
or otherwise result in a reduction of the Certificate Balance of the
class of certificates to which such certificate belongs;
- the rate, timing and severity of Realized Losses and Additional Trust
Fund Expenses and the extent to which such losses and expenses result
in the failure to pay interest on, or a reduction of the Certificate
Balance of, the class of certificates to which such certificate
belongs; and
- the timing and severity of any Net Aggregate Prepayment Interest
Shortfalls, and the extent to which such shortfalls are allocated in
reduction of the Distributable Certificate Interest payable on the
class of certificates to which such certificate belongs.
It is impossible to predict with certainty any of the factors described in
the preceding paragraph. Accordingly, investors may find it difficult to analyze
the effect that such factors might have on the yield to maturity of any class of
offered certificates. See "Description of the Mortgage Pool", "Description of
the Certificates -- Distributions" and "-- Subordination; Allocation of Losses
and Certain Expenses" and "Yield and Maturity Considerations" in this prospectus
supplement. See also "Yield and Maturity Considerations" in the accompanying
prospectus.
In general, in the case of any class of offered certificates purchased at a
premium, if principal payments on the mortgage loans occur at a rate faster than
anticipated at the time of purchase, then the investors' actual yield to
maturity will be lower than that assumed at the time of purchase. Conversely, in
the case of any class of offered certificates purchased at a discount, if
principal payments on the mortgage loans occur at a rate slower than anticipated
at the time of purchase, then the investors' actual yield to maturity will be
lower than that assumed at the time of purchase. Prepayment Premiums received on
mortgage loans will not be paid to holders of offered certificates, and
accordingly will not be available to offset any such reduction in yield.
PREPAYMENTS AND REPURCHASES
The yield to maturity on your certificates will depend, in significant
part, upon the rate and timing of principal payments on the mortgage loans. For
this purpose, principal payments include both voluntary prepayments, if
permitted, and involuntary prepayments, such as prepayments resulting from
casualty or condemnation, defaults and liquidations or repurchases upon breaches
of representations and warranties or conversion of adjustable rate loans to
fixed rate loans.
The investment performance of your certificates may vary materially and
adversely from your expectations if the actual rate of prepayment on the
mortgage loans is higher or lower than you anticipate.
With respect to 1,739 mortgage loans, representing approximately 72.1% of
the Initial Pool Balance, voluntary prepayments require payment of a Prepayment
Premium. We cannot assure you that the related borrowers will refrain from
prepaying their mortgage loans due to the existence of a prepayment premium.
Also, we cannot assure you that involuntary prepayments will not occur.
The rate at which voluntary prepayments occur on the mortgage loans will be
affected by a variety of factors, including:
- the terms of the mortgage loans;
- the level of prevailing interest rates;
- the availability of mortgage credit;
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- the applicable yield maintenance charges or prepayment
premiums;
- the Primary Servicer's, Master Servicer's or Special
Servicer's ability to enforce those charges or premiums;
- the occurrence of casualties or natural disasters; and
- economic, demographic, tax, legal or other factors.
No yield maintenance charge or prepayment premium will be required for
prepayments in connection with a casualty or condemnation unless, in the case of
most of the mortgage loans, an event of default has occurred and is continuing.
In addition, if the Mortgage Loan Seller repurchases any mortgage loan from the
trust due to breaches of representations or warranties, the repurchase price
paid will be passed through to the holders of the certificates with the same
effect as if the mortgage loan had been prepaid in part or in full, except that
no prepayment premium or yield maintenance charge would be payable. Such a
repurchase may therefore adversely affect the yield to maturity on your
certificates.
CONVERTIBLE LOANS
Approximately $126,424,304 of the adjustable rate mortgage loans,
representing 10.7% of the Initial Pool Balance, are convertible at the option of
the borrower into fixed rate loans. The Mortgage Loan Seller is required to
repurchase any such mortgage loan from the trust promptly after receipt of
notice of conversion. To the extent the Mortgage Loan Seller fails to fulfill
its obligation to repurchase such converted mortgage loan, the Trustee is
required to sell such mortgage loan. Although any conversion of any such
mortgage loan is generally to a then current market fixed rate, such sale could
be at a loss. In any event, any such repurchase or sale would be treated as the
equivalent of a prepayment, resulting in accelerated distribution of principal
on the Class A-1V Certificates.
BORROWER DEFAULT
The rate and timing of delinquencies or defaults on the mortgage loans will
affect:
- the aggregate amount of distributions on the offered
certificates;
- their yield to maturity;
- the rate of principal payments; and
- their weighted average life.
If losses on the mortgage loans exceed the aggregate principal amount of
the classes of certificates subordinated to a particular class, such class will
suffer a loss equal to the full amount of such excess (up to the outstanding
principal amount of such certificate).
If you calculate your anticipated yield based on assumed rates of defaults
and losses that are lower than the default rate and losses actually experienced
and such losses are allocable to your certificates, your actual yield to
maturity will be lower than the assumed yield. Under certain extreme scenarios,
such yield could be negative. In general, the earlier a loss borne by you on
your certificates occurs, the greater the effect on your yield to maturity.
Even if losses on the mortgage loans are not borne by your certificates,
those losses may affect the weighted average life and yield to maturity of your
certificates. This may be so because those losses lead to your certificates
having a higher percentage ownership interest in the trust and related
distributions of principal payments on the mortgage loans than would otherwise
have been the case. The effect on the weighted average life and yield to
maturity of your certificates will depend upon the characteristics of the
remaining mortgage loans.
Additionally, delinquencies and defaults on the mortgage loans may
significantly delay the receipt of distributions by you on your certificates,
unless P&I Advances are made to cover delinquent payments or the subordination
of another class of certificates fully offsets the effects of any such
delinquency or default.
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BANKRUPTCY PROCEEDINGS
Under the Bankruptcy Code, the filing of a petition in bankruptcy by or
against a borrower will stay the sale of the real property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, if a court determines that the value of the mortgaged property is
less than the principal balance of the mortgage loan it secures, the court may
prevent a lender from foreclosing on the mortgaged property (subject to certain
protections available to the lender). As part of a restructuring plan, a court
also may reduce the amount of secured indebtedness to the then-value of the
mortgaged property. Such an action would make the lender a general unsecured
creditor for the difference between the then-value and the amount of its
outstanding mortgage indebtedness. A bankruptcy court also may: (1) grant a
debtor a reasonable time to cure a payment default on a mortgage loan; (2)
reduce monthly payments due under a mortgage loan; (3) change the rate of
interest due on a mortgage loan; or (4) otherwise alter the mortgage loan's
repayment schedule.
Moreover, the filing of a petition in bankruptcy by, or on behalf of, a
junior lienholder may stay the senior lienholder from taking action to foreclose
on the junior lien. Additionally, the borrower's trustee or the borrower, as
debtor-in-possession, has certain special powers to avoid, subordinate or
disallow debts. In certain circumstances, the claims of the trustee may be
subordinated to financing obtained by a debtor-in-possession subsequent to its
bankruptcy.
Under the Bankruptcy Code, the lender will be stayed from enforcing a
borrower's assignment of rents and leases. While the mortgage loans generally do
not require lockbox arrangements, we note that in the relatively few cases where
such arrangements may be present, the Bankruptcy Code also may interfere with
the Trustee's ability to enforce lockbox requirements. The legal proceedings
necessary to resolve these issues can be time consuming and may significantly
delay the receipt of rents. Rents also may escape an assignment to the extent
they are used by the borrower to maintain the mortgaged property or for other
court authorized expenses.
As a result of the foregoing, the Trustee's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the
aggregate amount ultimately collected may be substantially less than the amount
owed. It is possible that some borrowers may be in bankruptcy now and the
current bankruptcy status of borrowers is unknown.
ADVANCE INTEREST AND OTHER PAYMENTS
To the extent described in this prospectus supplement, the Master Servicer,
the Primary Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, will be entitled to receive interest on unreimbursed Advances. This
interest will generally accrue from the date on which the related Advance is
made through the date of reimbursement. In addition, under certain
circumstances, including delinquencies in the payment of principal and interest,
a mortgage loan will be specially serviced and the Special Servicer will be
entitled to compensation for special servicing activities. The right to receive
interest on Advances or special servicing compensation is senior to the rights
of certificateholders to receive distributions on the offered certificates. The
payment of interest on Advances and the payment of compensation to the Special
Servicer may lead to shortfalls in amounts otherwise distributable on your
certificates.
LIMITED LIQUIDITY AND MARKET VALUE
Your certificates will not be listed on any securities exchange or traded
on the NASDAQ Stock Market, and there is currently no secondary market for your
certificates. While the Underwriter currently intends to make a secondary market
in the offered certificates, it is not obligated to do so. Accordingly, you may
not have an active or liquid secondary market for your certificates. Lack of
liquidity could result in a substantial decrease in the market value of your
certificates. Many other factors may affect the market value of your
certificates including the then-prevailing interest rates.
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SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As described in this prospectus supplement, unless your certificates are
Fixed Rate Senior Certificates or Class A-1V Certificates, your rights 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 offered
certificates with an earlier alphabetical designation.
YEAR 2000 DISRUPTIONS
If the Primary Servicer, the Master Servicer, the Special Servicer, the
Trustee or DTC do not have by the year 2000 computerized systems which are year
2000 compliant, the resulting disruptions in the collection or distribution of
receipts or the mortgage loans could materially and adversely affect your
investment. Replacement of the Primary Servicer the Master Servicer, the Special
Servicer or the Trustee could lead to additional payment delays on the
Certificates during any transition period.
The Primary Servicer. The Primary Servicer and its ultimate corporate
parent, Bank of America Corporation (the "Corporation"), like all financial
institutions, are faced with the challenge of correctly stating and processing
data containing dates from the Year 2000 and beyond, i.e. becoming Year 2000
ready. Computers programmed with a two-digit field for identifying the year
interpret "98" as "1998" but may interpret "00" as "1900" rather than "2000." If
not remedied, this problem could create system errors and failures resulting in
the disruption of normal business operations. The Corporation has established
project teams to address these Year 2000 issues. For additional information on
the Corporation's Year 2000 remediation efforts, readers of this Prospectus
Supplement are referred to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998, which is incorporated herein by reference, and any
subsequent reports filed by the Corporation under the Securities Exchange Act of
1934, as amended.
The Primary Servicer and its major vendors of mortgage servicing software
are preparing contingency plans which will be implemented, if required, to
minimize interruptions to mortgage servicing operations. However, due to the
size and complexity of some systems, some of which are provided by outside
vendors, and the necessity for these systems to interface correctly, both within
and outside the Primary Servicer, there is the possibility that some systems may
not handle date-related data correctly after January 1, 2000. Nevertheless,
based on their efforts and those of their major vendors and the information
available to date, and assuming the continued availability to the Primary
Servicer and to their significant vendors of staff and other technical resources
and no unexpected difficulty in implementing system enhancements, the Primary
Servicer believes that it will not incur significant operational disruptions to
mortgage servicing operations as a result of the Year 2000 problem. The Primary
Servicer has made its mission-critical mortgage servicing systems Year 2000
ready, and expects the mission critical systems provided by vendors will be Year
2000 ready before January 1, 2000. However, the Primary Servicer is heavily
dependent on its outside vendors and the systems of third parties. There can be
no assurance that the systems of third parties with which the Primary Servicer
deals will be timely converted. Likewise, the Primary Servicer does not have the
same ability to monitor and control their outside vendors as it has for its
internal systems.
Trustee. The Trustee has informed the Depositor that it will use
commercially reasonable efforts to (i) make the computer hardware and software
owned by the Trustee and used to provide its services under the pooling
agreement Year 2000 ready before December 31, 1999, (ii) test software that the
Trustee licenses from third parties to provide services under the pooling
agreement and subject to certain conditions, if any such software is not Year
2000 ready by September 30, 1999, obtain replacement software that is warranted
by its vendor as Year 2000 ready and (iii) contact third party service providers
that the Trustee may use to provide services under the pooling agreement to
obtain assurances from them that the computer hardware and software used to
provide services under the pooling agreement are Year 2000 ready. However, there
can be no assurance that the systems of the Trustee or third parties with which
the Trustee deals will be Year 2000 ready.
If the Primary Servicer or any of its vendors or third party service
providers is not Year 2000 ready, that Servicer most likely will not be able to
process payments on the mortgage loans on a timely basis or accurately. These
problems could lead to payment delays on the certificates and could constitute
an event of default under
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the pooling agreement. For the remedies available upon the occurrence of an
event of default, see "The Pooling and Servicing Agreement -- Rights Upon Event
of Default" in the accompanying prospectus.
If the Trustee or any of its vendors or third party service providers is
not Year 2000 ready, the Trustee may not be able to make timely or accurate
payments to certificateholders. The pooling agreement provides that the holders
of Certificates evidencing at least 50% of the voting rights have the right to
remove the Trustee by providing written notice to the Servicers and the Trustee.
DTC. With respect to year 2000 issues, DTC has informed members of the
financial community that it has developed and is implementing a program so that
its systems, as they relate to the timely payment of distributions, including
principal and interest payments, to security holders, book-entry deliveries, and
settlement of trades within DTC, continue to function appropriately on and after
January 1, 2000. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, its participating
organizations, through which Certificateholders will hold their Certificates, as
well as the computer systems of third party service providers. DTC has informed
the financial community that it is contacting, and will continue to contact,
third party vendors from whom DTC acquires services to: (1) impress upon them
the importance of these services being year 2000 compliant; and (2) determine
the extent of their efforts for year 2000 remediation, and, as appropriate,
testing, of their services. In addition, DTC has stated that it is in the
process of developing these contingency plans as it deems appropriate.
If problems associated with the Year 2000 issue were to occur with respect
to DTC and the services described above, payment to Certificateholders could be
delayed or otherwise adversely affected.
The forward-looking statements contained in this Year 2000 discussion
should be read in conjunction with the continuing statement included in the
fourth italicized paragraph on page S-21 of this prospectus supplement.
RISKS RELATED TO THE MORTGAGE LOANS
NO MORTGAGE ASSIGNMENTS UNTIL RECORDATION EVENT
Under the terms of the pooling agreement, during the period that the
Certificates are outstanding and so long as the long-term deposits of the
Mortgage Loan Seller or its successor in interest are rated at least "Aa3" by
Moody's and "AA-" by Fitch, assignments of the mortgages in favor of the Trustee
will not be prepared or recorded, nor will mortgage documents other than the
mortgage notes be delivered to the Trustee. The failure to record assignments of
the mortgages in favor of the Trustee in many states in which the mortgaged
properties are located will have the result of making the sale of the mortgage
loans potentially ineffective against:
- any creditors of the Mortgage Loan Seller or the Depositor
who may have been fraudulently or inadvertently induced to
rely on the mortgage loans as assets of the Mortgage Loan
Seller or the Depositors, or
- any purchaser (in the event the Mortgage Loan Seller or the Depositor
fraudulently or inadvertently sells a mortgage loan to a purchaser)
who had no notice of the prior sale to the Trust and such purchaser
takes possession of the mortgage.
If the rating of the long-term deposits of Bank of America NT&SA or its
successor in interest does not satisfy the above-described conditions,
assignments of the mortgages in favor of the Trustee will be required to be
prepared and recorded, and the remaining key documents in the mortgage file will
be required to be delivered to the Trustee.
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NATURE OF THE MORTGAGED PROPERTIES
Substantially all of the mortgage loans are "seasoned" mortgage loans,
having been outstanding between 6 months and 310 months. The weighted average
that the term the mortgage loans have been outstanding is 50 months. While
seasoned mortgage loans have the benefit of established payment histories, there
are a number of risks associated with seasoned mortgage loans that are not
present, or present to a lesser degree, with more recently-originated mortgage
loans. For example:
- property values and the surrounding neighborhood may have
changed dramatically since origination;
- for most properties, no recent site inspections have been
conducted to verify the condition of the mortgaged property;
- origination standards may have been significantly different;
- the market for any related businesses may have changed
significantly from the time the mortgage loan was originated;
- the current financial performance of the related borrower,
its business, or the related mortgaged property in general,
may be significantly different than at origination, and debt
service coverage ratios and tests established at origination
may no longer be meaningful.
Among other things, such factors make it difficult to estimate the current
value on the related mortgaged property, and estimated values of mortgaged
properties discussed in this prospectus supplement, to the extent based upon or
extrapolated from general market data, may not be accurate in the case of
particular mortgaged properties.
Further, some of the mortgage loans have experienced delinquencies, or been
modified, since origination and accordingly have not been current during the
full seasoning term.
The mortgaged properties consist solely of multifamily rental and
commercial properties. Commercial and multifamily lending is generally viewed as
exposing a lender to a greater risk of loss than lending on the security of one-
to four-family residences. This is because multifamily and commercial real
estate lending usually involves larger loans, and repayment is typically
dependent upon the successful operation of the related real estate project.
A large number of factors may adversely affect the net operating income and
property value of the mortgaged properties. Some of these factors relate to the
property itself, such as:
- the age, design and construction quality of the property;
- perceptions regarding the safety, convenience and
attractiveness of the property;
- the proximity and attractiveness of competing properties;
- the adequacy of the property's management and maintenance;
- increases in operating expenses;
- an increase in the capital expenditures needed to maintain
the property or make improvements;
- a decline in the financial condition of a major tenant;
- an increase in vacancy rates; and
- a decline in rental rates as leases are renewed or entered
into with new tenants.
Operation of a multifamily or commercial property may also be affected by
circumstances outside the control of the borrower or lender, such as the quality
or stability of the surrounding neighborhood, the development of competing
projects or businesses, maintenance expenses (such as energy costs), and changes
in laws (such as the imposition of rent control or stabilization laws and the
imposition of lead paint remediation laws in the case of multifamily rental
properties, changes in the tax laws and retroactive changes
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in building codes). If the cash flow from a particular property is reduced (for
example, if leases are not obtained or renewed, if tenant defaults increase or
rental rates decline or, in the case of a property occupied by its owner, if the
owner's business declines), the borrower's ability to repay the loan may be
impaired and the resale value of the particular property may decline.
The borrowers' income would be adversely affected if tenants were unable to
pay rent, if space were unable to be rented on favorable terms or at all, or if
a significant tenant were to become a debtor in a bankruptcy case under the
United States Bankruptcy Code. For example, if any borrower were to relate or
renew the existing leases at rental rates significantly lower than expected
rates, then such lower rates would adversely affect borrower's funds from
operations. Changes in payment patterns by tenants may result from a variety of
social, legal and economic factors, such as the rate of inflation and
unemployment levels and may be reflected in the rental rates offered for
comparable space. In addition, upon reletting or renewing existing leases at
commercial properties, borrowers will likely be required to pay leasing
commissions and tenant improvement costs which may adversely affect cash flow
from the mortgaged property. The mortgage loans related to multifamily
properties generally do not require reserves for tenant improvements or leasing
commissions. See "Description of the Mortgage Pool -- Additional Mortgage Loan
Information -- Tenant Matters" herein.
Commercial properties represent security for 84.5% of the Initial Pool
Balance. Lending on commercial properties is generally perceived as involving
greater risk than lending on the security of multifamily residential properties,
and certain types of commercial properties are exposed to particular kinds of
risks. See "-- Risks Particular to Office Properties", "-- Risks Particular to
Retail Properties", "-- Risks Particular to Multifamily Properties", "-- Risks
Particular to Restaurants", "-- Risks Particular to Mobile Home Park
Properties", "-- Risks Particular to Mini-Storage Facilities", "-- Risks
Particular to Hotels" and "-- Risks Particular to Senior Housing/Health Care
properties" below.
MANAGEMENT
The successful operation of a real estate project is dependent on the
performance and viability of the property manager of such project, which for
most of the mortgaged properties, is the related borrower or principals of the
related borrower. The property manager is responsible for responding to changes
in the local market, planning and implementing the rental structure or the
business plan, as the case may be, and ensuring that maintenance and capital
improvements can be carried out in a timely fashion. Accordingly, by controlling
costs, providing appropriate service to tenants and seeing to the maintenance of
improvements, sound property management can improve occupancy rates/business and
cash flow, reduce operating and repair costs and preserve building value. On the
other hand, management errors can, in some cases, impair the long term viability
of a real estate project.
BALLOON PAYMENTS
Mortgage loans which represent 67.3% of the Initial Pool Balance will have
substantial payments, each generally calculated to be greater than twice the
Monthly Payment ("Balloon Payments"), due at their respective stated maturities,
in each case unless the mortgage loan is previously prepaid.
Mortgage loans with Balloon Payments involve a greater risk to the lender
than fully 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 at a price sufficient to permit the
borrower to make the Balloon Payment. Circumstances that will affect the ability
of the borrower at the time of attempted sale or refinancing include:
- the level of available mortgage rates;
- the fair market value of the property;
- the borrower's equity in the related property;
- the financial condition of the borrower and operating history
of the property;
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- tax laws;
- prevailing economic conditions; and
- the availability of credit for multifamily or commercial
properties, as the case may be.
See "Description of the Mortgage Pool -- Certain Terms and Conditions of
the Mortgage Loans" and "-- Additional Mortgage Loan Information" herein and
"Risk Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of
the Mortgage Loans -- Increased Risk of Default Associated with Balloon
Payments" in the accompanying prospectus.
We cannot assure you that any of the related borrowers will have the
ability to make their required Balloon Payments. In addition, we note that some
or all of the Modified Loans (as described below) may have been modified due to
the inability of the related borrowers to make the balloon payment due at the
original scheduled maturity date for such loan.
MODIFIED LOANS
We are aware that, as of the Cut-off Date, 151 of the mortgage loans,
representing approximately 5.2% of the Initial Pool Balance, were materially
Modified Loans. "Modified Loans" include any mortgage loan for which the basic
terms (including, without limitation, interest rate, maturity date, collateral
or guarantee) have been materially modified since origination for reasons which
may include an actual or anticipated delinquency or default, as well as mortgage
loans that had balloon payments that were delinquent or anticipated to become
delinquent yet were nonetheless extended and renewed at current market terms
(i.e., a then-current market interest rate consistent with the collateral,
maturity date and other terms of the mortgage loan). Other mortgage loans may
have experienced material modifications of which we are unaware.
RISKS PARTICULAR TO OFFICE PROPERTIES
Office properties secure 737 of the mortgage loans, representing
approximately 25.2% of the Initial Pool Balance.
A large number of factors may adversely affect the value of office
properties, including:
- the quality of an office building's tenants;
- the physical attributes of the building in relation to
competing buildings (e.g., age, condition, design, access to
transportation and ability to offer certain amenities, such
as sophisticated building systems);
- the desirability of the area as a business location; and
- the strength and nature of the local economy (including
labor costs and quality, tax environment and quality of life
for employees).
In addition, there may be significant costs associated with tenant
improvements and concessions in connection with reletting office space.
Moreover, the cost of refitting office space for a new tenant is often higher
than the cost of refitting other types of property.
RISKS PARTICULAR TO RETAIL PROPERTIES
Retail properties secure 413 of the mortgage loans, representing 14.4% of
the Initial Pool Balance. These properties include single tenant rental,
anchored and non-anchored properties.
Several factors may adversely affect the value and successful operation of
a retail property, including:
- changes in consumer spending patterns, local competitive
conditions (such as the supply of retail space or the
existence or construction of new competitive shopping
centers or shopping malls);
- alternative forms of retailing (such as direct mail, video
shopping networks and internet web sites which reduce the
need for retail space by retail companies);
- the quality and philosophy of management;
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- the attractiveness of the property to tenants and their
customers or clients;
- the public perception of the safety of customers at shopping
malls and shopping centers; and
- the need to make major repairs or improvements to satisfy
the needs of major tenants.
The general strength of retail sales also directly affects retail
properties. The retailing industry is currently undergoing consolidation due to
many factors, including growth in discount and alternative forms of retailing.
If the sales by tenants in the mortgaged properties that contain retail space
were to decline, the rents that are based on a percentage of revenues may also
decline, and tenants may be unable to pay the fixed portion of their rents or
other occupancy costs. The cessation of business by a significant tenant can
adversely affect a retail property, not only because of rent and other factors
specific to such tenant, but also because significant tenants at a retail
property play an important part in generating customer traffic and making a
retail property a desirable location for other tenants at such property. In
addition, certain tenants at retail properties may be entitled to terminate
their leases if an anchor tenant fails to renew or terminates its lease, becomes
the subject of a bankruptcy proceeding or ceases operations at such property.
RISKS PARTICULAR TO MULTIFAMILY PROPERTIES
Multifamily properties secure 374 of the mortgage loans, representing 14.0%
of the Initial Pool Balance.
Several factors may adversely affect the value and successful operation of
a multifamily property, including:
- the physical attributes of the apartment building (e.g., its
age, appearance and construction quality);
- the location of the property (e.g., a change in the
neighborhood over time);
- the ability of management to provide adequate maintenance
and insurance;
- the types of services the property provides;
- the property's reputation;
- the level of mortgage interest rates (which may encourage
tenants to purchase rather than lease housing);
- the presence of competing properties;
- adverse local or national economic conditions; and
- state and local regulations.
RISKS PARTICULAR TO RESTAURANTS
Properties operated as restaurants secure 69 of the mortgage loans,
representing approximately 1.6% of the Initial Pool Balance. A portion of these
restaurants are franchise restaurants. Restaurant franchises are subject to
various risks which may be in addition to those associated with other retail
establishments. Franchise agreements typically were not assigned as collateral
and in any event do not contain provisions protective of lenders. Often, a
borrower's rights as franchisee may be terminated without informing the lender,
and the borrower may be precluded from competing with the franchisor upon
termination. In addition, a lender that acquires title to a restaurant site
through foreclosure or similar proceedings may be restricted in the use of such
site or may be unable to succeed to the rights of the franchisee under the
related franchise agreement. The transferability of a franchise agreement
otherwise may be restricted, and federal and state franchise regulations may
impose additional risks (including the risk that the transfer of a franchise
acquired through foreclosure or similar proceedings may require registration
with governmental authorities or disclosure to prospective transferees).
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RISKS PARTICULAR TO MOBILE HOME PARK PROPERTIES
Mobile home park properties secure 20 of the mortgage loans representing
1.5% of the Initial Pool Balance. Significant factors determining the value of
mobile home properties are generally similar to the factors affecting the value
of multifamily residential properties. In addition, the mobile home properties
are special purpose properties that could not be readily converted to general
residential, retail or office use. In fact, certain states also regulate changes
in mobile home park use and require that the landlord give written notice to its
tenants a substantial period of time prior to the projected change.
Consequently, if the operation of any of the mobile home properties becomes
unprofitable such that the borrower becomes unable to meet its obligation on the
related mortgage loan, the liquidation value of that mobile home property may be
substantially less, relative to the amount owing on the mortgage loan, than
would be the case if the mobile home property were readily adaptable to other
uses.
RISKS PARTICULAR TO MINI-STORAGE FACILITIES
Properties operated as mini-storage facilities secure 19 of the mortgage
loans, representing security for approximately 0.9% of the Initial Pool Balance.
Mini-storage (or self-storage) properties are considered vulnerable to
competition, because both acquisition costs and break-even occupancy are
relatively low. The conversion of mini-storage facilities to alternative uses
generally requires substantial capital expenditures. Thus, if the operation of
any of the mini-storage mortgaged properties becomes unprofitable such that the
borrower becomes unable to meet its obligations on the related mortgage loan,
the liquidation value of that mini-storage mortgaged property may be
substantially less, relative to the amount owning on the mortgage loan, than
would be the case if the mini-storage mortgaged property were readily adaptable
to other uses. Tenant privacy, anonymity and efficient access may heighten
environmental risks. No environmental assessment of a mortgaged property
included an inspection of the contents of the self-storage units included in the
self-storage mortgaged properties. We cannot assure you that all of the units
included in the mini-storage mortgaged properties are free from hazardous
substances, or that they will remain so in the future.
RISKS PARTICULAR TO HOTELS
Properties operated as hotels secure 9 of the mortgage loans, representing
approximately 0.5% of the Initial Pool Balance.
Various factors may adversely affect the economic performance of a hotel,
including:
- adverse economic and social conditions, either local,
regional or national (which may limit the amount that can be
charged for a room and reduce occupancy levels);
- the construction of competing hotels or resorts;
- continuing expenditures for modernizing, refurbishing, and
maintaining existing facilities prior to the expiration of
their anticipated useful lives;
- a deterioration in the financial strength or managerial
capabilities of the owner and operator of a hotel; and
- changes in travel patterns caused by changes in access,
energy prices, strikes, relocation of highways, the
construction of additional highways or other factors.
Because hotel rooms generally are rented for short periods of time, hotel
properties tend to respond more quickly to adverse economic conditions and
competition than do other commercial properties. In addition, the franchise
license may be owned by an entity operating the hotel and not the borrower or,
if the franchise license is owned by the borrower, the transferability of the
related franchise license agreement may be restricted. We do not believe that
franchise rights have typically been assigned as collateral for the mortgage
loans, and you should assume that in the event of a foreclosure on a hotel
property, the mortgagee will not have the right to use the franchise license
without the franchisor's consent. Furthermore, the ability of a hotel to attract
customers, and some of such hotel's revenues, may depend in large part on its
having a liquor license. Such a license may not be transferable.
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RISKS PARTICULAR TO SENIOR HOUSING/HEALTH CARE PROPERTIES
Properties operated as skilled nursing facilities or assisted living
facilities secure 3 of the mortgage loans, which represent approximately 0.02%
of the Initial Pool Balance. 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. To the extent dependent on patients whose fees are reimbursed by
private insurers, such providers are also subject 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). A failure to be licensed also
could bar it from participation in government reimbursement programs. In the
event of foreclosure, we cannot assure you that the Trustee (or Master Servicer
or Special Servicer) or purchaser in a foreclosure sale would be entitled to the
rights under such licenses. Such party may have to apply in its own right for
such a license, and we cannot assure you 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, we cannot predict whether payments under government reimbursement
programs will be sufficient to fully reimburse the cost of caring for program
beneficiaries. Any such insufficiency could adversely affect the 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.
RISKS OF SUBORDINATE FINANCING
We do not know whether any of the mortgaged properties are presently
encumbered by subordinate debt, and we also do not know whether any of the
mortgage loans permit or prohibit the related mortgagor from incurring such
subordinate debt in the future. The existence of subordinated indebtedness
encumbering a mortgaged property 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, in the event that the holder of the
subordinated debt files for bankruptcy or is placed in involuntary receivership,
foreclosure on the mortgaged property could be delayed. Regardless of whether
the terms of a mortgage loan prohibit the incurrence of subordinate debt, the
related borrower may be permitted to incur additional indebtedness secured by
furniture, fixtures and equipment, and to incur additional unsecured
indebtedness. See "Certain Legal Aspects of Mortgage Loans -- Subordinate
Financing" in the accompanying prospectus.
RECOURSE CONSIDERATIONS
Substantially all of the mortgage loans, representing approximately 99.0%
of the Initial Pool Balance, are recourse to assets of the related borrower in
addition to the related mortgage property. However, even though such recourse to
a borrower is permitted by the loan documents, the Depositor has not undertaken
any current evaluation of the financial condition of such person.
RISKS RELATED TO ANNUAL OPERATING STATEMENTS
Commencing in 2000, with respect to each mortgage loan having a
then-current balance of greater than $1,000,000 that requires the borrower to
deliver annual operating statements with respect to the related mortgaged
property, the Primary Servicer or the Special Servicer, depending on which is
obligated to service
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such mortgage loan, is also required to make reasonable efforts to collect and
review such statements. For mortgage loans having a balance between $250,000 and
$999,999.99, the Primary Servicer or the Special Servicer will be required to
make reasonable efforts to collect such statements. However, there can be no
assurance that any operating statements required to be delivered will in fact be
so delivered, nor is the Primary Servicer or the Special Servicer likely to have
any practical means of compelling such delivery in the case of an otherwise
performing mortgage loan.
ENVIRONMENTAL CONSIDERATIONS
The Mortgage Loan Seller will represent and warrant in the pooling
agreement with respect to each mortgaged property that there are no material
adverse environmental conditions existing at such mortgaged property at the
Delivery Date. Any breach of such warranty will result in an obligation to
repurchase the affected mortgage loans, subject to a cure right as described
under "-- Representations and Warranties; Repurchases". Although we are not
aware of any such material adverse environmental conditions at the Delivery
Date, we otherwise cannot assure you that no such conditions that would create a
repurchase obligation exist. Most of the mortgage loans are seasoned loans
originated during a time when it was not common practice for the originator of
such loans to conduct environmental assessments in connection with the
origination of mortgage loans.
LEASEHOLD RISKS
Twenty-seven mortgage loans, representing approximately 0.9% of the Initial
Pool Balance, are secured by a mortgage on a ground lease. Leasehold mortgages
are subject to certain risks not associated with mortgage loans secured by the
fee estate of the mortgagor. The most significant of these risks is that the
ground lease may terminate if, among other reasons, the ground lessee breaches
or defaults in its obligations under the ground lease or there is a bankruptcy
of the ground lessee or the ground lessor. Accordingly, a leasehold mortgagee
may lose the collateral securing its leasehold mortgage. In addition, although
the consent of the ground lessor generally will not be required for foreclosure,
the terms and conditions of a leasehold mortgage are subject to the terms and
conditions of the ground lease, and the rights of a ground lessee or a leasehold
mortgagee with respect to, among other things, insurance, casualty and
condemnation will be governed by the provisions of the ground lease.
ZONING AND BUILDING CODE COMPLIANCE
The Mortgage Loan Seller has not examined whether the use and operation of
the related mortgaged properties were in compliance with all applicable zoning,
land-use, environmental, building, fire and health ordinances, rules,
regulations and orders applicable to such mortgaged properties at the time such
mortgage loans were originated.
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. Among other things, the
independent contractor would not be permitted to perform construction work on
the mortgaged property unless such construction generally was at least 10%
complete at the time default on the related mortgage loan becomes imminent. In
addition, any net income from such operation and management, other than
qualifying "rents from real property" (as defined in Section 856(d) of the
Internal Revenue Code of 1986, as amended (the "Code")), 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 to distribution to Certificateholders.
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LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION
A mortgage loan may or may not be cross-collateralized with one or more
other mortgage loans, including mortgage loans outside the mortgage pool.
Cross-collateralization arrangements seek to reduce the risk that the inability
of one or more of the mortgaged properties securing any such set of
cross-collateralized mortgage loans (or any such mortgage loan with multiple
mortgaged properties) to generate net operating income sufficient to pay debt
service will result in defaults and ultimate losses. In addition, one or more of
the related Mortgaged Properties for certain sets of related
cross-collateralized mortgage loans may be released from the lien of the
applicable mortgage under the circumstances described under "Description of the
Mortgage Pool -- Certain Terms and Conditions of the Mortgage Loans."
Certain related cross-collateralized mortgage loans have different
borrowers. Cross-collateralization arrangements involving more than one borrower
could be challenged as fraudulent conveyances by creditors of the related
borrower in an action brought outside a bankruptcy case or, if such borrower
were to become a debtor in a bankruptcy case, by the borrower's representative.
A lien granted by such a borrower entity could be avoided as a fraudulent
conveyance if a court were to determine that:
(1) such borrower was insolvent when granted the lien, was rendered
insolvent by the granting of the lien or was left with inadequate capital,
or was not able to pay its debts as they came due; and
(2) such borrower did not receive fair consideration or reasonably
equivalent value when it allowed its mortgaged property or properties to be
encumbered by a lien securing the entire indebtedness.
Among other things, a legal challenge to the granting of the liens may
focus on the benefits realized by such borrower from the respective mortgage
loan proceeds, as well as the overall cross-collateralization. If a court were
to conclude that the granting of the liens was an avoidable fraudulent
conveyance, that court could
- subordinate all or part of the pertinent mortgage loan to existing
or future indebtedness of that borrower;
- recover payments made under that mortgage loan; or
- take other actions detrimental to the holders of the certificates,
including, under certain circumstances, invalidating the mortgage
loan or the mortgages securing such cross-collateralization.
The Mortgage Loan Seller will represent and warrant in the pooling
agreement that to the best of its knowledge, no mortgage loan in the mortgage
pool is cross-collateralized with a mortgage loan that is outside the mortgage
pool. If this representation is breached, the Mortgage Loan Seller will
repurchase such mortgage loan if the cross-collateralization arrangement cannot
be released or otherwise avoided.
RELATED PARTIES
Certain groups of borrowers under the mortgage loans may be affiliated or
under common control with one another. We know that the primary borrowers with
respect to 131 groups of mortgage loans, with no single group representing more
than approximately 0.4% of the Initial Pool Balance, have the same social
security or tax identification number. We are unable to determine whether there
are other affiliations, but you should consider that tenants in certain
mortgaged properties also may be tenants in other mortgaged properties, and
certain tenants may be owned by affiliates of the borrowers or otherwise related
to or affiliated with a borrower. There may also be several cases in which a
particular entity is a tenant at multiple mortgaged properties, and although it
may not be a Major Tenant at any such property, it may be significant to the
success of such properties.
In such circumstances, any adverse circumstances relating to a borrower or
tenant or a respective affiliate and affecting one of the related mortgage loans
or mortgaged properties could arise in connection with the other related
mortgage loans or mortgaged properties. In particular, the bankruptcy or
insolvency of any such borrower or tenant or respective affiliate could have an
adverse effect on the operation of all of the related
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mortgaged properties and on the ability of such related mortgaged properties to
produce sufficient cash flow to make required payments on the related mortgage
loans. For example, if a person that owns or directly or indirectly controls
several mortgaged properties experiences financial difficulty at one mortgaged
property, it could defer maintenance at one or more other mortgaged properties
in order to satisfy current expenses with respect to the mortgaged property
experiencing financial difficulty. It could also attempt to avert foreclosure by
filing a bankruptcy petition that might have the effect of interrupting Monthly
Payments for an indefinite period on all the related mortgage loans. See
"Certain Legal Aspects of Mortgage Loans -- Bankruptcy Laws" in the accompanying
prospectus.
In addition, a number of the borrowers under the mortgage loans are limited
or general partnerships. Under certain circumstances, the bankruptcy of the
general partner in a partnership may result in the dissolution of such
partnership. The dissolution of a borrower partnership, the winding-up of its
affairs and the distribution of its assets could result in an acceleration of
its payment obligations under the related mortgage loan.
GEOGRAPHIC CONCENTRATION
A concentration of mortgaged properties in a particular state or region
increases the exposure of the mortgage pool to any adverse economic developments
that may occur in such state or region, conditions in the real estate market
where the mortgaged properties securing the related mortgage loans are located,
changes in governmental rules and fiscal polices, acts of nature, including
floods, tornadoes and earthquakes (which may result in uninsured losses), and
other factors which are beyond the control of the borrowers. In this regard:
- 1,814 of the mortgage loans, which constitute security for
63.9% of the Initial Pool Balance, are located in California.
- 471 of the mortgage loans, which constitute security for
18.0% of the Initial Pool Balance, are located in Washington.
- 140 of the mortgage loans, which constitute security for 6.0%
of the Initial Pool Balance, are located in Nevada.
- 149 of the mortgage loans, which constitute security for 5.3%
of the Initial Pool Balance, are located in Oregon.
No more than 17.6% of Initial Pool Balance is secured by mortgaged loans
located in any particular county in California.
CHANGES IN CONCENTRATIONS
As payments in respect of principal (including payments in the form of
voluntary principal prepayments, Liquidation Proceeds and the repurchase prices
for any mortgage loans repurchased due to breaches of representations or
warranties) 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 borrowers and
affiliated borrowers and geographic location. Because principal on the Principal
Balance Certificates is initially payable first to the Senior Certificates, the
Subordinate Certificates are relatively more likely to be exposed to any risks
associated with changes in concentrations.
SEISMIC RISKS
The mortgaged properties relating to 1,814 of the mortgage loans,
representing 63.9% of the Initial Pool Balance, are located in California. In
general, the mortgage loans do not require earthquake insurance. Accordingly,
the occurrence of an earthquake in California could result in losses for which
there would be no insurance or other form of recovery. Although seismic
evaluations generally were not conducted in connection with the origination of
the mortgage loans, the Mortgage Loan Seller commissioned a review, the
conclusions of which are summarized under "Description of the Mortgage
Pool -- Certain Underwriting Matters -- Seismic Reviews." See also "Description
of the Mortgage Pool -- Certain Underwriting Matters -- Hazard, Liability and
Other Insurance."
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<PAGE> 39
PREPAYMENT PREMIUMS
Most of the mortgage loans do not effectively prohibit principal
prepayments either because they do not contain any prohibition or because the
related Lock-Out Period has expired. However, 1,739 of the mortgage loans,
representing 72.1% of the Initial Pool Balance, require that any voluntary
principal prepayment be accompanied by a Prepayment Premium. The formulas for
determining the applicable Prepayment Premium differ widely among the mortgage
loans. See "Description of the Mortgage Pool -- Certain Terms and Conditions of
the Mortgage Loans -- Prepayment Provisions" in this prospectus supplement.
Prepayment Premiums actually collected on the mortgage loans will be distributed
solely to the holders of the Class P Certificates and will not be distributed to
holders of the Offered Certificates.
See "Servicing of the Mortgage Loans -- Modifications, Waivers, Amendments
and Consents" herein and "Certain Legal Aspects of Mortgage Loans -- Default
Interest and Limitations on Prepayments" in the Prospectus. See "Description of
the Mortgage Pool -- Assignment of the Mortgage Loans; Repurchases" and
"-- Representations and Warranties; Repurchases", "Servicing of the Mortgage
Loans -- Sale of Defaulted Mortgage Loans" and "Description of the
Certificates -- Termination" in this prospectus supplement.
LIMITED INFORMATION
The information set forth in this prospectus supplement with respect to the
mortgage loans is derived principally from one or more of the following sources:
- A partial review of the available credit and legal files
relating to the mortgage loans.
- Inspections of the mortgaged properties undertaken by or on
behalf of the originators of the mortgage loans, and
inspections of a sampling of the mortgaged properties
conducted on behalf of the Mortgage Loan Seller.
- Appraisals of the mortgaged properties that generally were
performed at origination or other source documents or
information provided by the Mortgage Loan Seller (appraisal
values and compilations based on appraisals used in this
prospectus supplement are based on such appraisals,
documents and/or information).
- Information supplied by entities from which the Mortgage
Loan Seller acquired, or which currently service, certain of
the mortgage loans.
- Broker price opinions.
Because the mortgage loans are seasoned loans, the information from many of
these sources may be out of date and we cannot assure you that it is accurate or
complete with respect to the mortgage loans as they exist on the date hereof. We
note that delinquency data on the mortgage loans has been compiled only since
approximately September 30, 1997. Further, due to the large number of mortgage
loans and small principal amount of any particular mortgage loan, the Mortgage
Loan Seller has not performed a complete review of the files relating to the
mortgage loans. In addition, with only very limited exceptions, the Mortgage
Loan Seller has not undertaken any inspection or other form of assessment of any
mortgaged property. In particular, it has made no attempt to determine whether
any mortgaged property is in compliance with applicable laws or whether there
are any conditions existing or potentially existing with respect to any borrower
or mortgaged property that may give rise to tax, mechanics or other liens which
may be superior to the lien of the related mortgage.
As described in this prospectus supplement under "Representations and
Warranties; Repurchases," the Mortgage Loan Seller will make certain
representations and warranties about the mortgage loans. While the Mortgage Loan
Seller has no reason to believe that there is a breach of representations or
warranties with respect to any mortgage loans, or that information in this
prospectus supplement with respect to such mortgage loans is incorrect, a more
complete review of mortgage files might have revealed such a breach or
inaccuracy. Any material breach of representation or warranty, if not cured by
the Mortgage Loan Seller, may be required to be repurchased by the Mortgage Loan
Seller, having the same impact on certificateholders as a prepayment.
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<PAGE> 40
LITIGATION
Certain borrowers and the principals of certain borrowers may have been
involved in bankruptcy or similar proceedings or have otherwise been parties to
real estate-related litigation.
There may also be other 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. We cannot assure you that such litigation will not have a material
adverse effect on the distributions to Certificateholders.
OTHER RISKS
SEE "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF
CERTAIN OTHER RISKS AND SPECIAL CONSIDERATIONS THAT MAY BE APPLICABLE TO YOUR
CERTIFICATES AND THE MORTGAGE LOANS.
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<PAGE> 41
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The pool of mortgage loans (the "Mortgage Pool") will consist of 2,755
multifamily and commercial mortgage loans (the "Mortgage Loans") with an
aggregate Cut-off Date Balance of $1,183,164,569 (the "Initial Pool Balance"),
subject to a variance of plus or minus 5%. See "Description of the Trust Funds"
and "Certain Legal Aspects of Mortgage Loans" in the accompanying prospectus.
The Mortgage Pool consists of two groups (each, a "Loan Group"). "Loan Group 1"
consists of the Mortgage Loans bearing fixed interest rates on the Cut-off Date
("Fixed Rate Mortgage Loans"), and "Loan Group 2" consists of the Mortgage Loans
bearing adjustable interest rates on the Cut-off Date ("Adjustable Rate Mortgage
Loans"). The "Cut-off Date Balance" of each Mortgage Loan is the unpaid
principal balance thereof as of May 1, 1999 (the "Cut-off Date"), after
application of all payments of principal due on or before such date, whether or
not received. The principal balance of each mortgage loan as of the Cut-off Date
has been determined using the actual principal balance at March 31, 1999, rolled
forward assuming receipt of all scheduled payments and no prepayments. All
numerical information provided herein with respect to the Mortgage Loans is
provided on an approximate basis. All weighted average information provided
herein with respect to the Mortgage Loans reflects weighting by related Cut-off
Date Balance. All percentages of the Mortgage Pool, or of any specified
sub-group thereof, referred to herein without further description are
approximate percentages by aggregate Cut-off Date Balance. All mortgage rates
shown for Adjustable Rate Mortgage Loans as of the Cut-off Date are mortgage
rates as of March 31, 1999, and were assumed not to change between such date and
the Cut-off Date.
The Mortgage Loans were selected from the Mortgage Loan Seller's performing
commercial term real estate portfolio. The selection was limited to loans with
principal balances of less than $1.5 million. In order to screen the portfolio
for quality loans for the secondary market, the selection was generally limited,
to the best of the Mortgage Loan Seller's knowledge, to loans with the following
characteristics:
- Higher coupon loans (generally greater than 7% per annum)((1))
- Loans with fixed rates or standard adjustable rate indices (LIBOR,
Treasury, Prime, CD)
- Low historical delinquencies (no delinquencies over 30 days in the last
12 months)
- No known losses
- Lower loan to value ratios (loan-to-value ratios generally less than 80%)
- No poor risk ratings (no "watch list" assets)
- Generally standard property types (no schools, churches or marinas)
- Remaining maturity between 12 and 180 months
- No known current bankruptcy or workout situations
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 and/or leasehold
interest in real property (a "Mortgaged Property"). Each Mortgaged Property is
improved by (i) an apartment building or complex or a mobile home park (a
"Multifamily Mortgaged Property"; and any Mortgage Loan secured thereby, a
"Multifamily Loan") (394 Loans, representing 15.5% of the Initial Pool Balance),
or (ii) a retail shopping mall or center, a restaurant, an office building or
complex, a hotel, a health care facility, an industrial building, a mixed-use
building, a self storage facility or other commercial property (a "Commercial
Mortgaged Property"; and any Mortgage Loan secured thereby, a "Commercial Loan")
(2,361 Loans, representing 84.5% of the Initial Pool Balance).
Although we know that each of 2 sets of Mortgage Loans contains Mortgage
Loans (the "Cross-Collateralized Mortgage Loans") that are, solely as among such
Mortgage Loans in such particular set, cross-defaulted and cross-collateralized
with each other, we cannot assure you that this is the only such group of
mortgage loans. The largest set of related Cross-Collateralized Mortgage Loans
that we have been able to identify represents 0.3% of the Initial Pool Balance.
Each of the known Cross-Collateralized Mortgage Loans
- ---------------
(1)Certain Adjustable Rate Mortgage Loans have reset to rates below 7% since the
initial selection of the Mortgage Pool.
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<PAGE> 42
is evidenced by a separate Mortgage Note and secured by a separate Mortgage,
which Mortgage contains provisions creating the relevant
cross-collateralization. "Risk Factors -- Risks Related to the Mortgage
Loans -- Limitations on Enforceability of Cross-Collateralization" in this
prospectus supplement.
Most of the Mortgage Loans, representing approximately 99.0% of the Initial
Pool Balance, are recourse obligations of the related borrower. Upon any such
borrower's default in the payment of any amount due under the related Mortgage
Loan, the holder thereof may look to other assets of the borrower in addition to
the related Mortgaged Property or Properties for satisfaction of any deficiency.
Although most of the loan documents permit recourse to a borrower or guarantor,
the Depositor has not undertaken current evaluation of the financial condition
of any such person. None of the Mortgage Loans is insured or guaranteed by the
United States, any governmental entity or instrumentality, or any private
mortgage insurer. Several states (including California, in which Mortgaged
Properties relating to approximately 63.9% of the Initial Pool Balance are
located) have laws that prohibit more than one "judicial action" to enforce a
mortgage obligation, and some courts have construed the term "judicial action"
broadly. Accordingly, the Pooling Agreement will require the Primary Servicer to
obtain advice of counsel prior to enforcing any of the Trust Fund's rights under
any of the Mortgage Loans that include properties where the rule could be
applicable. In addition, in the case of a Pool Loan secured by Mortgaged
Properties located in multiple states, the Special Servicer may be required to
foreclose first on properties located in states where such "one action" rules
apply (and where non-judicial foreclosure is permitted) before foreclosing on
properties located in states where judicial foreclosure is the only permitted
method of foreclosure. See "Certain Legal Aspects of Mortgage
Loans -- Foreclosure" in the Prospectus.
RECOURSE TO THE BORROWER
<TABLE>
<CAPTION>
% OF WEIGHTED
% OF INITIAL AVERAGE WEIGHTED
NUMBER OF MORTGAGE AGGREGATE CUT-OFF POOL CUT-OFF DATE AVERAGE
RECOURSE TO THE BORROWER MORTGAGE LOANS LOANS DATE BALANCE BALANCE LTV RATIO MORTGAGE RATE
- ------------------------ -------------- -------- ----------------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Full........................ 2,731 99.1% $1,170,808,714 99.0% 55.5% 8.552%
None........................ 23 0.8% 12,220,758 1.0% 49.8% 8.774%
Partial..................... 1 0.0% 135,097 0.0% 3.7% 8.750%
------ ----- -------------- ----- ---- -----
Total/Wtd. Avg. ............ 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
====== ===== ============== ===== ==== =====
</TABLE>
1,814 of the Mortgaged Properties, which constitute security for 63.9% of
the Initial Pool Balance, are located in California; 471 of the Mortgaged
Properties, which constitute security for 18.0% of the Initial Pool Balance, are
located in Washington; 140 of the Mortgaged Properties, which constitute
security for 6.0% of the Initial Pool Balance, are located in Nevada; 149 of the
Mortgaged Properties, which constitute security for 5.3% of the Initial Pool
Balance, are located in Oregon; and 91 of the Mortgaged Properties, which
constitute security for 3.3% of the Initial Pool Balance, are located in
Arizona. The remaining Mortgaged Properties are located throughout 7 other
states, with no more than 1.8% of the Initial Pool Balance secured by Mortgaged
Properties located in any such other jurisdiction.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. Most of the Mortgage Loans provide for scheduled payments of
principal and interest ("Monthly Payments") to be due on a date (as to each such
Mortgage Loan, the "Due Date" that is the first day of each month).
Approximately 166 Mortgage Loans, representing 6.2% of the Initial Pool Balance,
provide for a Due Date that is other than the first of the month.
Mortgage Rates; Calculations of Interest. Each Mortgage Loan bears
interest at a rate per annum (a "Mortgage Rate") that is either fixed for the
remaining term of the Mortgage Loan, or which may adjust periodically during
such term as described below. As of the Cut-off Date or, in the case of
Adjustable Rate Mortgage Loans, March 31, 1999, the Mortgage Rates of the
Mortgage Loans ranged from 5.375% per annum to 14.500% per annum, and the
weighted average Mortgage Rate of the Mortgage Loans was 8.554%. The
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<PAGE> 43
Mortgage Loan Seller will represent in the Pooling Agreement that no Mortgage
Loan permits negative amortization or the deferral of accrued interest.
2,676 Mortgage Loans (the "30/360 Mortgage Loans"), which represent 97.0%
of the Initial Pool Balance, accrue interest on the basis of a 360-day year
consisting of twelve 30-day months (a "30/360 Basis"). Fifty-nine Mortgage Loans
(the "Actual/360 Mortgage Loans"), which represent 2.5% of the Initial Pool
Balance, accrue interest on the basis of the actual number of days elapsed in
the relevant month of accrual and a 360-day year (an "Actual/360 Basis").
Eighteen Mortgage Loans (the "Actual/365 Loans"), which represent 0.4% of the
Initial Pool Balance, accrue interest on the basis of the actual number of days
elapsed in the relevant month and a 365-day year (an "Actual/365 Basis"). The
total amount of the Monthly Payment for each Actual/360 and Actual/365 Mortgage
Loan is determined as though the Mortgage Loan accrued interest on a 30/360
Basis, and the portion of such Monthly Payment allocated to interest is
determined based on interest accrued in the preceding month on an Actual/360
Basis or Actual/365 Basis respectively, with the balance allocated to amortize
principal. As a result, the full amortization term is longer than would be
calculated on a 30/360 Basis, and the Balloon Payment on any such Mortgage Loan
will be larger than would be the case if interest accrued on a 30/360 Basis.
The Adjustable Rate Mortgage Loans bear interest at a per annum rate which
is adjusted periodically to equal some base rate or index (the "Index") plus or
minus, in most cases, a fixed percentage provided for in the related Mortgage
Note (the "Margin"), the sum of which may be subject to a rounding convention
provided for in the related Note.
Certain of the Adjustable Rate Mortgage Loans originally provided for an
Index based on a prime rate or cost of funds quoted by a financial institution
or other Index that no longer exists. In several instances, the related Notes
make no provision for an alternative index or provide that, if the Index becomes
unavailable, the lender will select an alternative index based on comparable
information. As to such Notes, we have selected an index which we have concluded
is based on information comparable to that on which the original Index was
based. In the event that such alternative index results in a higher Mortgage
Interest Rate, any resulting increase in the Monthly Payment may increase the
likelihood of delinquency or default under the related Mortgage Loan. As to all
Adjustable Rate Mortgage Loans, if the respective Index set forth in each Note
becomes unavailable, and the related Note provides for no alternative Index, the
Primary Servicer (or the Master Servicer in the case of a resignation or other
termination of the Primary Servicer) will select an alternative index that is
based on comparable information and such alternative index will become the Index
for such Mortgage Loan.
The Mortgage Rate on any Adjustable Rate Mortgage Loan may adjust as the
Index on which it is based adjusts or may be fixed until the First Adjustment
Date set forth in the related Note, adjusting on the First Adjustment Date, and
generally at one, three, six, or twelve month intervals thereafter. The Mortgage
Rate on the Adjustable Rate Mortgage Loans will be adjusted to a rate equal to
an Index plus or minus the Margin set forth in the related Note; provided,
however, that the adjustments of the Mortgage Rates are subject to rounding, to
lifetime maximum rates and to minimum rates set forth in the related Note and,
with respect to certain of the Adjustable Rate Mortgage Loans, to periodic
Mortgage Interest Rate adjustment caps or floors. The Index set forth in a Note
may be a constant maturity treasury index, a rate of interest based on the prime
rate quoted by a financial institution, a rate of interest based on the interest
rates of certain certificates of deposit, LIBOR or another index. See the table
"Adjustable Rate Indices" in Annex A.
274 Mortgage Loans, representing 10.7% of the Initial Pool Balance, are
Adjustable Rate Mortgage Loans that may convert to fixed rate mortgage loans.
The Mortgage Loan Seller is required to repurchase any such mortgage loan from
the trust promptly after receipt of notice of conversion. To the extent the
Mortgage Loan Seller fails to fulfil its obligation to repurchase such converted
mortgage loan, the Trustee is required to sell such mortgage loan. Although any
conversion of any such mortgage loan is generally to a then current market fixed
rate, such sale could be at a loss. In any event, any such repurchase or sale
would be treated as the equivalent of a prepayment, resulting in accelerated
distribution of principal on the Class A-1V Certificates, or to other
outstanding Classes of Principal Balance Certificates if the Class A-1V
Certificates are
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<PAGE> 44
no longer outstanding or step-downs result in distribution of such principal to
more subordinate Classes of Certificates.
Amortization of Principal. 1,645 of the Mortgage Loans, which represent
67.3% of the Initial Pool Balance, provide for monthly payments of principal
based on amortization schedules significantly longer than the respective
remaining terms thereof, thereby leaving substantial principal amounts due and
payable (each such loan, a "Balloon Loan," and each such payment, together with
the corresponding interest payment, a "Balloon Payment") on their respective
maturity dates, unless prepaid prior thereto. 1,110 Mortgage Loans, which
represent 32.7% of the Initial Pool Balance, are fully amortizing loans.
As of the Cut-off Date, the remaining terms to stated maturity of the
Mortgage Loans will range from 11 to 175 months, and the weighted average
remaining term to stated maturity of the Mortgage Loans will be 94 months. As of
the Cut-off Date, the remaining amortization terms of the Mortgage Loans
(calculated on a 30/360 Basis for the accrual of interest) will range from 8 to
354 months, and the weighted average remaining amortization term (calculated on
a 30/360 Basis for purposes of the accrual of interest) of the Mortgage Loans
will be 209 months. See "Risk Factors -- Risks Related to the Mortgage
Loans -- Balloon Payments" in this prospectus supplement.
Prepayment Provisions. The Mortgage Loans that restrict voluntary
prepayments, which represent 72.1% of the Initial Pool Balance, generally
provided at origination for a sequence of two periods:
(1) a period (a "Prepayment Premium Period") during which any
voluntary principal prepayment be accompanied by a premium, penalty, or fee
(a "Prepayment Premium"), followed by
(2) a period (an "Open Period") during which voluntary principal
prepayments may be made without an accompanying Prepayment Premium.
Some of such Mortgage Loans may also have provided for an initial period
during which voluntary principal payments were prohibited altogether, but such
period, if any, has expired. Voluntary principal prepayments may be made in full
or in part, subject to certain limitations and, during a Prepayment Premium
Period, payment of the applicable Prepayment Premium. Prepayment Premiums on the
Mortgage Loans are generally calculated either on the basis of a yield
maintenance formula (subject, in certain instances, to a minimum equal to a
specified percentage of the principal amount prepaid) or as a percentage (which
may decline over time) of the principal amount prepaid. With respect to most
Mortgage Loans that require the payment of a Prepayment Premium, the applicable
formula is designed only to recover lost costs, not lost profits.
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<PAGE> 45
Set forth below is a description of the Prepayment Penalties associated
with the Mortgage Pool.
PREPAYMENT PENALTIES
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
PENALTY TYPE LOANS LOANS BALANCES BALANCE LTV RATIO RATE
- ------------ --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Yield Maintenance(1)............ 1,382 50.2% $ 762,285,466 64.4% 57.8% 8.445%
None............................ 1,016 36.9% 330,004,519 27.9% 53.6% 8.648%
Fixed Percentage................ 148 5.4% 51,041,767 4.3% 49.0% 8.533%
Declining Percentage............ 194 7.0% 33,358,227 2.8% 31.0% 10.147%
Fixed Amount.................... 15 0.5% 6,474,591 0.5% 46.9% 8.703%
----- ----- -------------- ------ ---- ------
Total Wtd./Avg. ................ 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ====== ==== ======
</TABLE>
- ---------------
(1) The yield maintenance premiums for the Mortgage Loans are based on a number
of different formulas, some of which may be non-standard for commercial
mortgages. The different formulas could result in significantly varying
Prepayment Premiums applicable to the Mortgage Loans, and the resulting
Prepayment Premiums from such formulas, than are customary in the current
commercial mortgage market.
As more fully described herein, Prepayment Premiums collected on the
Mortgage Loans will be distributed only to the holders of the Class P
Certificates, and will not be distributed to holders of offered Certificates.
The Depositor makes no representation as to the enforceability of the provision
of any Mortgage Loan requiring the payment of a Prepayment Premium or as to the
collectibility of any Prepayment Premium. See "Risk Factors -- Risks Related to
the Mortgage Loans -- Prepayment Premiums" in this prospectus supplement and
"Certain Legal Aspects of Mortgage Loans -- Default Interest and Limitations on
Prepayments" in the accompanying prospectus. The initial holder of the Class P
Certificates is expected to be the Mortgage Loan Seller.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. Substantially all of
the Mortgage Loans contain "due-on-sale" clauses and most contain
"due-on-encumbrance" clauses that, in each case, subject to certain 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 or prohibit the borrower from doing so without
consent of the holder of the Mortgage. See "-- Additional Mortgage Loan
Information -- Subordinate Financing" herein. Certain of the Mortgage Loans
permit transfer of the related Mortgaged Property if certain specified
conditions are satisfied or if the transfer is to a borrower reasonably
acceptable to the lender. The Special Servicer will determine, in a manner
consistent with the servicing standard described herein under "Servicing of the
Mortgage Loans -- General" and with the REMIC Provisions, whether to exercise
any right the holder of any Mortgage may have under any such clause to
accelerate payment of the related Mortgage Loan upon, or to withhold its consent
to, any transfer or further encumbrance of the related Mortgaged Property. See
"The Pooling and Servicing Agreements -- Due-on-Sale and Due-on-Encumbrance
Provisions" and "Certain Legal Aspects of Mortgage Loans -- Due-on-Sale and
Due-on-Encumbrance" in the accompanying prospectus.
Such decision by the Special Servicer will be constrained only by the
Servicing Standard and the general limitations described under "Servicing of the
Mortgage Loans -- Modifications, Waivers, Amendments and Consents" in this
prospectus supplement. However, written confirmation from each Rating Agency
that the waiver of a due-on-sale or due-on-encumbrance clause will not result in
the downgrade, withdrawal or qualification of the ratings then assigned to any
Class of Certificates will be required after the aggregate outstanding principal
balance of the Mortgage Loans as to which such waivers have been granted exceeds
10% of the then-current Pool Balance.
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<PAGE> 46
ADDITIONAL MORTGAGE LOAN INFORMATION
Delinquencies. No Mortgage Loan was as of the Cut-off Date, or has been
during the twelve months prior to the Cut-off Date, more than 30 days delinquent
in respect of any Monthly Payment.
Ground Leases. Twenty-seven of the Mortgage Loans, which represent 0.9% of
the Initial Pool Balance, are, in each such case, secured by a Mortgage on the
applicable borrower's leasehold interest in the related Mortgaged Property. See
"Certain Legal Aspects of Mortgage Loans -- Foreclosure -- Leasehold
Considerations" in the accompanying prospectus.
Subordinate Financing. We do not know whether any of the Mortgaged
Properties are presently encumbered by subordinate debt, and we also do not know
whether any of the Mortgage Loans permit or prohibit the related Mortgagor from
incurring such subordinate debt in the future. The existence of any such
subordinated indebtedness may increase the difficulty of refinancing the related
Mortgage Loan at maturity and the possibility that reduced cash flow could
result in deferred maintenance. To the extent borrowers are able to elect to pay
the subordinate debt without paying the senior debt, reduced cash flow can also
increase the risk of default on Mortgage Loan. Also, in the event that the
holder of the subordinated debt files for bankruptcy or is placed in involuntary
receivership, foreclosing on the Mortgaged Property could be delayed. See
"Certain Legal Aspects of Mortgage Loans -- Subordinate Financing" in the
accompanying prospectus.
CERTAIN UNDERWRITING MATTERS
The Mortgage Loans are in most cases seasoned loans. While origination and
underwriting policies varied based on the time of origination and the identity
of the original lender, such policies in effect since 1992 have been relatively
consistent and are described below. Origination and underwriting policies for
mortgage loans originated prior to 1992 may vary from the following description.
Furthermore, we cannot assure you that such description would be accurate with
respect to any particular Mortgage Loan, even if originated since 1992.
Environmental Assessments. The Mortgage Loan Seller will represent and
warrant in the Pooling Agreement with respect to each Mortgaged Property that
there are no material adverse environmental conditions existing at such
Mortgaged Property at the Delivery Date. Any breach of such warranty will result
in an obligation to repurchase the affected Mortgage Loans, subject to a cure
right as described under "-- Representations and Warranties; Repurchases".
Although we are not aware of any such material adverse environmental conditions,
we otherwise cannot assure you that any such conditions do not exist. Each of
the Mortgaged Properties was subject to environmental due diligence in
accordance with the applicable environmental credit risk policy of the
originating Institution at the time of origination. In general, loans originated
after 1992 with an initial principal balance of $1,000,000 or more were subject
to a Phase I Environmental Site Assessment and an environmental questionnaire
was completed by the applicant or a Transaction Screen was obtained for loans
with an initial principal balance under $1,000,000. However, many of the
Mortgage Loans are seasoned loans originated during a time when it was not
common practice to conduct environmental assessments at all in connection with
the origination of mortgage loans. As a result, in such cases no environmental
assessments have been conducted.
The Mortgage Loan Seller will not make any representation or warranty with
respect to environmental conditions arising after the Closing Date, and will not
be obligated to repurchase any Mortgage Loan due to any such condition. The
Pooling Agreement requires that the Special Servicer obtain an environmental
site assessment of a Mortgaged Property prior to acquiring title thereto or
assuming its operation. Such requirement precludes enforcement of the security
for the related Mortgage Loan until a satisfactory environmental site assessment
is obtained (or until any required remedial action is taken), but will decrease
the likelihood that the Trust will become liable for a material adverse
environmental condition at the Mortgaged Property. However, we cannot assure you
that the requirements of the Pooling Agreement will effectively insulate the
Trust from potential liability for a materially adverse environmental condition
at any Mortgaged Property. See "Servicing of the Mortgage Loans" herein and "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
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<PAGE> 47
Conditions" and "Certain Legal Aspects of Mortgage Loans -- Environmental
Considerations" in the accompanying prospectus.
Appraisals and Market Studies. It was the practice of the Mortgage Loan
Seller for an independent appraiser or an appraiser then in its employ which, in
either case, was either a member of the Appraisal Institute ("MAI") or state
certified, to perform an appraisal (or update an existing appraisal) of each of
the related Mortgaged Properties in connection with the origination of each
Mortgage Loan in order to establish that the appraised value of the related
Mortgaged Property or Properties exceeded the original principal balance of the
Mortgage Loan (or, in the case of certain sets of related Cross-Collateralized
Mortgage Loans, the aggregate original principal balance of such sets). In
general, such appraisals represent the analysis and opinions of the respective
appraisers at or before the time made, and are not guarantees of, and may not be
indicative of, present or future value. There can be no assurance that another
appraiser would not have arrived at a different valuation, even if such
appraiser used the same general approach to and same method of appraising the
property. In addition, appraisals seek to establish the amount a typically
motivated buyer would pay a typically motivated seller. Such amount could be
significantly higher than the amount obtained from the sale of a Mortgaged
Property under a distress or liquidation sale.
None of the Depositor, the Mortgage Loan Seller, the Underwriter, the
Master Servicer, the Special Servicer, the Trustee, the REMIC Administrator, or
any of their respective affiliates has prepared or conducted its own separate
appraisal or reappraisal of any Mortgaged Property (except for appraisals
conducted with respect to some of the Mortgaged Properties at the time of
origination by appraisers then in the employ of Bank of America), except for
BPO's conducted on a sample of the Mortgaged Properties as described under
" -- Current Market Analysis."
Seismic Reviews. It was not the practice of the originators of the
Mortgage Loans to obtain seismic reviews for portfolio assets such as those in
the Mortgage Pool, nor was it the practice to require earthquake insurance. As
such, seismic evaluations were not performed on the Mortgage Loans at the time
of origination and we do not believe the Mortgaged Properties are covered by
earthquake insurance. The Mortgage Loan Seller has, however, contracted with
Risk Management Solutions, Inc. ("RMS") to perform a review of the Mortgage
Loans.
RMS conducted an analysis of the potential property and default losses due
to earthquakes for Mortgage Loans in the states of Arizona, California, Nevada,
Oregon, and Washington. From this analysis, RMS concluded that:
- The Mortgage Pool contains 2,665 analyzed Mortgage Loans exposed to
earthquake risk in California, the Pacific Northwest, the Great Basin,
and the Southern Rockies totaling approximately $1.1 billion in unpaid
principal balance secured by $2.5 billion in appraised value of Mortgaged
Properties.
- Seismic simulation analysis of the pool suggests that:
- Over the next 100 years, the properties securing Mortgage Loans in the
Mortgage Pool can expect at least one event that will cause at least
$51.3 million in total property loss(1) (approximately 2.1% of total
appraised value) and $1.1 million in total default loss(2) (0.1% of
total unpaid balance).
- Over the next 475 years, the properties securing Mortgage Loans in the
Mortgage Pool can expect at least one event that will cause at least
$53.5 million in total property loss (2.2% of total appraised value)
and $2.0 million in total default loss (0.2% of total unpaid balance).
- The worst-case modeled event expected to impact the Mortgage Pool is
estimated to cause $67.4 million in total property loss (2.7% of total
appraised value) and $4.9 million in total default loss (0.4% of total
unpaid balance).
- ---------------
(1)The total property loss represents the total dollar amount of building damage
caused by an earthquake event to properties in the portfolio.
(2)Total default loss represents loss to the lender by accounting for the impact
of equity on the likelihood of default.
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<PAGE> 48
- Seismic simulation analysis of individual Mortgage Loans in the Pool
suggests that:
- Approximately 7.2% of the Mortgage Loans have more than 20% of
appraised value at risk over the next 475 years.
- Approximately 5.8% of the Mortgage Loans have more than 1% of unpaid
principal balance at risk over the next 475 years.
The results outlined above are based on data provided by the Mortgage Loan
Seller and compiled using IRAS(TM) (Insurance and Investment Risk Assessment
System), a proprietary RMS computer risk assessment system. The system is based
on scientific data, mathematical and empirical models, and the encoded
experience of earthquake engineers, structural engineers, geologists,
seismologists, and geotechnical specialists. As with any model of complex
physical systems, particularly those with low frequencies of occurrence and
potentially high severity outcomes, the actual losses from catastrophic events
may differ from the results of simulation analyses. Furthermore, the accuracy of
the loss estimations presented above is largely dependent on the accuracy and
quality of the information and data supplied to RMS by Bank of America NT&SA.
Current Market Analysis. It was generally the practice of the Mortgage
Loan Seller to obtain current appraisals for all Mortgage Loans at the time of
origination; however, property values may have changed since the time of
origination, and there are no current appraisals on the Mortgage Loans. In order
to obtain estimates of current market values for the Mortgage Loans, the
Mortgage Loan Seller obtained broker price opinions (each, a "BPO") for a sample
of the Mortgage Pool. Since Mortgage Loans originated in 1997 and 1998 have
relatively current appraisals, BPOs were generally not obtained for Mortgage
Loans originated in those years. BPOs were obtained for approximately 14.5%
(based on Cut-off Date Balances) of the Mortgage Loans originated prior to 1997.
The appreciation results were stratified by collateral type, year of
origination, and metropolitan statistical area ("MSA"). Based on the results of
the BPO stratifications, each Mortgage Loan, other than those originated in 1997
and 1998, was assigned an appreciation factor based on the arithmetic average of
the appreciation by MSA, collateral type, and year of origination. Where the BPO
sample size was insufficient for a given collateral type and year of
origination, the average appreciation for the Mortgage Pool was used in place of
that stratification. In the case of an MSA, when the sample size was
insufficient the average appreciation of the State was used. In the event that
the State sample size was insufficient the Mortgage Pool average was used. Where
the actual BPO was obtained, the actual value determined by the BPO was used.
The sample of BPOs used for the extrapolation may have included mortgage loans
in addition to those in the Mortgage Pool.
Hazard, Liability and Other Insurance. It was generally the practice after
1992 for the Mortgage Loan Seller to require that each Mortgaged Property be
insured by a hazard insurance policy in an amount (subject to a customary
deductible) at least equal to the lesser of the outstanding principal balance of
the related Mortgage Loan and 100% of the full insurable replacement cost of the
improvements located on the related Mortgaged Property, and if applicable, that
the related hazard insurance policy contain appropriate endorsements to avoid
the application of co-insurance and not permit reduction in insurance proceeds
for depreciation; provided that, in the case of certain of the Mortgage Loans,
the hazard insurance may be in such other amounts as was required by the related
originators.
In addition, if any portion of a Mortgaged Property securing any Mortgage
Loan was, at the time of the origination of such Mortgage Loan, in an area
identified in the Federal Register by the Flood Emergency Management Agency as
having special flood hazards, and flood insurance was available, the related
mortgage documents generally require that a flood insurance policy meeting any
requirements of the then-current guidelines of the Federal Insurance
Administration be in effect with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of
(1) the outstanding principal balance of such Mortgage Loan,
(2) the full insurable value of such Mortgaged Property,
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<PAGE> 49
(3) the maximum amount of insurance available under the National Flood
Insurance Act of 1968, as amended, and
(4) 100% of the replacement cost of the improvements located on the
related Mortgaged Property.
In general, the standard form of hazard insurance policy covers physical
damage to, or destruction of, the improvements on the Mortgaged Property by
fire, lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion, subject to the conditions and exclusions set forth in each policy.
In general, the Mortgage Loans (including those secured by Mortgaged
Properties located in California) do not require earthquake insurance.
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASES
On or prior to the Delivery Date, at the direction of the Depositor, the
Mortgage Loan Seller will (pursuant to a blanket assignment in the Pooling
Agreement) assign, sell and transfer the Mortgage Loans, without recourse, to
the Trustee for the benefit of the Certificateholders. In connection with such
assignment, the Mortgage Loan Seller will be required to deliver to the Trustee
with respect to each Mortgage Loan the original Mortgage Note, endorsed (without
recourse) to the order of the Trustee.
Until the occurrence of a Recordation Event (as described below), no
individual assignments of the Mortgages securing the Mortgage Loans will be
prepared or recorded. In addition, although the Depositor will deliver or cause
to be delivered to the Trustee the Mortgage Notes, Bank of America NT&SA, as
Primary Servicer, will retain custody of all other documents constituting the
related Mortgage Files. A "Recordation Event" will occur if the rating by any
Rating Agency of the long-term deposits of Bank of America NT&SA (or any
successor institution) falls below "Aa3," in the case of Moody's, or "AA-," in
the case of Fitch. If Bank of America NT&SA's long-term rating falls below
either of these rating levels, the Mortgage Loan Seller will cause all files of
key mortgage loan documents to be sent to the Trustee, and will cause individual
assignments to be prepared and recorded (at the expense of the Mortgage Loan
Seller). The current such long-term rating of Bank of America NT&SA is "Aa1," in
the case of Moody's, and "AA," in the case of Fitch. As promptly as practicable
following receipt from any Rating Agency or the Trustee of proper notification
that a Recordation Event has occurred, the Depositor will cause assignments of
mortgage to be prepared and recorded.
The Trustee will be required to review each Mortgage Note delivered by the
Mortgage Loan Seller within a specified period following such delivery, and the
Trustee will hold each Mortgage Note in trust. If it is found during the course
of such review or at any time thereafter that a Mortgage Note was not delivered
with respect to any Mortgage Loan or that any such document is defective, and in
either case such omission or defect materially and adversely affects the value
of the related Mortgage Loan or the interests of Certificateholders therein,
then the Mortgage Loan Seller will be obligated, except as otherwise described
below, within a period of 90 days following its receipt of notice of such
omission or defect to deliver the missing documents or cure the defect in all
material respects, as the case may be, or to repurchase (or cause the repurchase
of) the affected Mortgage Loan at a price (the "Repurchase Price") generally
equal to the unpaid principal balance of such Mortgage Loan, plus any accrued
but unpaid interest thereon at the related Mortgage Rate to but not including
the Due Date in the Due Period related to the Collection Period of repurchase,
plus any related unreimbursed Servicing Advances (as defined herein) and any
interest on any Advances. However, if such defect or breach is capable of being
cured but not within the 90 day period and the Mortgage Loan Seller has
commenced and is diligently proceeding with cure of such defect or breach within
such 90 day period, the Mortgage Loan Seller shall have an additional 90 days to
complete such cure or, failing such cure, to repurchase the related Mortgage
Loan (such possible additional cure period shall not apply in the event of a
defect that causes the Mortgage Loan not to constitute a "qualified mortgage"
within the meaning of Section 860G(a)(3) of the Code or not to meet certain
Code-specified criteria with respect to required loan-to-value ratio, or
customary prepayment penalties).
The cure/repurchase obligations of the Mortgage Loan Seller will constitute
the sole remedies available to the Certificateholders for any failure on the
part of the Mortgage Loan Seller to deliver any of the above-
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<PAGE> 50
described documents with respect to any Mortgage Loan or for any defect in any
such document, and neither the Depositor nor any other person will be obligated
to repurchase the affected Mortgage Loan if the Mortgage Loan Seller defaults on
its obligation to do so. Notwithstanding the foregoing, if any of the above-
described documents is not delivered with respect to any Mortgage Loan because
such document has been submitted for recording, and neither such document nor a
copy thereof, in either case with evidence of recording thereon, can be obtained
because of delays on the part of the applicable recording office, then the
Mortgage Loan Seller will not be required to repurchase (or cause the repurchase
of) the affected Mortgage Loan on the basis of such missing document so long as
it continues in good faith attempt to obtain such document or such copy.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Pooling Agreement, the Mortgage Loan Seller will represent and
warrant with respect to the Mortgage Loans, as of the Delivery Date or as of
such earlier date specifically provided in the related representation or
warranty, among other things, substantially as follows:
(1) The information set forth in the schedule of Mortgage Loans (the
"Mortgage Loan Schedule") attached to the Pooling Agreement is true and
correct in all material respects as of the Cut-off Date.
(2) No Mortgage Loan was as of the Cut-off Date, or during the
twelve-month period prior thereto, 30 days or more delinquent in respect of
any Monthly Payment, without giving effect to any applicable grace period.
Such non-delinquent status with respect to principal and/or interest is not
due to any advance made by the Mortgage Loan Seller.
(3) Each Mortgage securing a Mortgage Loan is a valid first lien on
the related Mortgaged Property subject only to (a) the lien of delinquent
real estate taxes and assessments or current real estate taxes and
assessments not yet due and payable, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public record,
(c) rights of tenants (whether under ground leases, space leases or
operating leases) at the Mortgaged Property to remain following a
foreclosure or similar proceeding (provided that such tenants are
performing under such leases), (d) exceptions and exclusions specifically
referred to in the related lender's title insurance policy issued or, as
evidenced by a "marked-up" commitment, to be issued in respect of such
Mortgage Loan and (e) if such Mortgage Loan is cross-collateralized with
any other Mortgage Loan, the lien of the Mortgage for such other Mortgage
Loan (the exceptions set forth in the foregoing clauses (a), (b), (c), (d),
and (e) collectively, "Permitted Encumbrances"). Such Permitted
Encumbrances do not materially interfere with the security intended to be
provided by the related Mortgage(s), the current use of the related
Mortgaged Property, or the ability of the related borrower to timely pay in
full the principal and interest on the Mortgage Loan. Notwithstanding the
foregoing, no representation is made as to the perfection of any security
interest in personal property.
(4) The lien of each Mortgage is insured by a title insurance policy
issued by a nationally recognized title insurance company that insures the
originator, its successors and assigns, as to the first priority lien of
such Mortgage in the original principal amount of the related Mortgage Loan
after all advances of principal, subject only to Permitted Encumbrances.
The premiums under such title insurance policy have been paid, and to the
Mortgage Loan Seller's actual knowledge, each title insurance policy is in
full force and effect and no claims have been made under any title
insurance policy.
(5) To the best of the Mortgage Loan Seller's knowledge, it has not
waived any material default, breach, violation or event of acceleration
existing under any Mortgage or Mortgage Note.
(6) There is no valid offset, defense or counterclaim to any Mortgage
Loan.
(7) It has not received actual notice that (a) there is any proceeding
pending or threatened for the total or partial condemnation of any
Mortgaged Property, or (b) there is any material damage at any Mortgaged
Property that materially and adversely affects the value of such Mortgaged
Property.
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<PAGE> 51
(8) At origination, each Mortgage Loan complied in all material
respects with all requirements of federal and state law, including those
requirements pertaining to usury, relating to the origination of such
Mortgage Loan.
(9) The proceeds of each Mortgage Loan have been fully disbursed, and
there is no requirement for future advances thereunder.
(10) The Mortgage(s) and Mortgage Note for each Mortgage Loan and all
other documents to which the related borrower is a party and which evidence
or secure such Mortgage Loan, are the legal, valid and binding obligations
of the related borrower (subject to any non-recourse provisions contained
in any of the foregoing agreements and any applicable state anti-deficiency
legislation), enforceable in accordance with their respective terms, except
as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other laws relating to or
affecting the rights of creditors generally and by general principles of
equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(11) There is no material and adverse environmental condition or
circumstance affecting the Mortgaged Property;
(12) Except as contained in the related Mortgage File, the terms of
the Mortgage Note and Mortgage(s) for each Mortgage Loan have not been
impaired, waived, altered or modified in any material respect.
(13) Except as identified in the Pooling Agreement, there are no
delinquent or unpaid taxes or assessments (including assessments payable in
future installments), or other outstanding charges affecting any Mortgaged
Property which are or may become a lien of priority equal to or higher than
the lien of the related Mortgage.
(14) The related borrower's interest in each Mortgaged Property
securing a Mortgage Loan consists of a fee simple and/or leasehold estate
or interest in real property.
(15) All escrow deposits (including capital improvements and
environmental remediation reserves) relating to each Mortgage Loan that
were required to be delivered to the mortgagee under the terms of the
related loan documents have been received and, to the extent of any
remaining balances of such escrow deposits, are in the possession or under
the control of the representing party or its agents (which shall include
the Master Servicer).
In the Pooling Agreement, the Mortgage Loan Seller will also make
representations concerning, among other things, the priority and certain terms
of ground leases securing Mortgage Loans, and certain terms of the mortgage loan
documents and characteristics of the Mortgaged Properties. The Mortgage Loan
Seller will also be required to represent and warrant, as of the Delivery Date,
that, immediately prior to the transfer of the Mortgage Loans to the Trustee,
the Mortgage Loan Seller had good and marketable title to, and was the sole
owner of, each Mortgage Loan and had full right and authority to sell, assign
and transfer such Mortgage Loan.
If the Mortgage Loan Seller discovers or is notified of a breach of any of
the representations and warranties contained in the Pooling Agreement with
respect to any Mortgage Loan and such breach materially and adversely affects
the value of such Mortgage Loan or the interests of Certificateholders therein,
then the Mortgage Loan Seller will be obligated, within a period of 90 days
following its discovery or receipt of notice of such breach, to cure such breach
in all material respects or to repurchase (or cause the repurchase of) the
affected Mortgage Loan at the applicable Repurchase Price. However, if such
defect or breach is capable of being cured but not within the 90 day period and
the Mortgage Loan Seller has commenced and is diligently proceeding with cure of
such defect or breach within such 90 day period, the Mortgage Loan Seller shall
have an additional 90 days to complete such cure or, failing such cure, to
repurchase the related Mortgage Loan (such possible additional cure period shall
not apply in the event of a defect that causes the Mortgage Loan not to
constitute a "qualified mortgage" within the meaning of Section 860G(a)(3) of
the Code, including not meeting certain Code-specified criteria with respect to
required loan-to-value ratio, permissible index or
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customary prepayment penalties). In the event of discovery of a breach of the
representation and warranty with respect to environmental conditions, the
Mortgage Loan Seller will similarly have an opportunity to cure such breach.
However, the breach will be deemed to have been cured if and only if the Special
Servicer (or if the Mortgage Loan Seller shall be the Special Servicer, an
independent party designated by the Master Servicer) shall have determined in
good faith that (a) the Mortgage Loan Seller has either caused the condition
that was the cause of such breach to be eliminated, or has established a reserve
for the costs of remediating the condition that was the cause of such breach and
has instituted a program which was reasonably expected to remediate such
condition within two years after the program was instituted; (b) the estimated
cost to cure is less than 60% of the then-outstanding principal balance of the
loan after taking into account the increase in value attributable to any such
reserve fund; and (c) retention of such Mortgage Loan in the Mortgage Pool would
not violate the Servicing Standard. None of the Primary Servicer, the Master
Servicer, the Special Servicer, the Trustee or the Fiscal Agent will be entitled
to interest on Advances made by it with respect to such Mortgage Loan until any
such environmental breach is cured.
The foregoing cure/repurchase obligation of the Mortgage Loan Seller will
constitute the sole remedy available to the Certificateholders for any breach of
any of the foregoing representations and warranties, and neither the Depositor
nor any other person will be obligated to repurchase any affected Mortgage Loan
in connection with a breach of such representations and warranties if the
Mortgage Loan Seller defaults on its obligation to do so. The Mortgage Loan
Seller will be the sole Warranting Party (as defined in the Prospectus) in
respect of the Mortgage Loans. See "The Pooling and Servicing
Agreements -- Representations and Warranties; Repurchases" in the accompanying
prospectus.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this prospectus supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on the Mortgage Loans on or before the Cut-off
Date. Prior to the issuance of the Offered Certificates, a Mortgage Loan may be
removed from the Mortgage Pool if the Depositor deems such removal necessary or
appropriate or if it is prepaid. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Offered 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 Offered Certificates
are issued, although the range of Mortgage Rates and maturities, as well as the
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 Delivery Date and
will be filed, together with the Pooling 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.
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<PAGE> 53
THE MORTGAGE LOAN SELLER
Bank of America NT&SA is a national banking association. The principal
office of the Mortgage Loan Seller is in San Francisco, California. The Mortgage
Loan Seller is a wholly-owned subsidiary of Bank of America Corporation.
The information set forth herein concerning the Mortgage Loan Seller has
been provided by the Mortgage Loan Seller. Neither the Depositor nor the
Underwriter makes any representation or warranty as to the accuracy or
completeness of such information.
On September 25, 1998, NationsBank Corporation, a North Carolina
corporation ("NationsBank"), reincorporated in Delaware by forming a new, wholly
owned Delaware subsidiary and merging into it (the "Reincorporation Merger"),
with the surviving Delaware corporation being renamed "NationsBank Corporation."
On September 30, 1998, BankAmerica Corporation, a Delaware corporation, merged
with and into NationsBank Corporation (the "Merger"). NationsBank Corporation
was the surviving corporation in the Merger and changed its name to "BankAmerica
Corporation." On April 28, 1999, BankAmerica Corporation changed its name to
"Bank of America Corporation." As a result of the Reincorporation Merger and the
Merger, Bank of America Corporation succeeded to the assets and liabilities of
both NationsBank and Bank of America Corporation. Additional information
regarding these mergers is set forth in NationsBank's Current Report on Form
8-K, as amended, filed April 17, 1998.
ORIGINATION AND UNDERWRITING PRACTICES
The Mortgage Loans were originated by the Mortgage Loan Seller, affiliated
entities or predecessor companies over the last 27 years. The information on the
Mortgage Loans in this prospectus supplement includes descriptions of the
Mortgage Loan Seller's general policies and practices subsequent to its merger
with Security Pacific National Bank in 1992. Although the following describes
the Mortgage Loan Seller's general policies and practices with respect to
commercial real estate lending, there is no assurance that these practices were
applied to any specific Mortgage Loans in the Mortgage Pool. The information
that follows is intended only to describe the general circumstances under which
many of the Mortgage Loans were originated. However, policies and practices may
have varied during the time period during which the Mortgage Loans were
originated.
Real estate loans such as those in the Mortgage Pool were originated by
various regional and functional areas of the Mortgage Loan Seller. Commercial
real estate lending for the Mortgage Loan Seller's portfolio was generally based
on banking relationships. It was the practice to originate real estate loans in
the organizational area of the Mortgage Loan Seller that had the closest
relationship with the borrower, and the most knowledge of the borrower and the
geographic area of the property.
Although the origination functions were decentralized due to the localized
nature of real estate, commercial real estate lending bank-wide was subject to
an overall common credit policy. The credit policies were established centrally
by the Mortgage Loan Seller's Credit Policy Group.
The Mortgage Loan Seller operated in a regulatory environment that called
for stringent real estate lending standards and guidelines. Regulations required
the Mortgage Loan Seller to adopt and maintain comprehensive, written policies
that established appropriate limits and standards for extensions of credit that
were secured by commercial real estate. The Mortgage Loan Seller was required to
monitor conditions in the real estate markets in which it operated to ensure
that real estate lending policies continued to be appropriate under current
market conditions.
In conjunction with regulatory requirements, it was the Mortgage Loan
Seller's policy that all real estate loans be risk rated. The rating system for
such loans was developed centrally by the Mortgage Loan Seller's Credit Policy
Group. The Mortgage Loan Seller's policy required that a system be in place to
ensure that current risk ratings were maintained for all commercial real estate
loans. It was generally the practice that each area of the Mortgage Loan Seller
that originated commercial real estate loans was reviewed by the Mortgage Loan
Seller's central Credit Policy Group on a regular basis. Among other things,
each unit's compliance with the standard risk rating practices was subject to
audit by the Credit Policy Group. The Credit
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<PAGE> 54
Policy Group also conducted examinations to assess lending units' portfolio
quality and credit management processes. In addition to performing examinations,
it was the practice that the Credit Policy Group monitor the credit activity of
the lending units. The Credit Policy Group had a direct reporting line to the
Chairman of the Mortgage Loan Seller.
Each area of the Mortgage Loan Seller was subject to review and audit for
compliance with credit policies both from internal examiners and external
regulators. Results of such reviews were communicated to the highest levels of
the Mortgage Loan Seller. Written plans were generally required for any material
issues noted, generally with follow-up required. As a result of the heavy
regulatory scrutiny, it was the Mortgage Loan Seller's practice to actively
manage the commercial real estate loan portfolio, especially those assets
demonstrating signs of deterioration. The Mortgage Loan Seller actively managed
such assets to resolution using an experienced workout and REO group, as well as
through assets sales.
The loans in this pool were originated as portfolio assets and were
generally part of a larger bank relationship. The primary source of repayment of
the debt was intended to be from the collateral. Nonetheless, it was the
Mortgage Loan Seller's policy for such loans to have recourse to the borrower.
It was the practice that legal recourse alone was not sufficient; the
combination of the collateral in a downside scenario and other sources of
repayment must be sufficient to repay the debt. Any commercial real estate loan
that was not recourse to a creditworthy borrower required the approval of a
Senior Credit Officer.
Appraisal practices were centrally developed and managed, regardless of
where the loans were originated. It was generally the Mortgage Loan Seller's
practice to obtain appraisals at the time of origination. All such appraisals
after 1992 were ordered though one of two centralized appraisal departments.
Lending groups were not permitted to order appraisals directly. All appraisals
were performed by either internal licensed or third party licensed appraisers.
The Mortgage Loan Seller's Appraisal Department maintained a panel of approved
appraisers that were used if an external appraiser was to perform the appraisal.
The Mortgage Loan Seller regularly reviewed the panel and removed appraisers if
the quality was deemed to be inadequate. Third party appraisals were reviewed by
the Mortgage Loan Seller's Appraisal Department. The Appraisal Department was
separate from the lending part of the Mortgage Loan Seller and reported through
the Credit Policy area of the Mortgage Loan Seller. The Mortgage Loan Seller's
Appraisal Department was deemed by regulators to be independent from the lending
part of the Mortgage Loan Seller. The Credit Policy Group had a direct reporting
line to the Chairman of the Mortgage Loan Seller.
Environmental practices also were centrally developed and managed. It was
generally the practice that environmental reports, where required, were ordered
through the Mortgage Loan Seller's Environmental Department based on the
Mortgage Loan Seller's approved panel of third party professionals. The panel of
environmental professionals was monitored and changes would be made based on the
quality of work provided. All environmental reports were reviewed by the
Mortgage Loan Seller's Environmental Department before being accepted by the
Mortgage Loan Seller. The Environmental Department had a separate reporting line
from the lending part of the Mortgage Loan Seller and reported through the
Credit Policy area of the Mortgage Loan Seller. The Credit Policy Group had a
direct reporting line to the Chairman of the Mortgage Loan Seller.
The performance of the real estate portfolio from which the Mortgage Pool
was developed has been historically strong with low losses and delinquencies.
The table below show a 10 year loss history for the Mortgage Loan Seller's
portfolio from which this pool was developed.
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THE MORTGAGE LOAN SELLER'S LOSS EXPERIENCE
BANK OF AMERICA COMMERCIAL TERM MORTGAGE PORTFOLIO
LOAN LOSS HISTORY
<TABLE>
<CAPTION>
LOSS RECOVERY NET LOSS
% OF % OF % OF
PRINCIPAL PRINCIPAL PRINCIPAL
YEAR BALANCE BALANCE BALANCE
- ---- --------- --------- ---------
<S> <C> <C> <C>
1989........................................................ 0.66% 0.82% -0.16%
1990........................................................ 0.90% 0.28% 0.62%
1991........................................................ 0.87% 0.15% 0.72%
1992........................................................ 0.55% 0.11% 0.44%
1993........................................................ 0.98% 0.35% 0.63%
1994........................................................ 0.51% 0.27% 0.25%
1995........................................................ 0.46% 0.15% 0.31%
1996........................................................ 0.18% 0.11% 0.07%
1997........................................................ 0.19% 0.06% 0.12%
1998........................................................ 0.03% 0.04% -0.01%
3 Year Average.............................................. 0.13% 0.07% 0.06%
5 Year Average.............................................. 0.27% 0.13% 0.15%
10 Year Average............................................. 0.53% 0.23% 0.30%
</TABLE>
The table above reflects accounting losses and recoveries for Bank of
America's commercial term real estate mortgage portfolio while the assets were
recorded as loans. The loans in this pool were selected from this category of
loans. The commercial term mortgage portfolio is a subset of a larger real
estate category and as such is not separately disclosed by the Mortgage Loan
Seller. The numbers shown have been extracted from the larger portfolio using
methods the Mortgage Loan Seller believes to be accurate.
Additionally, the Mortgage Pool has experienced no delinquencies greater
than 30 days during the last 12 months.
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SERVICING OF THE MORTGAGE LOANS
GENERAL
In the accompanying Prospectus, a number of rights, powers, obligations and
duties related to the servicing of the Mortgage Loans ("Servicing Functions")
are described as performed by the Master Servicer (as defined in the
Prospectus). For purposes of the Pooling Agreement and this Prospectus
Supplement, such Servicing Functions will be performed by Bank of America NT&SA
as Primary Servicer, except that payments to the Trustee will continue to be
made by the Master Servicer. Banc One Mortgage Capital Markets, LLC ("Banc
One"), although the "Master Servicer" as described herein, will have only the
duties of oversight and supervision of the Primary Servicer, preparation of
certain reports, receipt of payments from the Primary Servicer and remittance of
such payments, net of the Master Servicer's fee, to the Trustee. However, in the
event that Primary Servicer fails to make Servicing Advances under the Pooling
Agreement, the Master Servicer shall be responsible for making such Servicing
Advances with respect to Non-Specially Serviced Mortgage Loans, and the Special
Servicer will be responsible for making Servicing Advances with respect to
Specially Serviced Mortgage Loans. Further, in the event that Primary Servicer
is terminated for cause under the Pooling Agreement, then the Master Servicer
may be (but is not required to be) designated by the Trustee to become the
replacement Primary Servicer. If Bank of America NT&SA shall resign or be
terminated as Primary Servicer, the Master Servicer will be responsible for
servicer reporting (and shall be entitled to reasonable compensation therefor to
the extent such responsibilities involve the performance of duties previously
performed by the Primary Servicer). Therefore, most of the references in the
Prospectus to "Master Servicer", by virtue of the apportionment of the Servicing
Functions under the Pooling Agreement, as reflected in this Prospectus
Supplement, should be deemed references to the "Primary Servicer" or to Banc One
as Master Servicer, or to both of them, as appropriate.
The Master Servicer, the Primary Servicer, and the Special Servicer, either
directly or through sub-servicers, will each be required to service and
administer the respective Mortgage Loans for which it is responsible, in the
best interests and for the benefit of the Certificateholders, in accordance with
any and all applicable laws, the terms of the Pooling Agreement, related
insurance policies and the respective Mortgage Loans and, to the extent
consistent with the foregoing, the following standard (the "Servicing
Standard"): (a) in the same manner in which, and with the same care, skill,
prudence and diligence with which, the Master Servicer, the Primary Servicer, or
the Special Servicer, as the case may be, generally services and administers
similar mortgage loans or assets, as applicable, for third parties or generally
services and administers similar mortgage loans or assets, as applicable, held
in its own portfolio, whichever servicing procedure is of a higher standard; (b)
with a view to the timely collection of all scheduled payments of principal and
interest under the Mortgage Loans or, if a Mortgage Loan comes into and
continues in default and if, in the good faith and reasonable judgment of the
Special Servicer, no satisfactory arrangements can be made for the collection of
the delinquent payments, the maximization of the recovery on such Mortgage Loan
to the Certificateholders (collectively) on a present value basis; and (c)
without regard to (1) any relationship that the Master Servicer, the Primary
Servicer or the Special Servicer, as the case may be, or any affiliate thereof
may have with any related borrower; (2) the ownership of any Certificate by the
Master Servicer, the Primary Servicer or the Special Servicer, as the case may
be, or any affiliate thereof; (3) the Primary Servicer's the Master Servicer's,
or the Special Servicer's obligation to make Advances (as defined herein); (4)
the right of the Master Servicer, the Primary Servicer or the Special Servicer,
as the case may be, or any affiliate thereof to receive compensation for its
services or reimbursement of costs under the Pooling Agreement or with respect
to any particular transaction; and (5) the servicing of other mortgage loans by
the Master Servicer, the Primary Servicer, or the Special Servicer, as the case
may be.
In general, the Primary Servicer will be responsible for the servicing and
administration of all the Mortgage Loans as to which no Servicing Transfer Event
(as defined herein) has occurred and all Corrected Mortgage Loans (as defined
herein), and the Special Servicer will be obligated to service and administer
each Mortgage Loan (other than a Corrected Mortgage Loan) as to which a
Servicing Transfer Event has occurred (each, a "Specially Serviced Mortgage
Loan") and each Mortgaged Property acquired on behalf of the Certificateholders
in respect of a defaulted Mortgage Loan through foreclosure, deed-in-lieu of
foreclosure or
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otherwise (upon acquisition, an "REO Property"). A "Servicing Transfer Event"
with respect to any Mortgage Loan consists of any of the following events: (1)
the related borrower has failed to make when due any Balloon Payment, which
failure has continued, or the Primary Servicer determines in its good faith and
reasonable judgment will continue, unremedied for 30 days; (2) the related
borrower has failed to make when due any Monthly Payment (other than a Balloon
Payment) or any other payment required under the related Mortgage Note or the
related Mortgage(s), which failure has continued, or the Primary Servicer
determines in its good faith and reasonable judgment will continue, unremedied
for 60 days; (3) the Primary Servicer has determined in its good faith and
reasonable judgment that a default in the making of a Monthly Payment (including
a Balloon Payment) or any other payment required under the related Mortgage Note
or the related Mortgage(s) is likely to occur within 30 days and is likely to
remain unremedied for at least 60 days or, in the case of a Balloon Payment, for
at least 30 days; (4) there shall have occurred a default under the related loan
documents, other than as described in clause (1) or (2) above, that may, in the
Primary Servicer's good faith and reasonable judgment, materially impair the
value of the related Mortgaged Property as security for the Mortgage Loan or
otherwise materially and adversely affect the interests of Certificateholders,
which default has continued unremedied for the applicable cure period under the
terms of the Mortgage Loan (or, if no cure period is specified, 60 days); (5) a
decree or order of a court or agency or supervisory authority having
jurisdiction in the premises in an involuntary case under any present or future
federal or state bankruptcy, insolvency or similar law or the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered against the
related borrower (or guarantor or recourse principal, if the Primary Servicer
has actual knowledge of such event), and such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; (6) the
related borrower (or guarantor or recourse principal, if the Primary Servicer
has actual knowledge of such event)shall have consented to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
such borrower (or guarantor or recourse principal, if the Primary Servicer has
actual knowledge of such event) or of or relating to all or substantially all of
its property; (7) the related borrower (or guarantor or recourse principal, if
the Primary Servicer has actual knowledge of such event) shall have admitted in
writing its inability to pay its debts generally as they become due, filed a
petition to take advantage of any applicable insolvency or reorganization
statute, made an assignment for the benefit of its creditors, or voluntarily
suspended payment of its obligations; (8) the Primary Servicer shall have
received notice of the commencement of foreclosure or similar proceedings with
respect to the related Mortgaged Property or Properties; (9) the Primary
Servicer, Special Servicer, Master Servicer, Trustee or Fiscal Agent has made
three consecutive P&I Advances (exclusive of P&I Advances with respect to
Mortgage Loans not delinquent past their grace periods) regardless of
reimbursement of such P&I Advances; (10) the Primary Servicer or the Master
Servicer has received actual knowledge that the related borrower is experiencing
a hardship which will cause an inability to pay the Mortgage Loan or that the
related borrower is at imminent risk of default of material terms of the
Mortgage Loan; or (11) the related borrower has failed to pay when due any
taxes, assessments, water or sewer rents, or other similar charges relating to
or assessed against the Mortgaged Property, or upon the interest of the
Mortgagee of the Mortgaged Property, which failure has continued unresolved for
more than a period of time specified in the Pooling Agreement. The Special
Servicer will prepare and deliver reports to the Trustee required under the
Pooling Agreement with respect to any Specially Serviced Mortgage Loans and REO
Properties, and further to render incidental services with respect to any
Specially Serviced Mortgage Loans and REO Properties as are specifically
provided for in the Pooling Agreement. The Primary Servicer and the Special
Servicer will not have any responsibility for the performance by each other of
their respective duties under the Pooling Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Primary Servicer will
re-assume servicing responsibilities) at such time as such of the following as
are applicable occur with respect to the circumstances identified above that
caused the
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Mortgage Loan to be characterized as a Specially Serviced Mortgage Loan (and
provided that no other Servicing Transfer Event then exists):
(w) with respect to the circumstances described in clauses (1) and (2)
of the preceding paragraph, the related borrower has made three consecutive
full and timely Monthly Payments under the terms of such Mortgage Loan (as
such terms may be changed or modified in connection with a bankruptcy or
similar proceeding involving the related borrower or by reason of a
modification, waiver or amendment granted or agreed to by the Special
Servicer);
(x) with respect to the circumstances described in clauses (3), (5),
(6) and (7) of the preceding paragraph, such circumstances cease to exist
in the good faith and reasonable judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (4) of the
preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause (8) of the
preceding paragraph, such proceedings are terminated.
The Primary Servicer, the Master Servicer and the Special Servicer will
each be required to service and administer any group of related
Cross-Collateralized Mortgage Loans as a single Mortgage Loan as and when it
deems necessary and appropriate, consistent with the Servicing Standard. If any
Cross-Collateralized Mortgage Loan becomes a Specially Serviced Mortgage Loan,
then each other Mortgage Loan that is cross-collateralized with it shall also
become a Specially Serviced Mortgage Loan. Similarly, no Cross-Collateralized
Mortgage Loan shall subsequently become a Corrected Mortgage Loan, unless and
until all Servicing Transfer Events in respect of each other Mortgage Loan with
which it is cross-collateralized, are remediated or otherwise addressed as
contemplated above.
Set forth below is a description of certain pertinent provisions of the
Pooling Agreement relating to the servicing of the Mortgage Loans. Reference is
also made to the accompanying prospectus, in particular to the section captioned
"The Pooling and Servicing Agreements," for additional important information
regarding the terms and conditions of the Pooling Agreement as such terms and
conditions relate to the rights and obligations of the Master Servicer, the
Primary Servicer, and the Special Servicer thereunder.
THE MASTER SERVICER, THE PRIMARY SERVICER AND THE SPECIAL SERVICER
The information set forth herein concerning the Master Servicer, the
Primary Servicer and the Special Servicer has been provided by Banc One and Bank
of America NT&SA, and neither the Depositor nor the Underwriter makes any
representation or warranty as to the accuracy or completeness of such
information.
Banc One Mortgage Capital Markets, LLC ("Banc One") will serve as Master
Servicer and as Special Servicer. Banc One is a Delaware limited liability
company. As of March 31, 1999, Banc One served as the named Special Servicer on
63 securitized transactions encompassing 14,853 loans, with an aggregate
principal balance of approximately $41 billion. Additionally, Banc One manages a
Master/Primary servicing portfolio of commercial and multifamily loans with an
aggregate principal balance of approximately $26.8 billion, the collateral for
which is located in 49 states, Puerto Rico, the District of Columbia, Mexico and
the Caribbean. Banc One's servicing operations are located at 1717 Main Street,
Dallas, Texas 75201.
Bank of America NT&SA will serve as Primary Servicer. As of December 31,
1998, the Primary Servicer was responsible for servicing approximately 11,000
commercial and multifamily loans with an aggregate principal balance of
approximately $11,007,964,583, the collateral for which is located in 44 states.
With respect to such loans, approximately 2000 loans with an aggregate principal
balance of approximately $3,726,401,922 pertain to commercial and multifamily
mortgage-backed securities.
The Master Servicer will be responsible for the oversight and supervision
of the Primary Servicer, and the Master Servicer shall not be responsible for
the day-to-day loan servicing functions under the Pooling Agreement.
Correspondingly, the Master Servicer shall not be liable for the acts or
omissions of the Primary Servicer but rather solely for its own acts or
omissions in the course of oversight and supervision of the Primary Servicer.
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So long as Bank of America NT&SA is the Primary Servicer, it will be
authorized (subject to the restrictions identified under "-- Modifications,
Waivers, Amendments and Consents" below) to consent to making or otherwise
effecting changes in the auto-debit payment features of a Mortgage Loan, the
elimination of cross-collateralization features from Mortgage Loans (subject to
the approval of the Special Servicer, as stated below) and the conversion of
Mortgage Rates from adjustable rates to fixed rates where expressly permitted by
the related Loan Documents. In addition, the Primary Servicer will only be able
to consent to or otherwise effect loan assumptions and changes in guarantors
(including assumptions by a trust or similar entity for estate planning
purposes) not altering the obligations of the original recourse party of the
Mortgage Loan (to the extent permitted for federal income tax purposes). All
other modifications require the approval of the Special Servicer. All
assumptions other than those not affecting the obligations of the original
recourse party of the Mortgage Loan will also require the approval of Special
Servicer. After the total Mortgage Loans with respect to which assumptions have
been made exceeds 10% of the then-current Pool Balance, any further assumptions
will require confirmation from each rating agency that such actions will not
result in the downgrade, withdrawal or qualification of any Class of
Certificates. The approval of the Special Servicer will be required with respect
to any Mortgage Loan with respect to the release of any cross-collateralization
feature of such Mortgage Loan. In the event of the resignation or termination of
Bank of America NT&SA as the Primary Servicer, such authority of the Primary
Servicer will be exercisable only by the Special Servicer unless each Rating
Agency confirms in writing that the exercise of such authority by another
successor to the Primary Servicer (if one is appointed) will not result in the
downgrade, withdrawal or qualification of the ratings then assigned to any Class
of Certificates.
SUB-SERVICERS
The Primary Servicer and Special Servicer may each 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 the Primary
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling Agreement for such delegated duties; provided further that the
Special Servicer shall not enter into sub-servicing agreements unless the Rating
Agencies have confirmed in writing that entering into such sub-servicing
agreements will not result in a qualification, downgrade or withdrawal of the
then-current ratings on the Certificates or the sub-servicing agreements relate
to a loan or loans which, together with any loans previously sub-serviced in
accordance with this section, represent less than 25% of the outstanding
principal balance of all Specially Serviced Mortgage Loans. The Mortgage Loans
are currently primary-serviced by Bank of America NT&SA and will continue to be
primary-serviced by Bank of America NT&SA. Each sub-servicing agreement between
the Primary Servicer or Special Servicer, as the case may be, and a Sub-Servicer
(each, a "Sub-Servicing Agreement") must provide that, if for any reason the
Primary Servicer or Special Servicer, as the case may be, is no longer acting in
such capacity, the Trustee or any other successor to such Primary Servicer or
Special Servicer may (1) assume such party's rights and obligations under such
Sub-Servicing Agreement, or (2) enter into a new Sub-Servicing Agreement with
such Sub-Servicer on such terms as the Trustee or such other successor Primary
Servicer or Special Servicer and such Sub-Servicer shall mutually agree. The
Primary Servicer and Special Servicer will each be required to monitor the
performance of Sub-Servicers retained by it.
The Primary Servicer and Special Servicer will each be solely liable for
all fees owed by it to any Sub-Servicer retained thereby. Each Sub-Servicer
retained thereby will be reimbursed by the Primary Servicer or Special Servicer,
as the case may be, for certain expenditures which it makes, generally to the
same extent the Primary Servicer or Special Servicer would be reimbursed under
the Pooling Agreement. See "-- Servicing and Other Compensation and Payment of
Expenses" herein.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer and the
Primary Servicer in respect of their master servicing and primary servicing
activities will be the Master Servicing Fee and the Primary Servicing Fee. The
"Master Servicing Fee" and the "Primary Servicing Fee" will be payable monthly
on a loan-by-loan basis from amounts received in respect of interest on each
Mortgage Loan (including Specially Serviced Mortgage Loans and Mortgage Loans as
to which the related Mortgaged Property has become an REO Property), will accrue
at the applicable Master Servicing Fee Rate and/or Primary Servicing Fee Rate
and
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will be computed on the Stated Principal Balance as of the Due Date in the
immediately preceding Collection Period (but without giving effect to any
payments of principal on such Mortgage Loan on such Due Date) and for the same
number of days respecting which any related interest payment on the related
Mortgage Loan is computed under the terms of the related Mortgage Note and
applicable law. The "Master Servicing Fee Rate" will be 0.02% per annum, on a
loan-by-loan basis. The "Primary Servicing Fee Rate" will be 0.20% on a
loan-by-loan basis. In the event that Bank of America NT&SA shall resign or be
terminated as the Primary Servicer and a successor Primary Servicer shall agree
for any reason to perform services of the Primary Servicer for an amount (the
"Successor Primary Servicer Retained Fee") less than the Primary Servicing Fee,
the excess of the Primary Servicing Fee over the Successor Primary Servicer
Retained Fee will be available for payment to Certificateholders. In addition,
the Primary Servicer will be authorized to invest or direct the investment of
funds held in any and all accounts maintained by it that constitute part of the
Certificate Account, in certain government securities and other investment grade
obligations specified in the Pooling Agreement ("Permitted Investments"), in an
Eligible Account, and the Primary Servicer will be entitled to retain any
interest or other income earned on such funds, but will be required to cover any
losses from its own funds without any right to reimbursement.
If a borrower prepays a Mortgage Loan, in whole or in part, after the Due
Date but on or before the Determination Date in any calendar month, the amount
of interest (net of related Master, Primary Servicing Fees) accrued on such
prepayment from such Due Date to, but not including, the date of prepayment (or
any later date through which interest accrues) will, to the extent actually
collected, constitute a "Prepayment Interest Excess". Conversely, if a borrower
prepays a Mortgage Loan, in whole or in part, after the Determination Date in
any calendar month and does not pay interest on such prepayment through the end
of such calendar month, then the shortfall in a full month's interest (net of
related Primary Servicing Fees and any Excess Interest) on such prepayment will
constitute a "Prepayment Interest Shortfall". The Trust will retain all
Prepayment Interest Excesses and incur all Prepayment Interest Shortfalls.
The principal compensation to be paid to the Special Servicer in respect of
its special servicing activities will be the Special Servicing Fee, the Workout
Fee and the Liquidation Fee. The "Special Servicing Fee" will accrue with
respect to each Specially Serviced Mortgage Loan and each Mortgage Loan as to
which the related Mortgaged Property has become an REO Property, at a rate equal
to 0.35% per annum (the "Special Servicing Fee Rate"), on the Stated Principal
Balance as of the Due Date in the immediately preceding Collection Period (but
without giving effect to any payments of principal on such Mortgage Loan on such
Due Date) and for the same number of days respecting which any related interest
payment due or deemed due on such Mortgage Loan is computed under the related
Mortgage Loan and applicable law. All such Special Servicing Fees will be
payable monthly from general collections on the Mortgage Loans and any REO
Properties on deposit in the Certificate Account from time to time. The Special
Servicer may retain as additional compensation any assumption or modification
fees with respect to a Specially Serviced Mortgage Loan to the extent paid by
the related borrowers. A "Workout Fee" will in general be payable with respect
to each Corrected Mortgage Loan. As to each Corrected Mortgage Loan, the Workout
Fee will be payable out of, and will be calculated by application of a "Workout
Fee Rate" of 1.0% with respect to Mortgage Loans of $1,000,000.00 or more and
1.5% for Mortgage Loans of $999,999.99 or less, to each collection of interest
(other than Default Interest (as defined below) and Excess Interest) and
principal (including scheduled payments, prepayments, Balloon Payments and
payments at maturity) received on such Mortgage Loan for so long as it remains a
Corrected Mortgage Loan. The Workout Fee with respect to any Corrected Mortgage
Loan will cease to be payable if such loan again becomes a Specially Serviced
Mortgage Loan or if the related Mortgaged Property becomes an REO Property;
provided that a new Workout Fee will become payable if and when such Mortgage
Loan again becomes a Corrected Mortgage Loan. If the Special Servicer is
terminated (other than for cause) or resigns, it shall retain the right to
receive any and all Workout Fees payable with respect to Mortgage Loans that
became Corrected Mortgage Loans during the period that it acted as Special
Servicer and were still such at the time of such termination or resignation (and
the successor Special Servicer shall not be entitled to any portion of such
Workout Fees), in each case until the Workout Fee for any such loan ceases to be
payable in accordance with the preceding sentence. A "Liquidation Fee" will be
payable with respect to each Specially Serviced Mortgage Loan as to which the
Special Servicer obtains a full or discounted payoff with respect thereto from
the related borrower and, except as otherwise described below, with respect to
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any Specially Serviced Mortgage Loan or REO Property as to which the Special
Servicer receives any Liquidation Proceeds. A prorated Liquidation Fee will also
be payable in connection with a partial payoff. As to each such Specially
Serviced Mortgage Loan and REO Property, the Liquidation Fee will be payable
from, and will be calculated by application of a "Liquidation Fee Rate" of 1.0%
with respect to Mortgage Loans of $1,000,000.00 or more and 1.5% for Mortgage
Loans of $999,999.99 or less, to, the related payment or proceeds (other than
any portion thereof that represents accrued but unpaid Excess Interest or
Default Interest). Notwithstanding anything to the contrary described above, no
Liquidation Fee will be payable based on, or out of, Liquidation Proceeds
received in connection with (i) the repurchase of any Mortgage Loan by the
Mortgage Loan Seller, for a breach of representation or warranty or for
defective or deficient Mortgage Loan documentation so long as such repurchase
occurs within the time required under the Pooling Agreement, (ii) the purchase
of any Specially Serviced Mortgage Loan or REO Property by the Master Servicer,
the Primary Servicer, the Special Servicer or any holder or holders of
Certificates evidencing a majority interest in the Controlling Class or (iii)
the purchase of all of the Mortgage Loans and REO Properties by the Master or
Primary Servicer or any holder or holders of Certificates evidencing a majority
interest in the Controlling Class in connection with the termination of the
Trust. If, however, Liquidation Proceeds are received with respect to any
Corrected Mortgage Loan and the Special Servicer is properly entitled to a
Workout Fee, such Workout Fee will be payable based on and out of the portion of
such Liquidation Proceeds that constitute principal and/or interest at
termination. The Special Servicer will be authorized to invest or direct the
investment of funds held in any accounts maintained by it that constitute part
of the Certificate Account, in Permitted Investments, in an Eligible Account,
and the Special Servicer will be entitled to retain any interest or other income
earned on such funds, but will be required to cover any losses from its own
funds without any right to reimbursement.
The Primary Servicer and the Special Servicer will each be responsible for
the fees of any Sub-Servicers retained by it (without right of reimbursement
therefor). As additional servicing compensation, the Sub-Servicers (or, to the
extent such Sub-Servicers are not entitled thereto, the Primary Servicer) with
respect to Mortgage Loans that are not Specially Serviced Mortgage Loans, and
the Special Servicer with respect to Specially Serviced Mortgage Loans,
generally will be entitled to retain all "Default Interest" (that is, interest
(other than Excess Interest) in excess of interest at the related Mortgage Rate
accrued as a result of a default) and late payment charges (to the extent such
Default Interest and/or late payment charges are not otherwise applied to cover
interest on Advances if received on a Specially Serviced Mortgage Loan), charges
for beneficiary statements or demands and any similar fees, in each case to the
extent actually paid by the borrowers with respect to such Mortgage Loans (and,
accordingly, such amounts will not be available for distribution to
Certificateholders). The Primary Servicer and the Special Servicer will share in
assumption fees; provided that the Special Servicer will receive the greater of
25% of such fees or $250.00 per Mortgage Loan, with the Primary Servicer to
receive the balance. The Special Servicer will be entitled to all modification
fees, to the extent collected from the related borrowers. The respective
Sub-Servicers (or, to the extent such Sub-Servicers are not entitled thereto,
the Primary Servicer) shall be entitled to receive all amounts collected for
checks returned for insufficient funds with respect to all Mortgage Loans except
for Specially Serviced Mortgage Loans) as additional servicing compensation.
Default Interest and late payment charges accrued in respect of any Mortgage
Loan after it has become a Specially Serviced Mortgage Loan are to be applied to
cover interest on Advances in respect of such Mortgage Loan, and any remaining
Default Interest and late charges will be retained by the Special Servicer. In
addition, collections on a Mortgage Loan are to be applied to interest (at the
related Mortgage Rate) and principal then due and owing prior to being applied
to Default Interest and late payment charges. The payment of all such fees and
charges shall be subordinate to regularly scheduled payments of principal and
interest on the Mortgage Loans.
The Primary Servicer and the Special Servicer will, in general, each be
required to pay its overhead and any general and administrative expenses
incurred by it in connection with its servicing activities under the Pooling
Agreement, and neither will be entitled to reimbursement therefor except as
expressly provided in the Pooling Agreement. In general, customary, reasonable
and necessary "out of pocket" costs and expenses incurred by the Primary
Servicer or Special Servicer in connection with the servicing of a Mortgage Loan
after a default, delinquency or other unanticipated event, or in connection with
the administration of any REO Property, will constitute "Servicing Advances"
(Servicing Advances and P&I Advances, collectively,
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"Advances") and, in all cases, will be reimbursable from excess interest, future
payments and other collections, including in the form of Insurance Proceeds,
Condemnation Proceeds and Liquidation Proceeds, on or in respect of the related
Mortgage Loan or REO Property ("Related Proceeds"). Notwithstanding the
foregoing, the Primary Servicer and the Special Servicer will each be permitted
to pay, or to direct the payment of, certain servicing expenses directly out of
the Certificate Account and at times without regard to the relationship between
the expense and the funds from which it is being paid (including in connection
with the remediation of any adverse environmental circumstance or condition at a
Mortgaged Property or an REO Property, although in such specific circumstances
the Special Servicer may advance the costs thereof). In addition, Servicing
Advances, together with interest thereon, will be reimbursed from any Excess
Cash Flow not applied to cover losses on the Mortgage Loans. The Special
Servicer will be required to make Servicing Advances on Specially Serviced
Mortgage Loans and REO Properties, and the Primary Servicer will be required to
make Servicing Advances on other Mortgage Loans.
If the Primary Servicer or Special Servicer is required under the Pooling
Agreement to make a Servicing Advance, but neither does so within 15 days after
such Servicing Advance is required to be made, then the Trustee will, if it has
actual knowledge of such failure, be required to give the defaulting party
notice of such failure and, if such failure continues for one more business day,
the Trustee shall notify the Master Servicer of such failure, and the Master
Servicer will be required to make such Servicing Advance. If the Master Servicer
fails to make such advance within one business day after notice from the
Trustee, then the Trustee will be required to make such Servicing Advance. If
the Trustee fails to make such Servicing Advance, then the Fiscal Agent will
make such Servicing Advance.
The Master Servicer, the Primary Servicer, the Special Servicer, the
Trustee and the Fiscal Agent will be obligated to make Servicing Advances only
to the extent that such Servicing Advances are, in the reasonable and good faith
judgment of the Master Servicer, the Primary Servicer, the Special Servicer the
Trustee, or the Fiscal Agent as the case may be, ultimately recoverable from
Related Proceeds (any Servicing Advance not so recoverable, a "Nonrecoverable
Servicing Advance").
The foregoing paragraph notwithstanding, the Primary Servicer is required
(at the direction of the Special Servicer if a Specially Serviced Mortgage Loan
or an REO Property is involved) to pay directly out of the Certificate Account
any servicing expense that, if paid by the Primary Servicer or the Special
Servicer, would constitute a Nonrecoverable Servicing Advance; provided that the
Primary Servicer (or the Special Servicer, if a Specially Serviced Mortgage Loan
or an REO Property is involved) has determined in accordance with the Servicing
Standard that making such payment is in the best interests of the
Certificateholders (as a collective whole), as evidenced by an officer's
certificate delivered promptly to the Trustee, the Depositor and the Rating
Agencies, setting forth the basis for such determination and accompanied by any
supporting information the Primary Servicer, the Master Servicer or the Special
Servicer may have obtained.
As and to the extent described herein, the Master Servicer, the Primary
Servicer, the Special Servicer and the Trustee are each entitled to receive
interest at the Reimbursement Rate on Servicing Advances made thereby
(compounded monthly). See "The Pooling and Servicing Agreements -- Certificate
Account" and "-- Servicing Compensation and Payment of Expenses" in the
accompanying prospectus and "Description of the Certificates -- P&I Advances" in
this prospectus supplement.
The Primary Servicer shall establish and maintain an account held on behalf
of the Trustee in trust for the benefit of the Certificateholders ( the
"Certificate Account"), which shall be an Eligible Account. The Primary Servicer
shall deposit into the Certificate Account payments or collections of principal
(including principal prepayments), interest, default interest, insurance
proceeds, net condemnation, foreclosure or sale proceeds, and the like. The
Primary Servicer may make withdrawals from the Certificate Account in order to
remit the Primary Servicer Remittance Amount and any Advances to the Master
Servicer (for remittance to the Trustee), to reimburse the Fiscal Agent, the
Trustee, the Master Servicer or the Primary Servicer and the Special Servicer
(in that order) for unreimbursed P&I Advances out of net late collections of
principal and interest, to pay earned and unpaid Primary or Master Servicing
Fees out of interest recoveries, to pay earned and unpaid Special Servicing
Fees, Workout Fees and Liquidation Fees, to reimburse the parties for
unreimbursed Servicing Advances, Nonrecoverable Advances and any interest
thereon, Default Charges, and costs of legal opinions, appraisals and the like.
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EVIDENCE AS TO COMPLIANCE
On or before April 30 of each year, beginning April 30, 2000, each of the
Primary Servicer and the Special Servicer, at its expense, will be required to
cause a firm of independent public accountants that is a member of the American
Institute of Certified Public Accountants to furnish a statement to the
Depositor and the Trustee to the effect that such firm has examined such
documents and records as it has deemed necessary and appropriate relating to the
Primary Servicer's or Special Servicer's, as the case may be, servicing of the
Mortgage Loans under the Pooling Agreement or servicing of mortgage loans
similar to the Mortgage Loans under substantially similar agreements for the
preceding calendar year (or during the period from the date of commencement of
the Primary Servicer's or Special Servicer's, as the case may be, duties under
the Pooling Agreement until the end of such preceding calendar year in the case
of the first such certificate) and that on the basis of such examination
conducted substantially in compliance with generally accepted auditing standards
and the Uniform Single Attestation Program for Mortgage Bankers, such servicing
has been conducted in compliance with similar agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
generally accepted auditing standards and the Uniform Single Attestation Program
for Mortgage Bankers require it to report, in which case such exceptions and
errors shall be so reported.
The Pooling Agreement will also require that, on or before a specified date
in each year, commencing in 2000, each of the Primary Servicer and the Special
Servicer deliver to the Trustee a statement signed by one or more officers
thereof to the effect that the Primary Servicer or Special Servicer, as the case
may be, has fulfilled its material obligations under the Pooling Agreement in
all material respects throughout the preceding calendar year or the portion
thereof during which the Certificates were outstanding.
MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS
The Primary Servicer (as to modifications with respect to Non-Specially
Serviced Mortgage Loans, subject to the limitations described below and under
"-- The Master Servicer, the Primary Servicer and the Special Servicer") and the
Special Servicer (as to Specially Serviced Mortgage Loans and other
notifications, waivers or amendments on Non-Specially Serviced Mortgage Loans)
each may, consistent with the Servicing Standard, agree to any modification,
waiver or amendment of any term of, forgive or defer the payment of interest on
and principal of, permit the release, addition or substitution of collateral
securing, and/or permit the release of the borrower on or any guarantor of any
Mortgage Loan it is required to service and administer, without the consent of
the Trustee or any Certificateholder, subject, however, to each of the following
limitations, conditions and restrictions:
(i) with limited exception (including as described below with respect
to Excess Interest), neither the Primary Servicer nor the Special Servicer
may agree to any modification, waiver or amendment of any term of, or take
any of the other above referenced actions with respect to, any Mortgage
Loan it is required to service and administer that would affect the amount
or timing of any related payment of principal, interest or other amount
payable thereunder or, in the Primary Servicer's or the Special Servicer's
good faith and reasonable judgment, would materially alter the security for
such Mortgage Loan or reduce the likelihood of timely payment of amounts
due thereon; provided, however, the Special Servicer may agree to any
modification, waiver or amendment of any term of, or take any of the other
above referenced actions with respect to, a Specially Serviced Mortgage
Loan that would have any such effect, but only if a material default on
such Mortgage Loan has occurred or, in the Special Servicer's reasonable
and good faith judgment, a default in respect of payment on such Mortgage
Loan is reasonably foreseeable, and such modification, waiver, amendment or
other action is reasonably likely to produce a greater recovery to
Certificateholders (collectively) on a present value basis than would
liquidation as certified to the Trustee in an officer's certificate;
(ii) the Special Servicer may not, in connection with any extension,
extend the maturity date of a Mortgage Loan beyond a date that is two years
prior to the Rated Final Distribution Date, or beyond a date which is 10
years prior to the expiration date of any related Ground Lease;
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(iii) unless the proviso to clause (i) above applies, neither the
Primary Servicer nor the Special Servicer may make or permit any
modification, waiver or amendment of any term of, or take any of the other
above referenced actions with respect to, any Mortgage Loan that would
constitute a "significant modification" of such Mortgage Loan within the
meaning of Treasury Regulations Section 1.860G-2(b) (neither the Primary
Servicer nor the Special Servicer shall be liable for judgments as regards
decisions made under this subsection which were made in good faith and,
unless it would constitute bad faith or gross negligence to do so, each of
the Primary Servicer and the Special Servicer may rely on opinions of
counsel in making such decisions);
(iv) neither the Primary Servicer nor the Special Servicer may permit
any borrower to add or substitute any collateral for an outstanding
Mortgage Loan, which collateral constitutes real property, unless (A) the
Special Servicer shall have first determined in accordance with the
Servicing Standard, based upon a Phase I environmental assessment (and such
additional environmental testing as the Special Servicer deems necessary
and appropriate), that such additional or substitute collateral is in
compliance with applicable environmental laws and regulations and that
there are no circumstances or conditions present with respect to such new
collateral relating to the use, management or disposal of any hazardous
materials for which investigation, testing, monitoring, containment,
clean-up or remediation would be required under any then applicable
environmental laws and/or regulations and (B) in the case of substitutions
of collateral only, the Primary Servicer or the Special Servicer, as the
case may be, shall have obtained written confirmation from each Rating
Agency that such substitution will not result in the withdrawal, downgrade
or qualification of any rating then assigned to any Class of Certificates;
and
(v) with limited exceptions, such as and specific releases
contemplated by the terms of the Mortgage Loans in effect on the Delivery
Date, neither the Primary Servicer nor the Special Servicer shall release
any collateral securing an outstanding Mortgage Loan.
Notwithstanding clauses (i) through (v) above, neither the Primary Servicer
nor the Special Servicer will be required to oppose the confirmation of a plan
in any bankruptcy or similar proceeding involving a borrower if in their
reasonable and good faith judgment such opposition would not ultimately prevent
the confirmation of such plan or one substantially similar.
SALE OF DEFAULTED MORTGAGE LOANS
The Pooling Agreement grants to the Master Servicer, the Primary Servicer,
the Special Servicer and any holder or holders of Certificates evidencing a
majority interest in the Controlling Class a right to purchase from the Trust
certain defaulted Mortgage Loans in the priority described below. If the Special
Servicer has determined, in its good faith and reasonable judgment, that any
defaulted Mortgage Loan will become the subject of a foreclosure sale or similar
proceeding and that the sale of such Mortgage Loan under the circumstances
described in this paragraph is in accordance with the Servicing Standard, the
Special Servicer will be required to promptly so notify in writing the Trustee,
the Primary Servicer and the Master Servicer, and the Trustee will be required,
within 10 days after receipt of such notice, to notify the holder (or holders)
of the Controlling Class. The Primary Servicer, at its option, may purchase any
such defaulted Mortgage Loan from the Trust at a price equal to the applicable
Repurchase Price. If the Primary Servicer declines to exercise such option, a
single holder or particular group of holders of Certificates evidencing a
majority interest in the Controlling Class will have such option. If such
Certificateholder(s) has (have) not purchased such defaulted Mortgage Loan
within 15 days of its having received notice in respect thereof, then the
Special Servicer or the Master Servicer, will have such option.
The Special Servicer may offer to sell any defaulted Mortgage Loan that has
not otherwise been purchased as described in the prior paragraph, if and when
the Special Servicer determines, consistent with the Servicing Standard, that
such a sale would be in the best economic interests of the Trust. Such offer is
to be made in a commercially reasonable manner for a period of not less than 30
days. Unless the Special Servicer determines that acceptance of any offer would
not be in the best economic interests of the Trust, the Special Servicer shall
accept the highest cash offer received from any person that constitutes a fair
price (which may be less than the Repurchase Price) for such Mortgage Loan;
provided that none of the Special
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Servicer, the Primary Servicer, the Master Servicer, the Depositor, the Mortgage
Loan Seller, the holder of any Certificate or any affiliate of any such party
(each, an "Interested Person") may purchase such Mortgage Loan (or any REO
Property acquired in respect thereof) for less than the Repurchase Price unless
at least two other offers are received from independent third parties at a price
that is less than the Repurchase Price and the price proposed by any Interested
Persons; and provided, further, that neither the Trustee nor an affiliate
thereof may make an offer for any such Mortgage Loan. See also "The Pooling and
Servicing Agreements -- Realization Upon Defaulted Mortgage Loans" in the
accompanying prospectus.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Special Servicer on
behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required to sell the Mortgaged Property not later than the end
of third calendar year following the year of acquisition, unless (i) the
Internal Revenue Service grants an extension of time to sell such property (an
"REO Extension") or (ii) the Special Servicer obtains an opinion of independent
counsel generally to the effect that the holding of the property subsequent to
the end of the third calendar year following the year in which such acquisition
occurred will not result in the imposition of a tax on the Trust or cause any of
the Trust REMICs to fail to qualify as a REMIC under the Code. Subject to the
foregoing, the Special Servicer will generally be required to solicit cash
offers for any Mortgaged Property so acquired in such a manner as will be
reasonably likely to realize a fair price for such property. The Special
Servicer may retain an independent contractor to operate and manage any REO
Property; however, the retention of an independent contractor will not relieve
the Special Servicer of its obligations with respect to such REO Property.
In general, the Special Servicer will be obligated to cause any Mortgaged
Property acquired as REO Property to be operated and managed in a manner that
would, to the extent commercially feasible, maximize the Trust's net after-tax
proceeds from such property. The Special Servicer could determine that it would
not be commercially feasible to manage and operate such property in a manner
that would avoid the imposition of a tax on "net income from foreclosure
property". Generally, net income from foreclosure property means income which
does not qualify as "rents from real property" within the meaning of Code
Section 856(c)(3)(A) and Treasury regulations thereunder or as income from the
sale of such REO Property. "Rents from real property" do not include the portion
of any rental based on the net income or gain of any tenant or sub-tenant. No
determination has been made whether rent on any of the Mortgaged Properties
meets this requirement. "Rents from real property" include charges for services
customarily furnished or rendered in connection with the rental of real
property, whether or not the charges are separately stated. Services furnished
to the tenants of a particular building will be considered as customary if, in
the geographic market in which the building is located, tenants in buildings
which are of similar Class are customarily provided with the service. No
determination has been made whether the services furnished to the tenants of the
Mortgaged Properties are "customary" within the meaning of applicable
regulations. It is therefore possible that a portion of the rental income with
respect to a Mortgaged Property owned by the Trust Fund, presumably allocated
based on the value of any non-qualifying services, would not constitute "rents
from real property." In addition to the foregoing, any net income from a trade
or business operated or managed by an independent contractor on a Mortgaged
Property owned by the Trust Fund, such as a hotel or skilled nursing care
business, will not constitute "rents from real property." Any of the foregoing
types of income instead constitute "net income from foreclosure property," which
would be taxable to the REMIC that owns such REO Property at the highest
marginal federal corporate rate (currently 35%) and may also be subject to state
or local taxes. Any such taxes would be chargeable against the related income
for purposes of determining the Net REO Proceeds available for distribution to
holders of Certificates. See "Certain Federal Income Tax
Consequences -- REMICs -- Prohibited Transactions Tax and Other Taxes" in the
accompanying prospectus.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
Commencing in 2000, the Primary Servicer is required to perform (or cause
to be performed) physical inspections of each Mortgaged Property (other than REO
Properties and Mortgaged Properties securing Specially Serviced Mortgage Loans)
annually if the related Mortgage Loan has a then-current balance greater than
$1,000,000 or more, and to inspect annually approximately one-half of the
Mortgage Loans having a
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then-outstanding balance between $500,000 and $999,999.99 (such that all
Mortgaged Properties relating to Mortgage Loans having an outstanding balance
between $500,000 and $999,999.99 will have been inspected once every other
year). In addition, the Special Servicer, subject to statutory limitations or
limitations set forth in the related loan documents, is required to perform a
physical inspection of each Mortgaged Property as soon as practicable after
servicing of the related Mortgage Loan is transferred thereto. The Special
Servicer and the Primary Servicer will each be required to prepare (or cause to
be prepared) as soon as reasonably possible a written report of each such
inspection performed thereby describing the condition of the Mortgaged Property.
TERMINATION OF THE SPECIAL SERVICER
The holder or holders of Certificates evidencing a majority interest in the
Controlling Class may at any time replace any Special Servicer. So long as Bank
of America NT&SA (or any of its controlled or controlling affiliates) is such a
holder, it agrees that it shall not terminate Banc One as the Special Servicer.
However, if Bank of America NT&SA (or any such affiliate) sells such
Certificates in the Controlling Class, this agreement will not apply, and the
new owner of the Certificates in the Controlling Class will not be required to
retain Banc One as the Special Servicer. The Controlling Class Certificates will
be the Class X Certificates, except that, at any time (and only for so long as)
the Stated Principal Balance of the Mortgage Loans that are 60 or more days
delinquent exceeds the Overcollateralization Amount, the Controlling Class will
be the most junior class then outstanding that has an outstanding Certificate
Balance at least equal to 25% of its initial Certificate Balance. Such holder(s)
shall designate a replacement to so serve by the delivery to the Trustee of a
written notice stating such designation. (If and when such delinquencies no
longer exceed the Overcollateralization Amount or no other Class qualifies to be
the Controlling Class, the Controlling Class will again be the Class X
Certificates.) The Trustee shall, promptly after receiving any such notice, so
notify the Rating Agencies. If the designated replacement is acceptable to the
Trustee, which approval may not be unreasonably withheld, the designated
replacement shall become the Special Servicer as of the date the Trustee shall
have received: (i) written confirmation from each Rating Agency stating that if
the designated replacement were to serve as Special Servicer under the Pooling
Agreement, the then-current rating or ratings of one or more Classes of the
Certificates would not be qualified, downgraded or withdrawn as a result
thereof; (ii) a written acceptance of all obligations of the Special Servicer,
executed by the designated replacement; and (iii) an opinion of counsel to the
effect that the designation of such replacement to serve as Special Servicer is
in compliance with the Pooling Agreement, that the designated replacement will
be bound by the terms of the Pooling Agreement and that the Pooling Agreement
will be enforceable against such designated replacement in accordance with its
terms. The existing Special Servicer shall be deemed to have resigned
simultaneously with such designated replacement's becoming the Special Servicer
under the Pooling Agreement.
TERMINATION OF THE PRIMARY SERVICER
If, in the course of its oversight and supervision of the Primary Servicer,
the Master Servicer determines, in its reasonable judgement, that the Primary
Servicer is not servicing the Mortgage Loans in accordance with the Servicing
Standard, or is otherwise in breach of Primary Servicer's obligations under the
Pooling Agreement, then the Master Servicer may, with notice to the Trustee and
Primary Servicer, recommend to the Trustee the termination of the Primary
Servicer for cause. If the Trustee, in its reasonable judgement, concurs with
Master Servicer's recommendation, it shall designate a proposed replacement
Primary Servicer. In making such judgment the Trustee may conduct and rely
conclusively upon the vote of Certificateholders representing a majority of the
Voting Rights. If the Trustee does not agree with the Master Servicer's
recommendation, then the Master Servicer may resign unconditionally, and Bank of
America NT&SA will become the Master Servicer (unless it is not then approved as
a master servicer by the Rating Agencies). The designated replacement for the
Primary Servicer shall become the Primary Servicer as of the date the Trustee
shall have received the three items set forth in (i), (ii) and (iii) of the
preceding paragraph, substituting the word "Primary" for the word "Special." The
existing Primary Servicer shall be deemed to have resigned simultaneously with
such designated replacement's becoming the Primary Servicer under the Pooling
Agreement, and the replacement Primary Servicer shall not succeed to the initial
Primary Servicer's rights with respect to modifications, waivers amendments and
consents, as set forth above under both "The Master Servicer, the Primary
Servicer and the Special Servicer" and "Modifications, Waivers, Amendments and
Consents."
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Depositor will issue its Commercial Mortgage Pass-Through Certificates,
Series 1999-SL (the "Certificates") on or about May 27, 1999 (the "Delivery
Date"), pursuant to a Pooling and Servicing Agreement, to be dated as of the
Cut-off Date, among the Depositor, the Primary Servicer, the Master Servicer,
the Special Servicer, the Trustee, the REMIC Administrator and the Mortgage Loan
Seller (the "Pooling Agreement").
The Offered Certificates, together with the Private Certificates, will
represent in the aggregate the entire beneficial interest in a trust (the
"Trust"), the assets of which (such assets collectively, the "Trust Fund")
include: (i) the Mortgage Loans and all payments thereunder and proceeds thereof
received after the Cut-off Date (exclusive of payments of principal, interest
and other amounts due thereon on or before the Cut-off Date); (ii) any REO
Properties; and (iii) such funds or assets as from time to time are deposited in
the Certificate Account (see "The Pooling and Servicing
Agreements -- Certificate Account" in the accompanying prospectus).
The Certificates will consist of sixteen classes (each, a "Class") to be
designated as: (i) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and
Class A-6 Certificates (collectively, the "Fixed Rate Senior Certificates");
(ii) the Class A-1V Certificates (together with the Fixed Rate Senior
Certificates, the ("Senior Certificates")); (iii) the Class B Certificates, the
Class C Certificates, the Class D Certificates, the Class E Certificates, the
Class F Certificates and the Class G Certificates (collectively with the Senior
Certificates, the "Principal Balance Certificates"); (iii) the Class X
Certificates (the "Class X Certificates" and, collectively with the Principal
Balance Certificates, the "REMIC Regular Certificates"); (iv) the Class R
Certificates (the "REMIC Residual Certificates"); and (v) the Class P
Certificates. Only the Fixed Rate Senior Certificates and the Class A-1V, Class
B, Class C, and Class D Certificates (collectively, the "Offered Certificates")
are offered hereby.
The Class E, Class F, Class G, Class P, Class X and Class R Certificates
(collectively, the "Private Certificates") have not been registered under the
Securities Act and are not offered hereby. Accordingly, to the extent this
prospectus supplement contains information regarding the terms of the Private
Certificates, such information is provided because of its potential relevance to
a prospective purchaser of an Offered Certificate.
REGISTRATION AND DENOMINATIONS
The Offered Certificates will be issued in book-entry format in
denominations of: (i) in the case of the Senior Certificates, $10,000 actual
principal amount and in any whole dollar denomination in excess thereof; and
(ii) in the case of the other Offered Certificates, $100,000 actual principal
amount and in any whole dollar denomination in excess thereof.
Each Class of Offered Certificates will initially be represented by one or
more Certificates registered in the name of the nominee of The Depository Trust
Company ("DTC"). The Depositor has been informed by DTC that DTC's nominee will
be Cede & Co. No beneficial owner of an Offered Certificate (each, a
"Certificate Owner") will be entitled to receive a fully registered physical
certificate (a "Definitive Certificate") representing its interest in such
Class, except under the limited circumstances described under "Description of
the Certificates -- Book-Entry Registration and Definitive Certificates" in the
accompanying prospectus. Unless and until Definitive Certificates are issued in
respect of the Offered Certificates, beneficial ownership interests in each such
Class of Certificates will be maintained and transferred on the book-entry
records of DTC and its participating organizations (its "Participants"), and all
references to actions by holders of each such Class of Certificates will refer
to actions taken by DTC upon instructions received from the related Certificate
Owners through its Participants in accordance with DTC procedures, and all
references herein to payments, notices, reports and statements to holders of
each such Class of Certificates will refer to payments, notices, reports and
statements to DTC or Cede & Co., as the registered holder thereof, for
distribution to the related Certificate Owners through its Participants in
accordance with DTC procedures.
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The form of such payments and transfers may result in certain delays in receipt
of payments by an investor and may restrict an investor's ability to pledge its
securities. See "Description of the Certificates -- Book-Entry Registration and
Definitive Certificates" in the accompanying prospectus. 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, if and to the extent Definitive Certificates are
issued in respect thereof, of transfers and exchanges of the Offered
Certificates.
CERTIFICATE BALANCES AND NOTIONAL AMOUNT
On the Delivery Date, the respective classes of Principal Balance
Certificates will have the Certificate Balances indicated in the "Executive
Summary" at the beginning of this prospectus supplement (in each case, subject
to a variance of plus or minus 5%).
The "Certificate Balance" of any Class of Principal Balance Certificates
outstanding at any time will be the then aggregate stated principal amount
thereof. On each Distribution Date, the Certificate Balance of each Class of
Principal Balance Certificates will be reduced by any distributions of principal
actually made on such Class of Certificates on such Distribution Date, and will
be further reduced by any Realized Losses and Additional Trust Fund Expenses
allocated to the reduction of principal of such Class of Certificates on such
Distribution Date. See "-- Distributions" and "-- Subordination; Allocation of
Losses and Certain Expenses" below.
The Class X Certificates will not have a Certificate Balance. The Class X
Certificates will represent the right to receive distributions of interest
accrued as described herein (possibly on a deferred basis to the extent that
such amounts are applied as payments of principal on the Principal Balance
Certificates) on a notional amount ("Notional Amount") equal to the aggregate of
the Stated Principal Balances of the Mortgage Loans outstanding from time to
time.
The Class P Certificates will not have a Certificate Balance or a Notional
Amount, and will be entitled only to Prepayment Premiums received on the
Mortgage Pool. The Class R Certificates will not have a Certificate Balance or a
Notional Amount.
A Class of Offered Certificates will be considered to be outstanding until
its Certificate Balance is reduced to zero.
PASS-THROUGH RATES
The Pass-Through Rates applicable to the Fixed Rate Senior Certificates and
the Class B, Class C and Class D Certificates will, for any Distribution Date,
at all times be equal to the rate set forth on the cover of this prospectus
supplement, except that the Class B, Class C and Class D Certificate
Pass-Through Rates will be subject to caps (each, the "Fixed Rate Available
Funds Cap Rate" for such Class) equal to the rate determined for each such Class
by taking (i) all interest that accrued on the Mortgage Loans at their
respective Net Mortgage Rates and which was due in the related Due Period, less
(ii) all interest accrued on the Fixed Rate Senior Certificates, the Class A-1V
Certificates and any more senior class of Subordinate Certificates at their
respective Pass-Through Rates, in each case during the related Accrual Periods,
and less (iii) all interest accrued on more subordinate Classes of Subordinate
Certificates at the lesser of their respective Uncapped Pass-Through Rates and
the Weighted Average Net Mortgage Rate for the Mortgage Loans, in each case
during the related Accrual Period, divided by (iv) the Certificate Balance of
such Class, and multiplied by (v) 12.
The Pass-Through Rate applicable to the Class A-1V Certificates for any
Distribution Date will be equal to the lesser of (i) the London interbank
offered rate for one-month U.S. dollar deposits ("LIBOR") (calculated as
described under "-- Calculation of LIBOR" below) as of the second business day
prior to the preceding Distribution Date, or prior to the Cut-Off Date in the
case of the first Distribution Date (the "LIBOR Determination Date") plus a
margin of 0.35% per annum (or 0.70% per annum after the Call Date if no optional
termination occurs) (the "Class A-1V LIBOR Rate") and (ii) the Class A-1V
Available Funds Cap Rate with respect to such Distribution Date. The "Class A-1V
Available Funds Cap Rate" for any
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Distribution Date will be a rate equal to the rate determined by taking (i) all
interest that accrued on the Mortgage Loans at their respective Net Mortgage
Rates and which was due in the related Due Period, less (ii) all interest
accrued on the Fixed Rate Senior Certificates at their respective Pass-Through
Rates and on the remaining Principal Balance Certificates (other than the Class
A-1V Certificates) at the lesser of their respective Uncapped Pass-Through Rates
and the Weighted Average Net Mortgage Rate for the Mortgage Loans, in each case
during the related Accrual Period, divided by (iii) by the aggregate Certificate
Balance of the Class A-1V Certificates, multiplied by (iv) 360, and divided by
(v) the number of days in the related Accrual Period for the Class A-1V
Certificates. The applicable Pass-Through Rate on the Class A-1V Certificates
for any Distribution Date is referred to as the "Class A-1V Pass-Through Rate."
Interest distributable on each Distribution Date will be interest accrued
during the period (each, the related "Accrual Period" for the applicable Class)
from, in the case of the Class A-1V Certificates, the 10th day of the month
preceding the month in which such Distribution Date occurs (or the Settlement
Date, in the case of first Distribution Date) to and including the 9th day of
the month in which such Distribution Date occurs and, in the case of all other
Principal Balance Certificates, the first day of the preceding calendar month to
and including the last day of the preceding calendar month. Interest will accrue
throughout an Accrual Period only on the Certificate Balance at the end of the
related Interest Accrual Period, notwithstanding that the Certificate Balance
may be higher during a portion of such Accrual Period, any principal distributed
during such Accrual Period being deemed to have been distributed at the
beginning of such Accrual Period.
Interest with respect to each Class of Fixed Rate Certificates will accrue
on the basis of a 360-day year consisting of twelve 30-day months. Interest with
respect to the Class A-1V Certificates on each Distribution Date will accrue on
the basis of the actual number of days during the related Accrual Period over a
360-day year. With respect to each Distribution Date and each Class of Senior
Certificates, interest payable on any Distribution Date at the related
Pass-Through Rate on the related Certificate Balance outstanding on the
immediately preceding Distribution Date (after giving effect to all payments of
principal made on such Distribution Date) or the related original Certificate
Balance, in the case of the initial Distribution Date, is referred to herein as
the "Interest Remittance Amount" for such Senior Certificates. The sum of the
Interest Remittance Amounts for each Class of Senior Certificates is referred to
herein as the "Senior Certificates Interest Remittance Amount." See "Description
of the Certificates -- Distributions" in the Prospectus.
The Pass-Through Rate applicable to the Class E, Class F and Class G
Certificates will, for any Distribution Date, be equal to 6.000%, 6.500% and
6.500% per annum, respectively; however, each such Pass-Through Rate will not
exceed the Fixed Rate Available Funds Cap Rate for such Class for any
Distribution Date, calculated in the same manner as for the Class B, Class C and
Class D Certificates.
The Class X Certificates will not have a Pass-Through Rate, but will be
entitled to receive Excess Cash Flow not applied to current losses or otherwise
to payment of principal to the Principal Balance Certificates, or to reimburse
Servicing Advances and to pay interest thereon. Excess Cash Flow will ultimately
include recoveries of amounts so applied on previous Distribution Dates, on a
deferred basis, but only after all other Certificateholders have been paid
current distributions in full.
The "Weighted Average Net Mortgage Rate" for any Distribution Date is the
weighted average of the Net Mortgage Rates for all the Mortgage Loans (based on
applicable Mortgage Rates with respect to payments due in the related Due Period
and weighted on the basis of their respective Stated Principal Balances
immediately following the preceding Distribution Date (or, in the case of the
initial Distribution Date, as of the Cut-off Date).
The "Net Mortgage Rate" with respect to any Mortgage Loan is, in general, a
per annum rate equal to the related Mortgage Rate in effect from time to time,
minus the sum of the applicable Primary Servicing Fee Rate and Master Servicing
Fee Rate and the per annum rate at which the monthly Trustee Fee is calculated
(such sum, the "Administrative Fee Rate"); provided, however, that if any
Mortgage Loan does not accrue interest on the basis of a 360-day year consisting
of twelve 30-day months (which is the basis on which interest accrues in respect
of the Principal Balance Certificates, other than the Class A-1V Certificates),
then the Net Mortgage Rate of such Mortgage Loan for any one-month period
preceding a related Due Date will be the annualized rate at which interest would
have to accrue in respect of such Mortgage Loan on the basis of a 360-
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day year consisting of twelve 30-day months in order to produce the aggregate
amount of interest actually accrued in respect of such loan during such
one-month period at the related Mortgage Rate (net of the related Administrative
Fee Rate). As of the Cut-off Date (without regard to the adjustment described in
the proviso to the preceding sentence, but determining the Mortgage Rates for
the Adjustable Rate Mortgage Loans as of March 31, 1999), the Net Mortgage Rates
for the Mortgage Loans ranged from 6.577% per annum to 14.277% per annum, with a
Weighted Average Net Mortgage Rate of 8.332% per annum. See "Servicing of the
Mortgage Loans -- Servicing and Other Compensation and Payment of Expenses"
herein.
The "Stated Principal Balance" of each Mortgage Loan will initially equal
the Cut-off Date Balance thereof and will be permanently reduced (to not less
than zero) on each Distribution Date by (i) any payments or other collections
(or advances in lieu thereof) of principal on such Mortgage Loan that have been
(or, if they had not been applied to cover Additional Trust Fund Expenses, would
have been) distributed on the Certificates on such date, and (ii) the principal
portion of any Realized Loss incurred in respect of such Mortgage Loan during
the related Collection Period.
The "Collection Period" for each Distribution Date is the period that
begins immediately following the Determination Date in the calendar month
preceding the month in which such Distribution Date occurs (or, in the case of
the initial Distribution Date, immediately following the Cut-off Date) and ends
on and includes the Determination Date in the calendar month in which such
Distribution Date occurs. The "Determination Date" will be the 3rd day of each
month or, if any such 3rd day is not a business day, the immediately preceding
business day, except that if such preceding business day would not be in the
same month, then the Determination Date will be the first business day of the
month.
The "Due Period" for each Distribution Date is the period that begins on
the 2nd day of the month preceding the month in which such Distribution Date
occurs and ends on and includes the 1st day of the month in which such
Distribution Date occurs.
If on any Distribution Date the applicable Pass-Through Rate for any Class
of Fixed Rate Certificates is equal to the related Fixed Rate Available Funds
Cap Rate, an amount equal to the resulting Fixed Rate Interest Carryover (as
defined below) for such class will be distributed to the applicable Fixed Rate
Certificates on subsequent Distribution Dates to the extent interest accrued on
the Mortgage Loans at their respective Net Mortgage Rates exceeds interest
accrued on the Certificates during the related Accrual Periods, the amount of
such excess is not applied to similar amounts payable to more senior classes of
Certificates, and sufficient funds are available therefor. The "Fixed Rate
Interest Carryover" for any Distribution Date and any Class of Fixed Rate
Certificates subject to an "available funds" cap will equal (i) the difference
between (a) the amount of interest such Class would have been entitled to
receive on the preceding Distribution Date without regard to the applicable
Fixed Rate Available Funds Cap Rate and (b) the amount of interest actually
accrued on such Class with respect to such preceding Distribution Date, (ii) the
portion of any amount calculated pursuant to clause (i) remaining unpaid from
prior Distribution Dates and (iii) interest accrued on such amounts at the
applicable Uncapped Pass-Through Rate.
If on any Distribution Date the Class A-1V Pass-Through Rate is equal to
the Class A-1V Available Funds Cap Rate, an amount equal to the Class A-1V LIBOR
Interest Carryover (as defined below) will be distributed on subsequent
Distribution Dates to the Class A-1V Certificates from any excess of the amount
accrued on the Mortgage Loans at their respective Net Mortgage Rates over
interest accrued on the Principal Balance Certificates during the related
Accrual Periods, to the extent sufficient funds are available therefor. The
"Class A-1V LIBOR Interest Carryover" for any Distribution Date will equal (i)
the difference between (a) the amount of interest the Class A-1V Certificates
would have been entitled to receive on the preceding Distribution Date without
regard to the Class A-1V Available Funds Cap Rate and (b) the amount of interest
actually accrued on the Class A-1V Certificates with respect to such preceding
Distribution Date, (ii) the portion of any amount calculated pursuant to clause
(i) remaining unpaid from prior Distribution Dates and (iii) interest accrued on
such amounts at the then-applicable Class A-1V LIBOR Rate.
Any Interest Carryover currently distributable to any Class will be part of
the interest entitlement of such Class payable in the priority specified under
"Distributions -- Application of the Available Distribution Amount" below. No
Class A-1V LIBOR Interest Carryover or Fixed Rate Interest Carryover will be
paid to
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the related Class A-1V Certificates or Fixed Rate Certificates after the
Principal Balance of such Class has been reduced to zero. The ratings assigned
to the Principal Balance Certificates do not address the likelihood of the
payment of the amount of any Class A-1V LIBOR Interest Carryover or Fixed Rate
Interest Carryover.
Calculation of LIBOR. LIBOR during the first Accrual Period for the Class
A-1V Certificates is 4.9025%. With respect to any Distribution Date, on the
second business day prior to the preceding Distribution Date, or prior to the
Cut-off Date in the case of the first Distribution Date (each, a "LIBOR
Determination Date"), the Trustee will determine LIBOR for the related Accrual
Period for the Class A-1V Certificates on the basis of the British Bankers'
Association ("BBA") "Interest Settlement Rate" for one-month deposits in U.S.
dollars as found on Telerate page 3750 as of 11:00 a.m. London time on such
LIBOR Determination Date. Such Interest Settlement Rates currently are based on
rates quoted by 16 BBA designated banks as being, in the view of such banks, the
offered rate at which deposits are being quoted to prime banks in the London
interbank market. Such Interest Settlement Rates are calculated by eliminating
the four highest rates and the four lowest rates, averaging the eight remaining
rates, carrying the results (expressed as a percentage) out to six decimal
places, and rounding to five decimal places. As used herein "Telerate page 3750"
means the display designated as page 3750 on the Dow Jones Telerate Service.
If, on any LIBOR Determination Date, the Trustee is unable to determine
LIBOR on the basis of the method set forth in the preceding paragraph, LIBOR
will be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on that day to prime banks in the London interbank market for a period
equal to the related Accrual Period for the Class A-1V Certificates (commencing
on the first day of such Accrual Period). The Trustee will request the principal
London office of each of the Reference Banks to provide a quotation of its rate.
If at least two such quotations are provided, LIBOR will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, LIBOR
will be the arithmetic mean of the rates quoted by major banks in New York City,
selected by the Primary Servicer, at approximately 11:00 a.m., New York City
time, on that day for loans in United States dollars to leading European banks
for a period equal to such related Accrual Period (commencing on the first day
of such Accrual Period).
"Reference Banks" means four major banks in the London interbank market
selected by the Primary Servicer.
DISTRIBUTIONS
General. Distributions on or with respect to the Certificates will be made
by the Trustee, to the extent of available funds, on the 10th day of each month
or, if any such 10th day is not a business day, then on the next succeeding
business day, commencing, with respect to the Offered Certificates, in June 1999
(each, a "Distribution Date"). Except as otherwise described below, all such
distributions will be made to the persons in whose names the Certificates are
registered at the close of business on the related Record Date and, as to each
such person, 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 written wiring instructions no less than five business days
prior to the related Record Date, or otherwise by check mailed to such
Certificateholder. Until Definitive Certificates are issued in respect thereof,
Cede & Co. will be the registered holder of the Offered Certificates. See
"-- Registration and Denominations" above. 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 on or with
respect to a Class of Certificates will be allocated pro rata among such
Certificates based on their respective percentage interests in such Class.
With respect to any Distribution Date, the "Record Date" will be the last
business day of the calendar month immediately preceding the month in which such
Distribution Date occurs.
Generally, on each Distribution Date, certain amounts received as payments
on the Mortgage Loans, advances by the Primary Servicer and the Special Servicer
and from other sources (as more specifically described under "Available
Distribution Amount" below, the "Available Distribution Amount") will be applied
to distributions of interest on and principal of the Certificates. To the extent
the Available Distribution
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Amount is not sufficient to pay all amounts to which Certificateholders are
entitled on a Distribution Date, such funds will be allocated among
Certificateholders in the manner described below under "Application of the
Available Distribution Amount." On each Distribution Date, each Class of
Certificates will be entitled to receive interest as described below under
"Distributable Certificate Interest", and will be entitled to receive
distributions of principal in two components, one of which (in each case, the
"Principal Distribution Amount" for such Class), in the aggregate for all
Certificates, is related to principal received (or, in some cases, due but not
received) on the Mortgage Loans, and the other of which represents a
distribution of a portion of the interest due on the Mortgage Loans, net of
certain fees payable therefrom to the Master Servicer, the Primary Servicer and
the Trustee, which is in excess of interest due on the Principal Balance
Certificates, all to the extent received or advanced, subject to certain
adjustments (collectively, as more specifically described below, the "Excess
Cash Flow"). Distribution of a portion of Excess Cash Flow as a payment of
principal of Certificates generally will tend to increase the difference, if
any, between the aggregate Stated Principal Balance of the Mortgage Loans and
the aggregate Certificate Balance of the Certificates (such difference, the
"Overcollateralization Amount"). The formula for the Principal Distribution
Amount for each Class is set forth under "Principal Distribution Amounts" below,
and the entitlements to Excess Cash Flow are set forth under "Application of
Excess Cash Flow" below.
Entitlements of each Class to principal are determined in a manner designed
generally (1) to maintain a balance between the aggregate Stated Principal
Balances of the Mortgage Loans in Loan Group 2 and the aggregate Certificate
Balance of the Class A-1V Certificates so long as any Fixed Rate Senior
Certificates remain outstanding, (2) to build the amount of credit support for
all Classes of Principal Balance Certificates by applying Excess Cash Flow (to
the extent not used to cover current losses or to cover Servicing Advances and
interest thereon) to pay principal of the Principal Balance Certificates until
the Overcollateralization Amount has reached a specified overcollateralization
level (the "OC Target") and target credit enhancement levels for all Classes of
Principal Balance Certificates have been achieved, and again thereafter whenever
the Overcollateralization Amount drops below the OC Target or any such target
credit enhancement levels are not maintained, and (3) to protect credit
enhancement levels for more senior Classes of Principal Balance Certificates by
applying all principal payments received (and, in some cases, due but not
received) on the Mortgage Loans and all such Excess Cash Flow (i) first to
payment of the most senior classes until the Distribution Date in July 2001 (the
"Step-Down Date"), (ii) on and after the Step-Down Date until the period after
the aggregate Stated Principal Balance of the Mortgage Loans is less than 25%
(or in certain cases, a higher percentage of the Initial Pool Balance (the
"Accelerated Recovery Period"), first to the Senior Certificates up to an amount
necessary to maintain specified credit support levels for such Classes, and
thereafter sequentially to each more subordinate Class of Principal Balance
Certificates up to an amount necessary to maintain specified credit support
levels for each of such Classes and (iii) during the Accelerated Recovery Period
again as applied prior to the Step-Down Date.
The Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates (other than the
Class P Certificates) will be made from the Available Distribution Amount for
such Distribution Date. The "Available Distribution Amount" for any Distribution
Date will, in general, equal
(a) all amounts on deposit in the Certificate Account as of the close of
business on the related Determination Date, exclusive of any portion thereof
that represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Due Period;
(ii) Prepayment Premiums (which are separately distributable to the
Class P Certificates);
(iii) amounts that are payable or reimbursable to any person other
than the Certificateholders (including amounts payable to the Master
Servicer, the Primary Servicer, the Special Servicer, any Sub-Servicers or
the Trustee as compensation (including Trustee Fees, Master Servicing Fees,
Primary Servicing Fees, Workout Fees, Liquidation Fees, Default Interest
and late payment charges (to the extent not otherwise applied to cover
interest on Advances), assumption fees and modification fees), amounts
payable in reimbursement of outstanding Advances, together with interest
payable thereon, if any, and amounts payable in respect of other Additional
Trust Fund Expenses); and
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(iv) amounts deposited in the Certificate Account in error; plus
(b) to the extent not already included in clause (a), any P&I Advances made
with respect to such Distribution Date.
See "The Pooling and Servicing Agreements -- Certificate Account" in the
accompanying prospectus.
Application of the Available Distribution Amount. On each Distribution
Date, the Trustee will apply the Available Distribution Amount for such date for
the following purposes and in the following order of priority:
(1) to pay interest to the holders of the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6 and Class A-1V Certificates
(collectively, the "Senior Certificates"), up to an amount equal to, and
pro rata as among such Classes in accordance with, all Distributable
Certificate Interest and, to the extent then payable, any Class A-1V LIBOR
Interest Carryover in respect of the Class A-1V Certificates for such
Distribution Date and, to the extent not previously paid, such amounts for
all prior Distribution Dates;
(2) to the Fixed Rate Senior Certificates, up to the Fixed Rate Senior
Principal Distribution Amount, and to the Class A-1V Certificates, up to
the Class A-1V Principal Distribution Amount (as each such term is defined
below) pro rata based on such amounts, in each case in reduction of their
respective Certificate Balances, any such distributions to the Fixed Rate
Senior Certificates to be applied as described under "Application of Fixed
Rate Senior Principal Distribution Amount" below; and
(3) to make payments on the other Classes of Certificates
(collectively, the "Subordinate Certificates") as contemplated below;
provided that, on each Distribution Date as of which the aggregate Certificate
Balance of the Subordinate Certificates is to be or has been reduced to zero,
and in any event on the final Distribution Date in connection with a termination
of the Trust (see "-- Termination" below), the payments of principal to be made
as contemplated by clause (2) above with respect to the Senior Certificates will
be so made (subject to available funds) to the holders of the respective Classes
of such Certificates up to an amount equal to, and pro rata as among such
Classes in accordance with, the respective then outstanding Certificate Balances
of such Classes of Certificates.
On each Distribution Date, following the above-described distributions on
the Senior Certificates, the Trustee will apply the remaining portion, if any,
of the Available Distribution Amount for such date for the following purposes
and in the following order of priority:
(1) to pay interest to the holders of the Class B Certificates, up to
an amount equal to all Distributable Certificate Interest and, to the
extent then payable, any Fixed Rate Interest Carryover in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, such amounts for all prior Distribution Dates;
(2) to pay principal to the holders of the Class B Certificates, up to
an amount equal to the lesser of (a) the then outstanding Certificate
Balance of such Class of Certificates and (b) the Subordinate Principal
Distribution Amount for the Class B Certificates for such Distribution
Date;
(3) to pay interest to the holders of the Class C Certificates, up to
an amount equal to all Distributable Certificate Interest and, to the
extent then payable, any Fixed Rate Interest Carryover in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, such amounts for all prior Distribution Dates;
(4) to pay principal to the holders of the Class C Certificates, up to
an amount equal to the lesser of (a) the then outstanding Certificate
Balance of such Class of Certificates and (b) the Subordinate Principal
Distribution Amount for the Class C Certificates for such Distribution
Date;
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(5) to pay interest to the holders of the Class D Certificates, up to
an amount equal to all Distributable Certificate Interest and, to the
extent then payable, any Fixed Rate Interest Carryover in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, such amounts for all prior Distribution Dates;
(6) to pay principal to the holders of the Class D Certificates, up to
an amount equal to the lesser of (a) the then outstanding Certificate
Balance of such Class of Certificates and (b) the Subordinate Principal
Distribution Amount for the Class D Certificates for such Distribution
Date;
(7) to pay interest to the holders of the Class E Certificates, up to
an amount equal to all Distributable Certificate Interest and, to the
extent then payable, any Fixed Rate Interest Carryover in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, such amounts for all prior Distribution Dates;
(8) to pay principal to the holders of the Class E Certificates, up to
an amount equal to the lesser of (a) the then outstanding Certificate
Balance of such Class of Certificates and (b) the Subordinate Principal
Distribution Amount for the Class E Certificates for such Distribution
Date;
(9) to pay interest to the holders of the Class F Certificates, up to
an amount equal to all Distributable Certificate Interest and, to the
extent then payable, any Fixed Rate Interest Carryover in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, such amounts for all prior Distribution Dates;
(10) to pay principal to the holders of the Class F Certificates, up
to an amount equal to the lesser of (a) the then outstanding Certificate
Balance of such Class of Certificates and (b) the Subordinate Principal
Distribution Amount for the Class F Certificates for such Distribution
Date;
(11) to pay interest to the holders of the Class G Certificates, up to
an amount equal to all Distributable Certificate Interest and, to the
extent then payable, any Fixed Rate Interest Carryover in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, such amounts for all prior Distribution Dates;
(12) to pay principal to the holders of the Class G Certificates, up
to an amount equal to the lesser of (a) the then outstanding Certificate
Balance of such Class of Certificates and (b) the Subordinate Principal
Distribution Amount for the Class G Certificates for such Distribution
Date;
(13) to pay to the Principal Balance Certificates, up to the amount of
any Excess Cash Flow to which such Classes are entitled as described under
"Application of Excess Cash Flow" below;
(14) to pay to the Class X Certificates, up to the amount of Excess
Cash Flow to which the Class X Certificates are then entitled; and
(15) to pay to the holders of the REMIC Residual Certificates, the
balance, if any, of the Available Distribution Amount for such Distribution
Date;
provided that, on the final Distribution Date in connection with a termination
of the Trust, the payments of principal to be made as contemplated by any of
clauses (2), (4), (6), (8), (10) and (12) above with respect to any Class of
Principal Balance Certificates will be so made (subject to available funds) up
to an amount equal to the entire then outstanding Certificate Balance of such
Class of Certificates.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date is equal to the Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date, reduced by such Class of
Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date.
The "Accrued Certificate Interest" in respect of each Class of Principal
Balance Certificates for each Distribution Date is equal to one month's interest
at the Pass-Through Rate applicable to such Class of Certificates for such
Distribution Date accrued on the related Certificate Balance outstanding
immediately
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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, except that
such interest calculated with respect to the Class A-1V Certificates will be
based on a 360-day year and the actual number of days elapsed in the related
Accrual Period.
To the extent Prepayment Interest Shortfalls exceed Prepayment Interest
Excesses, such remaining shortfalls will be allocated first to reduce Excess
Cash Flow, and thereafter to interest payable to each Class of Principal Balance
Certificates sequentially in inverse order of subordination, and accordingly,
first to the Class G Certificates and last, pro rata based on interest then
payable, to the Senior Certificates. To the extent Prepayment Interest Excesses
exceed Prepayment Interest Shortfalls, such excesses will first be allocated to
the most senior Class of Principal Balance Certificates that suffered prior
Prepayment Interest Shortfalls that remain unreimbursed up to the amount of such
shortfalls, applied in alphabetical order, and thereafter to Excess Cash Flow.
Principal Distribution Amounts. Prior to the Step-Down Date and whenever
any Trigger Event has occurred and is continuing (including during the
Accelerated Recovery Period), all principal paid to holders of Principal Balance
Certificates, as more specifically described below, will be distributed solely
in respect of principal of the Senior Certificates, allocated among the Senior
Certificates as described below, until the Certificate Balance of all Senior
Certificates has been reduced to zero, and thereafter will be applied
sequentially to the most senior Class of the Principal Balance Certificates
remaining outstanding until the Certificate Balance of any such Class has been
reduced to zero. On and after the Step-Down Date and so long as no Trigger Event
has occurred and is continuing, however, such principal amounts will be
distributed sequentially to the Senior Certificates and each Class of
Subordinate Certificates as needed to assure that, in each case, the sum of the
Overcollateralization Amount and the Certificate Balances of all more
subordinate Classes of Principal Balance Certificates (in each case, the "Total
Credit Support" for the Senior Certificates or such Class of Subordinate
Certificates, as applicable) is maintained at certain minimum levels. In
particular, such principal will be distributed as follows:
(a) to the Senior Certificates only in an amount sufficient to maintain the
Total Credit Support for the Senior Certificates at a level (the "Senior Minimum
Credit Support Amount") equal to the greater of (i) the Step-Down Credit Support
Percentage for the Senior Certificates times the aggregate Stated Principal
Balance of the Mortgage Loans immediately after such Distribution Date and (ii)
1% of the Initial Pool Balance; and
(b) thereafter, sequentially to each Class of Subordinate Certificates, but
only in an amount sufficient to maintain the Total Credit Support for each such
Class at a level (the "Subordinate Minimum Credit Support Amount" for such
Class) equal to the greater of (i) the Step-Down Credit Support Percentage for
such Class times the aggregate Stated Principal Balance of the Mortgage Loans
immediately after such Distribution Date and (ii) 1% of the Initial Pool
Balance; and
(c) last, any remainder in accordance with the requirements for allocation
of Excess Cash Flow.
The Step-Down Credit Support Percentage for each Class of Offered
Certificates for any Distribution Date on or after the Step-Down Date is the
following percentage of the current aggregate Stated Principal Balance of the
Mortgage Loans immediately after such Distribution Date:
Class A 31.500%
Class B 25.500%
Class C 20.250%
Class D 15.375%
The "Base Principal Distribution Amount" for any Distribution Date will, in
general, equal the aggregate of the following:
(a) the principal portions of all Monthly Payments (other than Balloon
Payments) and any Assumed Monthly Payments due or deemed due, as the case
may be, in respect of the Mortgage Loans for their respective Due Dates
occurring during the related Due Period;
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(b) all voluntary principal prepayments received on the Mortgage Loans
during the related Collection Period;
(c) with respect to any Balloon Loan as to which the related stated
maturity date occurred during or prior to the related Due Period, any
payment of principal (exclusive of any voluntary principal prepayment and
any amount described in clause (d) below) made by or on behalf of the
related borrower prior to the end of the related Collection Period and not
previously distributed, net of any portion of such payment that represents
a recovery of the principal portion of any Monthly Payment (other than a
Balloon Payment) due, or the principal portion of any Assumed Monthly
Payment deemed due, in respect of such Mortgage Loan on a Due Date during
or prior to the related Due Period and not previously recovered; and
(d) all Liquidation Proceeds and Insurance and Condemnation Proceeds
received on the Mortgage Loans during the related Collection Period that
were identified and applied by the Master Servicer as recoveries of
principal thereof, in each case net of any portion of such amounts that
represents a recovery of the principal portion of any Monthly Payment
(other than a Balloon Payment) due, or the principal portion of any Assumed
Monthly Payment deemed due, in respect of the related Mortgage Loan on a
Due Date during or prior to the related Collection Period and not
previously recovered.
The "Senior Principal Distribution Amount" for any Distribution Date will
be an amount, not to exceed the aggregate Certificate Balance of the Senior
Certificates, equal (i) prior to the Step-Down Date or when any Trigger Event
has occurred and is continuing, to the Base Distribution Amount, and (ii) at all
other times, to the excess of (a) the aggregate Certificate Balance of the
Senior Certificates immediately prior to such Distribution Date over (b) the
lesser of (x) 68.50% of the aggregate Stated Principal Balance of the Mortgage
Loans immediately after such Distribution Date and (y) the Stated Principal
Balance of the Mortgage Loans immediately after such Distribution Date less 1%
of the Initial Pool Balance.
The "Class A-1V Principal Distribution Amount" for any Distribution Date
will equal an amount, not to exceed the Certificate Balance of the Class A-1V
Certificates, equal to the lesser of (x) the Senior Principal Distribution
Amount and (y) the sum of (i) the difference between the Certificate Balance of
the Class A-1V Certificates immediately prior to such Distribution Date and the
aggregate Stated Principal Balance of the Mortgage Loans in Loan Group 2
immediately after such Distribution Date plus (ii) the excess of the remaining
Senior Principal Distribution Amount over the aggregate Certificate Balance of
the Fixed Rate Senior Certificates.
The "Fixed Rate Senior Principal Distribution Amount" for any Distribution
Date will equal an amount, not to exceed the aggregate Certificate Balance of
the Fixed Rate Senior Certificates, equal to the excess, if any, of the Senior
Principal Distribution Amount over the Class A-1V Principal Distribution Amount
for such Distribution Date.
The "Subordinate Principal Distribution Amount" for any Class of
Subordinate Certificates for any Distribution Date will be an amount, not to
exceed the aggregate Certificate Balance of such Class of Subordinate
Certificates, equal (i) prior to the Step-Down Date or when any Trigger Event
has occurred and is continuing, to the Base Distribution Amount less the
Certificate Balance immediately prior to such Distribution Date of the Senior
Certificates and any more senior Class of Subordinate Certificates, and (ii) at
all other times, to an amount (not to exceed the Base Principal Distribution
Amount for such Distribution Date less the portion thereof allocated to more
senior Classes of Certificates as the Senior Principal Distribution Amount for
the Senior Certificates and the Subordinate Principal Distribution Amount for
more senior Classes of Subordinate Certificates for such Distribution Date)
equal to the excess, if any, of (a) the aggregate Certificate Balance of the
Senior Certificates and of the Subordinate Certificates of such Class and any
Class senior to such Class, immediately after application of the Senior
Principal Distribution Amount or Subordinate Principal Distribution Amount, as
applicable, to any such more senior Class on such Distribution Date over (b) the
lesser of (x) a percentage of the aggregate Stated Principal Balance of the
Mortgage Loans immediately after such Distribution Date equal to 100% less the
Step-Down Credit Support Percentage for such Class and (y) the Stated Principal
Balance of the Mortgage Loans immediately after such Distribution Date less 1%
of the Initial Pool Balance.
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If such Distribution Date is subsequent to the initial Distribution Date,
each such Principal Distribution Amount will also include the excess, if any, of
(i) the related Principal Distribution Amount for the immediately preceding
Distribution Date, over (ii) the aggregate distributions of principal made on
the related Principal Balance Certificates in respect of such Principal
Distribution Amount on such immediately preceding Distribution Date.
For purposes of the foregoing, the Monthly Payment due on any Mortgage Loan
on any related Due Date will reflect any waiver, modification or amendment of
the terms of such Mortgage Loan, whether agreed to by the Master Servicer or
Special Servicer or resulting from a bankruptcy, insolvency or similar
proceeding involving the related borrower.
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i) any
Mortgage Loan that is delinquent in respect of its Balloon Payment beyond the
first Determination Date that follows the Due Period in which its stated
maturity date occurs and as to which no arrangements have been agreed to for
collection of the delinquent amounts; or (ii) any Mortgage Loan as to which the
related Mortgaged Property has become an REO Property. The Assumed Monthly
Payment deemed due on any such Mortgage Loan delinquent as to its Balloon
Payment, for its stated maturity date and for each successive Due Date that it
remains outstanding, will equal the Monthly Payment that would have been due
thereon on such date if the related Balloon Payment had not come due, but rather
such Mortgage Loan had continued to amortize in accordance with its amortization
schedule, if any, in effect immediately prior to maturity and had continued to
accrue interest in accordance with such loan's terms in effect immediately prior
to maturity. The Assumed Monthly Payment deemed due on any such Mortgage Loan as
to which the related Mortgaged Property has become an REO Property, for each Due
Date that such REO Property remains part of the Trust Fund, will equal the
Monthly Payment (or, in the case of a Mortgage Loan delinquent in respect of its
Balloon Payment as described in the prior sentence, the Assumed Monthly Payment)
due on the last Due Date prior to the acquisition of such REO Property.
A "Trigger Event" will have occurred and be continuing if either of the
following two circumstances shall exist:
(a) the aggregated Stated Principal Balance of Mortgage Loans with payments
remaining unpaid 60 days or more after their Due Dates as of any previous
Determination Date shall have equaled or exceed 2.5% of the aggregate
Certificate Balance of the Principal Balance Certificates immediately prior to
such Distribution Date, and on no subsequent Distribution Date shall the
percentage of such delinquent Mortgage Loans have been less than 1.0%, or
(b) the aggregate Stated Principal Balance of the Mortgage Loans as of the
preceding Distribution Date shall be less than a percentage of the Initial Pool
Balance equal to 25% plus all Realized Losses incurred on the Mortgage Loans
prior to such Determination Date, expressed as a percentage of the Initial Pool
Balance (the "Realized Loss Percentage"), but only if such Realized Loss
Percentage shall exceed 2.5% of the Initial Pool Balance.
If any such Trigger Event shall have occurred and be continuing, Principal
Distribution Amounts will be determined on a standard payment basis as though
the Step-Down Date had not occurred, and allocation of Excess Cash Flow to the
Principal Balance Certificates will similarly be adjusted. The OC Target and
Excess Cash Flow Release Test described below will not be changed, however, and
accordingly the existence of a Trigger Event will not of itself cause Excess
Cash Flow to be applied to principal of the Principal Balance Certificates if it
would not have been so applied absent such a Trigger Event.
Application of Fixed Rate Senior Principal Distribution Amount. The Fixed
Rate Senior Principal Distribution Amount will be applied on each Distribution
Date as follows:
(a) first, to the Class A-6 Certificates, up the Class A-6 Primary
Principal Distribution Amount, and thereafter
(b) sequentially, to the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5 and Class A-6 Certificates, in each case until the Certificate Balance of
such Class has been reduced to zero.
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The "Class A-6 Primary Principal Distribution Amount" for any Distribution
Date will equal the following percentages of the pro rata share of the Fixed
Rate Senior Principal Distribution Amount allocable to the Class A-6
Certificates based on the relative Certificate Balances of the respective
Classes of Fixed Senior Certificates:
(a) for Distribution Dates from the first Distribution Date to and
including the Distribution Date in June 2001, 0%;
(b) for Distribution Dates in July 2001 to and including May 2003, 45%;
(c) for Distribution Dates in June 2003 to and including May 2004, 80%;
(d) for Distribution Dates in June 2004 to and including May 2005, 100%;
and
(e) for all subsequent Distribution Dates, 300%, provided that such Class
A-6 Primary Principal Distribution Amount will not exceed the Fixed Rate Senior
Principal Distribution Amount or the Certificate Balance of the Class A-6
Certificates.
Application of Excess Cash Flow. Excess Cash Flow for any Distribution
will equal any portion of the Available Distribution Amount remaining on each
Distribution Date after distributions to the Subordinate Certificates through
clause (12) under "-- Applications of the Available Distribution Amount" above,
and will generally include (x) the sum of (a) any amounts received or advanced
on the Mortgage Loans representing interest accrued at the Net Mortgage Rate due
in the immediately preceding Due Period or any prior Due Period and not
previously distributed, to the extent such interest is in excess of interest
distributed on the Principal Balance Certificates on such Distribution Date,
including in respect of Interest Carryovers ("Excess Interest"), (b) any portion
of the Base Principal Distribution Amount remaining after distributions
therefrom to all Classes of Principal Balance Certificates and (c) any
recoveries of Servicing Advances previously reimbursed from Excess Cash Flow and
recoveries of Realized Losses incurred on prior Distribution Dates, less (y) any
reimbursements since the prior Distribution Date of P&I Advances in respect of
Excess Interest. Excess Cash Flow will be applied as follows:
(a) first, as a payment of principal of the Certificates, to the extent of
any reduction in the Stated Principal Balance of the Mortgage Loans due to
Realized Losses or reimbursement of nonrecoverable P&I Advances rather than the
receipt or advance of principal payments, except that prior to the Accelerated
Recovery Period such amount shall not exceed the amount by which (i) the sum of
the aggregate Certificate Balance of all Principal Balance Certificates
immediately after all prior distributions on such Distribution Date plus the OC
Target for such Distribution Date exceeds (ii) the aggregated Stated Principal
Balance of the Mortgage Loans immediately after such Distribution Date, such
principal to be allocated among the Principal Balance Certificates on the same
basis as used to determine the respective Principal Distribution Amounts for
such Classes;
(b) second, to reimburse, in sequence, the Fiscal Agent, the Trustee, the
Master Servicer, the Primary Servicer and the Special Servicer for any
outstanding Servicing Advances, together with interest thereon; and
(c) third, so long as the Excess Cash Flow Release Test is not satisfied
(whether before or after the Step-Down Date), to pay principal to the Principal
Balance Certificates until such Excess Cash Flow Release Test is satisfied, such
principal to be allocated among the Principal Balance Certificates on the same
basis as used to determine the respective Principal Distribution Amounts for
such Classes.
The "Excess Cash Flow Release Test" will be satisfied on any Distribution
Date if, after taking into account all distributions in respect of principal of
the Certificates on such Distribution Date, (i) the Overcollateralization Amount
equals or exceeds the OC Target on such Distribution Date, (ii) the sum of the
aggregate Certificate Balance of the Subordinated Certificates and the
Overcollateralization Amount equals or exceeds the Senior Minimum Credit Support
Amount for such Distribution Date and (iii) the sum, with respect to each Class
of Subordinate Certificates, of the aggregate Certificate Balance of all
Certificates subordinate to such Class and the Overcollateralization Amount
equals or exceeds the Subordinate Minimum Credit Support Amount for such Class
for such Distribution Date. If the Excess Cash Flow Test is satisfied after
taking into account other distributions of principal on such Distribution Date
(including distribution of
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any portion of Excess Cash Flow necessary to satisfy such Excess Cash Flow
Release Test), any remaining Excess Cash Flow will be distributed to holders of
the Class X or Class R Certificates and will no longer be available for credit
support.
Prior to the Step-Down Date, the OC Target is fixed at a level equal to
3.0% of the aggregate Cut-Off Date Balance of the Mortgage Loans. On and after
the Step-Down Date (whether or not a Trigger Event has occurred), the OC Target
is adjusted on each Distribution Date to at least the greater of (x) 4.5% times
the then current aggregate Stated Principal Balance of the Mortgage Loans and
(y) 1% of the Cut-Off Date Balance of the Mortgage Loans.
Any Excess Cash Flow distributed as principal to the Principal Balance
Certificates will be distributed in the same manner as the Base Principal
Distribution Amount, but calculated after taking into account any distribution
of the Base Principal Distribution Amount on such Distribution Date. That is,
prior to the Step-Down Date, and on any date thereafter when a Trigger Event has
occurred and is continuing, Excess Cash Flow will first be allocated to
principal of the Class A-1V Certificates to the extent the Certificate Balance
of the Class A-1V Certificates exceeds the aggregated Stated Principal Balance
of the Mortgage Loans in Loan Group 2, thereafter to the Fixed Rate Senior
Certificates until the Certificate Balance thereof is reduced to zero, and then
sequentially to the Class A-1V Certificates, the Class B Certificates, the Class
C Certificates, the Class D Certificates and the Private Certificates, in each
case until the Certificate Balance of such Class is reduced to zero. On and
after the Step-Down Date, so long as no Trigger Event has occurred and is
continuing, such Excess Cash Flow will be applied to the various Classes of
Principal Balance Certificates in amounts required to maintain credit support
for each Class at Minimum Credit Support Levels.
Distributions of Prepayment Premiums. Any Prepayment Premiums (whether
described in the related Mortgage Loan documents as yield maintenance amounts or
fixed prepayment premiums) actually collected during any particular Collection
Period as the result of prepayments of principal on the Mortgage Loans will be
distributed to the Class P Certificates.
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise, the related Mortgage Loan will be treated, for
purposes of, among other things, determining distributions on the Certificates,
allocations of Realized Losses and Additional Trust Fund Expenses to the
Certificates, and the amount of Primary Servicing Fees, Master Servicing Fees,
Special Servicing Fees and Trustee Fees payable under the Pooling Agreement, as
having remained outstanding until such REO Property is liquidated. Among other
things, such Mortgage Loan will be taken into account when determining the
Weighted Average Net Mortgage Rate and the Principal Distribution Amount for
each Distribution Date. In connection therewith, operating revenues and other
proceeds derived from such REO Property (after application thereof to pay
certain costs and taxes, including certain reimbursements payable to the Primary
Servicer, the Master Servicer, the Special Servicer and/or the Trustee, incurred
in connection with the operation and disposition of such REO Property) will be
"applied" by the Special Servicer as principal, interest and other amounts "due"
on such Mortgage Loan; and, subject to the recoverability determination
described below (see "-- P&I Advances"), the Special Servicer (subject to
back-up by the Master Servicer) and the Trustee will be required to make P&I
Advances in respect of such Mortgage Loan, in all cases as if such Mortgage Loan
had remained outstanding.
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
As and to the extent described herein, the rights of holders of the
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will, in the case of each Class thereof, be
subordinated to the rights of holders of the Senior Certificates and, further,
to the rights of holders of each other Class of Subordinate Certificates, if
any, with an earlier alphabetical Class designation. This subordination is
intended to enhance the likelihood of timely receipt by holders of the
respective Classes of Senior Certificates of the full amount of Distributable
Certificate Interest and Interest Carryovers payable in respect of their
Certificates on each Distribution Date, and the ultimate receipt by holders of
the respective Classes of Senior Certificates of principal equal to, in each
such case, the entire related Certificate Balance. Similarly,
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but to decreasing degrees, this subordination is also intended to enhance the
likelihood of timely receipt by holders of the other Classes of Offered
Certificates of the full amount of Distributable Certificate Interest and
Interest Carryovers payable in respect of their Certificates on each
Distribution Date, and the ultimate receipt by holders of the other Classes of
Offered Certificates of principal equal to, in each such case, the entire
related Certificate Balance. The subordination of any Class of Subordinate
Certificates will be accomplished by, among other things, the application of the
Available Distribution Amount on each Distribution Date in the order of priority
described under "-- Distributions -- The Available Distribution Amount" above.
In addition, any current Realized Losses, unadvanced delinquencies and
Additional Trust Fund Expenses will first reduce Excess Cash Flow before
reducing funds available for payment of interest on Certificates or resulting in
a write-down of Certificate Balances, and any remaining Realized Losses will
first be applied to reduce any Overcollateralization Amount before being applied
to reduce Certificate Balances of Certificates. No other form of Credit Support
will be available for the benefit of holders of the Offered Certificates.
If, following the distributions to be made in respect of the Certificates
on any Distribution Date, the aggregate Stated Principal Balance of the Mortgage
Pool that will be outstanding immediately following such Distribution Date is
less than the then aggregate Certificate Balance of the Principal Balance
Certificates, the Certificate Balances of the Class G, Class F, Class E, Class
D, Class C and Class B Certificates will be reduced, sequentially in that order,
in the case of each such Class until such deficit (or the related Certificate
Balance) is reduced to zero (whichever occurs first). If any portion of such
deficit remains at such time as the Certificate Balances of such Classes of
Certificates are reduced to zero, then the respective Certificate Balances of
the Fixed Rate Senior Certificates and Class A-1V Certificates will be reduced,
pro rata in accordance with the relative sizes of the remaining Certificate
Balances of such Classes of Certificates, until such deficit (or each such
Certificate Balance) is reduced to zero. Any such deficit will, in general, be
the result of Realized Losses incurred in respect of the Mortgage Loans and/or
Additional Trust Fund Expenses to the extent paid from funds which would
otherwise have been used to make distributions of principal. Accordingly, the
foregoing reductions in the Certificate Balances of the respective Classes of
the Principal Balance Certificates will constitute an allocation of any such
Realized Losses and Additional Trust Fund Expenses.
"Realized Losses" are losses on or in respect of the Mortgage Loans arising
from the inability of the Master Servicer, the Primary Servicer and/or the
Special Servicer to collect all amounts due and owing under any such Mortgage
Loan, including by reason of the fraud or bankruptcy of a borrower or a casualty
of any nature at a Mortgaged Property, to the extent not covered by insurance.
The Realized Loss in respect of a liquidated Mortgage Loan (or related REO
Property) is an amount generally equal to the excess, if any, of (a) the
outstanding principal balance of such Mortgage Loan as of the date of
liquidation, together with (i) all accrued and unpaid interest thereon at the
related Mortgage Rate to but not including the Due Date in the Due Period
related to the Collection Period in which the liquidation occurred and (ii) all
related unreimbursed Servicing Advances and outstanding liquidation expenses,
over (b) the aggregate amount of Liquidation Proceeds, if any, recovered in
connection with such liquidation. If any portion of the debt due under a
Mortgage Loan is forgiven, whether in connection with a modification, waiver or
amendment granted or agreed to by the Master Servicer or the Special Servicer or
in connection with the bankruptcy or similar proceeding involving the related
borrower, the amount so forgiven also will be treated as a Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) all
Special Servicing Fees, Workout Fees and Liquidation Fees paid to the Special
Servicer, (ii) any interest paid to the Master Servicer, the Primary Servicer,
the Special Servicer, the Trustee and/or the Fiscal Agent in respect of
unreimbursed Advances, (iii) the cost of various opinions of counsel required or
permitted to be obtained in connection with the servicing of the Mortgage Loans
and the administration of the Trust Fund, (iv) certain unanticipated,
non-Mortgage Loan specific expenses of the Trust, including certain
reimbursements and indemnifications to the Trustee as described under "The
Pooling and Servicing Agreements -- Certain Matters Regarding the Trustee" in
the accompanying prospectus, certain reimbursements to the Master Servicer, the
Special Servicer, the REMIC Administrator and the Depositor as described under
"The Pooling and Servicing Agreements -- Certain Matters Regarding the Master
Servicer, the Special Servicer, the REMIC Administrator and the Depositor" in
the accompanying prospectus and certain federal, state and local taxes, and
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certain tax-related expenses, payable out of the Trust Fund as described under
"Certain Federal Income Tax Consequences -- Possible Taxes on Income From
Foreclosure Property and Other Taxes" herein and "Certain Federal Income Tax
Consequences -- Taxation of Owners of REMIC Regular Certificates -- Prohibited
Transactions Tax and Other Taxes" in the accompanying prospectus, (v) if not
advanced by the Master Servicer or the Special Servicer, any amounts expended on
behalf of the Trust to remediate an adverse environmental condition at any
Mortgaged Property securing a defaulted Mortgage Loan (see "The Pooling and
Servicing Agreements -- Realization Upon Defaulted Mortgage Loans" in the
accompanying prospectus), and (vi) any other expense of the Trust Fund not
specifically included in the calculation of "Realized Loss" for which there is
no corresponding collection from a borrower. Additional Trust Fund Expenses will
reduce amounts payable to Certificateholders and, consequently, may result in a
loss on the Offered Certificates.
P&I ADVANCES
With respect to each Distribution Date, each of the Primary Servicer (with
respect to Non-Specially Serviced Mortgage Loans) and the Special Servicer (with
respect to Specially Serviced Mortgage Loans) 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 and to
the extent provided in the Pooling Agreement, 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 generally equal to the aggregate of all
Monthly Payments (other than Balloon Payments) and any Assumed Monthly Payments,
provided that a P&I Advance of any such payment remaining unpaid after any
applicable grace period will be made only to the extent such delinquency would
result in a shortfall in interest payable to any Class other than the Class X
Certificates and the then most subordinate class of Principal Balance
Certificates. Any such P&I Advance will be net of related Primary Servicing
Fees, Liquidation Fees and Workout Fees that were due or deemed due, as the case
may be, in respect of the Mortgage Loans during the related Due Period and that
were not paid by or on behalf of the related borrowers or otherwise collected as
of the close of business on the last day of the related Collection Period. The
Primary Servicer's and the Special Servicer's respective obligations to make P&I
Advances in respect of any Mortgage Loan will continue through liquidation of
such Mortgage Loan or disposition of any REO Property acquired in respect
thereof. Notwithstanding the foregoing, subject to the recoverability
determination described below, if the Primary Servicer or the Special Servicer,
as applicable, fails to make a required P&I Advance, either the Master Servicer,
the Trustee or the Fiscal Agent will be required to make such P&I Advance. See
"-- The Trustee" below, and "Servicing of the Mortgage Loans -- Servicing and
Other Compensation and Payment of Expense", above.
The Primary Servicer, the Master Servicer, the Special Servicer, the
Trustee and the Fiscal Agent will each be entitled to recover any P&I Advance
made out of its own funds from Related Proceeds. In addition, the Primary
Servicer, the Master Servicer, the Special Servicer, the Trustee and the Fiscal
Agent will each be entitled to recover any P&I Advance made out of its own funds
with respect to any payment delinquent past its grace period at the time of its
reimbursement from amounts that would reduce Excess Cash Flow and, to the extent
Excess Cash Flow is insufficient, from amounts that would reduce any
distribution of interest to the then most subordinate class of Certificates.
Notwithstanding the foregoing, neither the Master Servicer nor the Primary
Servicer nor the Trustee nor the Fiscal Agent will be obligated to make any P&I
Advance that it determines in its reasonable good faith judgment would, if made,
not be recoverable out of Related Proceeds (a "Nonrecoverable P&I Advance"; and,
together with a Nonrecoverable Servicing Advance, "Nonrecoverable Advances"),
and the Primary Servicer, the Special Servicer, and the Trustee, the Fiscal
Agent, and the Master Servicer, if applicable, will be entitled to recover any
P&I Advance that at any time is determined to be a Nonrecoverable P&I Advance
out of funds received on or in respect of other Mortgage Loans. See "Description
of the Certificates -- Advances in Respect of Delinquencies" and "The Pooling
and Servicing Agreements -- Certificate Account" in the accompanying prospectus.
The Primary Servicer, the Master Servicer, the Trustee and the Fiscal Agent
will each be entitled with respect to any Advance made thereby, and the Special
Servicer will be entitled with respect to any Advance made thereby, to interest
accrued on the amount of such Advance for so long as it is outstanding at a rate
per
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annum (the "Reimbursement Rate") equal to the "prime rate" as published in the
"Money Rates" section of The Wall Street Journal, as such "prime rate" may
change from time to time, except that no interest will be payable with respect
to any P&I Advance of a payment due on a Mortgage Loan during the applicable
grace period. Such interest on any Advance will be payable to the Primary
Servicer, the Master Servicer, the Special Servicer, the Trustee or the Fiscal
Agent, as the case may be, first, out of Default Interest and late payment
charges collected on the related Mortgage Loan (but only if such items accrued
after such Mortgage Loan became a Specially Serviced Mortgage Loan) and, second,
at any time coinciding with or following the reimbursement of such Advance, out
of any amounts then on deposit in the Certificate Account. Any delay between
receipt from a Sub-Servicer, if any, of a late collection of a Monthly Payment
as to which a P&I Advance was made and the forwarding of such late collection to
the Primary Servicer will increase the amount of interest accrued and payable to
the Primary Servicer, the Master Servicer, the Trustee or the Fiscal Agent, as
the case may be, on such P&I Advance. To the extent not offset by Default
Interest and/or late payment charges accrued and actually collected on the
related Mortgage Loan while it is a Specially Serviced Mortgage Loan, interest
accrued on outstanding Advances will result in a reduction in the Available
Distribution Amount.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
Trustee Reports. Based solely on information provided in monthly reports
prepared by the Primary Servicer and the Special Servicer and delivered by the
Master Servicer to the Trustee, on each Distribution Date the Trustee will be
required to provide or make available, either in electronic format or by
first-class mail, to the holders of each Class of REMIC Regular Certificates,
the following statements and reports (collectively, the "Distribution Date
Statement") substantially in the forms set forth in Annex C (although such forms
may be subject to change over time) and substantially containing the information
set forth below:
A statement setting forth, among other things: (i) the amount of
distributions, if any, made on such Distribution Date to the holders of
each Class of REMIC Regular Certificates, the Class A-1V Certificates and
the Class D Certificates and applied to reduce the respective Certificate
Balances thereof; (ii) the amount of distributions, if any, made on such
Distribution Date to the holders of each Class of REMIC Regular
Certificates, (and to the Class A-1V Certificates and the Class D
Certificates in respect of basis risk payments) allocable to Distributable
Certificate Interest and Prepayment Premiums; (iii) the Available
Distribution Amount for such Distribution Date; (iv) the aggregate amount
of P&I Advances made in respect of the immediately preceding Distribution
Date; (v) the aggregate Stated Principal Balance of the Mortgage Pool
outstanding immediately before and immediately after such Distribution
Date; (vi) the number, aggregate principal balance, weighted average
remaining term to maturity and weighted average Mortgage Rate of the
Mortgage Pool as of the end of the Due Period for the prior Distribution
Date; (vii) as of the end of the Collection Period for the immediately
preceding Distribution Date, the number and aggregate unpaid principal
balance of Mortgage Loans (A) delinquent 30-59 days, (B) delinquent 60-89
days, (C) delinquent 90 days or more, and (D) as to which foreclosure
proceedings have been commenced; (viii) with respect to any REO Property
included in the Trust Fund as of the end of the Collection Period for such
Distribution Date, the principal balance of the Mortgage Loan as of the
date such Mortgage Loan became delinquent; (ix) the Accrued Certificate
Interest and Distributable Certificate Interest in respect of each Class of
REMIC Regular Certificates for such Distribution Date; (x) the aggregate
amount of Distributable Certificate Interest and Interest Carryovers
payable in respect of each Class of REMIC Regular Certificates on such
Distribution Date, including, without limitation, any Distributable
Certificate Interest and Interest Carryovers remaining unpaid from prior
Distribution Dates; (xi) any unpaid Distributable Certificate Interest and
Interest Carryovers in respect of such Class of REMIC Regular Certificates
after giving effect to the distributions made on such Distribution Date;
(xii) the Pass-Through Rate for each Class of REMIC Regular Certificates
for such Distribution Date; (xiii) the Base Principal Distribution Amount
for such Distribution Date, separately identifying the respective
components of such amount; (xiv) the aggregate of all Realized Losses
incurred during the related Collection Period and, aggregated by type, all
Additional Trust Fund Expenses incurred during the related Collection
Period; (xv) the Certificate Balance or Notional Amount, as the case may
be, of each Class of REMIC Regular Certificates
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outstanding immediately before and immediately after such Distribution
Date, separately identifying any reduction therein due to the allocation of
Realized Losses and Additional Trust Fund Expenses on such Distribution
Date; (xvi) the aggregate amount of servicing fees paid to the Primary
Servicer and the Special Servicer, collectively and separately, during the
Collection Period for the prior Distribution Date; and (xvii) a brief
description of any material waiver, modification or amendment of any
Mortgage Loan entered into by the Primary Servicer or Special Servicer
pursuant to the Pooling Agreement during the related Collection Period. In
the case of information furnished pursuant to clauses (i) and (ii) above,
the amounts shall be expressed as a dollar amount in the aggregate for all
Certificates of each applicable Class and per a specified denomination.
Servicer Reports. The Master Servicer is required to deliver to the
Trustee on the first Business Day prior to each Distribution Date, and the
Trustee is to provide or make available, either in electronic format or by
first-class mail to each Certificateholder, and, if requested in writing, any
potential investor in the Certificates, on each Distribution Date, the following
four reports (the "Servicer Reports"), to the extent prepared by the Special
Servicer, all of which will be made available electronically (i) to any
interested party including the Rating Agencies, the underwriters of the
Certificates and any party to the Pooling Agreement via the Trustee's Website
or, (ii) to authorized persons identified by the Trustee to the Master Servicer
and parties to the Pooling Agreement, via the Master Servicer's Website, with
the use of a password provided by the Master Servicer to such Person upon
delivery to the Trustee of a certification in the form attached to the Pooling
Agreement; provided that the Rating Agencies, the Underwriter and parties to the
Pooling Agreement will not be required to provide such certification:
(1) A "Delinquent Loan Status Report" setting forth, among other
things, those Mortgage Loans which, as of the end of the Collection Period
for the immediately preceding Distribution Date, were delinquent 30-59
days, delinquent 60-89 days, delinquent 90 days or more, current but
specially serviced, or in foreclosure but not REO Property.
(2) An "Historical Loss Report" setting forth, among other things, as
of the close of business on the immediately preceding Determination Date,
(i) the aggregate amount of Liquidation Proceeds received, and liquidation
expenses incurred, both during the Collection Period ending on such
Determination Date and historically, and (ii) the amount of Realized Losses
occurring during such Collection Period and historically, set forth on a
Mortgage Loan-by-Mortgage Loan basis.
(3) A "REO Status Report" setting forth, among other things, with
respect to each REO Property that was included in the Trust Fund as of the
close of business on the immediately preceding Determination Date, (i) the
acquisition date of such REO Property, (ii) the amount of income collected
with respect to any REO Property (net of related expenses) and other
amounts, if any, received on such REO Property during the Collection Period
ending on such Determination Date and (iii) the value of the REO Property
based on the most recent appraisal or other valuation thereof available to
the Master Servicer as of such Determination Date (including any prepared
internally by the Special Servicer).
(4) A "Special Servicer Loan Status Report" setting forth, among other
things, as of the close of business on the immediately preceding
Determination Date, (i) the aggregate principal balance of all Specially
Serviced Mortgage Loans, (ii) a loan-by-loan listing of all Specially
Serviced Mortgage Loans indicating their status, date, estimated loss and
reason for transfer to the Special Servicer; provided however, that such
information may be shown as part of the reports described above and other
CSSA reports in lieu of in a separate report.
None of the Distribution Date Statement or the Servicer Reports will
include any information that the Master Servicer deems to be confidential. The
information that pertains to Specially Serviced Mortgage Loans and REO
Properties reflected in such reports shall be based solely upon the reports
delivered by the Special Servicer to the Master Servicer prior to the related
Distribution Date. None of the Master Servicer, Primary Servicer, the Special
Servicer or the Trustee shall be responsible for the accuracy or completeness of
any information supplied to it by a borrower or other third party that is
included in any reports, statements, materials or information prepared or
provided by the Primary Servicer, the Special Servicer or the Trustee, as
applicable.
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Solely with respect to Mortgage Loans having a then outstanding principal
balance in excess of $1,000,000, following the end of each calendar year,
commencing with the calendar year ended December 31, 1999, within 90 days of
receipt by the Primary Servicer, as to Non-Specially Serviced Mortgage Loans,
and within 45 days after receipt by the Special Servicer, as to Specially
Serviced Mortgage Loans, of any annual operating statements or rent rolls with
respect to any Mortgaged Property or REO Property, the Primary Servicer or the
Special Servicer, as applicable, will, based upon such operating statements or
rent rolls prepare an underwritten cash flow analysis (or, if previously
prepared, update) (the "Operating Statement Analysis Report"), and the Special
Servicer will remit each Operating Statement Analysis Report prepared by it or
the related data fields, together with the underlying operating statements and
rent rolls, to the Primary Servicer in an electronic format reasonably
acceptable to the Primary Servicer. All Operating Statement Analysis Reports
will be maintained by the Primary Servicer with respect to each Mortgaged
Property and REO Property, and the Primary Servicer will forward copies thereof
upon written request, to the Trustee and any Certificateholder, or to the extent
the Trustee or a Certificate Owner has confirmed its ownership interest in the
Certificates held thereby, such Certificate Owner, together with the related
operating statement or rent rolls. The Primary Servicer will maintain an
Operating Statement Analysis Report with respect to each Mortgaged Property and
REO Property. Conveyance of notices and other communications by DTC to
Participants, and by 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. The Primary Servicer, the Special Servicer,
the Master Servicer, the Trustee, the Depositor, the REMIC Administrator, the
Mortgage Loan Seller 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 Certificate Registrar.
The Trustee will make available each month, to any interested party, the
Distribution Date Statement via the Trustee's Website. In addition, the Trustee
will make available to any interested party each month the Servicer Reports on
the Trustee's Website in electronic format. The Trustee's Website will be
located at "www.lnbabs.com". The Trustee's electronic bulletin board may be
accessed by calling (714) 282-3990. In addition, the Trustee will also make
Mortgage Loan information as presented in the CSSA loan setup file and CSSA loan
periodic update file format available each month to any Certificateholder, any
Certificate Owner, the Rating Agencies, the parties hereto or any other
interested party via the Trustee's Website. The Trustee will make no
representations or warranties as to the accuracy or completeness of such
documents and will assume no responsibility therefor.
In connection with providing access to the Trustee's Website or electronic
bulletin board, the Trustee may require registration and the acceptance of a
disclaimer. The Trustee shall not be liable for the dissemination of information
in accordance with the Pooling Agreement.
For 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 accompanying prospectus.
Other Information. The Pooling Agreement requires that the Trustee make
available at its offices, during normal business hours, upon reasonable advance
written notice, for review by any holder or Certificate Owner of an Offered
Certificate or any person identified to the Trustee by any such holder or
Certificate Owner as a prospective transferee of an Offered Certificate or any
interest therein, originals or copies of, among other things, the following
items: (a) all officer's certificates delivered to the Trustee since the
Delivery Date as described under "Servicing of the Mortgage Loans -- Evidence as
to Compliance" herein, (b) all accountant's reports delivered to the Trustee
since the Delivery Date as described under "Servicing of the Mortgage
Loans -- Evidence as to Compliance" herein, and (c) to the extent delivered by
the Mortgage Loan Seller, the Mortgage Note, Mortgage and other legal documents
relating to each Mortgage Loan, including any and all modifications, waivers and
amendments of the terms of a Mortgage Loan entered into by the Master Servicer,
Primary Servicer or the Special Servicer and delivered to the Trustee. (Only the
Mortgage Note will be delivered by the Mortgage Loan Seller prior to a
Recordation Event.) In addition, the Primary Servicer is required to make
available, during normal business hours, upon reasonable advance written notice,
for review by any holder or Certificate Owner of an Offered Certificate or any
person identified to the Primary Servicer as a prospective transferee of an
Offered Certificate or any interest therein, originals or copies of any
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and all documents (in the case of documents generated by the Special Servicer,
to the extent received therefrom) that constitute the servicing file for each
Mortgage Loan, in each case except to the extent the Primary Servicer in its
reasonable, good faith determination believes that any item of information
contained in such servicing file is of a nature that it should be conveyed to
all Certificateholders at the same time, in which case the Primary Servicer is
required, as soon as reasonably possible following its receipt of any such item
of information, to disclose such item of information to the Trustee for
inclusion by the Trustee along with the Distribution Date Statement referred to
under "-- Reports to Certificateholders; Certain Available
Information -- Trustee Reports" above; provided that, until the Trustee has
either disclosed such information to all Certificateholders along with the
Distribution Date Statement or has properly filed such information with the
Securities and Exchange Commission on behalf of the Trust under the Securities
Exchange Act of 1934, the Primary Servicer is entitled to withhold such item of
information from any Certificateholder or Certificate Owner or prospective
transferee of a Certificate or an interest therein; and, provided, further, that
the Primary Servicer is not required to make information contained in any
servicing file available to any person to the extent that doing so is prohibited
by applicable law or by any documents related to a Mortgage Loan.
The Trustee and, subject to the last sentence of the prior paragraph, the
Primary Servicer will each make available, upon reasonable advance written
notice and at the expense of the requesting party, originals or copies of the
items referred to in the prior paragraph that are maintained thereby, to
Certificateholders, Certificate Owners and prospective purchasers of
Certificates and interests therein; provided that the Trustee and Primary
Servicer may each require (a) in the case of a Certificate Owner, a written
confirmation executed by the requesting person or entity, in a form reasonably
acceptable to the Trustee or Primary Servicer, as applicable, generally to the
effect that such person or entity is a beneficial owner of Offered Certificates
and will keep such information confidential, and (b) in the case of a
prospective purchaser, confirmation executed by the requesting person or entity,
in a form reasonably acceptable to the Trustee or Primary Servicer, as
applicable, generally to the effect that such person or entity is a prospective
purchaser of Offered Certificates or an interest therein, is requesting the
information solely for use in evaluating a possible investment in such
Certificates and will otherwise keep such information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed to
have agreed to keep such information confidential.
VOTING RIGHTS
At all times during the term of the Pooling Agreement, 95.0% of the voting
rights for the Certificates (the "Voting Rights") shall be allocated among the
holders of the respective Classes of Principal Balance Certificates in
proportion to the Certificate Balances of their Certificates and 5.0% of the
Voting Rights shall be allocated to the holders of the Class X Certificates.
Voting Rights allocated to a Class of Certificateholders shall be allocated
among such Certificateholders in proportion to the percentage interests in such
Class evidenced by their respective Certificates. See "Description of the
Certificates -- Voting Rights" in the accompanying prospectus. It is expected
that Bank of America NT&SA will be the initial holder of the Class X
Certificates and that Banc One will be the initial holder of one or more classes
of the Private Certificates and as such will be entitled to Voting Rights.
TERMINATION
The obligations created by the Pooling 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 related REO Property remaining in the
Trust Fund, and (ii) the purchase of all of the Mortgage Loans and REO
Properties remaining in the Trust Fund by the Master Servicer or by any holder
or holders (other than the Depositor or Mortgage Loan Seller) of Certificates
representing a majority interest in the Controlling Class (as defined below).
Written notice of termination of the Pooling Agreement will be given to each
Certificateholder, and the final distribution with respect to each Certificate
will be made only upon surrender and cancellation of such Certificate at the
office of the Certificate Registrar or other location specified in such notice
of termination.
The "Controlling Class" will be the Class X Certificates except that, at
any time (and only for so long as) the Stated Principal Balance of the Mortgage
Loans that are 60 or more days delinquent exceeds the
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Overcollateralization Amount, the Controlling Class shall be the most junior
Class of Certificates that has a then-outstanding Certificate Balance at least
equal to 25% of its initial Certificate Balance. (If and when such delinquencies
no longer exceed the Overcollateralization Amount, or no other Class qualifies
to be the Controlling Class, the Controlling Class will again be the Class X
Certificates.)
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).
Any such purchase by the Primary Servicer, the Master Servicer or the
majority holder(s) of the Controlling Class of all the Mortgage Loans and REO
Properties remaining in the Trust Fund is required to be made at a price equal
to (a) the sum of (i) the aggregate Repurchase Price of all the Mortgage Loans
then included in the Trust Fund (other than any Mortgage Loans as to which the
related Mortgaged Properties have become REO Properties) and (ii) the fair
market value of all REO Properties then included in the Trust Fund, as
determined by an appraiser mutually agreed upon by the Master Servicer and the
Trustee, minus (b) (solely in the case of a purchase by the Master Servicer) the
aggregate of all amounts payable or reimbursable to the Master Servicer under
the Pooling Agreement. Such purchase will effect early retirement of the then
outstanding Certificates, but the right of the Master Servicer or the majority
holder(s) of the Controlling Class to effect such termination is subject to the
requirement that the then aggregate Stated Principal Balance of the Mortgage
Pool be less than 5.0% of the Initial Pool Balance. The purchase price paid by
the Master Servicer or the majority holder(s) of the Controlling Class,
exclusive of any portion thereof payable or reimbursable to any person other
than the Certificateholders, will constitute part of the Available Distribution
Amount for the final Distribution Date.
THE TRUSTEE AND THE FISCAL AGENT
THE TRUSTEE
LaSalle Bank National Association, a national banking association with its
principal offices located in Chicago, Illinois, will act as Trustee on behalf of
the certificateholders. As compensation for its services, the Trustee will be
entitled to receive a fee payable from funds on deposit in the Distribution
Account. In addition, the Trustee will be obligated to make any advance required
to be made, but not made, by the Master Servicer under the Pooling Agreement
(including a Servicing Advance, to the extent the Trustee has actual knowledge
of the failure of the Master Servicer to make such Servicing Advance), provided
that the Trustee will not be obligated to make any advance that it deems to be
nonrecoverable. The Trustee will be entitled to rely conclusively on any
determination by the Master Servicer that an advance, if made, would be a
nonrecoverable. The Trustee will be entitled to reimbursement (with interest
thereon at the Reimbursement Rate) for each advance made by it in the same
manner and to the same extent as, but prior to, the Primary Servicer or the
Master Servicer. The corporate trust office of the Trustee is located at 135
South LaSalle Street, Suite 1625 Chicago, Illinois 60674, Attention:
Asset-Backed Securities Trust Services Group -- NationsLink 1999-SL.
The Trustee will make no representation as to the validity or sufficiency
of the Pooling Agreement, the certificates, the Loans or related documents or
the sufficiency of this prospectus supplement and will not be accountable for
the use or application by or on behalf of the Master Servicer or the Special
Servicer of any funds paid to the Master Servicer or the Special Servicer in
respect of the certificates or the mortgage loans, or any funds deposited into
or withdrawn from the Certificate Account or any other account maintained by or
on behalf of the Master Servicer or the Special Servicer. If no Event of Default
has occurred and is continuing, the Trustee will be required to perform only
those duties specifically required under the Pooling Agreement. However, upon
receipt of any of the various resolutions, statements, opinions, reports,
documents, orders or other instruments required to be furnished to it pursuant
to the Pooling Agreement, the Trustee will be required to examine such documents
and to determine whether they conform to the requirements of the Pooling
Agreement (to the extent set forth therein) without responsibility for
investigating the contents thereof.
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LaSalle Bank National Association is rated "Aa3" by Moody's. The Rating
Agencies have indicated that the Trustee is acceptable for the purposes of its
obligations hereunder based on the credit rating of its indirect corporate
parent, ABN AMRO Bank N.V.
Pursuant to the Pooling Agreement, the Trustee will be entitled to a
monthly fee (the "Trustee Fee"; and, together with the Master Servicing Fee the
"Administrative Fees") payable out of general collections on the Loans and any
REO Properties.
The Trustee will also have certain duties with respect to REMIC
administration (in such capacity the "REMIC Administrator"). 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 REMIC Administrator and the
Depositor", "-- Events of Default" and "-- Rights Upon Event of Default" in the
accompanying prospectus.
THE FISCAL AGENT
ABN AMRO Bank N.V., a banking corporation organized under the laws of The
Netherlands, will act as Fiscal Agent pursuant to the Pooling Agreement. The
Fiscal Agent's office is located at 135 South LaSalle Street, Chicago, Illinois
60674.
In the event that the Master Servicer and the Trustee fail to make a
required advance, the Fiscal Agent will be required to make such advance;
provided, that the Fiscal Agent will not be obligated to make any advance that
it deems to be nonrecoverable. The Fiscal Agent will be entitled to rely
conclusively on any determination by the Master Servicer or the Trustee, as
applicable, that an advance, if made, would be nonrecoverable. The Fiscal Agent
will be entitled to reimbursement for each advance made by it in the same manner
and to the same extent as, but prior to, the Trustee and the Master Servicer.
The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling Agreement, the certificates, the Loans or related
documents or the sufficiency of this prospectus supplement. The duties and
obligations of the Fiscal Agent will consist only of making advances as
described in "Servicing of the Loans -- Advances" in this prospectus supplement.
The Fiscal Agent will not be liable except for the performance of such duties
and obligations.
ABN AMRO Bank N.V. is rated "AA+" by Fitch and "Aa2" by Moody's.
CERTAIN MATTERS REGARDING THE TRUSTEE AND THE FISCAL AGENT
Each of the Trustee and the Fiscal Agent will be entitled to
indemnification, from amounts held in the Certificate Account, for any loss,
liability, damages, claim or expense arising in respect of the Pooling Agreement
or the certificates other than those resulting from the negligence, fraud, bad
faith or willful misconduct of the Trustee or the Fiscal Agent.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on, among other
things, (v) the Pass-Through Rate for such Certificate (which is fixed in the
case of each Class of Offered Certificates other than the Class A-1V
Certificates and, to the extent of the related Fixed Rate Available Funds Cap,
the Class B, Class C and Class D Certificates), (w) the rate and timing of
principal payments (including principal prepayments) and other principal
collections on or in respect of the Mortgage Loans and the extent to which such
amounts are to be applied or otherwise result in reduction of the Certificate
Balance of the Class of Certificates to which such Certificate belongs, (x) the
rate, timing and severity of Realized Losses on or in respect of the Mortgage
Loans and of Additional Trust Fund Expenses and the extent to which
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such losses and expenses are allocable to or otherwise result in the nonpayment
or deferred payment of interest on, or reduction of the Certificate Balance of,
the Class of Certificates to which such Certificate belongs, which in turn will
depend in part on the amount of Excess Cash Flow and the speed with which any
Overcollateralization Amount is created from Excess Cash Flow to absorb such
Realized Losses and Additional Trust Fund Expenses, and (y) the timing and
severity of any Net Aggregate Prepayment Interest Shortfalls and the extent to
which such shortfalls are allocable in reduction of the Distributable
Certificate Interest payable on the Class of Certificates to which such
Certificate belongs.
Excess Cash Flow. The Excess Cash Flow for any Distribution Date will be
variable and will be determined based in part on the weighted average of the Net
Mortgage Rates on the Mortgage Loans and the weighted average Pass-Through Rate
of the Principal Balance Certificates from time to time, as well as the size of
the Overcollateralization Amount. Accordingly, the Excess Cash Flow will be
sensitive to changes in interest rates, and to changes in the relative
composition of the Mortgage Pool as a result of scheduled amortization,
voluntary prepayments and liquidations of Mortgage Loans following default.
Excess Cash Flow may be adversely affected if Pass-Through Rates on the Class
A-1V Certificates (which adjust monthly) rise more quickly than interest rates
rise on the Mortgage Loans in Loan Group 2 (which generally determine interest
based on different indices, and which generally adjust interest rates less
frequently than monthly or limit the amount of any change through periodic or
lifetime caps). Because the Class A-1V Certificates have no cap other than an
Available Funds Cap, if rates rise to above the level at which such cap applies,
all Excess Cash Flow will be eliminated. In addition, Excess Cash Flow will be
sensitive to changes in the Mortgage Pool to the extent that Mortgage Loans with
relatively higher Mortgage Rates amortize and/or prepay faster than Mortgage
Loans with relatively lower Mortgage Rates. See "Description of the
Certificates -- Pass-Through Rates" and "Description of the Mortgage Pool"
herein and " -- Rate and Timing of Principal Payments" below.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates purchased at a discount or premium will be affected by the rate and
timing of reductions of the Certificate Balances of such Class of Certificates.
As described herein, except to the extent of any applicable Step-Down Amount,
the Principal Distribution Amount for both Loan Groups for each Distribution
Date will be distributable entirely in respect of the Senior Certificates until
the related Certificate Balances thereof are reduced to zero. Any Step-Down
Amount and, following retirement of the Senior Certificates, the remaining Base
Principal Distribution Amounts for each Distribution Date will be distributable
entirely in respect of the other Classes of Principal Balance Certificates,
sequentially in alphabetical order of Class designation, in each such case until
the related Certificate Balance is reduced to zero. Consequently, the rate and
timing of reductions of the Certificate Balance of each Class of Offered
Certificates will depend on the rate and timing of principal payments on or in
respect of the Mortgage Loans, which will in turn be affected by the
amortization schedules thereof, the dates on which any 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 of the Mortgage Loans will result in
distributions on the Principal Balance Certificates of amounts that would
otherwise be distributed over the remaining terms of the Mortgage Loans and will
tend to shorten the weighted average lives of those Certificates. Defaults on
the Mortgage Loans, particularly in the case of Balloon Loans at or near their
stated maturity dates, may result in significant delays in payments of principal
on the Mortgage Loans (and, accordingly, on the Principal Balance Certificates)
while workouts are negotiated or foreclosures are completed, and such delays
will tend to lengthen the weighted average lives of those Certificates. See
"Servicing of the Mortgage Loans -- Modifications, Waivers, Amendments and
Consents" herein and "The Pooling and Servicing Agreements -- Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of Mortgage
Loans -- Foreclosure" in the accompanying prospectus.
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 or in respect of the Mortgage Loans are
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distributed or otherwise result in a reduction of the Certificate Balance or
Notional Amount of 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 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 on the Mortgage Loans could
result in an actual yield to such investor that is lower than the anticipated
yield. In general, the earlier a payment of principal on or in respect of the
Mortgage Loans is distributed or otherwise results in reduction of the principal
balance of any 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 occurring at a rate higher
(or lower) than the rate anticipated by the investor during any particular
period may not be fully offset by a subsequent like reduction (or increase) in
the rate of principal payments. Because the rate of principal payments on or in
respect of the Mortgage Loans will depend on future events and a variety of
factors (as described more fully 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.
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. As and to the extent
described herein, Realized Losses and Additional Trust Fund Expenses will be
allocated to the respective Classes of Principal Balance Certificates (which
allocation will, in general, reduce the amount of interest distributable thereto
in the case of Additional Trust Fund Expenses and reduce the Certificate Balance
thereof in the case of Realized Losses, in each case to the extent not absorbed
by any Excess Cash Flow or the Overcollateralization Amount) in the following
order: first, to each Class of Principal Balance Certificates (other than the
Senior Certificates), in reverse alphabetical order of Class designation, until
the Certificate Balance thereof has been reduced to zero; then, to the Fixed
Rate Senior Certificates and Class A-1V Certificates pro rata in accordance with
their respective remaining Certificate Balances, until the remaining Certificate
Balance of each such Class of Certificates has been reduced to zero.
The Net Aggregate Prepayment Interest Shortfall, if any, for each
Distribution Date will be allocated to the respective Classes of Principal
Balance Certificates (in each case, to reduce the amount of interest otherwise
payable thereon on such Distribution Date) as follows: first, to the respective
Classes of Principal Balance Certificates (other than the Senior Certificates)
sequentially in reverse alphabetical order of Class designation, in each case up
to an amount equal to the lesser of any remaining unallocated portion of such
Net Aggregate Prepayment Interest Shortfall and any Accrued Certificate Interest
in respect of such Class of Certificates for such Distribution Date; and,
thereafter, if and to the extent that any portion of such Net Aggregate
Prepayment Interest Shortfall remains unallocated, among the respective Classes
of Senior Certificates, up to, and pro rata in accordance with, the respective
amounts of Accrued Certificate Interest for each such Class of Senior
Certificates for such Distribution Date.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on or in respect of 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, Prepayment
Premiums 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 retail shopping space, rental
apartments, hotel rooms, industrial space, health care facility beds, senior
living units or office space, as the case may be, 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 -- Risks Related to the Mortgage Loans", "Description of the Mortgage
Pool" and "Servicing of the Mortgage Loans" herein and "The Pooling and
Servicing Agreements" and "Yield and Maturity Considerations -- Yield and
Prepayment Considerations" in the accompanying prospectus.
The rate of prepayment on the 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 the Mortgage
Rate at which a Mortgage Loan accrues interest, a borrower may have an increased
incentive to
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refinance such Mortgage Loan. Conversely, to the extent prevailing market
interest rates exceed the applicable Mortgage Rate for any Mortgage Loan, such
Mortgage Loan may be less likely to prepay.
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 or warranty 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.
WEIGHTED AVERAGE LIVES
The weighted average life of any Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
to be applied in reduction of the principal balance of such Certificate is
distributed to the investor. For purposes of this Prospectus Supplement, the
weighted average life of any such Offered Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number of
years from the assumed Settlement Date (as defined below) 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 Certificate.
Accordingly, the weighted average life of any such Offered Certificate will be
influenced by, among other things, the rate at which principal of the Mortgage
Loans is paid or otherwise collected or advanced and the extent to which such
payments, collections and/or advances of principal are in turn applied in
reduction of the Certificate Balance of the Class of Certificates to which such
Offered Certificate belongs. As described herein, the Base Principal
Distribution Amount for each Distribution Date will initially be distributable
entirely in respect of the Senior Certificates until the Certificate Balances
thereof are reduced to zero, and will thereafter be distributable entirely in
respect of the other Classes of Principal Balance Certificates, sequentially in
alphabetical order of Class designation, in each such case until the related
Certificate Balance is reduced to zero. While Subordinate Certificates will be
entitled to current portions of the Base Principal Distribution Amount after the
Step-Down Date, so long as no Trigger Event has occurred and is continuing, such
payments will be made only if targeted credit support levels are achieved and
maintained. Since such target credit support levels represent higher percentages
of the aggregate Stated Principal Balance of the Mortgage Loans than are in
place on the Delivery Date, such payments will not result in Subordinate
Certificates being paid to less than their proportionate percentage of the
aggregate Certificate Balance based on Cut-Off Date Certificate Balances of each
Class. As a consequence of the foregoing, the weighted average lives of the
Senior Certificates may be shorter, and the weighted average lives of the other
Classes of Principal Balance Certificates may be longer, than would otherwise be
the case if the Base Principal Distribution Amount for each Distribution Date
was being distributed on a pro rata basis among the respective Classes of
Principal Balance Certificates beginning on the first Distribution Date.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the CPR model (as
described in the accompanying prospectus). Repurchases due to conversions of
convertible loans are treated as prepayments within such model. As used in each
of the following tables, the column Scenario 1 assumes that none of the Mortgage
Loans is prepaid before maturity. The columns headed "Scenario 1," "Scenario 2,"
"Scenario 3," "Scenario 4" and "Scenario 5" relate to certain assumptions
concerning the Mortgage Loans as indicated below. There is no assurance,
however, that prepayments of the Mortgage Loans (whether or not in a yield
maintenance period) will conform to any particular CPR, and no representation is
made that the Mortgage Loans will prepay in accordance with the assumptions at
any of the CPRs shown or at any other particular prepayment rate, or that all
the Mortgage Loans will prepay in accordance with the assumptions at the same
rate.
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The following table sets forth the CPRs associated with each scenario.
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Loan Group 1................................. 0% 6% 12% 18% 24%
Loan Group 2................................. 0% 8% 16% 24% 32%
</TABLE>
The following tables indicate the percentages of the initial Certificate
Balances of the Senior Certificates, Class B, Class C and Class D Certificates
that would be outstanding after each of the dates shown at various CPRs, and the
corresponding weighted average lives of such Classes of Certificates, under the
following assumptions (the "Maturity Assumptions"): (i) the Mortgage Loans have
the characteristics described in this prospectus supplement and the Initial Pool
Balance is approximately $1,178,488,493, (ii) the Pass-Through Rate and the
initial Certificate Balance of each Class of Offered Certificates are as
described herein, (iii) each Mortgage Loan accrues interest on the basis of a
360-day year consisting of twelve 30-day months (a "30/360 Basis"), (iv) there
are no delinquencies or losses in respect of the Mortgage Loans, there are no
modifications, extensions, waivers or amendments affecting the payment by
borrowers of principal or interest on the Mortgage Loans and there are no
casualties or condemnations affecting the Mortgaged Properties, (v) the Due Date
for each Mortgage Loan is the first day of each month, and scheduled Monthly
Payments on the Mortgage Loans (including Balloon Payments) are timely received
on such Due Date, (vi) prepayments are made on each of the Mortgage Loans at the
indicated CPRs set forth in the tables (without regard to any limitations in
such Mortgage Loans on partial voluntary principal prepayments), (vii) none of
the Master Servicer, the Special Servicer, the Primary Servicer or any majority
holder(s) of the Controlling Class exercises its or exercise their right of
optional termination described herein, (viii) no Adjustable Rate Mortgage Loans
convert and no Mortgage Loan is otherwise required to be repurchased by the
Mortgage Loan Seller, (ix) no Prepayment Interest Shortfalls are incurred and no
Prepayment Interest Excess or Prepayment Premiums are collected, (x) there are
no Additional Trust Fund Expenses, (xi) LIBOR remains constant at 4.925% per
annum and the Indices remain constant at their levels as of May 19, 1999, (xii)
distributions on the Offered Certificates are made on the 10th day of each
month, commencing in June 1999, and (xiii) the Offered Certificates are settled
on May 28, 1999 (the "Settlement Date"). To the extent that the Mortgage Loans
have characteristics that differ from those assumed in preparing the tables set
forth below, the Fixed Rate Senior Certificates and the Class A-1V, Class B,
Class C, and/or Class D Certificates may mature earlier or later than indicated
by the tables. It is highly unlikely that the Mortgage Loans will prepay in
accordance with the above assumptions at any of the specified CPRs until
maturity or that all the Mortgage Loans will so 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 conform to the assumptions and be equal to any of the
specified CPRs. Investors are urged to conduct their own analyses of the rates
at which the Mortgage Loans may be expected to prepay.
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PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 74 56 38 20 2
May 10, 2001................................. 48 15 0 0 0
May 10, 2002................................. 17 0 0 0 0
May 10, 2003................................. 0 0 0 0 0
Weighted Average Life (years)................ 1.85 1.14 0.80 0.61 0.48
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 43 0 0
May 10, 2002................................. 100 47 0 0 0
May 10, 2003................................. 95 0 0 0 0
May 10, 2004................................. 66 0 0 0 0
May 10, 2005................................. 23 0 0 0 0
May 10, 2006................................. 0 0 0 0 0
Weighted Average Life (years)................ 5.33 3.00 2.00 1.48 1.19
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-3 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 100 0 0
May 10, 2002................................. 100 100 50 0 0
May 10, 2003................................. 100 94 0 0 0
May 10, 2004................................. 100 28 0 0 0
May 10, 2005................................. 100 0 0 0 0
May 10, 2006................................. 48 0 0 0 0
May 10, 2007................................. 0 0 0 0 0
Weighted Average Life (years)................ 7.00 4.66 3.00 1.85 1.47
</TABLE>
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PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-4 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 100 100 29
May 10, 2002................................. 100 100 100 70 16
May 10, 2003................................. 100 100 79 27 0
May 10, 2004................................. 100 100 49 0 0
May 10, 2005................................. 100 80 17 0 0
May 10, 2006................................. 100 52 0 0 0
May 10, 2007................................. 79 0 0 0 0
May 10, 2008................................. 0 0 0 0 0
Weighted Average Life (years)................ 8.37 6.87 5.00 3.44 2.07
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-5 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 100 100 100
May 10, 2002................................. 100 100 100 100 100
May 10, 2003................................. 100 100 100 100 60
May 10, 2004................................. 100 100 100 86 18
May 10, 2005................................. 100 100 100 40 *
May 10, 2006................................. 100 100 73 0 0
May 10, 2007................................. 100 89 * 0 0
May 10, 2008................................. 93 0 0 0 0
May 10, 2009................................. 0 0 0 0 0
Weighted Average Life (years)................ 9.20 8.42 7.31 5.85 4.36
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-6 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 100 100 100
May 10, 2002................................. 92 91 93 96 100
May 10, 2003................................. 87 85 85 85 83
May 10, 2004................................. 82 77 72 61 43
May 10, 2005................................. 72 63 52 29 *
May 10, 2006................................. 28 19 3 0 0
May 10, 2007................................. 11 2 0 0 0
May 10, 2008................................. 1 0 0 0 0
May 10, 2009................................. 0 0 0 0 0
Weighted Average Life (years)................ 6.18 5.82 5.48 5.15 4.75
</TABLE>
* Less than 0.5%, but greater than zero.
S-92
<PAGE> 94
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-1V CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 96 89 81 73 65
May 10, 2001................................. 90 76 64 52 42
May 10, 2002................................. 75 59 45 33 26
May 10, 2003................................. 63 45 31 21 13
May 10, 2004................................. 48 32 20 12 7
May 10, 2005................................. 38 23 14 7 4
May 10, 2006................................. 31 17 9 3 0
May 10, 2007................................. 18 9 4 0 0
May 10, 2008................................. 8 3 0 0 0
May 10, 2009................................. 0 0 0 0 0
Weighted Average Life (years)................ 5.15 3.99 3.13 2.49 2.04
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 100 100 100
May 10, 2002................................. 100 97 78 62 48
May 10, 2003................................. 100 80 60 44 38
May 10, 2004................................. 91 66 46 38 38
May 10, 2005................................. 78 52 38 38 38
May 10, 2006................................. 59 38 38 38 0
May 10, 2007................................. 41 38 38 0 0
May 10, 2008................................. 38 38 0 0 0
May 10, 2009................................. 28 0 0 0 0
May 10, 2010................................. 0 0 0 0 0
Weighted Average Life (years)................ 7.82 6.47 5.42 4.62 4.10
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS C CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 100 100 100
May 10, 2002................................. 100 97 78 62 48
May 10, 2003................................. 100 80 60 44 38
May 10, 2004................................. 91 66 46 38 38
May 10, 2005................................. 78 52 38 38 38
May 10, 2006................................. 59 38 38 38 0
May 10, 2007................................. 41 38 38 0 0
May 10, 2008................................. 38 38 0 0 0
May 10, 2009................................. 38 0 0 0 0
May 10, 2010................................. 6 0 0 0 0
May 10, 2011................................. 0 0 0 0 0
Weighted Average Life (years)................ 8.06 6.53 5.55 4.76 4.19
</TABLE>
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<PAGE> 95
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS D CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
---------------------
DATE SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Delivery Date................................ 100 100 100 100 100
May 10, 2000................................. 100 100 100 100 100
May 10, 2001................................. 100 100 100 100 100
May 10, 2002................................. 100 97 78 62 48
May 10, 2003................................. 100 80 60 44 38
May 10, 2004................................. 91 66 46 38 38
May 10, 2005................................. 78 52 38 38 38
May 10, 2006................................. 59 38 38 38 37
May 10, 2007................................. 41 38 38 36 0
May 10, 2008................................. 38 38 28 0 0
May 10, 2009................................. 38 1 0 0 0
May 10, 2010................................. 38 0 0 0 0
May 10, 2011................................. 0 0 0 0 0
Weighted Average Life (years)................ 8.28 6.65 5.66 4.90 4.30
</TABLE>
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<PAGE> 96
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered Certificates
will be used by the Depositor to purchase the interests in the Trust from the
Mortgage Loan Seller described under "Description of the
Certificates -- General," and to pay certain expenses in connection with the
issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
For federal income tax purposes, we will make elections to treat designated
portions of the Trust as one or more "real estate mortgage investment conduits"
("REMICs"). The portion of the Trust consisting of the rights of the Offered
Certificates and certain of the Private Certificates to receive interest to the
extent their respective LIBOR-based and fixed rates currently or previously
exceeded the Weighted Average Net Mortgage Rate (each, a "Basis Risk
Arrangement"), which are payable from amounts otherwise distributable to the
Class X Certificates, will be treated as a grantor trust. The Offered
Certificates and the Private Certificates (other than the Class P and Class R
Certificates) will represent the "regular interests" in a REMIC and in the right
to receive (or, in the case of the Class X Certificate the obligation to make)
such basis risk payments. The beneficial owner of an Offered Certificate will be
required to allocate its purchase price between such regular interest and the
right to receive such basis risk payments. See "Taxation of Basis Risk
Arrangements" below. The Class R Certificates will represent the sole class of
"residual interest" in each REMIC. The Class P Certificates will represent the
right to receive Prepayment Premiums in the grantor trust portion of the Trust.
Upon issuance of the Offered Certificates, Cadwalader, Wickersham & Taft,
special tax counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the Pooling Agreement,
for federal income tax purposes, each portion of the Trust Fund as to which a
REMIC election is made will qualify as a REMIC under the Code and the portion of
the Trust Fund not so designated will be treated as a grantor trust. See
"Certain Federal Income Tax Consequences -- REMICs" in the accompanying
prospectus.
DISCOUNT AND PREMIUM
The regular interests represented by the Offered Certificates generally
will be treated as newly originated debt instruments for federal income tax
purposes. Beneficial owners of the Offered Certificates will be required to
report income on such regular interests in accordance with the accrual method of
accounting. It is anticipated that the A-1V Certificates will be issued with de
minimis original issue discount and that the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class B, Class C and Class D Certificates will
be issued at a premium for federal income tax purposes. See "Certain Federal
Income Tax Consequences -- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" and "-- Premium" in the accompanying
prospectus.
For purposes of accruing original issue discount, determining whether such
original issue discount is de minimis and amortizing any premium, the Prepayment
Assumption will be 12% CPR (in the case of the Fixed Rate Mortgage Loans) and
16% CPR (in this case of the Adjustable Rate Mortgage Loans). See "Yield and
Maturity Considerations -- Weighted Average Lives" herein. No representation is
made as to the rate, if any, at which the Mortgage Loans will prepay.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
Generally, except to the extent noted below, the Offered Certificates will
be "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code
in the same proportion that the assets of the Trust would be so treated. In
addition, interest (including original issue discount, if any) on the Offered
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)(4)(A) of the Code. If 95% or more of the Mortgage
Loans are treated as assets described in Section 856(c)(4)(A) of the Code, the
Offered Certificates will be treated as such assets in their entirety. The
Offered Certificates will generally only be considered assets described in
Section 7701(a)(19)(C) of the Code to the extent that the Mortgage Loans
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<PAGE> 97
are secured by residential property, including residences for persons under
health care. As of the Cut-off Date, 13.6%, 0.7% and 0.1% of the Initial Pool
Balance were Mortgage Loans secured by multi-family properties, mobile home
community properties, and health care properties, respectively. Accordingly, an
investment in the Offered Certificates may not be suitable for some thrift
institutions. Furthermore, notwithstanding the foregoing, an Offered Certificate
will not be treated as meeting the foregoing real estate asset and income tests
to the extent of an investor's basis, if any, allocable to, or amounts received
under, a Basis Risk Arrangement. As a result of the Basis Risk Arrangements, the
Offered Certificates may not be treated as "qualified mortgages" for another
REMIC under Section 860G(a)(3)(C) of the Code but should be treated as
"permitted assets" for a financial asset securitization investment trust under
Section 860L(c) of the Code. See "Description of the Mortgage Pool" in this
prospectus supplement and "Certain Federal Income Tax
Consequences -- REMICs -- Characterization of Investments in REMIC Certificates"
in the accompanying prospectus.
TAXATION OF BASIS RISK ARRANGEMENTS
Each holder of an Offered Certificate will be treated for federal income
tax purposes as having entered into a notional principal contract pursuant to
its right to receive payments with respect to interest under the applicable
Basis Risk Arrangement on the date it purchases its Certificate. The Internal
Revenue Service (the "IRS") has issued final regulations under Section 446 of
the Code relating to notional principal contracts (the "Swap Regulations").
In general, the holders of the Offered Certificates must allocate the price
they pay for the Offered Certificates between their regular interest and the
Basis Risk Arrangement (unless such arrangement has a value of zero). For
purposes of tax information reporting, it is anticipated that the Trustee will
assume that the purchase price for the Offered Certificates will be wholly
allocable to such Certificates' proportionate interest in the corresponding
regular interest, but holders should consult their own tax advisors in this
regard. To the extent rights to receive payments under the related Basis Risk
Arrangement are determined to have a value on the Startup Day that is greater
than zero, a portion of such purchase price would be allocable to such rights,
and such portion would be treated as a cap premium (the "Cap Premium") paid by
the related Certificateholders. A beneficial owner of an Offered Certificate
would be required to amortize the Cap Premium under a level payment method as if
the Cap Premium represented the present value of a series of equal payments made
over the life of the applicable Basis Risk Arrangement (adjusted to take into
account decreases in notional principal amount), discounted at a rate equal to
the rate used to determine the amount of the Cap Premium (or some other
reasonable rate). Prospective purchasers of Offered Certificates should consult
their own tax advisors regarding the appropriate method of amortizing any Cap
Premium. The Swap Regulations treat a nonperiodic payment made under a cap
contract as a loan for federal income tax purposes if the payment is
"significant." It is not known whether any Cap Premium would be treated in part
as a loan under the Swap Regulations.
Under the Swap Regulations, (i) all taxpayers must recognize periodic
payments with respect to a notional principal contract under the accrual method
of accounting, and (ii) any periodic payments received under the applicable
Basis Risk Arrangement must be netted against payments, if any, deemed made as a
result of the Cap Premiums over the recipient's taxable year, rather than
accounted for on a gross basis. Net income or deduction with respect to net
payments under a notional principal contract for a taxable year should
constitute ordinary income or ordinary deduction. The IRS could contend the
amount is capital gain or loss, but such treatment is unlikely, at least in the
absence of further regulations. Any regulations requiring capital gain or loss
treatment presumably would apply only prospectively.
Any amount of proceeds from the sale, redemption or retirement of an
Offered Certificate that is considered to be allocated to rights under the
applicable Basis Risk Arrangement would be considered a "termination payment"
under the Swap Regulations. It is anticipated that the Trustee will account for
any termination payments for reporting purposes in accordance with the Swap
Regulations, as described below.
Termination Payments. Any amount of sales proceeds that is considered to
be allocated to the selling beneficial owner's rights under the applicable Basis
Risk Arrangement in connection with the sale or exchange
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<PAGE> 98
of an Offered Certificate would be considered a "termination payment" under the
Swap Regulations allocable to the related Offered Certificate. A
Certificateholder will have gain or loss from such a termination of the
applicable Basis Risk Arrangement equal to (i) any termination payment it
received or is deemed to have received minus (ii) the unamortized portion of any
Cap Premium paid (or deemed paid) by the beneficial owner upon entering into or
acquiring its interest in the related Basis Risk Arrangement.
Gain or loss realized upon the termination of the applicable Basis Risk
Arrangement will generally be treated as capital gain or loss. Moreover, in the
case of a bank or thrift institution, Code Section 582(c) would likely not apply
to treat such gain or loss as ordinary.
Application of the Straddle Rules. An Offered Certificate representing
beneficial ownership of the corresponding regular interest and the related Basis
Risk Arrangement may constitute positions in a straddle, in which case, the
straddle rules of Code Section 1092 would apply. A selling beneficial owner's
capital gain or loss with respect to such regular interest would be short-term
because the holding period would be tolled under the straddle rules. Similarly,
capital gain or loss realized in connection with the termination of the
applicable Basis Risk Arrangement would be short-term. If the holder of an
Offered Certificate incurred or continued indebtedness to acquire to hold such
Certificate, the holder would generally be required to capitalize a portion of
the interest paid on such indebtedness until termination of the applicable Basis
Risk Arrangement.
POSSIBLE TAXES ON INCOME FROM FORECLOSURE PROPERTY
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to the
extent commercially feasible, maximize the Trust's net after-tax proceeds from
such property. After the Special Servicer reviews the operation of such property
and consults with the REMIC Administrator to determine the Trust's federal
income tax reporting position with respect to income it is anticipated that the
Trust would derive from such property, the Special Servicer could determine that
it would not be commercially feasible to manage and operate such property in a
manner that would avoid the imposition of a tax on "net income from foreclosure
property" (generally, income not derived from renting or selling real property)
within the meaning of the REMIC Provisions (an "REO Tax"). To the extent that
income the Trust receives from an REO Property is subject to a tax on "net
income from foreclosure property," such income would be subject to federal tax
at the highest marginal corporate tax rate (currently 35%). The determination as
to whether income from an REO Property would be subject to an REO Tax will
depend on the specific facts and circumstances relating to the management and
operation of each REO Property. These considerations will be of particular
relevance with respect to any health care facilities or hotels that become REO
Property. Any REO Tax imposed on the Trust's income from an REO Property would
reduce the amount available for distribution to Certificateholders.
Certificateholders are advised to consult their own tax advisors regarding the
possible imposition of REO Taxes in connection with the operation of commercial
REO Properties by REMICs.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Reporting of interest income, including any original issue discount, if
any, with respect to REMIC 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 Offered Certificates
and the IRS; holders of the Offered Certificates that are corporations, trusts,
securities dealers and certain other non-individuals 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 Trust Fund must also comply with
rules requiring an Offered 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.
As applicable, the Offered Certificate information reports will include a
statement of the adjusted issue price of the Offered 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
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<PAGE> 99
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
Administrator may not have, such regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences -- REMICs" in the accompanying prospectus.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any retirement plan or other employee benefit 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 Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 4975 of the Code (each, a "Plan")
should carefully 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. Certain fiduciary and prohibited transaction issues arise only if the
assets of the Trust constitute "plan assets" for purposes of Part 4 of Title I
of ERISA and Section 4975 of the Code ("Plan Assets"). Whether the assets of the
Trust will constitute Plan Assets at any time will depend on a number of
factors, including the portion of any Class of Certificates that are held by
"benefit plan investors" (as defined in U.S. Department of Labor Regulation
Section 2510.3-101).
The U.S. Department of Labor issued to NationsBank Corporation (predecessor
in interest to BankAmerica Corporation) an individual prohibited transaction
exemption, Prohibited Transaction Exemption ("PTE") 93-31 (the "Exemption"),
which generally exempts from the application of the prohibited transaction
provisions of Sections 406(a) and (b) and 407(a) 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 Exemption-Favored Party (as hereinafter
defined), provided that certain conditions set forth in the Exemption are
satisfied. "Exemption-Favored Party" shall include (a) Bank of America
Corporation, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with Bank of
America Corporation (such as Banc of America Securities LLC), 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 a Senior Certificate
to be eligible for exemptive relief thereunder. First, the acquisition of such
Senior Certificate 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 such Senior Certificate
must not be subordinated to the rights and interests evidenced by the other
Certificates. Third, such Senior Certificate at the time of acquisition by the
Plan must be rated in one of the three highest generic rating categories by
Fitch, Moody's, Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc. or Duff & Phelps Credit Rating Co. Fourth, the
Trustee cannot be an affiliate of any other member of the "Restricted Group",
which (in addition to the Trustee) consists of any Exemption-Favored Party, the
Depositor, the Master Servicer, the Special Servicer, any sub-servicer, the
Mortgage Loan Seller, any borrower with respect to Mortgage Loans constituting
more than 5% of the aggregate unamortized principal balance of the Mortgage Pool
as of the date of initial issuance of the Certificates and any affiliate of any
of the aforementioned persons. Fifth, the sum of all payments made to and
retained by the Exemption-Favored Parties 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 must represent not more than the fair market value
of such obligations; and the sum of all payments made to and retained by the
Master Servicer, the Special
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<PAGE> 100
Servicer and any sub-servicer must represent not more than reasonable
compensation for such person's services under the Pooling 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 Commission under the Securities Act.
Because the Senior 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 their issuance that each
Class of Senior Certificates be rated not lower than "Aaa" by Moody's, and "AAA"
by Fitch. As of the Delivery Date, the fourth general condition set forth above
will be satisfied with respect to the Senior Certificates. A fiduciary of a Plan
contemplating purchasing a Senior Certificate in the secondary market must make
its own determination that, at the time of such purchase, such Certificate
continues to satisfy the third and fourth general conditions set forth above. A
fiduciary of a Plan contemplating purchasing a Senior Certificate, whether in
the initial issuance of such Certificate or in the secondary market, must make
its own determination that the first and fifth general conditions set forth
above will be satisfied with respect to such Certificate as of the date of such
purchase. A Plan's authorizing fiduciary will be deemed to make a representation
regarding satisfaction of the sixth general condition set forth above in
connection with the purchase of a Senior Certificate.
The Exemption also requires that the Trust 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 evidencing interests in
such other investment pools must have been rated in one of the three highest
categories of Fitch, Moody's, Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc. or Duff & Phelps Credit Rating Co. for at least
one year prior to the Plan's acquisition of a Senior Certificate; and (iii)
certificates evidencing interests in such other investment pools must have been
purchased by investors other than Plans for at least one year prior to any
Plan's acquisition of a Senior Certificate. The Depositor has confirmed to its
satisfaction that such requirements have been satisfied as of the date hereof.
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 Senior
Certificates in the initial issuance of Certificates between the Depositor or an
Exemption-Favored Party and a Plan when the Depositor, an Exemption-Favored
Party, the Trustee, the Master Servicer, the Special Servicer, a sub-servicer,
the Mortgage Loan Seller or a borrower is a party in interest (within the
meaning of Section 3(14) of ERISA) or a disqualified person (within the meaning
of Section 4975(e)(2) of the Code) (a "Party in Interest") with respect to the
investing Plan, (ii) the direct or indirect acquisition or disposition in the
secondary market of Senior Certificates by a Plan and (iii) the continued
holding of Senior 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 Senior Certificate on behalf of an Excluded Plan (as
defined in the next sentence) 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.
Moreover, if the general conditions of the Exemption, as well as certain
other specific conditions set forth in the Exemption, are satisfied, the
Exemption may also provide an exemption from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of 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
Exemption-Favored Party 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 borrower with respect to 5% or less of the
fair market value of the Mortgage Pool 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 continued holding of Senior
Certificates by a Plan.
S-99
<PAGE> 101
Further, if the general conditions of the Exemption, as well as certain
other conditions set forth in 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 excise 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.
Lastly, if the general conditions of the Exemption are satisfied, the
Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and 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, 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 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 Senior Certificates.
Before purchasing a Senior Certificate, a fiduciary of a Plan should itself
confirm that (i) the Senior 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 class exemptions. See "Certain ERISA
Considerations" in the accompanying prospectus. There can be no assurance that
any such class exemptions will apply with respect to any particular Plan
investment in the Offered Certificates or, even if it were deemed to apply, that
any exemption would apply to all transactions that may occur in connection with
such investment.
The characteristics of the Class B, Class C and Class D Certificates do not
meet the requirements of the Exemptions. Accordingly, the Certificates of those
Classes may not be acquired by a Plan, other than an insurance company general
account, which may be able to rely on Section III of PTCE 95-60 or Section
401(c) of ERISA, as discussed in "Certain ERISA Considerations -- Insurance
Company General Accounts" in the accompanying prospectus.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
Title I of ERISA or Section 4975 of the Code. However, such a governmental plan
may be subject to a federal, state or local law which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code ("Similar Law"). A
fiduciary of a governmental plan should make its own determination as to the
need for and the availability of any exemptive relief under Similar Law.
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.
The sale of Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or by any particular Plan, or that this investment is appropriate for Plans
generally or for any particular Plan.
LEGAL INVESTMENT
The Senior Certificates and the Class B Certificates will constitute
"mortgage related securities" for purposes of SMMEA, so long as they are rated
in one of the two highest categories by one or more rating agencies. None of the
other Offered Certificates will constitute "mortgage related securities" within
the meaning of SMMEA. 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. Except as to the status of
certain Offered Certificates as "mortgage related securities," no representation
is made as to the proper characterization of any class of Offered Certificates
for legal investment, financial institution regulatory or other purposes, or as
to the ability of particular investors to purchase the Offered Certificates
under applicable legal investment or
S-100
<PAGE> 102
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 accompanying prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriter (the "Underwriting Agreement"), the
Offered Certificates will be purchased from the Depositor by the Underwriter
upon issuance. The Underwriter is an affiliate of the Depositor. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be an amount equal to approximately 100.00% of
the initial aggregate Certificate Balance of the Offered Certificates, plus
accrued interest on all the Offered Certificates, before deducting expenses
payable by the Depositor.
The Underwriter has agreed in the Underwriting Agreement to purchase the
aggregate principal balance or notional amount, as the case may be, of each
Class of Offered Certificates.
Distribution of the Offered Certificates will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The Underwriter may effect such transactions
by selling the Offered Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the purchase and sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts. The
Underwriter and any dealers that participate with the 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.
Purchasers of the 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 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
The Depositor also has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Offered Certificates; however, the
Underwriter has no obligation to do so, any market making may be discontinued at
any time and there can be no assurance that an active public market for the
Offered Certificates will develop. See "Risk Factors -- Risks Related to the
Certificates -- Limited Liquidity and Market Value" in this prospectus
supplement and "Risk Factors -- Limited Liquidity of Offered Certificates" in
the accompanying prospectus.
The Depositor has agreed to indemnify the Underwriter and each person, if
any, who controls the Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to the Underwriter and the such
controlling person with respect to, certain liabilities, including certain
liabilities under the Securities Act. The Mortgage Loan Seller has agreed to
indemnify the Depositor, its officers and directors, the Underwriter, and each
person, if any, who controls the Depositor or the Underwriter within the meaning
of Section 15 of the Securities Act, with respect to certain liabilities,
including certain liabilities under the Securities Act, relating to certain of
the Mortgage Loans.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and the
Underwriter by Cadwalader, Wickersham & Taft, New York, New York.
S-101
<PAGE> 103
RATINGS
It is a condition to their issuance that the Offered Certificates receive
the credit ratings indicated below from Moody's Investors Service, Inc.
("Moody's") and Fitch IBCA, Inc. ("Fitch" and, together with Moody's the "Rating
Agencies"):
<TABLE>
<CAPTION>
CLASS MOODY'S FITCH
----- ------- -----
<S> <C> <C>
Class A-1................................................... Aaa AAA
Class A-2................................................... Aaa AAA
Class A-3................................................... Aaa AAA
Class A-4................................................... Aaa AAA
Class A-5................................................... Aaa AAA
Class A-6................................................... Aaa AAA
Class A-1V.................................................. Aaa AAA
Class B..................................................... Aa2 AA
Class C..................................................... A2 A
Class D..................................................... Baa2 BBB
</TABLE>
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled on each Distribution Date and, the ultimate receipt by holders thereof
of all payments of principal to which they are entitled by the Distribution Date
in November 2030 (the "Rated Final Distribution Date"). The ratings take 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 of principal and/or
interest, as applicable, required under the Offered Certificates. The ratings of
the Offered Certificates do not, however, represent any assessments of (i) the
likelihood or frequency of voluntary or involuntary principal prepayments on the
Mortgage Loans, (ii) the degree to which such prepayments might differ from
those originally anticipated or (iii) the likelihood of receipt of prepayment
premiums or yield maintenance fees or default interest. Also, a security rating
does not represent any assessment of the yield to maturity that investors may
experience in the event of rapid prepayments and/or other liquidations of the
Mortgage Loans (including both voluntary and involuntary prepayments). In
general, the ratings thus address credit risk and not prepayment risk.
There is no assurance that any rating assigned to the Offered Certificates
by a Rating Agency will not be lowered, qualified or withdrawn by such Rating
Agency, if, in its judgment, circumstances so warrant. 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 ratings assigned thereto by Fitch and/or Moody's.
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. See "Risk
Factors -- Limited Nature of Ratings" in the accompanying prospectus.
S-102
<PAGE> 104
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
30/360 Basis..................... S-42, S-90
30/360 Mortgage Loans............ S-42
Accrual Period................... S-68
Accrued Certificate Interest..... S-73
Actual/360 Basis................. S-42
Actual/360 Mortgage Loans........ S-42
Actual/365 Basis................. S-42
Actual/365 Loans................. S-42
Additional Trust Fund Expenses... S-79
Adjustable Rate Mortgage Loans... S-40
Administrative Fee Rate.......... S-68
Administrative Fees.............. S-86
Advances......................... S-17, S-61
Assumed Final Distribution
Date........................... S-4
Assumed Monthly Payment.......... S-76
Available Accrued Interest....... S-22
Available Distribution Amount.... S-70
Banc One......................... S-55, S-57
Balloon Loan..................... S-43
Balloon Payment.................. S-29, S-43
Base Principal Distribution
Amount......................... S-74
Basis Risk Arrangement........... S-95
BBA.............................. S-70
BPO.............................. S-47
Certificate Account.............. S-61
Certificate Balance.............. S-67
Certificate Owner................ S-66
Certificate Registrar............ S-67
Certificateholders............... S-13
Certificates..................... S-66
Class............................ S-66
Class A-1V LIBOR Interest
Carryover...................... S-69
Class A-1V LIBOR Rate............ S-67
Class A-1V Available Funds Cap
Rate........................... S-67
Class A-1V Principal Distribution
Amount......................... S-75
Class A-6 Primary Principal
Distribution Amount............ S-77
Class X Certificates............. S-66
Code............................. S-35
Collection Period................ S-9
Commercial Loan.................. S-40
Commercial Mortgaged Property.... S-40
Controlling Class................ S-84
Controlling Class
Certificateholder.............. S-85
Corrected Mortgage Loan.......... S-56
Corporation...................... S-27
Cross-Collateralized Mortgage
Loans.......................... S-40
Cut-off Date..................... S-8, S-40
Cut-off Date Balance............. S-10, S-40
Default Interest................. S-60
Definitive Certificate........... S-66
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Delinquent Loan Status Report.... S-82
Depositor........................ S-8
Delivery Date.................... S-9
Determination Date............... S-9, S-69
Distributable Certificate
Interest....................... S-73
Distribution Date................ S-9, S-70
Distribution Date Statement...... S-81
DTC.............................. S-18, S-66
Due Date......................... S-41
Due Period....................... S-9
ERISA............................ S-98
Excess Cash Flow................. S-15
Excess Cash Flow Release Test.... S-77
Excess Interest.................. S-77
Excluded Plan.................... S-99
Exemption........................ S-98
Exemption Favored Party.......... S-98
Fiscal Agent..................... S-8
Fitch............................ S-4, S-102
Fixed Rate Certificates.......... S-23
Fixed Rate Interest Carryover.... S-69
Fixed Rate Mortgage Loans........ S-40
Fixed Rate Available Funds Cap
Rate........................... S-67
Fixed Rate Senior Certificates... S-14, S-66
Fixed Rate Senior Principal
Distribution Amount............ S-75
Form 8-K......................... S-51
Historical Loss Report........... S-82
Index............................ S-42
Initial Pool Balance............. S-40
Interest Carryover............... S-23
Interest Remittance Amount....... S-68
Interested Person................ S-64
IRS.............................. S-96
LIBOR............................ S-67
LIBOR Determination Date......... S-67
Liquidation Fee.................. S-59
Liquidation Fee Rate............. S-60
Loan Group....................... S-40
Loan Group 1..................... S-40
Loan Group 2..................... S-40
MAI.............................. S-46
Margin........................... S-42
Master Servicer.................. S-8
Master Servicing Fee............. S-58
Maturity Assumptions............. S-90
Merger........................... S-52
Modified Loans................... S-31
Monthly Payments................. S-40
Moody's.......................... S-4, S-102
Mortgage......................... S-40
Mortgage Loans................... S-40
Mortgage Loan Schedule........... S-49
</TABLE>
S-103
<PAGE> 105
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Mortgage Loan Seller............. S-8
Mortgage Note.................... S-40
Mortgage Pool.................... S-40
Mortgage Rate.................... S-41
Mortgaged Property............... S-40
MSA.............................. S-47
Multifamily Loan................. S-40
Multifamily Mortgaged Property... S-40
NationsBank...................... S-52
Net Mortgage Rate................ S-68
Nonrecoverable Advances.......... S-80
Nonrecoverable P&I Advance....... S-80
Nonrecoverable Servicing
Advance........................ S-61
Non-Specially Serviced Mortgage
Loan........................... S-59
Notional Amount.................. S-67
OC Target........................ S-16, S-70
Offered Certificates............. S-14, S-66
Open Period...................... S-43
Operating Statement Analysis..... S-83
Overcollateralization Amount..... S-70
Participants..................... S-66
Party in Interest................ S-99
Pass-Through Rate................ S-14
Permitted Encumbrances........... S-49
Permitted Investments............ S-59
P&I Advance...................... S-17, S-80
Plan............................. S-98
Plan Assets...................... S-98
Pooling Agreement................ S-66
Portfolio........................ A-27
Prepayment Interest Excess....... S-59
Prepayment Interest Shortfall.... S-59
Prepayment Premium............... S-43
Prepayment Premium Period........ S-43
Primary Servicer................. S-8
Principal Balance Certificates... S-14, S-66
Principal Distribution Amount.... S-70
Private Certificates............. S-14, S-66
PTE.............................. S-98
Rated Final Distribution Date.... S-4, S-102
Rating Agencies...............S-4, S-19, S-102
Realized Losses.................. S-79
Realized Loss Percentage......... S-76
Record Date...................... S-9, S-70
Recordation Event................ S-48
Reference Banks.................. S-70
Reimbursement Rate............... S-81
Reincorporation Merger........... S-52
Related Proceeds................. S-61
REMICS........................... S-95
REMIC Administrator.............. S-86
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REMIC Regular Certificates....... S-66
REMIC Residual Certificates...... S-14, S-66
REO Extension.................... S-64
REO Property..................... S-56
REO Status Report................ S-82
REO Tax.......................... S-97
Repurchase Price................. S-48
Restricted Group................. S-98
RMS.............................. S-46
Senior Certificates...........S-14, S-66, S-72
Senior Certificates Interest
Remittance Amount.............. S-68
Senior Principal Distribution
Amount......................... S-75
Senior Minimum Credit Support
Amount......................... S-74
Servicer Reports................. S-82
Servicing Advances............... S-17, S-60
Servicing Functions.............. S-55
Servicing Standard............... S-55
Servicing Transfer Event......... S-56
Settlement Date.................. S-90
Similar Law...................... S-100
Special Servicer................. S-8
Special Servicer Loan Status
Report......................... S-82
Special Servicing Fee............ S-59
Special Servicing Fee Rate....... S-59
Specially Serviced Mortgage
Loan........................... S-55
Stated Principal Balance......... S-69
Step Down Date................... S-70
Subordinate Certificates......... S-72
Subordinate Minimum Credit
Support........................ S-74
Subordinate Principal
Distribution Amount............ S-75
Sub-Servicer..................... S-58
Sub-Servicing Agreement.......... S-58
Successor Primary Servicer
Retained Fee................... S-59
Swaps Regulations................ S-96
Total Credit Support............. S-74
Trigger Event.................... S-76
Trust............................ S-66
Trustee.......................... S-8
Trustee Fee...................... S-86
Trust Fund....................... S-66
Uncapped Pass-Through Rate....... S-22
Underwriting Agreement........... S-101
Voting Rights.................... S-84
Weighted Average Net Mortgage
Rate........................... S-22, S-68
Workout Fee...................... S-59
Workout Fee Rate................. S-59
</TABLE>
S-104
<PAGE> 106
ANNEX A
MORTGAGE POOL STATISTICS
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
PROPERTY LOCATIONS MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
(STATE/COUNTY) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------------ --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
CA.............................. 1,814 65.8% $ 755,732,302 63.9% 55.6% 8.658%
Los Angeles................... 538 19.5% 208,756,076 17.6% 55.5% 8.742%
Orange........................ 150 5.4% 64,091,316 5.4% 57.9% 8.593%
Santa Clara................... 102 3.7% 52,998,079 4.5% 53.6% 8.340%
Alameda....................... 121 4.4% 52,746,933 4.5% 56.1% 8.565%
San Diego..................... 111 4.0% 51,213,073 4.3% 59.2% 8.620%
Sacramento.................... 63 2.3% 26,309,358 2.2% 57.4% 8.597%
Fresno........................ 72 2.6% 26,131,646 2.2% 59.1% 8.749%
San Mateo..................... 55 2.0% 25,956,787 2.2% 54.4% 8.641%
San Francisco................. 55 2.0% 25,877,715 2.2% 54.4% 8.497%
Riverside..................... 58 2.1% 22,774,914 1.9% 55.9% 8.652%
San Bernardino................ 65 2.4% 20,877,513 1.8% 53.7% 9.288%
Contra Costa.................. 45 1.6% 19,655,153 1.7% 54.3% 8.390%
Ventura....................... 35 1.3% 19,216,324 1.6% 52.8% 8.428%
Sonoma........................ 26 0.9% 14,568,644 1.2% 57.9% 8.395%
Marin......................... 22 0.8% 14,422,529 1.2% 53.5% 8.294%
Other Counties................ 296 10.7% 110,136,241 9.3% 53.7% 8.840%
WA.............................. 471 17.1% 212,817,879 18.0% 54.3% 8.393%
King.......................... 241 8.7% 114,422,289 9.7% 53.9% 8.334%
Snohomish..................... 35 1.3% 22,096,942 1.9% 57.9% 8.421%
Pierce........................ 44 1.6% 16,439,786 1.4% 53.5% 8.775%
Other Counties................ 151 5.5% 59,858,861 5.1% 54.1% 8.392%
NV.............................. 140 5.1% 70,837,748 6.0% 54.5% 8.401%
OR.............................. 149 5.4% 62,534,540 5.3% 58.2% 8.390%
AZ.............................. 91 3.3% 38,936,266 3.3% 55.9% 8.121%
TX.............................. 53 1.9% 21,758,799 1.8% 57.4% 8.286%
ID.............................. 25 0.9% 13,142,306 1.1% 53.4% 8.739%
AK.............................. 6 0.2% 3,275,515 0.3% 60.6% 8.612%
IL.............................. 3 0.1% 1,663,014 0.1% 57.7% 7.875%
MN.............................. 1 0.0% 1,432,727 0.1% 55.1% 7.375%
UT.............................. 1 0.0% 956,007 0.1% 58.3% 8.875%
NY.............................. 1 0.0% 77,467 0.0% 14.5% 9.875%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg................... 2,755 100.0% 1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== =====
</TABLE>
A-1
<PAGE> 107
MORTGAGE POOL STATISTICS
PROPERTY TYPE
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE MIN/MAX AVERAGE
MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE CUT-OFF DATE MORTGAGE
PROPERTY TYPE LOANS LOANS BALANCE BALANCE LTV RATIO LTV RATIO RATE
------------- --------- ---------- -------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial.................... 864 31.4% $ 388,133,786 32.8% 56.6% 3.1/77.8% 8.515%
Office........................ 737 26.8% 298,739,950 25.2% 57.4% 8.6/77.4% 8.539%
Retail........................ 413 15.0% 170,236,942 14.4% 51.6% 3.2/77.3% 8.762%
Multifamily................... 374 13.6% 165,432,780 14.0% 58.6% 5.1/76.3% 8.399%
Mixed Use..................... 226 8.2% 96,421,442 8.1% 54.0% 4.6/76.2% 8.607%
Restaurant.................... 69 2.5% 19,215,668 1.6% 42.2% 10.8/64.1% 9.151%
Mobile Home................... 20 0.7% 17,609,592 1.5% 44.4% 16.2/71.9% 8.356%
Special Purpose............... 21 0.8% 10,745,766 0.9% 52.1% 10.1/63.8% 8.251%
Mini-Storage.................. 19 0.7% 10,627,514 0.9% 43.6% 13.5/58.5% 8.707%
Hotel/Motel................... 9 0.3% 5,799,530 0.5% 37.7% 13.3/53.1% 8.416%
Health Care................... 3 0.1% 201,600 0.0% 27.0% 24.2/29.0% 9.881%
----- ----- -------------- ----- ---- ---------- -----
Total/Wtd Avg................. 2,755 100.0% $1,183,164,569 100.0% 55.5% 3.1/77.8% 8.555%
===== ===== ============== ===== ==== ========== =====
</TABLE>
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
CUMULATIVE
% OF WEIGHTED WEIGHTED % OF
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE AGGREGATE
CUT-OFF DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE CUT-OFF
BALANCES LOANS LOANS BALANCE BALANCE LTV RATIO RATE BALANCE
------------ --------- -------- -------------- ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$25,651 - $99,999..... 275 10.0% $ 19,796,258 1.7% 30.7% 9.960% 1.7%
$100,000 - $199,999..... 505 18.3% 75,267,909 6.4% 46.6% 9.333% 8.0%
$200,000 - $299,999..... 481 17.5% 120,112,627 10.2% 52.6% 8.881% 18.2%
$300,000 - $399,999..... 357 13.0% 125,390,054 10.6% 54.3% 8.647% 28.8%
$400,000 - $499,999..... 274 9.9% 122,958,783 10.4% 54.8% 8.554% 39.2%
$500,000 - $599,999..... 185 6.7% 101,050,792 8.5% 56.0% 8.462% 47.7%
$600,000 - $699,999..... 164 6.0% 106,840,561 9.0% 56.5% 8.440% 56.7%
$700,000 - $799,999..... 128 4.6% 95,583,327 8.1% 56.7% 8.484% 64.8%
$800,000 - $899,999..... 88 3.2% 74,561,897 6.3% 56.9% 8.465% 71.1%
$900,000 - $999,999..... 88 3.2% 83,576,746 7.1% 59.1% 8.313% 78.2%
$1,000,000 - $1,199,999... 104 3.8% 114,120,369 9.6% 58.9% 8.281% 87.8%
$1,200,000 - $1,299,999... 31 1.1% 38,766,389 3.3% 60.4% 8.499% 91.1%
$1,300,000 - $1,399,999... 32 1.2% 43,105,179 3.6% 60.4% 8.156% 94.8%
$1,400,000 - $1,490,462... 43 1.6% 62,033,679 5.2% 58.9% 8.052% 100.0%
----- ----- -------------- ----- ---- ----- -----
Total/Wtd Avg............. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555% --
===== ===== ============== ===== ==== ===== =====
</TABLE>
The average Cut-off Date balance of the Mortgage Pool is $429,461.
A-2
<PAGE> 108
MORTGAGE POOL STATISTICS
ORIGINATION DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
ORIGINATION DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL ORIGINATION DATE MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
---------------- --------- -------- -------------- ------------ ----------------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 20.01%........ 28 1.0% $ 6,489,551 0.5% 17.4% 9.032%
20.01% -30.00%.......... 70 2.5% 23,471,007 2.0% 26.1% 8.453%
30.01% - 40.00%......... 133 4.8% 49,985,667 4.2% 35.8% 8.594%
40.01% - 45.00%......... 117 4.2% 52,204,691 4.4% 42.6% 8.470%
45.01% - 50.00%......... 163 5.9% 71,863,354 6.1% 48.0% 8.490%
50.01% - 55.00%......... 172 6.2% 73,406,419 6.2% 52.8% 8.550%
55.01% - 60.00%......... 263 9.5% 121,811,612 10.3% 57.8% 8.499%
60.01% - 65.00%......... 386 14.0% 176,453,031 14.9% 62.8% 8.488%
65.01% - 70.00%......... 474 17.2% 213,542,471 18.0% 67.8% 8.475%
70.01% - 75.00%......... 728 26.4% 304,819,410 25.8% 73.6% 8.623%
75.01% - 80.00%......... 221 8.0% 89,117,357 7.5% 77.6% 8.799%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg........... 2,755 100.0% $1,183,164,569 100.0% 62.5% 8.555%
===== ===== ============== ===== ==== =====
</TABLE>
CUT-OFF DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------ --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 20.01%.............. 175 6.4% $ 28,262,617 2.4% 14.8% 9.104%
20.01% - 30.00%............... 251 9.1% 58,568,035 5.0% 25.4% 9.013%
30.01% - 40.00%............... 285 10.3% 100,985,123 8.5% 35.4% 8.806%
40.01% - 45.00%............... 186 6.8% 74,550,462 6.3% 42.6% 8.552%
45.01% - 50.00%............... 226 8.2% 88,225,802 7.5% 47.7% 8.639%
50.01% - 55.00%............... 233 8.5% 112,649,386 9.5% 52.6% 8.556%
55.01% - 60.00%............... 334 12.1% 174,452,595 14.7% 57.5% 8.419%
60.01% - 65.00%............... 374 13.6% 184,800,974 15.6% 62.5% 8.431%
65.01% - 70.00%............... 363 13.2% 185,258,084 15.7% 67.6% 8.484%
70.01% - 75.00%............... 315 11.4% 167,421,894 14.2% 72.4% 8.441%
75.01% - 77.79%............... 13 0.5% 7,989,598 0.7% 76.3% 9.006%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg................. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== =====
</TABLE>
A-3
<PAGE> 109
MORTGAGE POOL STATISTICS
ESTIMATED CURRENT LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED
% OF AVERAGE WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL ESTIMATED AVERAGE
ESTIMATED CURRENT MORTGAGE MORTGAGE CUT-OFF DATE POOL CURRENT MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
----------------- --------- -------- -------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 20.01%................ 354 12.8% $ 60,387,586 5.1% 14.4% 9.318%
20.01% - 30.00%................. 295 10.7% 96,565,504 8.2% 25.2% 8.870%
30.01% - 40.00%................. 411 14.9% 157,874,820 13.3% 35.3% 8.653%
40.01% - 45.00%................. 279 10.1% 137,256,243 11.6% 42.6% 8.508%
45.01% - 50.00%................. 301 10.9% 156,976,144 13.3% 47.5% 8.513%
50.01% - 55.00%................. 300 10.9% 153,885,635 13.0% 52.5% 8.596%
55.01% - 60.00%................. 232 8.4% 121,949,316 10.3% 57.3% 8.390%
60.01% - 65.00%................. 177 6.4% 90,503,026 7.6% 62.4% 8.292%
65.01% - 70.00%................. 183 6.6% 95,852,847 8.1% 67.5% 8.332%
70.01% - 75.00%................. 215 7.8% 106,565,188 9.0% 72.6% 8.362%
75.01% - 77.60%................. 8 0.3% 5,348,259 0.5% 76.4% 8.613%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg................... 2,755 100.0% $1,183,164,569 100.0% 48.6% 8.555%
===== ===== ============== ===== ==== =====
</TABLE>
MATURITY DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED
% OF AVERAGE WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL MATURITY AVERAGE
MATURITY DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL DATE MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------- --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
0.00%........................ 1,110 40.3% $ 387,201,324 32.7% 0.0% 8.709%
0.01% - 20.00%............... 106 3.8% 29,911,294 2.5% 12.4% 8.679%
20.01% - 25.00%............... 45 1.6% 16,175,345 1.4% 22.7% 8.474%
25.01% - 30.00%............... 80 2.9% 31,154,777 2.6% 27.6% 8.615%
30.01% - 35.00%............... 130 4.7% 54,290,934 4.6% 32.7% 8.326%
35.01% - 40.00%............... 134 4.9% 62,327,344 5.3% 37.3% 8.352%
40.01% - 45.00%............... 155 5.6% 74,178,872 6.3% 42.5% 8.475%
45.01% - 50.00%............... 198 7.2% 105,827,827 8.9% 47.5% 8.461%
50.01% - 55.00%............... 232 8.4% 125,388,121 10.6% 52.6% 8.392%
55.01% - 60.00%............... 230 8.3% 120,784,198 10.2% 57.4% 8.397%
60.01% - 65.00%............... 200 7.3% 111,277,065 9.4% 62.3% 8.657%
65.01% - 70.00%............... 128 4.6% 60,148,062 5.1% 66.5% 8.562%
70.01% - 74.83%............... 7 0.3% 4,499,405 0.4% 71.4% 9.540%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg................. 2,755 100.0% $1,183,164,569 100.0% 32.7% 8.555%
===== ===== ============== ===== ==== =====
</TABLE>
A-4
<PAGE> 110
MORTGAGE POOL STATISTICS
MORTGAGE RATES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
MORTGAGE MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
RATES LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------- --------- -------- -------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less Than 7.000%............ 6 0.2% $ 4,454,561 0.4% 62.6% 6.887%
7.000% - 7.499%........... 119 4.3% 77,913,972 6.6% 55.7% 7.238%
7.500% - 7.749%........... 122 4.4% 74,241,284 6.3% 55.1% 7.594%
7.750% - 7.999%........... 231 8.4% 143,575,847 12.1% 57.2% 7.824%
8.000% - 8.249%........... 288 10.5% 151,595,584 12.8% 56.8% 8.060%
8.250% - 8.499%........... 282 10.2% 142,946,139 12.1% 58.6% 8.310%
8.500% - 8.749%........... 316 11.5% 137,449,346 11.6% 56.7% 8.552%
8.750% - 8.999%........... 245 8.9% 114,769,395 9.7% 57.0% 8.807%
9.000% - 9.249%........... 224 8.1% 98,311,445 8.3% 56.5% 9.047%
9.250% - 9.499%........... 181 6.6% 63,591,310 5.4% 54.0% 9.297%
9.500% - 9.749%........... 169 6.1% 52,694,798 4.5% 51.1% 9.539%
9.750% - 9.999%........... 215 7.8% 46,926,477 4.0% 49.2% 9.778%
10.000% - 10.249%........... 100 3.6% 23,625,356 2.0% 45.6% 10.032%
10.250% - 10.499%........... 70 2.5% 11,462,854 1.0% 43.9% 10.279%
10.500% - 10.999%........... 69 2.5% 15,659,217 1.3% 49.3% 10.701%
11.000% - 11.499%........... 34 1.2% 9,711,736 0.8% 47.1% 11.161%
11.500% - 11.999%........... 37 1.3% 7,610,996 0.6% 40.5% 11.712%
12.000% - 12.499%........... 29 1.1% 4,674,440 0.4% 39.9% 12.092%
12.500% - 12.999%........... 8 0.3% 1,019,830 0.1% 30.2% 12.549%
Greater than 12.999%........ 10 0.4% 929,983 0.1% 37.9% 13.438%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg............... 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== ======
</TABLE>
The weighted average Mortgage Rate of the Mortgage Pool is 8.555%.
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
REMAINING TERMS MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
TO MATURITY LOANS LOANS BALANCE BALANCE LTV RATIO RATE
--------------- --------- -------- -------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year......... 8 0.3% $ 1,685,837 0.1% 49.9% 10.024%
1.0 - 1.9 years........... 99 3.6% 31,159,777 2.6% 47.0% 9.400%
2.0 - 2.9 years........... 213 7.7% 72,341,153 6.1% 51.6% 9.059%
3.0 - 3.9 years........... 227 8.2% 69,238,753 5.9% 50.2% 8.784%
4.0 - 4.9 years........... 286 10.4% 91,627,902 7.7% 47.6% 8.760%
5.0 - 5.9 years........... 217 7.9% 86,876,881 7.3% 51.2% 8.816%
6.0 - 6.9 years........... 290 10.5% 142,005,796 12.0% 58.0% 8.437%
7.0 - 7.9 years........... 291 10.6% 151,257,322 12.8% 58.0% 8.480%
8.0 - 8.9 years........... 267 9.7% 150,249,631 12.7% 57.7% 8.310%
9.0 - 9.9 years........... 255 9.3% 116,020,910 9.8% 59.5% 8.126%
10.0 - 11.9 years.......... 107 3.9% 46,304,458 3.9% 50.0% 8.750%
12.0 - 13.9 years.......... 324 11.8% 152,676,710 12.9% 58.4% 8.580%
14.0 - 14.9 years.......... 171 6.2% 71,719,439 6.1% 58.9% 8.260%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg.............. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== ======
</TABLE>
The weighted average remaining term to maturity of the Mortgage Pool is 94
months.
A-5
<PAGE> 111
MORTGAGE POOL STATISTICS
REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
REMAINING MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
AMORTIZATION TERMS LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------------ --------- -------- -------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year......... 1 0.0% $ 25,651 0.0% 4.6% 10.000%
1.0 - 1.9 years........... 32 1.2% 3,884,489 0.3% 10.1% 9.525%
2.0 - 2.9 years........... 67 2.4% 6,526,816 0.6% 17.8% 9.814%
3.0 - 3.9 years........... 98 3.6% 13,083,014 1.1% 23.0% 9.716%
4.0 - 4.9 years........... 112 4.1% 21,645,999 1.8% 27.4% 9.461%
5.0 - 5.9 years........... 64 2.3% 15,621,910 1.3% 35.7% 9.700%
6.0 - 6.9 years........... 67 2.4% 22,840,595 1.9% 38.1% 9.092%
7.0 - 7.9 years........... 57 2.1% 17,688,955 1.5% 39.0% 8.771%
8.0 - 8.9 years........... 81 2.9% 30,733,615 2.6% 41.9% 8.750%
9.0 - 9.9 years........... 55 2.0% 21,678,572 1.8% 46.7% 8.408%
10.0 - 11.9 years.......... 173 6.3% 72,037,938 6.1% 50.6% 8.644%
12.0 - 13.9 years.......... 393 14.3% 179,117,305 15.1% 57.3% 8.563%
14.0 - 15.9 years.......... 267 9.7% 118,761,582 10.0% 57.1% 8.395%
16.0 - 17.9 years.......... 231 8.4% 100,542,286 8.5% 55.5% 8.680%
18.0 - 19.9 years.......... 233 8.5% 104,137,172 8.8% 56.7% 8.560%
20.0 - 24.9 years.......... 508 18.4% 300,670,971 25.4% 59.9% 8.407%
25.0 - 29.9 years.......... 316 11.5% 154,167,697 13.0% 64.7% 8.287%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg.............. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== ======
</TABLE>
The weighted average remaining amortization term of the Mortgage Pool is
209 months.
SEASONING
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
MORTGAGE LOAN MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
SEASONING LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------- --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year............ 361 13.1% $ 165,917,170 14.0% 60.0% 8.118%
1.0 - 1.9 years.............. 500 18.1% 267,019,991 22.6% 58.8% 8.290%
2.0 - 2.9 years.............. 467 17.0% 226,563,053 19.1% 57.4% 8.548%
3.0 - 3.9 years.............. 371 13.5% 184,177,018 15.6% 56.7% 8.405%
4.0 - 4.9 years.............. 155 5.6% 81,391,142 6.9% 53.6% 8.794%
5.0 - 5.9 years.............. 144 5.2% 60,928,050 5.1% 52.1% 8.345%
6.0 - 6.9 years.............. 58 2.1% 24,434,222 2.1% 52.0% 8.215%
7.0 - 7.9 years.............. 47 1.7% 16,612,344 1.4% 51.5% 9.496%
8.0 - 8.9 years.............. 59 2.1% 17,770,149 1.5% 46.3% 9.731%
9.0 - 9.9 years.............. 23 0.8% 6,290,032 0.5% 52.9% 10.228%
10.0 - 11.9 years............. 126 4.6% 38,604,342 3.3% 52.6% 9.375%
12.0 - 13.9 years............. 104 3.8% 31,606,445 2.7% 52.8% 9.146%
14.0 - 15.9 years............. 9 0.3% 3,187,661 0.3% 45.8% 8.577%
16.0 - 17.9 years............. 5 0.2% 855,895 0.1% 39.6% 9.772%
18.0 - 19.9 years............. 66 2.4% 13,604,772 1.1% 34.7% 10.514%
20.0 - 24.9 years............. 252 9.1% 42,316,621 3.6% 31.1% 9.713%
25.0 - 29.9 years............. 8 0.3% 1,885,662 0.2% 20.9% 8.286%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg................. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== ======
</TABLE>
The weighted average seasoning of the Mortgage Pool is 50 months.
A-6
<PAGE> 112
MORTGAGE POOL STATISTICS
YEAR OF MORTGAGE ORIGINATION
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
YEAR OF MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
ORIGINATION LOANS LOANS BALANCE BALANCE LTV RATIO RATE
----------- --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1998.......................... 546 19.8% $ 256,402,563 21.7% 59.6% 8.163%
1997.......................... 441 16.0% 235,290,251 19.9% 58.4% 8.405%
1996.......................... 481 17.5% 230,319,635 19.5% 57.5% 8.464%
1995.......................... 248 9.0% 128,859,261 10.9% 56.0% 8.438%
1994.......................... 169 6.1% 88,585,140 7.5% 53.9% 8.712%
1993.......................... 117 4.2% 40,236,728 3.4% 49.1% 8.193%
1992.......................... 44 1.6% 25,622,582 2.2% 54.4% 8.470%
1991.......................... 52 1.9% 16,720,993 1.4% 49.5% 9.468%
1990.......................... 59 2.1% 17,813,729 1.5% 48.0% 10.089%
1989.......................... 15 0.5% 4,006,724 0.3% 48.1% 9.464%
1988.......................... 64 2.3% 22,447,031 1.9% 51.5% 9.191%
Prior to 1988................. 519 18.8% 116,859,933 9.9% 42.4% 9.531%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg................. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== ======
</TABLE>
YEAR OF MORTGAGE MATURITY
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
YEAR OF MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
MATURITY LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------- --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
2000.......................... 68 2.5% $ 17,405,372 1.5% 42.8% 10.144%
2001.......................... 166 6.0% 60,023,732 5.1% 51.6% 8.936%
2002.......................... 238 8.6% 77,286,240 6.5% 51.4% 8.882%
2003.......................... 272 9.9% 80,626,038 6.8% 46.3% 8.798%
2004.......................... 233 8.5% 88,212,808 7.5% 51.0% 8.741%
2005.......................... 242 8.8% 114,155,544 9.6% 56.1% 8.667%
2006.......................... 327 11.9% 157,730,188 13.3% 58.0% 8.463%
2007.......................... 256 9.3% 148,106,723 12.5% 58.1% 8.359%
2008.......................... 341 12.4% 165,724,788 14.0% 59.1% 8.119%
2009.......................... 41 1.5% 14,776,986 1.2% 48.0% 8.857%
2010.......................... 45 1.6% 22,527,670 1.9% 51.9% 8.809%
2011.......................... 128 4.6% 53,944,891 4.6% 54.2% 8.644%
2012.......................... 156 5.7% 78,733,561 6.7% 58.8% 8.602%
2013.......................... 242 8.8% 103,910,028 8.8% 59.6% 8.288%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg................. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== ======
</TABLE>
A-7
<PAGE> 113
MORTGAGE POOL STATISTICS
CREDIT SCORING OF MORTGAGORS(1)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
CREDIT MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
SCORES LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------- --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 550................. 11 0.4% $ 3,521,383 0.3% 54.8% 10.081%
550 - 599..................... 12 0.4% 7,126,879 0.6% 59.8% 8.156%
600 - 649..................... 50 1.8% 20,604,705 1.7% 56.3% 8.808%
650 - 699..................... 242 8.8% 100,146,055 8.5% 58.3% 8.712%
700 - 749..................... 549 19.9% 219,368,274 18.5% 57.5% 8.531%
750 - 799..................... 697 25.3% 276,368,402 23.4% 55.4% 8.534%
800 - 824..................... 117 4.2% 41,566,593 3.5% 52.1% 8.708%
Not Available................. 1,077 39.1% 514,462,279 43.5% 54.2% 8.518%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg................. 2,755 100.0% $1,183,164,569 100.0% 55.5% 8.555%
===== ===== ============== ===== ==== ======
</TABLE>
The weighted average credit score, of loans where a credit score was
obtained, was 738.0.
(1) The scores shown are Bureau Credit Scores from Experion (FICO). Credit
Scores generally range from approximately 250 to approximately 900 with a
higher score indicating an individual with a more favorable credit history
than an individual with a lower score. Credit Scores are statistical credit
scores designed to asses a borrower's creditworthiness and likelihood of
default on a consumer obligation over a two year period. Credit Scores were
not developed to predict the likelihood of default on mortgage loans, and
accordingly, may not be indicative of the ability of a mortgagor to repay
its Mortgage Loan. Accordingly, Credit Scores were generally not obtained
for trusts, corporations, and partnerships.
A-8
<PAGE> 114
MORTGAGE POOL STATISTICS -- FIXED RATE MORTGAGE LOANS
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
PROPERTY LOCATIONS MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
(STATE/COUNTY) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------------ --------- -------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
CA............................... 1,275 65.8% $541,486,221 63.5% 55.9% 8.841%
Los Angeles.................... 378 19.5% 147,272,446 17.3% 55.5% 8.923%
Orange......................... 105 5.4% 47,700,231 5.6% 58.0% 8.725%
San Diego...................... 83 4.3% 40,967,356 4.8% 59.3% 8.752%
Alameda........................ 90 4.6% 40,863,939 4.8% 56.2% 8.762%
Santa Clara.................... 80 4.1% 40,226,213 4.7% 52.5% 8.547%
San Francisco.................. 44 2.3% 21,807,208 2.6% 55.1% 8.567%
San Mateo...................... 47 2.4% 21,245,211 2.5% 54.3% 8.828%
Sacramento..................... 42 2.2% 17,460,835 2.0% 58.5% 8.723%
Fresno......................... 47 2.4% 15,269,240 1.8% 58.2% 9.268%
San Bernardino................. 40 2.1% 13,805,822 1.6% 54.2% 9.421%
Riverside...................... 34 1.8% 13,560,193 1.6% 56.3% 8.739%
Contra Costa................... 28 1.4% 13,188,490 1.5% 55.9% 8.658%
Ventura........................ 19 1.0% 10,085,910 1.2% 58.6% 8.881%
Sonoma......................... 16 0.8% 9,188,117 1.1% 59.3% 8.489%
Kern........................... 18 0.9% 8,712,069 1.0% 61.3% 8.497%
Marin.......................... 14 0.7% 8,522,540 1.0% 56.7% 8.681%
Other Counties................. 190 9.8% 71,610,401 8.4% 53.4% 9.075%
WA 282 14.6% 135,433,922 15.9% 55.7% 8.750%
King........................... 133 6.9% 67,479,884 7.9% 54.6% 8.719%
Snohomish...................... 23 1.2% 15,448,666 1.8% 62.5% 8.757%
Pierce......................... 33 1.7% 12,572,117 1.5% 53.0% 9.079%
Other Counties................. 93 4.8% 39,933,255 4.7% 55.7% 8.695%
NV............................... 131 6.8% 66,292,912 7.8% 54.2% 8.458%
OR............................... 118 6.1% 51,004,279 6.0% 59.2% 8.552%
AZ............................... 72 3.7% 26,476,659 3.1% 56.8% 8.469%
TX............................... 32 1.7% 14,907,955 1.7% 59.4% 8.525%
ID............................... 18 0.9% 10,935,647 1.3% 54.9% 8.919%
AK............................... 4 0.2% 2,504,925 0.3% 58.3% 8.746%
IL............................... 3 0.2% 1,663,014 0.2% 57.7% 7.875%
MN............................... 1 0.1% 1,432,727 0.2% 55.1% 7.375%
UT............................... 1 0.1% 956,007 0.1% 58.3% 8.875%
NY............................... 1 0.1% 77,467 0.0% 14.5% 9.875%
----- ----- ------------ ----- ---- -----
Total/Wtd Avg.................... 1,938 100.0% 853,171,734 100.0% 56.0% 8.759%
===== ===== ============ ===== ==== =====
</TABLE>
A-9
<PAGE> 115
MORTGAGE POOL STATISTICS -- FIXED RATE MORTGAGE LOANS
PROPERTY TYPE
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE MIN/MAX AVERAGE
MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE CUT-OFF DATE MORTGAGE
PROPERTY TYPE LOANS LOANS BALANCE BALANCE LTV RATIO LTV RATIO RATE
------------- --------- ---------- ------------ ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial.................. 607 31.3% $282,484,052 33.1% 57.8% 3.1/77.8% 8.677%
Office...................... 496 25.6% 207,020,650 24.3% 57.6% 8.6/77.4% 8.761%
Retail...................... 304 15.7% 124,560,396 14.6% 51.9% 3.2/77.3% 9.013%
Multifamily................. 274 14.1% 120,924,196 14.2% 58.9% 9.3/76.3% 8.608%
Mixed Use................... 152 7.8% 67,532,835 7.9% 54.3% 4.6/76.2% 8.824%
Restaurant.................. 54 2.8% 16,434,846 1.9% 43.0% 11.8/64.1% 9.313%
Mobile Home................. 15 0.8% 14,625,494 1.7% 43.5% 16.2/71.9% 8.474%
Mini-Storage................ 15 0.8% 9,145,172 1.1% 44.7% 13.5/58.5% 8.785%
Special Purpose............. 14 0.7% 7,706,959 0.9% 53.0% 10.1/63.8% 8.550%
Hotel/Motel................. 4 0.2% 2,535,533 0.3% 40.1% 13.3/53.1% 9.057%
Health Care................. 3 0.2% 201,600 0.0% 27.0% 24.2/29.0% 9.881%
----- ----- ------------ ----- ---- ---------- -----
Total/Wtd Avg............... 1,938 100.0% $853,171,734 100.0% 56.0% 3.1/77.8% 8.759%
===== ===== ============ ===== ==== ========== =====
</TABLE>
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
CUMULATIVE
% OF WEIGHTED WEIGHTED % OF
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE AGGREGATE
CUT-OFF DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE CUT-OFF
BALANCES LOANS LOANS BALANCE BALANCE LTV RATIO RATE BALANCE
------------ --------- -------- ------------ ------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$25,651 - $99,999..... 210 10.8% $ 14,843,720 1.7% 28.5% 10.243% 1.7%
$100,000 - $199,999..... 323 16.7% 48,487,484 5.7% 45.9% 9.669% 7.4%
$200,000 - $299,999..... 333 17.2% 83,030,676 9.7% 52.9% 9.113% 17.2%
$300,000 - $399,999..... 234 12.1% 82,119,354 9.6% 56.1% 8.935% 26.8%
$400,000 - $499,999..... 202 10.4% 90,839,475 10.6% 55.0% 8.725% 37.4%
$500,000 - $599,999..... 133 6.9% 72,557,933 8.5% 55.8% 8.668% 45.9%
$600,000 - $699,999..... 125 6.4% 81,599,271 9.6% 56.9% 8.610% 55.5%
$700,000 - $799,999..... 85 4.4% 63,544,706 7.4% 55.9% 8.705% 62.9%
$800,000 - $899,999..... 64 3.3% 54,356,662 6.4% 57.6% 8.682% 69.3%
$900,000 - $999,999..... 64 3.3% 60,792,347 7.1% 60.0% 8.584% 76.4%
$1,000,000 - $1,199,999.... 86 4.4% 94,438,391 11.1% 60.0% 8.359% 87.5%
$1,200,000 - $1,299,999.... 28 1.4% 34,940,600 4.1% 60.9% 8.546% 91.6%
$1,300,000 - $1,399,999.... 21 1.1% 28,325,446 3.3% 59.9% 8.572% 94.9%
$1,400,000 - $1,490,462.... 30 1.5% 43,295,670 5.1% 60.9% 8.306% 100.0%
----- ----- ------------ ----- ---- ------ -----
Total/Wtd Avg.............. 1,938 100.0% $853,171,734 100.0% 56.0% 8.759% --
===== ===== ============ ===== ==== ====== =====
</TABLE>
The average balance of the Fixed Rate Mortgage Loans is $440,233.
A-10
<PAGE> 116
MORTGAGE POOL STATISTICS -- FIXED RATE MORTGAGE LOANS
CUT-OFF DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------ --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 20.01%........................ 134 6.9% $ 19,264,025 2.3% 14.5% 9.475%
20.01% - 30.00%......................... 188 9.7% 41,735,551 4.9% 25.5% 9.362%
30.01% - 40.00%......................... 205 10.6% 71,490,779 8.4% 35.5% 9.143%
40.01% - 45.00%......................... 120 6.2% 52,363,132 6.1% 42.5% 8.819%
45.01% - 50.00%......................... 141 7.3% 61,653,338 7.2% 47.8% 8.872%
50.01% - 55.00%......................... 150 7.7% 77,834,682 9.1% 52.7% 8.858%
55.01% - 60.00%......................... 219 11.3% 115,904,355 13.6% 57.5% 8.630%
60.01% - 65.00%......................... 254 13.1% 126,945,260 14.9% 62.5% 8.624%
65.01% - 70.00%......................... 257 13.3% 139,193,545 16.3% 67.5% 8.576%
70.01% - 75.00%......................... 258 13.3% 139,577,700 16.4% 72.4% 8.546%
75.01% - 77.79%......................... 12 0.6% 7,209,368 0.8% 76.3% 9.156%
----- ----- ------------ ----- ---- -----
Total/Wtd Avg........................... 1,938 100.0% $853,171,734 100.0% 56.0% 8.759%
===== ===== ============ ===== ==== =====
</TABLE>
ESTIMATED CURRENT LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED
% OF AVERAGE WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL ESTIMATED AVERAGE
ESTIMATED CURRENT MORTGAGE MORTGAGE CUT-OFF DATE POOL CURRENT MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
----------------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 20.01%........................ 284 14.7% $ 43,525,967 5.1% 14.2% 9.737%
20.01% - 30.00%......................... 201 10.4% 69,119,739 8.1% 25.2% 9.172%
30.01% - 40.00%......................... 232 12.0% 95,043,125 11.1% 35.1% 9.023%
40.01% - 45.00%......................... 178 9.2% 94,524,074 11.1% 42.5% 8.768%
45.01% - 50.00%......................... 186 9.6% 100,671,102 11.8% 47.5% 8.756%
50.01% - 55.00%......................... 202 10.4% 108,629,911 12.7% 52.5% 8.760%
55.01% - 60.00%......................... 168 8.7% 92,112,861 10.8% 57.3% 8.533%
60.01% - 65.00%......................... 140 7.2% 69,250,571 8.1% 62.4% 8.468%
65.01% - 70.00%......................... 151 7.8% 81,590,680 9.6% 67.4% 8.419%
70.01% - 75.00%......................... 190 9.8% 94,258,876 11.0% 72.6% 8.457%
75.01% - 77.56%......................... 6 0.3% 4,444,828 0.5% 76.4% 8.777%
----- ----- ------------ ----- ---- -----
Total/Wtd Avg........................... 1,938 100.0% $853,171,734 100.0% 49.8% 8.759%
===== ===== ============ ===== ==== =====
</TABLE>
A-11
<PAGE> 117
MORTGAGE POOL STATISTICS -- FIXED RATE MORTGAGE LOANS
MATURITY DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED
% OF AVERAGE WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL MATURITY AVERAGE
MATURITY DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL DATE MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
0.00%.................................. 909 46.9% $324,518,800 38.0% 0.0% 8.867%
0.01% - 20.00%......................... 62 3.2% 17,519,971 2.1% 11.2% 9.148%
20.01% - 25.00%......................... 23 1.2% 9,128,251 1.1% 22.8% 8.827%
25.01% - 30.00%......................... 50 2.6% 21,438,006 2.5% 27.7% 8.855%
30.01% - 35.00%......................... 77 4.0% 32,345,614 3.8% 32.9% 8.615%
35.01% - 40.00%......................... 74 3.8% 37,111,789 4.3% 37.5% 8.771%
40.01% - 45.00%......................... 96 5.0% 52,084,061 6.1% 42.3% 8.676%
45.01% - 50.00%......................... 125 6.4% 71,270,699 8.4% 47.5% 8.667%
50.01% - 55.00%......................... 140 7.2% 75,790,156 8.9% 52.6% 8.652%
55.01% - 60.00%......................... 142 7.3% 79,601,656 9.3% 57.4% 8.530%
60.01% - 65.00%......................... 135 7.0% 80,565,457 9.4% 62.2% 8.731%
65.01% - 70.00%......................... 98 5.1% 47,297,870 5.5% 66.6% 8.660%
70.01% - 74.83%......................... 7 0.4% 4,499,405 0.5% 71.4% 9.540%
----- ----- ------------ ----- ---- -----
Total/Wtd Avg........................... 1,938 100.0% $853,171,734 100.0% 30.6% 8.759%
===== ===== ============ ===== ==== =====
</TABLE>
MORTGAGE RATES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
MORTGAGE MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
RATES LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 7.500%................... 6 0.3% $ 5,302,716 0.6% 58.9% 7.317%
7.500% - 7.749%.................. 25 1.3% 18,379,599 2.2% 56.9% 7.629%
7.750% - 7.999%.................. 101 5.2% 79,843,055 9.4% 59.2% 7.825%
8.000% - 8.249%.................. 178 9.2% 113,500,847 13.3% 59.0% 8.066%
8.250% - 8.499%.................. 218 11.2% 123,596,129 14.5% 59.7% 8.311%
8.500% - 8.749%.................. 250 12.9% 122,424,906 14.3% 57.9% 8.551%
8.750% - 8.999%.................. 224 11.6% 109,488,523 12.8% 57.3% 8.807%
9.000% - 9.249%.................. 192 9.9% 89,843,056 10.5% 57.3% 9.049%
9.250% - 9.499%.................. 127 6.6% 47,013,412 5.5% 52.9% 9.308%
9.500% - 9.749%.................. 141 7.3% 43,664,449 5.1% 50.7% 9.542%
9.750% - 9.999%.................. 151 7.8% 32,317,202 3.8% 44.6% 9.790%
10.000% - 10.249%.................. 85 4.4% 20,219,113 2.4% 43.3% 10.036%
10.250% - 10.499%.................. 56 2.9% 9,273,577 1.1% 41.5% 10.286%
10.500% - 10.999%.................. 67 3.5% 14,491,035 1.7% 48.9% 10.713%
11.000% - 11.499%.................. 33 1.7% 9,578,868 1.1% 47.5% 11.160%
11.500% - 11.999%.................. 37 1.9% 7,610,996 0.9% 40.5% 11.712%
12.000% - 12.499%.................. 29 1.5% 4,674,440 0.5% 39.9% 12.092%
12.500% - 12.999%.................. 8 0.4% 1,019,830 0.1% 30.2% 12.549%
Greater than 12.999%............... 10 0.5% 929,983 0.1% 37.9% 13.438%
----- ----- ------------ ----- ---- ------
Total/Wtd Avg...................... 1,938 100.0% $853,171,734 100.0% 56.0% 8.759%
===== ===== ============ ===== ==== ======
</TABLE>
The weighted average Mortgage Rate of the Fixed Rate Mortgage Loans is
8.759%.
A-12
<PAGE> 118
MORTGAGE POOL STATISTICS -- FIXED RATE MORTGAGE LOANS
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
REMAINING TERMS MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
TO MATURITY LOANS LOANS BALANCE BALANCE LTV RATIO RATE
--------------- --------- -------- -------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year......... 5 0.3% $ 1,452,249 0.2% 52.2% 10.178%
1.0 - 1.9 years.......... 79 4.1% 23,396,412 2.7% 46.0% 9.827%
2.0 - 2.9 years.......... 108 5.6% 36,315,637 4.3% 50.2% 9.573%
3.0 - 3.9 years.......... 117 6.0% 30,852,432 3.6% 47.1% 9.113%
4.0 - 4.9 years.......... 170 8.8% 46,127,825 5.4% 42.9% 9.065%
5.0 - 5.9 years.......... 145 7.5% 55,109,170 6.5% 50.9% 9.366%
6.0 - 6.9 years.......... 228 11.8% 118,075,046 13.8% 58.8% 8.532%
7.0 - 7.9 years.......... 203 10.5% 108,279,422 12.7% 58.8% 8.816%
8.0 - 8.9 years.......... 185 9.5% 106,307,460 12.5% 58.3% 8.604%
9.0 - 9.9 years.......... 207 10.7% 97,705,542 11.5% 60.4% 8.192%
10.0 - 11.9 years.......... 77 4.0% 36,093,629 4.2% 48.7% 8.972%
12.0 - 13.9 years.......... 250 12.9% 125,634,995 14.7% 58.8% 8.763%
14.0 - 14.9 years.......... 164 8.5% 67,821,916 7.9% 59.3% 8.303%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg 1,938 100.0% $ 853,171,734 100.0% 56.0% 8.759%
===== ===== ============== ===== ==== ======
</TABLE>
The weighted average remaining term to maturity of the Fixed Rate Mortgage
Loans is 100 months.
REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
REMAINING MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
AMORTIZATION TERMS LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------------ --------- -------- -------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year......... 1 0.1% $ 25,651 0.0% 4.6% 10.000%
1.0 - 1.9 years.......... 30 1.5% 3,693,913 0.4% 10.0% 9.577%
2.0 - 2.9 years.......... 57 2.9% 5,534,952 0.6% 16.8% 9.947%
3.0 - 3.9 years.......... 90 4.6% 11,690,105 1.4% 22.8% 9.833%
4.0 - 4.9 years.......... 98 5.1% 18,734,863 2.2% 27.7% 9.591%
5.0 - 5.9 years.......... 56 2.9% 13,375,179 1.6% 35.7% 9.954%
6.0 - 6.9 years.......... 54 2.8% 19,554,806 2.3% 38.9% 9.277%
7.0 - 7.9 years.......... 33 1.7% 11,910,541 1.4% 41.3% 9.133%
8.0 - 8.9 years.......... 54 2.8% 22,008,573 2.6% 43.4% 9.163%
9.0 - 9.9 years.......... 34 1.8% 14,864,601 1.7% 49.2% 8.612%
10.0 - 11.9 years.......... 120 6.2% 55,745,326 6.5% 50.7% 8.841%
12.0 - 13.9 years.......... 290 15.0% 138,362,503 16.2% 58.2% 8.795%
14.0 - 15.9 years.......... 222 11.5% 98,850,518 11.6% 58.1% 8.475%
16.0 - 17.9 years.......... 113 5.8% 58,595,731 6.9% 55.5% 8.835%
18.0 - 19.9 years.......... 93 4.8% 51,257,448 6.0% 58.2% 8.542%
20.0 - 24.9 years.......... 342 17.6% 207,611,348 24.3% 61.2% 8.684%
25.0 - 29.9 years.......... 251 13.0% 121,355,677 14.2% 65.1% 8.473%
----- ----- -------------- ----- ---- ------
Total/Wtd Avg.............. 1,938 100.0% $ 853,171,734 100.0% 56.0% 8.759%
===== ===== ============== ===== ==== ======
</TABLE>
The weighted average remaining amortization term of the Fixed Rate Mortgage
Loans is 206 months.
A-13
<PAGE> 119
MORTGAGE POOL STATISTICS -- FIXED RATE MORTGAGE LOANS
SEASONING
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
MORTGAGE LOAN MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
SEASONING LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year........... 337 17.4% $153,092,926 17.9% 60.7% 8.176%
1.0 - 1.9 years............ 380 19.6% 202,818,721 23.8% 59.6% 8.514%
2.0 - 2.9 years............ 337 17.4% 168,569,024 19.8% 57.8% 8.875%
3.0 - 3.9 years............ 284 14.7% 151,373,962 17.7% 57.2% 8.533%
4.0 - 4.9 years............ 86 4.4% 44,714,089 5.2% 53.8% 9.539%
5.0 - 5.9 years............ 55 2.8% 27,918,335 3.3% 50.7% 8.654%
6.0 - 6.9 years............ 19 1.0% 8,686,036 1.0% 58.0% 8.935%
7.0 - 7.9 years............ 27 1.4% 9,413,767 1.1% 50.2% 10.452%
8.0 - 8.9 years............ 43 2.2% 11,775,704 1.4% 46.4% 10.420%
9.0 - 9.9 years............ 13 0.7% 4,488,688 0.5% 55.1% 10.803%
10.0 - 11.9 years............ 19 1.0% 6,302,976 0.7% 41.9% 9.323%
12.0 - 13.9 years............ 20 1.0% 7,452,680 0.9% 49.9% 9.237%
14.0 - 15.9 years............ 5 0.3% 1,543,452 0.2% 44.5% 9.755%
16.0 - 17.9 years............ 2 0.1% 292,135 0.0% 38.9% 12.252%
18.0 - 19.9 years............ 61 3.1% 12,417,314 1.5% 34.8% 10.752%
20.0 - 24.9 years............ 242 12.5% 40,426,262 4.7% 30.8% 9.791%
25.0 - 29.9 years............ 8 0.4% 1,885,662 0.2% 20.9% 8.286%
----- ----- ------------ ----- ---- ------
Total/Wtd Avg................ 1,938 100.0% $853,171,734 100.0% 56.0% 8.759%
===== ===== ============ ===== ==== ======
</TABLE>
The weighted average seasoning of the Fixed Rate Mortgage Loans is 46
months.
YEAR OF MORTGAGE ORIGINATION
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
YEAR OF MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
ORIGINATION LOANS LOANS BALANCE BALANCE LTV RATIO RATE
----------- --------- -------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1998............................ 499 25.7% $231,274,951 27.1% 60.1% 8.236%
1997............................ 308 15.9% 168,274,998 19.7% 59.4% 8.717%
1996............................ 368 19.0% 182,711,300 21.4% 57.9% 8.695%
1995............................ 168 8.7% 93,168,935 10.9% 56.5% 8.657%
1994............................ 93 4.8% 50,297,193 5.9% 53.9% 9.333%
1993............................ 34 1.8% 13,576,886 1.6% 45.2% 8.382%
1992............................ 20 1.0% 12,120,609 1.4% 58.9% 9.202%
1991............................ 31 1.6% 11,134,286 1.3% 50.1% 10.080%
1990............................ 46 2.4% 13,238,911 1.6% 47.6% 10.692%
1989............................ 6 0.3% 1,813,785 0.2% 53.3% 10.510%
1988............................ 11 0.6% 3,151,660 0.4% 46.8% 8.398%
Prior to 1988................... 354 18.3% 72,408,221 8.5% 35.6% 9.829%
----- ----- ------------ ----- ---- ------
Total/Wtd Avg................... 1,938 100.0% $853,171,734 100.0% 56.0% 8.759%
===== ===== ============ ===== ==== ======
</TABLE>
A-14
<PAGE> 120
MORTGAGE POOL STATISTICS -- FIXED RATE MORTGAGE LOANS
YEAR OF MORTGAGE MATURITY
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
YEAR OF MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
MATURITY LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------- --------- -------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
2000............................ 57 2.9% $ 15,133,727 1.8% 43.0% 10.422%
2001............................ 97 5.0% 35,022,700 4.1% 50.9% 9.375%
2002............................ 108 5.6% 30,256,304 3.5% 48.1% 9.310%
2003............................ 161 8.3% 40,550,971 4.8% 42.0% 9.056%
2004............................ 149 7.7% 52,444,611 6.1% 49.4% 9.246%
2005............................ 182 9.4% 88,422,751 10.4% 56.8% 8.876%
2006............................ 247 12.7% 127,983,381 15.0% 58.6% 8.621%
2007............................ 171 8.8% 99,569,528 11.7% 59.2% 8.728%
2008............................ 271 14.0% 132,589,798 15.5% 60.1% 8.247%
2009............................ 24 1.2% 9,244,889 1.1% 45.8% 9.277%
2010............................ 32 1.7% 17,952,029 2.1% 50.3% 9.061%
2011............................ 96 5.0% 44,772,056 5.2% 54.2% 8.785%
2012............................ 117 6.0% 62,199,803 7.3% 59.1% 8.865%
2013............................ 226 11.7% 97,029,186 11.4% 59.9% 8.336%
----- ----- ------------ ----- ---- ------
Total/Wtd Avg................... 1,938 100.0% $853,171,734 100.0% 56.0% 8.759%
===== ===== ============ ===== ==== ======
</TABLE>
A-15
<PAGE> 121
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
PROPERTY LOCATIONS MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
(STATE/COUNTY) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------------ --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
CA 539 66.0% $214,246,081 64.9% 54.7% 8.197%
Los Angeles.................. 160 19.6% 61,483,630 18.6% 55.3% 8.310%
Orange....................... 45 5.5% 16,391,085 5.0% 57.7% 8.207%
Santa Clara.................. 22 2.7% 12,771,865 3.9% 57.3% 7.685%
Alameda...................... 31 3.8% 11,882,994 3.6% 55.6% 7.887%
Fresno....................... 25 3.1% 10,862,406 3.3% 60.3% 8.020%
San Diego.................... 28 3.4% 10,245,717 3.1% 58.6% 8.093%
Riverside.................... 24 2.9% 9,214,721 2.8% 55.3% 8.525%
Ventura...................... 16 2.0% 9,130,415 2.8% 46.4% 7.927%
Sacramento................... 21 2.6% 8,848,523 2.7% 55.2% 8.349%
San Bernardino............... 25 3.1% 7,071,691 2.1% 52.8% 9.029%
Contra Costa................. 17 2.1% 6,466,663 2.0% 51.1% 7.845%
Marin........................ 8 1.0% 5,899,989 1.8% 48.9% 7.734%
Sonoma....................... 10 1.2% 5,380,527 1.6% 55.4% 8.235%
San Mateo.................... 8 1.0% 4,711,576 1.4% 54.5% 7.797%
San Francisco................ 11 1.3% 4,070,507 1.2% 50.6% 8.120%
Placer....................... 5 0.6% 3,871,275 1.2% 62.4% 8.464%
Other Counties............... 83 10.2% 25,942,497 7.9% 50.6% 8.363%
WA............................. 189 23.1% 77,383,957 23.5% 52.0% 7.769%
King......................... 108 13.2% 46,942,405 14.2% 52.8% 7.780%
Snohomish.................... 12 1.5% 6,648,276 2.0% 47.1% 7.642%
Pierce....................... 11 1.3% 3,867,669 1.2% 55.3% 7.784%
Spokane...................... 11 1.3% 3,378,880 1.0% 52.5% 7.802%
Other Counties............... 47 5.8% 16,546,726 5.0% 50.7% 7.780%
AZ............................. 19 2.3% 12,459,607 3.8% 53.9% 7.381%
OR............................. 31 3.8% 11,530,261 3.5% 53.8% 7.674%
TX............................. 21 2.6% 6,850,845 2.1% 53.2% 7.766%
NV............................. 9 1.1% 4,544,836 1.4% 57.9% 7.576%
ID............................. 7 0.9% 2,206,659 0.7% 45.9% 7.847%
AK............................. 2 0.2% 770,591 0.2% 68.2% 8.177%
--- ----- ------------ ----- ---- -----
Total/Wtd. Avg................. 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
A-16
<PAGE> 122
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
PROPERTY TYPE
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE MIN/MAX AVERAGE
MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE CUT-OFF DATE MORTGAGE
PROPERTY TYPE LOANS LOANS BALANCE BALANCE LTV RATIO LTV RATIO RATE
------------- --------- ---------- -------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial.................... 257 31.5% $ 105,649,734 32.0% 53.2% 8.3/76.1% 8.082%
Office........................ 241 29.5% 91,719,300 27.8% 56.7% 9.7/74.4% 8.036%
Retail........................ 109 13.3% 45,676,547 13.8% 50.5% 9.9/65.1% 8.076%
Multifamily................... 100 12.2% 44,508,584 13.5% 57.8% 5.1/74.4% 7.829%
Mixed Use..................... 74 9.1% 28,888,607 8.8% 53.4% 9.7/72.8% 8.099%
Hotel/Motel................... 5 0.6% 3,263,996 1.0% 35.9% 17.9/47.7% 7.917%
Special Purpose............... 7 0.9% 3,038,807 0.9% 49.6% 30.6/62.4% 7.495%
Mobile Home................... 5 0.6% 2,984,098 0.9% 49.0% 21.9/57.5% 7.778%
Restaurant.................... 15 1.8% 2,780,821 0.8% 37.8% 10.8/50.1% 8.195%
Mini-Storage.................. 4 0.5% 1,482,341 0.4% 36.9% 21.6/52.3% 8.229%
----- ----- -------------- ----- ---- ---------- -----
Total/Wtd Avg................. 817 100.0% $ 329,992,835 100.0% 54.0% 5.1/76.1% 8.028%
===== ===== ============== ===== ==== ========== =====
</TABLE>
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
CUMULATIVE
% OF WEIGHTED WEIGHTED % OF
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE AGGREGATE
CUT-OFF DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE CUT-OFF
BALANCES LOANS LOANS BALANCE BALANCE LTV RATIO RATE BALANCE
------------ --------- -------- ------------ ------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$43,862 - $99,999...... 65 8.0% $ 4,952,538 1.5% 37.2% 9.109% 1.5%
$100,000 - $199,999...... 182 22.3% 26,780,425 8.1% 47.9% 8.726% 9.6%
$200,000 - $299,999...... 148 18.1% 37,081,951 11.2% 51.9% 8.362% 20.9%
$300,000 - $399,999...... 123 15.1% 43,270,699 13.1% 50.9% 8.099% 34.0%
$400,000 - $499,999...... 72 8.8% 32,119,308 9.7% 54.3% 8.073% 43.7%
$500,000 - $599,999...... 52 6.4% 28,492,859 8.6% 56.5% 7.939% 52.3%
$600,000 - $699,999...... 39 4.8% 25,241,291 7.6% 55.4% 7.892% 60.0%
$700,000 - $799,999...... 43 5.3% 32,038,621 9.7% 58.5% 8.046% 69.7%
$800,000 - $899,999...... 24 2.9% 20,205,235 6.1% 55.0% 7.881% 75.8%
$900,000 - $999,999...... 24 2.9% 22,784,398 6.9% 56.7% 7.591% 82.7%
$1,000,000 - $1,199,999.... 18 2.2% 19,681,978 6.0% 53.5% 7.904% 88.7%
$1,200,000 - $1,299,999.... 3 0.4% 3,825,789 1.2% 55.6% 8.064% 89.8%
$1,300,000 - $1,399,999.... 11 1.3% 14,779,734 4.5% 61.3% 7.360% 94.3%
$1,400,000 - $1,470,682.... 13 1.6% 18,738,009 5.7% 54.5% 7.466% 100.0%
--- ----- ------------ ----- ---- ----- -----
Total/Wtd Avg.............. 817 100.0% $329,992,835 100.0% 54.0% 8.028% --
=== ===== ============ ===== ==== ===== =====
</TABLE>
The average balance of the Adjustable Rate Mortgage Loans is $403,908.
A-17
<PAGE> 123
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
CUT-OFF DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------ --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 20.01%.............. 41 5.0% $ 8,998,592 2.7% 15.4% 8.311%
20.01% - 30.00%............... 63 7.7% 16,832,484 5.1% 25.2% 8.149%
30.01% - 40.00%............... 80 9.8% 29,494,344 8.9% 35.2% 7.988%
40.01% - 45.00%............... 66 8.1% 22,187,330 6.7% 42.6% 7.921%
45.01% - 50.00%............... 85 10.4% 26,572,464 8.1% 47.6% 8.097%
50.01% - 55.00%............... 83 10.2% 34,814,703 10.6% 52.5% 7.881%
55.01% - 60.00%............... 115 14.1% 58,548,240 17.7% 57.6% 8.003%
60.01% - 65.00%............... 120 14.7% 57,855,714 17.5% 62.5% 8.008%
65.01% - 70.00%............... 106 13.0% 46,064,540 14.0% 67.9% 8.206%
70.01% - 75.00%............... 57 7.0% 27,844,195 8.4% 72.0% 7.918%
75.01% - 76.12%............... 1 0.1% 780,230 0.2% 76.1% 7.625%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg................. 817 100.0% $ 329,992,835 100.0% 54.0% 8.028%
===== ===== ============== ===== ==== =====
</TABLE>
ESTIMATED CURRENT LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED
% OF AVERAGE WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL ESTIMATED AVERAGE
ESTIMATED CURRENT MORTGAGE MORTGAGE CUT-OFF DATE POOL CURRENT MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
----------------- --------- -------- -------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 20.01%................ 70 8.6% $ 16,861,619 5.1% 14.8% 8.237%
20.01% - 30.00%................. 94 11.5% 27,445,765 8.3% 25.4% 8.112%
30.01% - 40.00%................. 179 21.9% 62,831,695 19.0% 35.5% 8.095%
40.01% - 45.00%................. 101 12.4% 42,732,170 12.9% 42.8% 7.934%
45.01% - 50.00%................. 115 14.1% 56,305,042 17.1% 47.5% 8.077%
50.01% - 55.00%................. 98 12.0% 45,255,724 13.7% 52.3% 8.203%
55.01% - 60.00%................. 64 7.8% 29,836,455 9.0% 57.3% 7.945%
60.01% - 65.00%................. 37 4.5% 21,252,456 6.4% 62.6% 7.720%
65.01% - 70.00%................. 32 3.9% 14,262,167 4.3% 67.7% 7.834%
70.01% - 75.00%................. 25 3.1% 12,306,312 3.7% 72.7% 7.633%
75.01% - 77.60%................. 2 0.2% 903,431 0.3% 76.6% 7.808%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg................... 817 100.0% $ 329,992,835 100.0% 45.5% 8.028%
===== ===== ============== ===== ==== =====
</TABLE>
A-18
<PAGE> 124
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
MATURITY DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED
% OF AVERAGE WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL MATURITY AVERAGE
MATURITY DATE MORTGAGE MORTGAGE CUT-OFF DATE POOL DATE MORTGAGE
LTV RATIO(S) LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------- --------- -------- -------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
0.00%........................ 201 24.6% $ 62,682,524 19.0% 0.0% 7.891%
0.01% - 20.00%............... 44 5.4% 12,391,323 3.8% 14.1% 8.018%
20.01% - 25.00%............... 22 2.7% 7,047,094 2.1% 22.5% 8.016%
25.01% - 30.00%............... 30 3.7% 9,716,771 2.9% 27.5% 8.087%
30.01% - 35.00%............... 53 6.5% 21,945,320 6.7% 32.3% 7.899%
35.01% - 40.00%............... 60 7.3% 25,215,554 7.6% 37.1% 7.735%
40.01% - 45.00%............... 59 7.2% 22,094,811 6.7% 42.9% 8.002%
45.01% - 50.00%............... 73 8.9% 34,557,128 10.5% 47.3% 8.036%
50.01% - 55.00%............... 92 11.3% 49,597,966 15.0% 52.6% 7.996%
55.01% - 60.00%............... 88 10.8% 41,182,542 12.5% 57.3% 8.139%
60.01% - 65.00%............... 65 8.0% 30,711,609 9.3% 62.6% 8.463%
65.01% - 69.50%............... 30 3.7% 12,850,193 3.9% 66.0% 8.201%
----- ----- -------------- ----- ---- -----
Total/Wtd Avg................. 817 100.0% $ 329,992,835 100.0% 38.1% 8.028%
===== ===== ============== ===== ==== =====
</TABLE>
MORTGAGE RATES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
MORTGAGE MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
RATES LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 7.000%............. 6 0.7% $ 4,454,561 1.3% 62.6% 6.887%
7.000% - 7.249%............ 44 5.4% 31,059,508 9.4% 56.7% 7.089%
7.250% - 7.499%............ 69 8.4% 41,551,748 12.6% 54.6% 7.339%
7.500% - 7.749%............ 97 11.9% 55,861,685 16.9% 54.5% 7.582%
7.750% - 7.999%............ 130 15.9% 63,732,792 19.3% 54.7% 7.822%
8.000% - 8.249%............ 110 13.5% 38,094,737 11.5% 50.4% 8.044%
8.250% - 8.499%............ 64 7.8% 19,350,010 5.9% 51.6% 8.306%
8.500% - 8.749%............ 66 8.1% 15,024,439 4.6% 47.2% 8.562%
8.750% - 8.999%............ 21 2.6% 5,280,873 1.6% 51.3% 8.800%
9.000% - 9.249%............ 32 3.9% 8,468,389 2.6% 48.1% 9.026%
9.250% - 9.499%............ 54 6.6% 16,577,898 5.0% 56.9% 9.267%
9.500% - 9.749%............ 28 3.4% 9,030,349 2.7% 53.0% 9.523%
9.750% - 9.999%............ 64 7.8% 14,609,275 4.4% 59.3% 9.752%
10.000% - 10.499%............ 29 3.5% 5,595,520 1.7% 57.0% 10.101%
Greater than 10.499%......... 3 0.4% 1,301,050 0.4% 51.2% 10.622%
--- ----- ------------ ----- ---- ------
Total/Wtd Avg................ 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== ======
</TABLE>
The weighted average Mortgage Rate of the Adjustable Rate Mortgage Loans is
8.028%.
A-19
<PAGE> 125
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE % OF AVERAGE AVERAGE
REMAINING TERMS MORTGAGE MORTGAGE CUT-OFF DATE INITIAL POOL CUT-OFF DATE MORTGAGE
TO MATURITY LOANS LOANS BALANCE BALANCE LTV RATIO RATE
--------------- --------- -------- ------------ ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year........... 3 0.4% $ 233,588 0.1% 35.7% 9.068%
1.0 - 1.9 years............ 20 2.4% 7,763,365 2.4% 49.9% 8.111%
2.0 - 2.9 years............ 105 12.9% 36,025,517 10.9% 53.0% 8.540%
3.0 - 3.9 years............ 110 13.5% 38,386,321 11.6% 52.8% 8.519%
4.0 - 4.9 years............ 116 14.2% 45,500,077 13.8% 52.3% 8.450%
5.0 - 5.9 years............ 72 8.8% 31,767,711 9.6% 51.7% 7.863%
6.0 - 6.9 years............ 62 7.6% 23,930,750 7.3% 53.9% 7.971%
7.0 - 7.9 years............ 88 10.8% 42,977,900 13.0% 56.0% 7.636%
8.0 - 8.9 years............ 82 10.0% 43,942,171 13.3% 56.4% 7.600%
9.0 - 9.9 years............ 48 5.9% 18,315,368 5.6% 54.4% 7.778%
10.0 - 11.9 years............ 30 3.7% 10,210,829 3.1% 54.6% 7.966%
12.0 - 13.9 years............ 74 9.1% 27,041,715 8.2% 56.7% 7.731%
14.0 - 14.9 years............ 7 0.9% 3,897,523 1.2% 52.3% 7.520%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg................ 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
The weighted average remaining term of the Adjustable Rate Mortgage Loans
is 78 months.
REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
REMAINING MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
AMORTIZATION TERMS LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------------ --------- -------- ------------ ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
1.0 - 1.9 years.............. 2 0.2% $ 190,577 0.1% 11.9% 8.513%
2.0 - 2.9 years.............. 10 1.2% 991,864 0.3% 23.6% 9.068%
3.0 - 3.9 years.............. 8 1.0% 1,392,909 0.4% 24.6% 8.738%
4.0 - 4.9 years.............. 14 1.7% 2,911,136 0.9% 25.0% 8.624%
5.0 - 5.9 years.............. 8 1.0% 2,246,731 0.7% 35.3% 8.187%
6.0 - 6.9 years.............. 13 1.6% 3,285,789 1.0% 32.7% 7.997%
7.0 - 7.9 years.............. 24 2.9% 5,778,415 1.8% 34.3% 8.025%
8.0 - 8.9 years.............. 27 3.3% 8,725,042 2.6% 38.1% 7.710%
9.0 - 9.9 years.............. 21 2.6% 6,813,972 2.1% 41.2% 7.961%
10.0 - 11.9 years.............. 53 6.5% 16,292,613 4.9% 50.1% 7.971%
12.0 - 13.9 years.............. 103 12.6% 40,754,802 12.4% 54.1% 7.775%
14.0 - 15.9 years.............. 45 5.5% 19,911,064 6.0% 52.3% 7.996%
16.0 - 17.9 years.............. 118 14.4% 41,946,555 12.7% 55.5% 8.464%
18.0 - 19.9 years.............. 140 17.1% 52,879,724 16.0% 55.2% 8.577%
20.0 - 24.9 years.............. 166 20.3% 93,059,623 28.2% 57.0% 7.788%
25.0 - 29.9 years.............. 65 8.0% 32,812,020 9.9% 63.3% 7.599%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg.................. 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
The weighted average remaining amortization term of the Adjustable Rate
Mortgage Loans is 217 months.
A-20
<PAGE> 126
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
SEASONING
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
MORTGAGE LOAN MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
SEASONING LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------- --------- -------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.0 year................... 24 2.9% $ 12,824,244 3.9% 51.5% 7.426%
1.0- 1.9 years...................... 120 14.7% 64,201,270 19.5% 56.3% 7.583%
2.0- 2.9 years...................... 130 15.9% 57,994,030 17.6% 56.3% 7.601%
3.0- 3.9 years...................... 87 10.6% 32,803,056 9.9% 54.3% 7.815%
4.0- 4.9 years...................... 69 8.4% 36,677,053 11.1% 53.3% 7.887%
5.0- 5.9 years...................... 89 10.9% 33,009,715 10.0% 53.3% 8.083%
6.0- 6.9 years...................... 39 4.8% 15,748,185 4.8% 48.7% 7.818%
7.0- 7.9 years...................... 20 2.4% 7,198,576 2.2% 53.3% 8.247%
8.0- 8.9 years...................... 16 2.0% 5,994,445 1.8% 46.0% 8.376%
9.0- 9.9 years...................... 10 1.2% 1,801,344 0.5% 47.7% 8.795%
10.0-11.9 years...................... 107 13.1% 32,301,366 9.8% 54.6% 9.385%
12.0-13.9 years...................... 84 10.3% 24,153,765 7.3% 53.7% 9.119%
14.0-15.9 years...................... 4 0.5% 1,644,209 0.5% 47.0% 7.470%
16.0-17.9 years...................... 3 0.4% 563,760 0.2% 40.0% 8.488%
18.0-19.9 years...................... 5 0.6% 1,187,458 0.4% 33.9% 8.025%
20.0-24.9 years...................... 10 1.2% 1,890,359 0.6% 37.4% 8.057%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg........................ 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
The weighted average seasoning of the Adjustable Rate Mortgage Loans is 61
months.
ADJUSTABLE RATE INDICES
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
ADJUSTABLE NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
RATE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
INDICES LOANS LOANS BALANCE BALANCE LTV RATIO RATE
---------- --------- -------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
6 Month CD........................... 373 45.7% $154,045,870 46.7% 53.8% 7.796%
6 Month LIBOR........................ 253 31.0% 112,784,846 34.2% 53.1% 7.725%
Prime................................ 176 21.5% 50,200,199 15.2% 55.6% 9.513%
3 Month LIBOR........................ 10 1.2% 9,178,447 2.8% 58.2% 7.700%
1 Month LIBOR........................ 3 0.4% 2,360,796 0.7% 62.8% 7.625%
1 Year CMT........................... 1 0.1% 1,102,963 0.3% 51.3% 7.375%
1 Year LIBOR......................... 1 0.1% 319,715 0.1% 32.0% 8.000%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg........................ 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
A-21
<PAGE> 127
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
MAXIMUM MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
RANGE OF % OF WEIGHTED WEIGHTED
MAXIMUM NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
MORTGAGE MORTGAGED MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
INTEREST RATES LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------------- --------- --------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 11.000%................... 1 0.1% $ 470,878 0.1% 58.9% 8.125%
11.000%-11.499%..................... 35 4.3% 14,098,262 4.3% 55.1% 8.028%
11.500%-11.999%..................... 13 1.6% 3,549,783 1.1% 49.3% 8.062%
12.000%-12.499%..................... 5 0.6% 2,094,235 0.6% 47.5% 8.256%
12.500%-12.999%..................... 9 1.1% 3,259,603 1.0% 58.7% 7.670%
13.000%-13.499%..................... 7 0.9% 2,562,489 0.8% 57.6% 8.240%
13.500%-13.999%..................... 14 1.7% 5,245,058 1.6% 61.6% 8.364%
14.000%-14.499%..................... 7 0.9% 1,660,645 0.5% 54.8% 8.450%
14.500%-14.999%..................... 31 3.8% 6,298,963 1.9% 58.6% 9.686%
15.000%-15.499%..................... 38 4.7% 16,118,566 4.9% 56.1% 8.485%
15.500%-15.999%..................... 41 5.0% 14,694,425 4.5% 50.8% 8.822%
16.000%-16.499%..................... 15 1.8% 4,021,376 1.2% 61.4% 8.664%
16.500%-16.999%..................... 15 1.8% 2,579,484 0.8% 54.4% 9.110%
Greater than 16.999%................ 5 0.6% 891,240 0.3% 48.8% 9.523%
Uncapped............................ 581 71.1% 252,447,828 76.5% 53.6% 7.875%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg....................... 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
The weighted average maximum Mortgage Rate of the Adjustable Rate Mortgage
Loans, excluding uncapped Mortgage Loans, is 14.090%.
MINIMUM MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
RANGE OF % OF WEIGHTED WEIGHTED
MINIMUM NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
MORTGAGE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
INTEREST RATES LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------------- --------- --------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.500%.................... 9 1.1% $ 5,691,163 1.7% 53.7% 8.373%
1.500%-1.999%....................... 78 9.5% 30,237,743 9.2% 55.7% 8.756%
2.000%-2.499%....................... 171 20.9% 105,916,227 32.1% 55.2% 7.412%
2.500%-2.999%....................... 252 30.8% 109,419,081 33.2% 53.7% 7.847%
3.000%-3.499%....................... 139 17.0% 39,411,119 11.9% 49.7% 8.288%
3.500%-3.999%....................... 53 6.5% 10,262,769 3.1% 55.7% 8.893%
4.000%-4.499%....................... 8 1.0% 1,321,944 0.4% 42.5% 8.799%
4.500%-4.999%....................... 30 3.7% 5,778,108 1.8% 57.5% 9.897%
5.000%-5.499%....................... 27 3.3% 6,752,268 2.0% 54.3% 9.603%
5.500%-5.999%....................... 28 3.4% 7,882,042 2.4% 50.7% 9.613%
6.000%-6.499%....................... 7 0.9% 2,152,032 0.7% 60.7% 8.917%
6.500%-6.999%....................... 4 0.5% 1,110,029 0.3% 53.2% 9.223%
7.000%-7.499%....................... 4 0.5% 875,050 0.3% 58.1% 8.737%
Greater than 7.499%................. 7 0.9% 3,183,261 1.0% 59.1% 8.997%
--- ----- ------------ ----- ---- -----
Total............................... 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
The weighted average minimum Mortgage Rate of the Adjustable Rate Mortgage
Loans is 2.747%.
A-22
<PAGE> 128
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
GROSS MARGINS
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
GROSS MORTGAGED MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
MARGINS LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------- --------- -------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.250%..................... 1 0.1% $ 766,230 0.2% 18.7% 8.875%
1.250%-1.499%........................ 15 1.8% 10,287,723 3.1% 53.9% 8.727%
1.500%-1.749%........................ 72 8.8% 23,120,692 7.0% 56.8% 9.409%
1.750%-1.999%........................ 28 3.4% 13,251,707 4.0% 53.7% 8.038%
2.000%-2.249%........................ 138 16.9% 58,919,709 17.9% 57.6% 7.842%
2.250%-2.499%........................ 102 12.5% 62,138,630 18.8% 53.9% 7.525%
2.500%-2.749%........................ 117 14.3% 51,855,968 15.7% 54.2% 7.724%
2.750%-2.999%........................ 140 17.1% 59,024,238 17.9% 53.3% 7.959%
3.000%-3.249%........................ 104 12.7% 30,547,592 9.3% 48.7% 8.329%
3.250%-3.499%........................ 38 4.7% 10,083,293 3.1% 53.1% 8.386%
3.500%-3.749%........................ 42 5.1% 5,975,502 1.8% 48.4% 8.733%
3.750%-3.999%........................ 12 1.5% 3,118,433 0.9% 58.6% 9.147%
Greater than 3.999%.................. 8 1.0% 903,117 0.3% 35.3% 9.698%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg........................ 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
The weighted average gross margin of the Adjustable Rate Mortgage Loans is
2.405%.
MORTGAGE RATE RESET FREQUENCIES
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
RATE NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
RESET MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
FREQUENCY LOANS LOANS BALANCE BALANCE LTV RATIO RATE
--------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Semiannually...................... 801 98.0% $316,928,768 96.0% 53.8% 8.042%
Quarterly......................... 10 1.2% 9,178,447 2.8% 58.2% 7.700%
Monthly........................... 3 0.4% 2,360,796 0.7% 62.8% 7.625%
Annually.......................... 3 0.4% 1,524,824 0.5% 46.8% 7.682%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg..................... 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
TERM TO NEXT MORTGAGE RATE RESET
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
TERM TO NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
NEXT MORTGAGE MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
RATE RESET LOANS LOANS BALANCE BALANCE LTV RATIO RATE
------------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1 to 3 Months..................... 406 49.7% $172,817,354 52.4% 54.6% 7.879%
4 to 6 Months..................... 403 49.3% 150,748,459 45.7% 53.1% 8.206%
7 to 9 Months..................... 3 0.4% 1,775,733 0.5% 56.0% 7.727%
Greater than 9 Months............. 5 0.6% 4,651,289 1.4% 60.1% 7.877%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg..................... 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
The weighted average term to the next rate reset of the Adjustable Rate
Mortgage Loans is 4 months.
A-23
<PAGE> 129
MORTGAGE POOL STATISTICS -- ADJUSTABLE RATE MORTGAGE LOANS
YEAR OF MORTGAGE ORIGINATION
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
YEAR MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
OF ORIGINATION LOANS LOANS BALANCE BALANCE LTV RATIO RATE
-------------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1998.............................. 47 5.8% $ 25,127,612 7.6% 54.2% 7.490%
1997.............................. 133 16.3% 67,015,253 20.3% 55.8% 7.622%
1996.............................. 113 13.8% 47,608,335 14.4% 56.1% 7.576%
1995.............................. 80 9.8% 35,690,326 10.8% 54.8% 7.865%
1994.............................. 76 9.3% 38,287,948 11.6% 54.0% 7.895%
1993.............................. 83 10.2% 26,659,842 8.1% 51.1% 8.097%
1992.............................. 24 2.9% 13,501,973 4.1% 50.4% 7.813%
1991.............................. 21 2.6% 5,586,707 1.7% 48.2% 8.248%
1990.............................. 13 1.6% 4,574,818 1.4% 49.3% 8.343%
1989.............................. 9 1.1% 2,192,939 0.7% 43.9% 8.599%
1988.............................. 53 6.5% 19,295,371 5.8% 52.3% 9.320%
Prior to 1988..................... 165 20.2% 44,451,712 13.5% 53.5% 9.045%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg..................... 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
YEAR OF MORTGAGE MATURITY
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED
NUMBER OF % OF AGGREGATE INITIAL AVERAGE AVERAGE
YEAR MORTGAGE MORTGAGE CUT-OFF DATE POOL CUT-OFF DATE MORTGAGE
OF MATURITY LOANS LOANS BALANCE BALANCE LTV RATIO RATE
----------- --------- -------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
2000.............................. 11 1.3% $ 2,271,645 0.7% 41.6% 8.287%
2001.............................. 69 8.4% 25,001,032 7.6% 52.6% 8.320%
2002.............................. 130 15.9% 47,029,936 14.3% 53.6% 8.607%
2003.............................. 111 13.6% 40,075,067 12.1% 50.6% 8.537%
2004.............................. 84 10.3% 35,768,196 10.8% 53.4% 8.001%
2005.............................. 60 7.3% 25,732,793 7.8% 53.8% 7.949%
2006.............................. 80 9.8% 29,746,807 9.0% 55.6% 7.780%
2007.............................. 85 10.4% 48,537,196 14.7% 55.8% 7.600%
2008.............................. 70 8.6% 33,134,991 10.0% 55.1% 7.607%
2009.............................. 17 2.1% 5,532,097 1.7% 51.8% 8.155%
2010.............................. 13 1.6% 4,575,641 1.4% 58.3% 7.820%
2011.............................. 32 3.9% 9,172,835 2.8% 54.0% 7.958%
2012.............................. 39 4.8% 16,533,758 5.0% 57.5% 7.613%
2013.............................. 16 2.0% 6,880,842 2.1% 54.7% 7.620%
--- ----- ------------ ----- ---- -----
Total/Wtd Avg..................... 817 100.0% $329,992,835 100.0% 54.0% 8.028%
=== ===== ============ ===== ==== =====
</TABLE>
A-24
<PAGE> 130
HISTORICAL VALUES OF SIX-MONTH CERTIFICATES OF DEPOSIT
<TABLE>
<CAPTION>
YEAR
-------------------------------------------------
MONTH 1999 1998 1997 1996 1995
- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January................................ 4.880% 5.520% 5.550% 5.160% 6.560%
February............................... 5.040% 5.610% 5.550% 5.200% 6.340%
March.................................. 4.970% 5.640% 5.880% 5.420% 6.390%
April.................................. 4.940% 5.710% 5.890% 5.430% 6.280%
May.................................... -- 5.650% 5.860% 5.520% 5.900%
June................................... -- 5.650% 5.810% 5.670% 5.930%
July................................... -- 5.660% 5.670% 5.730% 5.780%
August................................. -- 5.530% 5.720% 5.700% 5.790%
September.............................. -- 5.120% 5.720% 5.550% 5.840%
October................................ -- 4.920% 5.680% 5.460% 5.750%
November............................... -- 5.070% 5.810% 5.430% 5.590%
December............................... -- 4.980% 5.710% 5.460% 5.400%
</TABLE>
The above table sets forth the rates of six-month Certificates of Deposit
for each of the last five calendar years or portions thereof, based on
information published by Bloomberg LP. The historical rates of the Indices set
forth do not purport to be representative of the subsequent rates of the Indices
that will be used to determine the Mortgage Rates on the Adjustable Rate
Mortgage Loans.
HISTORICAL VALUES OF SIX-MONTH LIBOR
<TABLE>
<CAPTION>
YEAR
-----------------------------------------
MONTH 1999 1998 1997 1996 1995
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
January.......................................... 4.971% 5.625% 5.688% 5.266% 6.688%
February......................................... 5.127% 5.695% 5.688% 5.297% 6.438%
March............................................ 5.060% 5.750% 5.938% 5.500% 6.500%
April............................................ 5.043% 5.813% 6.000% 5.563% 6.375%
May.............................................. -- 5.750% 6.000% 5.633% 6.000%
June............................................. -- 5.781% 5.906% 5.789% 5.996%
July............................................. -- 5.750% 5.801% 5.883% 5.875%
August........................................... -- 5.594% 5.844% 5.773% 5.906%
September........................................ -- 5.246% 5.844% 5.734% 5.945%
October.......................................... -- 4.978% 5.785% 5.566% 5.875%
November......................................... -- 5.148% 5.914% 5.543% 5.688%
December......................................... -- 5.066% 5.844% 5.602% 5.508%
</TABLE>
The above table sets forth the rates of six-month LIBOR for each of the
last five calendar years or portions thereof, based on information published by
Bloomberg LP. The historical rates of the Indices set forth do not purport to be
representative of the subsequent rates of the Indices that will be used to
determine the Mortgage Rates on the Adjustable Rate Mortgage Loans.
A-25
<PAGE> 131
HISTORICAL VALUES OF PRIME
<TABLE>
<CAPTION>
YEAR
-----------------------------------------
MONTH 1999 1998 1997 1996 1995
- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January............................................ 7.750% 8.500% 8.250% 8.500% 8.500%
February........................................... 7.750% 8.500% 8.250% 8.250% 9.000%
March.............................................. 7.750% 8.500% 8.500% 8.250% 9.000%
April.............................................. 7.750% 8.500% 8.500% 8.250% 9.000%
May................................................ -- 8.500% 8.500% 8.250% 9.000%
June............................................... -- 8.500% 8.500% 8.250% 9.000%
July............................................... -- 8.500% 8.500% 8.250% 8.750%
August............................................. -- 8.500% 8.500% 8.250% 8.750%
September.......................................... -- 8.250% 8.500% 8.250% 8.750%
October............................................ -- 8.000% 8.500% 8.250% 8.750%
November........................................... -- 7.750% 8.500% 8.250% 8.750%
December........................................... -- 7.750% 8.500% 8.250% 8.500%
</TABLE>
The above table sets forth the rates of the Prime rate for each of the last
five calendar years or portions thereof, based on information published by
Bloomberg LP. The historical rates of the Indices set forth do not purport to be
representative of the subsequent rates of the Indices that will be used to
determine the Mortgage Rates on the Adjustable Rate Mortgage Loans.
HISTORICAL VALUES OF THREE-MONTH LIBOR
<TABLE>
<CAPTION>
YEAR
-----------------------------------------
MONTH 1999 1998 1997 1996 1995
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
January............................................ 4.970% 5.625% 5.563% 5.375% 6.313%
February........................................... 5.026% 5.680% 5.539% 5.305% 6.250%
March.............................................. 5.000% 5.711% 5.773% 5.473% 6.250%
April.............................................. 4.989% 5.719% 5.816% 5.484% 6.188%
May................................................ -- 5.688% 5.813% 5.500% 6.063%
June............................................... -- 5.688% 5.781% 5.582% 6.059%
July............................................... -- 5.688% 5.707% 5.676% 5.875%
August............................................. -- 5.625% 5.719% 5.563% 5.883%
September.......................................... -- 5.313% 5.770% 5.625% 5.953%
October............................................ -- 5.220% 5.750% 5.500% 5.938%
November........................................... -- 5.283% 5.902% 5.500% 5.875%
December........................................... -- 5.066% 5.813% 5.563% 5.625%
</TABLE>
The above table sets forth the rates of three-month LIBOR for each of the
last five calendar years or portions thereof, based on information published by
Bloomberg LP. The historical rates of the Indices set forth do not purport to be
representative of the subsequent rates of the Indices that will be used to
determine the Mortgage Rates on the Adjustable Rate Mortgage Loans.
A-26
<PAGE> 132
The historical prepayment information shown in the following table was
derived from data available on the performance, since November 30, 1997, of all
mortgage loans in the Mortgage Loan Seller's commercial and multifamily term
real estate loan portfolio (the "Portfolio"). In deriving such information, a
sample of the Portfolio was created to analyze loans with characteristics
similar to those of the Mortgage Loans. The sample excluded loans with balances
in excess of $1.5 million dollars as of November 30, 1997. Any prepayments
received during the last 6 pay periods including the maturity date of the
mortgage loan were considered to be scheduled principal.
As of November 30, 1997 the sample consisted of approximately 7,000
mortgage loans. In general the Mortgage Loans that were outstanding on November
30, 1997 would compose a subset of the sample set. We cannot assure you that the
Mortgage Loans will exhibit similar prepayment characteristics, nor can we make
any other representation regarding what the actual performance of the Mortgage
Loans will be.
BANK OF AMERICA COMMERCIAL MORTGAGE PORTFOLIO
PREPAYMENT RATES (CPR)
<TABLE>
<CAPTION>
ADJUSTABLE RATE FIXED RATE
MORTGAGE LOANS MORTGAGE LOANS
--------------- --------------
<S> <C> <C>
November 1997............................................... 7.9% 9.3%
December 1997............................................... 14.0% 9.3%
January 1998................................................ 8.5% 13.6%
February 1998............................................... 15.4% 6.3%
March 1998.................................................. 10.8% 9.4%
April 1998.................................................. 16.5% 6.4%
May 1998.................................................... 13.3% 9.4%
June 1998................................................... 18.3% 17.8%
July 1998................................................... 18.9% 13.2%
August 1998................................................. 13.2% 13.7%
September 1998.............................................. 22.7% 15.1%
October 1998................................................ 14.4% 15.2%
November 1998............................................... 20.4% 10.6%
December 1998............................................... 17.4% 13.6%
January 1999................................................ 14.2% 16.1%
February 1999............................................... 21.7% 9.0%
March 1999.................................................. 18.6% 12.1%
April 1999.................................................. 19.6% 6.8%
</TABLE>
A-27
<PAGE> 133
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 06/10/99
PAYMENT DATE: 06/10/99
PRIOR PAYMENT: NA
RECORD DATE: 05/28/99
WAC:
WAMM:
<TABLE>
<CAPTION>
NUMBER OF PAGES
<S> <C>
Table Of Contents
REMIC Certificate Report
Other Related Information
Asset Backed Facts Sheets
Mortgage Loan Characteristics
TOTAL PAGES INCLUDED IN THIS PACKAGE
Specially Serviced Loan Detail Appendix A
Modified Loan Detail Appendix B
Realized Loss Detail Appendix C
</TABLE>
<TABLE>
<CAPTION>
INFORMATION IS AVAILABLE FOR THIS ISSUE FROM THE FOLLOWING SOURCES
<S> <C>
LaSalle Web Site www.Inbabs.com
LaSalle Bulletin Board (714) 282-3990
LaSalle ASAP Fax System (312) 904-2200
ASAP #: 413
Monthly Data File Name: 0413MMYY.EXE
</TABLE>
B-1
<PAGE> 134
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 06/10/99
PAYMENT DATE: 06/10/99
PRIOR PAYMENT: NA
RECORD DATE: 05/28/99
WAC:
WAMM:
<TABLE>
<CAPTION>
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING INTEREST INTEREST PASS-THROUGH
CLASS FACE VALUE(1) BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE PAYMENT ADJUSTMENT RATE(2)
CUSIP Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Next Rate(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total P&I Payment 0.00
</TABLE>
Notes: (1) N denotes notional balance not included in total
(2) Interest Paid minus Interest Adjustment minus Deferred Interest
equals Accrual
(3) Estimated
B-2
<PAGE> 135
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
OTHER RELATED INFORMATION
STATEMENT DATE: 06/10/99
PAYMENT DATE: 06/10/99
PRIOR PAYMENT: NA
RECORD DATE: 05/28/99
B-3
<PAGE> 136
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO Acct: 99-9999-99-9
Cash Reconciliation Summary
(ABN AMRO LOGO) Statement Date: 06/10/99
LaSalle Bank N.A. Payment Date: 06/10/99
Prior Payment: NA
Administrator: Record Date: 05/28/99
Carissa Pogue (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, Il 60603
<TABLE>
<CAPTION>
INTEREST SUMMARY
<S> <C>
Current Scheduled Interest 0.00
Less Deferred Interest 0.00
Plus Advance Interest 0.00
Plus Unscheduled Interest 0.00
PPIS Reducing Scheduled Interest 0.00
Less Total Fees Paid To Servicer 0.00
Plus Fees Advanced for PPIS 0.00
Less Fee Strips Paid by Servicer 0.00
Less Misc. Fees & Expenses 0.00
Less Non Recoverable Advances 0.00
Interest Due Trust 0.00
Less Trustee Fee 0.00
Less Fee Strips Paid by Trust 0.00
Less Misc. Fees Paid by Trust 0.00
Remittance Interest 0.00
</TABLE>
<TABLE>
<CAPTION>
SERVICING FEE SUMMARY
<S> <C>
Current Servicing Fees 0.00
Plus Fees Advanced for PPIS 0.00
Less Reduction for PPIS 0.00
Plus Unscheduled Servicing Fees 0.00
Total Servicing Fees Paid 0.00
</TABLE>
<TABLE>
<CAPTION>
PPIS SUMMARY
<S> <C>
Gross PPIS 0.00
Reduced by PPIE 0.00
Reduced by Shortfalls in Fees 0.00
Reduced by Other Amounts 0.00
PPIS Reducing Scheduled Interest 0.00
PPIS Reducing Servicing Fee 0.00
PPIS Due Certificate 0.00
</TABLE>
<TABLE>
<CAPTION>
POOL BALANCE SUMMARY
COMPONENT BALANCE COUNT
<S> <C> <C>
Beginning Pool 0.00 0
Scheduled Principal Distribution 0.00 0
Unscheduled Principal Distribution 0.00 0
Deferred Interest 0.00 0
Liquidations 0.00 0
Repurchases 0.00 0
Ending Pool 0.00 0
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SUMMARY
<S> <C>
Scheduled Principal:
Current Scheduled Principal 0.00
Advanced Scheduled Principal 0.00
Scheduled Principal Distribution 0.00
Unscheduled Principal: 0.00
Curtailments 0.00
Prepayments in Full 0.00
Liquidation Proceeds 0.00
Repurchase Proceeds 0.00
Other Principal Proceeds 0.00
Unscheduled Principal Distribution 0.00
Remittance Principal 0.00
Servicer Wire Amount 0.00
</TABLE>
B-4
<PAGE> 137
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
POOL TOTAL
STATEMENT DATE: 06/10/99
PAYMENT DATE: 06/10/99
PRIOR PAYMENT: N/A
RECORD DATE: 05/28/99
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
(2) Current Scheduled Number (2)Scheduled Based on
Balances of Loans Balance Balance
<S> <C> <C> <C> <C>
$0 to $500,000
$500,000 to $1,000,000
$1,000,000 to $1,500,000
$1,500,000 to $2,000,000
$2,000,000 to $2,500,000
$2,500,000 to $3,000,000
$3,000,000 to $3,500,000
$3,500,000 to $4,000,000
$4,000,000 to $5,000,000
$5,000,000 to $6,000,000
$6,000,000 to $7,000,000
$7,000,000 to $8,000,000
$8,000,000 to $9,000,000
$9,000,000 to $10,000,000
$10,000,000 to $11,000,000
$11,000,000 to $12,000,000
$12,000,000 to $13,000,000
$13,000,000 to $14,000,000
$14,000,000 to $15,000,000
$15,000,000 & Above
Total 0 0 0.00%
Average Scheduled Balance is 0
Maximum Scheduled Balance is 0
Minimum Scheduled Balance is 0
</TABLE>
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
Number (2)Scheduled Based on
Property Types of Loans Balance Balance
<S> <C> <C> <C>
Total 0 0 0.00%
</TABLE>
DISTRIBUTION OF MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Current Mortgage Number (2)Scheduled Based on
Interest Rate of Loans Balance Balance
<S> <C> <C> <C>
7.000% or less
7.000% to 7.125%
7.125% to 7.375%
7.375% to 7.625%
7.625% to 7.875%
7.875% to 8.125%
8.125% to 8.375%
8.375% to 8.625%
8.625% to 8.875%
8.875% to 9.125%
9.125% to 9.375%
9.375% to 9.625%
9.625% to 9.875%
9.875% to 10.125%
10.125% & Above
Total 0 0 0.00%
W/Avg Mortgage Interest Rate is 0.0000%
Minimum Mortgage Interest Rate is 0.0000%
Maximum Mortgage Interest Rate is 0.0000%
</TABLE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Number (2)Scheduled Based on
Geographic Location of Loans Balance Balance
<S> <C> <C> <C>
Total 0 0 0.00%
</TABLE>
B-5
<PAGE> 138
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
POOL TOTAL
STATEMENT DATE: 06/10/99
PAYMENT DATE: 06/10/99
PRIOR PAYMENT: NA
RECORD DATE: 05/28/99
LOAN SEASONING
<TABLE>
<CAPTION>
Number (2) Scheduled Based on
Number of Years of Loans Balance Balance
<S> <C> <C> <C>
Weighted Average Seasoning is 0.0
</TABLE>
DISTRIBUTION OF REMAINING TERM
FULLY AMORTIZING
<TABLE>
<CAPTION>
Fully Amortizing Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
<S> <C> <C> <C>
60 months or less
61 to 120 months
121 to 180 months
181 to 240 months
241 to 360 months
Total 0 0 0.00%
Weighted Average Months to Maturity is 0
</TABLE>
DISTRIBUTION OF AMORTIZATION TYPE
<TABLE>
<CAPTION>
Number (2) Scheduled Based on
Amortization Type of Loans Balance Balance
<S> <C> <C> <C>
Total 0 0 0.00%
</TABLE>
DISTRIBUTION OF REMAINING TERM
BALLOON LOANS
<TABLE>
<CAPTION>
Balloon Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
<S> <C> <C> <C>
12 months or less
13 to 24 months
25 to 36 months
37 to 48 months
49 to 60 months
61 to 120 months
121 to 180 months
181 to 240 months
Total 0 0 0.00%
Weighted Average Months to Maturity is 0
</TABLE>
B-6
<PAGE> 139
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
Series 1999-SL
ABN AMRO Acct: 99-9999-99-9
Pool Total
[LOGO] Statement Date: 06/10/99
LASALLE BANK N.A. Payment Date: 06/10/99
Prior Payment: NA
Administrator: Record Date: 05/28/99
Carissa Pogue (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
<TABLE>
<CAPTION>
Distribution of Maximum Rates
-----------------------------
Number (2)Scheduled Based on
Maximum Rates of Loans Balance Balance
- ------------- -------- ------------ --------
<S> <C> <C> <C>
No Maximum................
0.01% to 12.00%...........
12.01% to 12.50%..........
12.51% to 13.00%..........
13.01% to 13.50%..........
13.51% to 14.00%..........
14.01% to 14.50%..........
14.51% to 15.00%..........
15.01% to 15.50%..........
15.51% to 16.00%..........
16.01% to 16.50%..........
16.51% to 17.00%..........
17.01% to 17.50%..........
Fixed Rate Mortgage.......
-------- ------------ --------
0 0 0.00%
</TABLE>
Weighted Average for Mtge with a Maximum Rate is 13.49%
<TABLE>
<CAPTION>
Distribution of Indices of Mortgage Loans
-----------------------------------------
Number (2)Scheduled Based on
Indices of Loans Balance Balance
- ------- -------- ------------ --------
<S> <C> <C> <C>
-------- ------------ --------
Total 0 0 0.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Minimum Rates
-----------------------------
Number (2)Scheduled Based on
Maximum Rates(1) of Loans Balance Balance
- ------------- -------- ------------ --------
<S> <C> <C> <C>
No Minimum................
0.010% to 3.000%.........
3.010% to 3.500%.........
3.510% to 4.000%.........
4.010% to 4.500%.........
4.510% to 5.000%.........
5.010% to 5.500%.........
5.510% to 6.000%.........
6.010% to 6.500%.........
6.510% to 7.000%.........
7.010% to 7.500%.........
7.510% to 8.000%.........
8.010% to 8.500%.........
8.510% to 99.000%.........
Fixed Rate Mortgage.......
-------- ------------ --------
0 0 0.00%
</TABLE>
Weighted Average for Mtge with a Minimum Rate is 0.00%
<TABLE>
<CAPTION>
Distribution of Payment Adjustment
----------------------------------
Interest Adjustment Number (2)Scheduled Based on
Frequency Loans Balance Balance
- ------------------- -------- ------------ --------
<S> <C> <C> <C>
-------- ------------ --------
Total 0 0 0.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Mortgage Loan Margins
-------------------------------------
Number (2)Scheduled Based on
Maximum Rates(1) Loans Balance Balance
- ------------- -------- ------------ --------
<S> <C> <C> <C>
No Margin.................
0.000% to 0.000%.........
0.010% to 1.000%.........
1.010% to 1.500%.........
1.510% to 2.000%.........
2.010% to 2.500%.........
2.510% to 3.000%.........
3.010% to 3.500%.........
3.510% to 4.000%.........
4.010% to 4.500%.........
4.510% to Above.........
Fixed Rate Mortgage.......
-------- ------------ --------
Total 0 0 0.00%
</TABLE>
Weighted Average for Mtge with a Margin is 0.00%
(1)For adjustable mortgage loans where a minimum rate does not exist the gross
margin was used.
<TABLE>
<CAPTION>
Distribution of Interest Adjustment
-----------------------------------
Payment Adjustment Number (2)Scheduled Based on
Frequency Loans Balance Balance
- ------------------ -------- ------------ --------
<S> <C> <C> <C>
-------- ------------ --------
0 0 0.00%
</TABLE>
B-7
<PAGE> 140
[ABN AMRO LOGO] Statement Date: 06/10/99
LaSalle Bank N.A. Payment Date: 06/10/99
Prior Payment: NA
Administrator: Record Date: 05/28/99
Carissa Pogue (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
<TABLE>
<CAPTION>
DELINQ 2 DELINQ 3+ FORECLOSURE/
DELINQ 1 MONTH MONTHS MONTHS BANKRUPTCY REO MODIFICATIONS
DISTRIBUTION -------------- -------------- -------------- -------------- -------------- --------------
DATE # BALANCE # BALANCE # BALANCE # BALANCE # BALANCE # BALANCE
------------ ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
06/10/99 0 0 0 0 0 0 0 0 0 0 0 0
0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000%
<CAPTION>
CURR WEIGHTED
PREPAYMENTS AVG.
DISTRIBUTION -------------- --------------
DATE # BALANCE COUPON REMIT
------------ ---- ------- ------ -----
<S> <C> <C> <C> <C>
06/10/99 0 0 0 0
0.00% 0.000% 0.00% 0.000%
</TABLE>
Note: Foreclosure and REO Totals are Included in the
Appropriate Delinquency Aging Category
04/13/99 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
(1) Legend:
1) Request for waiver of Prepayment Penalty
2) Payment default
3) Request for Loan Modification or Workout
4) Loan with Borrower Bankruptcy
5) Loan in Process of Foreclosure
6) Loan now REO Property
7) Loans Paid Off
8) Loans Returned to Master Servicer
B-8
<PAGE> 141
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
SPECIALLY SERVICED LOAN DETAIL
(ABN AMRO LOGO) Statement Date: 06/10/99
LaSalle Bank N.A. Payment Date: 06/10/99
Prior Payment: NA
Administrator: Record Date: 05/28/99
Carissa Pogue (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, Il 60603
<TABLE>
<CAPTION>
Beginning Specialty
Disclosure Scheduled Interest Maturity Property Serviced Projected
Control # Balance Rate Date Type Status Code(1) Losses Comments/Action to be Taken
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Legend:
1) Request for waiver of Prepayment Penalty 4) Loan with Borrower Bankruptcy 7) Loans Paid Off
2) Payment default 5) Loan in Process of Foreclosure 8) Loans Returned to Master Servicer
3) Request for Loan Modification or Workout 6) Loan now REO Property
</TABLE>
B-9
<PAGE> 142
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 06/10/99
PAYMENT DATE: 06/10/99
PRIOR PAYMENT: NA
RECORD DATE: 05/28/99
MODIFIED LOAN DETAIL
<TABLE>
<CAPTION>
Disclosure Modification Modification
Control # Date Description
<S> <C> <C>
</TABLE>
APPENDIX B
B-10
<PAGE> 143
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION AS DEPOSITOR
BANC ONE MORTGAGE CAPITAL MARKETS, LLC AS MASTER SERVICER AND SPECIAL SERVICER
BANK OF AMERICA NT&SA AS PRIMARY SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-SL
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 06/10/99
PAYMENT DATE: 06/10/99
PRIOR PAYMENT: NA
RECORD DATE: 05/28/99
REALIZED LOSS DETAIL
<TABLE>
<CAPTION>
Beginning Gross Proceeds Aggregate Net Net Proceeds
Dist. Disclosure Appraisal Appraisal Scheduled Gross as a % of Liquidation Liquidation as a % of Realized
Date Control # Date Value Balance Proceeds Sched. Principal Expenses* Proceeds Sched. Balance Loss
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Total 0.00 0.00 0.00 0.00 0.00
Cumulative 0.00 0.00 0.00 0.00 0.00
</TABLE>
APPENDIX C
*Aggregate liquidation expenses also include outstanding P&I advances and unpaid
servicing fees, unpaid trustee fees, etc.
B-11
<PAGE> 144
Prospectus
NATIONSLINK FUNDING CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
<TABLE>
<CAPTION>
<S> <C>
CONSIDER CAREFULLY THE RISK FACTORS THE TRUST --
BEGINNING ON PAGE 10 IN THIS - may periodically issue mortgage pass-through
PROSPECTUS. certificates in one or more series with one or more
Neither the certificates nor the classes; and
underlying mortgage loans are insured - will own --
by any governmental agency. - multifamily and commercial mortgage loans;
The certificates will represent - mortgage-backed securities; and
interests only in the related trust - other property described and in the accompanying
only and will not represent interests prospectus supplement.
in or obligations of NationsLink THE CERTIFICATES --
Funding Corporation or any of its - will represent interests in the trust and will be
affiliates, including Bank of America paid only from the trust assets;
Corporation. - provide for the accrual of interest based on a fixed,
This prospectus may be used to offer variable or adjustable interest rate;
and sell any series of certificates - may be offered through underwriters, which may
only if accompanied by the prospectus include Banc of America Securities LLC, an affiliate of
supplement for that series. NationsLink Funding Corporation; and
- will not be listed on any securities exchange.
THE CERTIFICATEHOLDERS --
- will receive interest and principal payments based on
the rate of payment of principal and the timing of
receipt of payments on mortgage loans.
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 20, 1999
<PAGE> 145
FOR MORE INFORMATION
NationsLink Funding
Corporation has filed with the
SEC additional registration
materials relating to the
certificates. You may read
and copy any of these
materials at the SEC's Public
Reference Room at the
following locations:
- SEC Public Reference
Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
- SEC Midwest Regional
Offices Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois
60661-2511
- SEC Northeast Regional
Office
7 World Trade Center
Suite 1300
New York, New York 10048
You may obtain information on
the operation of the Public
Reference Room by calling the
SEC at 1-800-SEC-0330. The
SEC also maintains an
Internet site that contains
reports, proxy and
information statements, and
other information that has
been filed electronically
with the SEC. The Internet
address is
http://www.sec.gov.
You may also contact
NationsLink Funding
Corporation in writing at
Bank of America Corporate
Center,
100 North Tryon Street,
Charlotte,
North Carolina 28255, or by
telephone at (704) 386-2400.
See also the sections
captioned "Available
Information" and
"Incorporation of Certain
Information by Reference"
appearing at the end of this
prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF PROSPECTUS.......................... 5
RISK FACTORS................................... 10
Limited Liquidity of Certificates............ 10
Limited Assets............................... 10
Credit Support Limitations................... 11
Effect of Prepayments on Average Life of
Certificates.............................. 11
Effect of Prepayments on Yield of
Certificates.............................. 12
Limited Nature of Ratings.................... 12
Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage
Loans..................................... 13
Inclusion of Delinquent Mortgage Loans in a
Mortgage Asset Pool....................... 16
PROSPECTUS SUPPLEMENT.......................... 16
DESCRIPTION OF THE TRUST FUNDS................. 18
General...................................... 18
Mortgage Loans............................... 18
MBS.......................................... 22
Certificate Accounts......................... 23
Credit Support............................... 23
Cash Flow Agreements......................... 23
YIELD AND MATURITY CONSIDERATIONS.............. 23
General...................................... 23
Pass-Through Rate............................ 24
Payment Delays............................... 24
Certain Shortfalls in Collections of
Interest.................................. 24
Yield and Prepayment Considerations.......... 24
Weighted Average Life and Maturity........... 26
Other Factors Affecting Yield, Weighted
Average Life and Maturity................. 27
THE DEPOSITOR.................................. 28
DESCRIPTION OF THE CERTIFICATES................ 29
General...................................... 29
Distributions................................ 30
Distributions of Interest on the
Certificates.............................. 30
Distributions of Principal of the
Certificates.............................. 31
Distributions on the Certificates Concerning
Prepayment Premiums or Concerning Equity
Participations............................ 32
Allocation of Losses and Shortfalls.......... 32
Advances in Respect of Delinquencies......... 32
Reports to Certificateholders................ 33
Voting Rights................................ 34
Termination.................................. 35
Book-Entry Registration and Definitive
Certificates.............................. 35
THE POOLING AND SERVICING AGREEMENTS........... 36
General...................................... 36
Assignment of Mortgage Loans; Repurchases.... 37
Representations and Warranties;
Repurchases............................... 39
Collection and Other Servicing Procedures.... 39
Sub-Servicers................................ 41
Certificate Account.......................... 42
Modifications, Waivers and Amendments of
Mortgage Loans............................ 44
</TABLE>
2
<PAGE> 146
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Realization upon Defaulted Mortgage Loans.... 44
Hazard Insurance Policies.................... 46
Due-on-Sale and Due-on-Encumbrance
Provisions................................ 47
Servicing Compensation and Payment of
Expenses.................................. 47
Evidence as to Compliance.................... 47
Certain Matters Regarding the Master
Servicer, the Special Servicer, the REMIC
Administrator and the Depositor........... 48
Events of Default............................ 49
Rights Upon Event of Default................. 50
Amendment.................................... 51
List of Certificateholders................... 52
The Trustee.................................. 52
Duties of the Trustee........................ 52
Certain Matters Regarding the Trustee........ 52
Resignation and Removal of the Trustee....... 52
DESCRIPTION OF CREDIT SUPPORT.................. 53
General...................................... 53
Subordinate Certificates..................... 53
Insurance or Guarantees Concerning to
Mortgage Loans............................ 54
Letter of Credit............................. 54
Certificate Insurance and Surety Bonds....... 54
Reserve Funds................................ 54
Cash Collateral Account...................... 55
Credit Support with respect to MBS........... 55
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS........ 55
General...................................... 55
Types of Mortgage Instruments................ 55
Leases and Rents............................. 56
Personalty................................... 57
Foreclosure.................................. 57
Bankruptcy Laws.............................. 60
Environmental Considerations................. 61
Due-on-Sale and Due-on-Encumbrance
Provisions................................ 63
Junior Liens; Rights of Holders of Senior
Liens..................................... 63
Subordinate Financing........................ 64
Default Interest and Limitations on
Prepayments............................... 64
Applicability of Usury Laws.................. 65
Certain Laws and Regulations................. 65
Americans with Disabilities Act.............. 65
Soldiers' and Sailors' Civil Relief Act of
1940...................................... 66
Forfeitures in Drug and RICO Proceedings..... 66
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ 66
General...................................... 66
REMICs....................................... 67
Grantor Trust Funds.......................... 82
STATE AND OTHER TAX CONSEQUENCES............... 91
CERTAIN ERISA CONSIDERATIONS................... 91
General...................................... 91
Plan Asset Regulations....................... 92
Insurance Company General Accounts........... 93
Consultation With Counsel.................... 93
Tax Exempt Investors......................... 94
</TABLE>
3
<PAGE> 147
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEGAL INVESTMENT............................. 94
USE OF PROCEEDS.............................. 96
METHOD OF DISTRIBUTION....................... 96
LEGAL MATTERS................................ 97
FINANCIAL INFORMATION........................ 97
RATING....................................... 97
AVAILABLE INFORMATION........................ 98
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE................................. 99
INDEX OF PRINCIPAL DEFINITIONS............... 100
</TABLE>
4
<PAGE> 148
SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does not
contain all the information you need to consider in making your investment
decision. You should carefully review this prospectus and the related prospectus
supplement in their entirety before making any investment in the certificates of
any series. As used in this prospectus, "you" refers to a prospective investor
in certificates, and "we" refers to the Depositor, NationsLink Funding
Corporation. An Index of Principal Definitions appears at the end of this
Prospectus.
SECURITIES OFFERED
Mortgage pass-through certificates.
DEPOSITOR
NationsLink Funding Corporation, a Delaware corporation and a subsidiary of
NationsBank, N.A. NationsLink Funding Corporation has its principal executive
offices at Bank of America Corporate Center, 100 North Tryon Street, Charlotte,
North Carolina 28255, and its telephone number is (704) 386-2400.
TRUSTEE
The trustee for each series of certificates will be named in the related
prospectus supplement.
MASTER SERVICER
If the trust includes mortgage loans, the master servicer for the corresponding
series of certificates will be named in the prospectus supplement.
SPECIAL SERVICER
If the trust includes mortgage loans, 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 prospectus supplement.
MBS ADMINISTRATOR
If the trust includes mortgage-backed securities, the entity responsible for
administering the mortgage-backed securities will be named in the prospectus
supplement.
REMIC ADMINISTRATOR
The person responsible for the various tax-related administration duties for a
series of certificates concerning real estate mortgage investment conduits will
be named in the prospectus supplement.
THE MORTGAGE LOANS
Each series of certificates will, in general, consist of a pool of mortgage
loans (a "Mortgage Asset Pool") secured by first or junior liens on --
- - 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; or
- - office buildings, retail stores, 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.
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However, no one of the following types of properties will be overly-represented
in the trust at the time the trust is formed: (1) restaurants; (2) entertainment
or sports arenas; (3) marinas; or (4) nursing homes, hospitals or other health
care-related facilities.
The mortgage loans will not be guaranteed or insured by NationsLink Funding
Corporation or any of its affiliates or, unless otherwise provided in the
prospectus supplement, by any governmental agency or by any other person.
If specified in the prospectus supplement, some mortgage loans may be delinquent
as of the date the trust is formed.
As described in the prospectus supplement, a mortgage loan may --
- - provide for no accrual of interest or for accrual of interest at an interest
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;
- - 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;
- - be fully amortizing or may be partially amortizing or nonamortizing, with a
balloon payment due on its stated maturity date;
- - 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
- - provide for payments of principal, interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such other interval as specified in
the 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 NationsLink Funding
Corporation, although one of its affiliates may have originated some of the
mortgage loans.
If any mortgage loan, or group of related mortgage loans, involves unusual
credit risk, financial statements or other financial information concerning the
related mortgaged property will be included in the related prospectus
supplement.
As described in the prospectus supplement, the trust may also consist of
mortgage participations, mortgage pass-through certificates and/or other
mortgage-backed securities that evidence an interest in, or are secured by a
pledge of, one or more mortgage loans similar to the other mortgage loans in the
trust and which may or may not be issued, insured or guaranteed by the United
States or any governmental agency.
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 prospectus
supplement and will represent in total the entire beneficial ownership interest
in the trust.
As described in the prospectus supplement, the certificates of each series may
consist of one or more classes that --
- - 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;
- - are "stripped principal certificates" entitled to distributions of principal,
with disproportionate, nominal or no distributions of interest;
- - are "stripped interest certificates" entitled to distributions of interest,
with disproportionate, nominal or no distributions of principal;
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- - provide for distributions of interest or principal that commence only after
the occurrence of certain events, such as the retirement of one or more other
classes of certificates of such series;
- - provide for distributions of principal 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 trust;
- - provide for distributions of principal to be made, subject to available funds,
based on a specified principal payment schedule or other methodology; or
- - provide for distribution based on collections on the mortgage assets in the
trust attributable to prepayment premiums, yield maintenance payments or
equity participations.
If specified in the prospectus supplement, a series of certificates may include
one or more "controlled amortization classes," which will entitle the holders 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 trust remains relatively constant at the rate 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.
Each class of certificates, other than certain classes of stripped interest
certificates and certain classes of real estate mortgage investment conduit
residual certificates (also known as "REMIC residual certificates"), will have
an initial stated principal amount (a "Certificate Balance"). Each class of
certificates, other than certain classes of stripped principal certificates and
certain classes of REMIC residual certificates, will accrue interest on its
certificate balance or, in the case of certain classes of stripped interest
certificates, on a notional amount, based on a pass-through rate (a
"Pass-Through Rate") which may be fixed, variable or adjustable. The prospectus
supplement will specify the certificate balance, notional amount and/or pass-
through rate for each class of certificates.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Interest on each class of 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 and will paid on a distribution date. However, in the case of certain
classes of stripped interest certificates, the notional amount outstanding from
time to time will be paid to certificateholders as provided in the prospectus
supplement on a specified distribution date (each of the specified dates on
which distributions are to be made, a "Distribution Date").
Distributions of interest concerning 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. Interest accrued concerning a class of accrual certificates prior
to the occurrence of such an event will either be added to the certificate
balance or otherwise deferred as described in the prospectus supplement.
Distributions of interest concerning one or more classes of certificates may be
reduced to the extent of certain delinquencies, losses and other contingencies
described in this prospectus and in the prospectus supplement.
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 are then entitled to receive in respect of principal
from future cash flow on the assets in the trust. The initial total 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
cut-off date, after application of scheduled payments
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due on or before such date, whether or not received. As described in the
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 certificates of such series then entitled 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) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the assets in
the trust;
- - 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;
- - may be made, subject to certain limitations, based on a specified principal
payment schedule; or
- - 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 trust are received. Unless
otherwise specified in the prospectus supplement, distributions of principal
of any class of certificates will be made on a pro rata basis among all of the
certificates of such class.
CREDIT SUPPORT AND CASH FLOW AGREEMENTS
If specified in the prospectus supplement, partial or full protection against
certain defaults and losses on the assets in the trust may be provided to one or
more classes of certificates by (1) subordination of one or more other classes
of certificates to classes in the same series, or by (2) of such series, one or
more other types of credit support, such as a letter of credit, insurance
policy, guarantee, reserve fund, cash collateral account or
overcollateralization (any such coverage with respect to the Certificates of any
series, "Credit Support"). If so provided in the prospectus supplement, the
trust may include --
- - 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
- - 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.
Certain relevant information regarding any applicable credit support or cash
flow agreement will be set forth in the prospectus supplement for a series of
certificates.
ADVANCES
As specified in the prospectus supplement, if the trust includes mortgage loans,
the master servicer, the special servicer, the trustee, any provider of credit
support, and/or another specified person may be obligated to make, or have the
option of making, certain advances concerning delinquent scheduled payments of
principal and/or interest on mortgage loans. Any advances made concerning a
particular mortgage loan will be reimbursable from subsequent recoveries
relating to the particular mortgage loan and as described in the prospectus
supplement. If specified in the prospectus supplement, any entity making such
advances may be entitled to receive interest for a specified period during which
certain or all of such advances are outstanding, payable from amounts in the
trust. If the trust includes mortgaged-backed securities, any comparable
advancing obligation of a party to the related pooling and servicing agreement,
or of a party to the related mortgage-backed securities agreement, will be
described in the prospectus supplement.
OPTIONAL TERMINATION
If specified in the prospectus supplement, a series of certificates may be
subject to optional early termination through the repurchase of the mortgage
assets in the trust. If 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, a specified party may be
authorized or required to solicit bids for the purchase of all of the assets of
the trust, or of a sufficient portion of such assets to retire such class or
classes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The certificates of each series will constitute or evidence ownership of
either --
- - "regular interests" ("REMIC Regular Certificates") and "residual interests"
("REMIC Residual Certificates") in the trust, or a designated portion thereof,
treated as a REMIC under Sections 860A through 860G of the Internal Revenue
Code of 1986; or
- - certificates ("Grantor Trust Certificates") in a trust treated as a grantor
trust (or a partnership) under applicable provisions of the Internal Revenue
Code of 1986.
Investors are advised to consult their tax advisors and to review "Certain
Federal Income Tax Consequences" in this prospectus and in the prospectus
supplement.
CERTAIN ERISA CONSIDERATIONS
Fiduciaries of retirement plans and certain other employee benefit 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, or Section 4975 of
the Internal Revenue Code of 1986, should review with their legal advisors
whether the purchase or holding of certificates could give rise to a transaction
that is prohibited.
LEGAL INVESTMENT
The certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA"),
only if specified in the prospectus supplement. Investors whose investment
authority is subject to legal restrictions should consult their legal advisors
to determine whether and to what extent the certificates constitute legal
investments for them.
RATING
At their respective dates of issuance, each class of certificates will be rated
as of investment grade by one or more nationally recognized statistical rating
agencies (each, a "Rating Agency").
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RISK FACTORS
In considering an investment in the certificates of any series, you should
consider carefully the following risk factors and the risk factors in the
prospectus supplement.
LIMITED LIQUIDITY OF CERTIFICATES
General. The certificates of any series may have limited or no liquidity.
You may be forced to bear the risk of investing in the certificates for an
indefinite period of time. In addition, you may have no redemption rights, and
the certificates are subject to early retirement only under certain
circumstances.
Lack of a Secondary Market. We cannot assure you that a secondary market
for the certificates will develop or, if it does develop, that it will provide
certificateholders with liquidity of investment or that it will continue for as
long as the certificates remain outstanding.
The prospectus supplement may indicate that an underwriter intends to
establish a secondary market in the certificates, although no underwriter will
be obligated to do so. Any secondary market may provide less liquidity to
investors than any comparable market for securities relating to single-family
mortgage loans. Unless specified in the prospectus supplement, the certificates
will not be listed on any securities exchange.
Limited Ongoing Information. The primary source of ongoing information
regarding the certificates, including information regarding the status of the
related mortgage assets and any credit support for the certificates, will be the
periodic reports to certificateholders to be delivered pursuant to the related
pooling and servicing agreement.
We cannot assure you that any additional ongoing information regarding the
certificates will be available through any other source. The limited nature of
such information concerning a series of certificates may adversely affect
liquidity, even if a secondary market for the certificates does develop.
Sensitivity to Interest Rates. If a secondary market does develop for the
certificates, the market value of the certificates will be affected by several
factors, including (1) perceived liquidity, (2) the anticipated cash flow (which
may vary widely depending upon the prepayment and default assumptions concerning
the underlying mortgage loans) and (3) prevailing interest rates.
The price payable at any given time for certain classes of certificates may
be extremely sensitive to small fluctuations in prevailing interest rates. The
relative change in price for a certificate in response to an upward or downward
movement in prevailing interest rates may not necessarily equal the relative
change in price for the certificate in response to an equal but opposite
movement in such rates. Therefore, the sale of certificates by a holder in any
secondary market that may develop may be at a discount from the price paid by
such holder. We are not aware of any source through which price information
about the certificates will be generally available on an ongoing basis.
LIMITED ASSETS
Unless specified in the prospectus supplement, neither the certificates nor
the mortgage assets in the trust will be guaranteed or insured by NationsLink
Funding Corporation or any of its affiliates, by any governmental agency or by
any other person or entity. No certificate will represent a claim against or
security interest in the trust funds for any other series. Therefore, if the
related trust fund has insufficient assets to make payments, no other assets
will be available for payment of the deficiency, and the holders of one or more
classes of the certificates will be required to bear the consequent loss.
Certain amounts on deposit from time to time in certain funds or accounts
constituting part of the trust, including the certificate account and any
accounts maintained as credit support, may be withdrawn under certain
conditions, for purposes other than the payment of principal of or interest on
the related series of certificates. On any distribution occurring after losses
or shortfalls in collections on the mortgage assets have been incurred, all or a
portion of the amount of losses or shortfalls in collections on the mortgage
assets will be borne on a disproportionate basis among classes of certificates.
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CREDIT SUPPORT LIMITATIONS
Limitations Regarding Types of Losses Covered. The prospectus supplement
for a series of certificates will describe any credit support. 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 certificates.
Disproportionate Benefits to Certain Classes and Series. A series of
certificates may include one or more classes of subordinate certificates, if
provided in the 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 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 certificates of such series has been repaid in full.
The impact of losses and shortfalls experienced with respect to the
mortgage assets may fall primarily upon those classes of certificates having a
later right of payment.
If a form of credit support covers the 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 certificates of one (or more) such
series such credit support will disproportionately benefit, to the detriment of
the holders of 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 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. However, we cannot assure you that the loss experience on the related
mortgage assets will not exceed such assumed levels. If the losses on the
related mortgage assets do exceed such assumed levels, the holders of one or
more classes of 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 the trust, the amount
and timing of distributions of principal and/or interest on the certificates of
the related series may be highly unpredictable. Prepayments on the mortgage
loans in the trust 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. Therefore, the prepayment experience on
the mortgage loans in the trust may affect the average life of one or more
classes of certificates of the related series.
The rate of principal payments on pools of mortgage loans varies among
pools and from time to 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 the trust, 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
the trust, 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.
We cannot assure you what as to the actual rate of prepayment on the
mortgage loans in the trust will be, or that such rate of prepayment will
conform to any model in any prospectus supplement. As a result, depending on the
anticipated rate of prepayment for the mortgage loans in the trust, the
retirement of any class of certificates of the related series could occur
significantly earlier or later, and its average life could be significantly
shorter or longer, than expected.
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The extent to which prepayments on the mortgage loans in trust ultimately
affect the average life of any class of certificates of the related series will
depend on the terms and provisions of the certificates. A class of certificates
may provide that on any distribution date the holders of the certificates are
entitled to a pro rata share of the prepayments on the mortgage loans in the
trust fund that are distributable on such date.
A class of certificates that entitles the holders to a disproportionately
large share of the prepayments on the mortgage loans in the trust increases the
likelihood of early retirement of such class if the rate of prepayment is
relatively fast. This type of early retirement risk is sometimes referred to as
"call risk."
A class of certificates that entitles the holders thereof to a
disproportionately small share of the prepayments on the mortgage loans in the
trust increases the likelihood of an extended average life of such class if the
rate of prepayment is relatively slow. This type of prolonged retirement risk is
sometimes referred to as "extension risk."
As described in the 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
trust 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 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 trust remains
relatively constant at the rate of prepayment used to establish the specific
principal payment schedule for the certificates. Prepayment risk concerning 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.
As described in the prospectus supplement, a companion class may entitle
the holders to a disproportionately large share of prepayments on the mortgage
loans in the trust when the rate of prepayment is relatively fast, and/or may
entitle the holders to a disproportionately small share of prepayments on the
mortgage loans in the trust when the rate of prepayment is relatively slow. 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 trust were allocated on a
pro rata basis.
EFFECT OF PREPAYMENTS ON YIELD OF CERTIFICATES
A series of certificates may include one or more classes 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 trust fund. If 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 yield to maturity of
any class of certificates may vary from the anticipated yield due to the degree
to which the certificates are purchased at a discount or premium and the amount
and timing of distributions.
You should consider, in the case of any 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. In the case of any certificate purchased at a
premium, you should consider 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.
LIMITED NATURE OF RATINGS
Any rating assigned by a rating agency to a class of certificates will
reflect only its assessment of the likelihood that holders of the certificates
will receive payments to which the certificateholders are entitled under the
related pooling and servicing agreement. Such rating will not constitute an
assessment of the
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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
trust. Any rating will not address the possibility that prepayment of the
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 purchasing a certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios. Therefore, a rating
assigned by a rating agency does not guarantee or ensure the realization of any
anticipated yield on a class of certificates.
The amount, type and nature of credit support given 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. 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 properties that provide security for the mortgage loans. However,
we cannot assure you that those values will not decline in the future. As a
result, the credit support required in respect of the certificates of any series
may be insufficient to fully protect the holders thereof from losses on the
related mortgage asset pool.
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS
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 than loans made on the security of an owner-occupied
single-family property. 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. Therefore, 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
properties or on 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 the net operating income of a property, rental income (and maintenance
payments from tenant stockholders of a Cooperative) and the value of any
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 Properties may be secured by
owner-occupied properties or properties leased to a single tenant. Therefore, a
decline in the financial condition of the borrower or a single tenant may have a
disproportionately greater effect on the net operating income from such
properties than would be the case with respect to properties with multiple
tenants.
Changes in the expense components of the net operating income of a property
due to the general economic climate or economic conditions in a locality or
industry segment, such as (1) increases in interest rates, real estate and
personal property tax rates and other operating expenses including energy costs,
(2) changes in governmental rules, regulations and fiscal policies, including
environmental legislation, and (3) acts of God may also affect the net operating
income and the value of the property and the risk of default on the related
mortgage loan. In some cases leases of 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 as 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.
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Additional considerations may be presented by the type and use of a
particular property. For instance, 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, motel and restaurant properties are often operated pursuant to franchise,
management or operating agreements that may be terminable by the franchisor or
operator. The transferability of a hotel's or restaurant's operating, liquor and
other licenses upon a transfer of the hotel or the restaurant, whether through
purchase or foreclosure, is subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
mortgage loans in the trust will generally be greater than for pools of
single-family loans because mortgage loans in the trust generally will 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. We anticipate 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. In this type of
mortgage loan, recourse in the event of borrower default will be limited to the
specific real property and other assets 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, we cannot assure you that
enforcement of such recourse provisions will be practicable, or that the assets
of the borrower will be sufficient to permit a recovery concerning a defaulted
mortgage loan in excess of the liquidation value of the related property.
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. Cash flows generated on these type of mortgage loans
are available to support debt service on, and ultimate repayment of, the total
indebtedness. These arrangements 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 properties securing a group of mortgage loans which are
cross-collateralized 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. 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. A creditor seeking to enforce remedies against a property subject
to such cross-collateralization to repay such creditor's claim against the
related borrower could assert that (1) such borrower was insolvent at the time
the cross-collateralized mortgage loans were made and (2) 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" will be receiving
"guarantees" from each of the other borrowers in return, we cannot assure you
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
properties located in different states. Because of various state laws governing
foreclosure or the exercise of a power of sale and because foreclosure actions
are usually 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. Some of the
mortgage loans included in the trust may be nonamortizing or only partially
amortizing over their terms to maturity. These types of mortgage loans will
require substantial payments of principal and interest (that is, balloon
payments) at their
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stated maturity. These loans 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 property. The ability of a borrower to accomplish either of
these goals will be affected by --
- - the value of the related property;
- - the level of available mortgage rates at the time of sale or refinancing;
- - the borrower's equity in the related property;
- - the financial condition and operating history of the borrower and the related
property;
- - tax laws;
- - rent control laws (pertaining to certain residential properties);
- - Medicaid and Medicare reimbursement rates (pertaining to hospitals and nursing
homes);
- - prevailing general economic conditions; and
- - the availability of credit for loans secured by multifamily or commercial
property.
Neither NationsLink Funding Corporation nor any of its affiliates will be
required to refinance any mortgage loan.
As specified in the prospectus supplement, 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. Although 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, we cannot assure you that any such extension or
modification will in fact increase the present value of receipts from or
proceeds of the affected mortgage loans.
Lender Difficulty in Collecting Rents Upon the Default and/or Bankruptcy of
Borrower. Each mortgage loan included in the trust secured by property that is
subject to leases typically will be secured by an assignment of leases and
rents. Under such an assignment, the mortgagor assigns to the mortgagee its
right, title and interest as lessor under the leases of the related property,
and the income derived, 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
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.
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 property or its interest in the 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
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threat was caused by the borrower or a prior owner. A lender also risks such
liability on foreclosure of the mortgage.
Lack of Insurance Coverage for Certain Special Hazard Losses. Unless
otherwise specified in a prospectus supplement, the master servicer and special
servicer for the trust will be required to cause the borrower on each mortgage
loan in the trust to maintain such insurance coverage in respect of the property
as is required under the related mortgage, including hazard insurance. As
described in the prospectus supplement, the master servicer and the special
servicer may satisfy its obligation to cause hazard insurance to be maintained
with respect to any 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 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 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 certificates of the related series.
INCLUSION OF DELINQUENT MORTGAGE LOANS IN A MORTGAGE ASSET POOL
If provided in the prospectus supplement, the trust fund for a particular
series of certificates may include mortgage loans that are past due. As
specified in the related prospectus supplement, the servicing of such mortgage
loans will be performed by the special servicer. 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 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 concerning the subject mortgage asset pool and the
yield on the certificates of such series.
PROSPECTUS SUPPLEMENT
To the extent appropriate, the prospectus supplement relating to each
series of offered certificates will contain:
- - 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);
- - information with respect to any other classes of Certificates of the same
series;
- - the respective dates on which distributions are to be made;
- - 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");
- - the circumstances, if any, under which the related Trust Fund may be subject
to early termination;
- - additional information with respect to the method of distribution of such
offered certificates;
- - 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;
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- - the initial percentage ownership interest in the related Trust Fund to be
evidenced by each class of Certificates of such series;
- - information concerning the Trustee (as defined herein) of the related Trust
Fund;
- - 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;
- - information as to the nature and extent of subordination of any class of
Certificates of such series, including a class of offered certificates; and
- - whether such offered certificates will be initially issued in definitive or
book-entry form.
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DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each trust (the "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 NationsLink Funding Corporation (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: (1) restaurants; (2)
entertainment or sports arenas; (3) marinas; or (4) 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
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
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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 (1) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (2) 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 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, 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 (1) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (2) 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 (1)
noncash items such as depreciation and amortization, (2) capital expenditures
and (3) 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 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
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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 (1) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (2) 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".
Payment Provisions of the Mortgage Loans. All of the Mortgage Loans will
(1) have had original terms to maturity of not more than 40 years and (2)
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 (1) 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, (2) 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
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negative amortization, (3) may be fully amortizing or may be partially
amortizing or nonamortizing, with a balloon payment due on its stated maturity
date, and (4) 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:
- the aggregate outstanding principal balance and the largest, smallest
and average outstanding principal balance of the Mortgage Loans,
- the type or types of property that provide security for repayment of
the Mortgage Loans,
- the earliest and latest origination date and maturity date of the
Mortgage Loans,
- 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,
- 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,
- the Mortgage Rates borne by the Mortgage Loans, or the range thereof,
and the weighted average Mortgage Rate borne by the Mortgage Loans,
- 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,
- information regarding the payment characteristics of the Mortgage
Loans, including, without limitation, balloon payment and other
amortization provisions, Lock-out Periods and Prepayment Premiums,
- 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
- 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.
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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 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 (1) 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 (2) 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 (1) have been previously registered under the Securities
Act of 1933, as amended, (2) be exempt from such registration requirements or
(3) 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,
- the aggregate approximate initial and outstanding principal amount(s)
and type of the MBS to be included in the Trust Fund,
- the original and remaining term(s) to stated maturity of the MBS, if
applicable,
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- the pass-through or bond rate(s) of the MBS or the formula for
determining such rate(s),
- the payment characteristics of the MBS,
- the MBS Issuer, MBS Servicer and MBS Trustee, as applicable, of each
of the MBS,
- a description of the related credit support, if any,
- the circumstances under which the related underlying mortgage loans,
or the MBS themselves, may be purchased prior to their maturity,
- the terms on which mortgage loans may be substituted for those
originally underlying the MBS,
- 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
described under "-- Mortgage Loans -- Mortgage Loan Information in
Prospectus Supplements", and
- 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 (any such agreement, a "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
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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 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
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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 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 (1) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (2) 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.
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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 (1) converting to a
fixed rate loan and thereby "locking in" such rate or (2) 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 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
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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 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 (1) limits
the amount by which its scheduled payment may adjust in response to a change in
its Mortgage Rate, (2) provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or (3) 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 (1) whether such Offered Certificate was
purchased at a premium or a discount and (2) 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
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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 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 (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (2)
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 (1) amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates, (2) Excess Funds or (3) 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 (A) 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 (B) 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 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 NationsBank, N.A. The Depositor
maintains its principal office at Bank of America 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.
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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 Certificates of such series being offered for sale
(the "Offered Certificates"), may consist of one or more classes of Certificates
that, among other things:
- provide for the accrual of interest on the Certificate Balance or
Notional Amount thereof at a fixed, variable or adjustable rate;
- constitute Senior Certificates or Subordinate Certificates;
- constitute Stripped Interest Certificates or Stripped Principal
Certificates;
- 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;
- 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;
- provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or
other methodology; or
- 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.
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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 20th day of each month (or, if any such 20th 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 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
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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 (a
"Notional Amount") that is either (1) based on the principal balances of some or
all of the Mortgage Assets in the related Trust Fund or (2) 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 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
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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 CONCERNING PREPAYMENT PREMIUMS OR CONCERNING
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.
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 (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (2)
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.
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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.
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:
- the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
- the amount of such distribution to holders of such class of Offered
Certificates that was applied to pay Accrued Certificate Interest;
- 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;
- the amount, if any, by which such distribution is less than the amounts
to which holders of such class of Offered Certificates are entitled;
- if the related Trust Fund includes Mortgage Loans, the aggregate amount
of advances included in such distribution;
- 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;
- information regarding the aggregate principal balance of the related
Mortgage Assets on or about such Distribution Date;
- if the related Trust Fund includes Mortgage Loans, information regarding
the number and aggregate principal balance of such Mortgage Loans that
are delinquent;
- 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" (that is, the specified period, generally corresponding in length
to the period between Distribution Dates, during which prepayments and
other unscheduled collections on
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the Mortgage Loans in the related Trust Fund must be received in order to
be distributed on a particular Distribution Date);
- 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;
- 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;
- 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;
- 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
- the amount of Credit Support being afforded by any classes of Subordinate
Certificates.
In the case of information furnished pursuant to the first 3 bulleted items
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 the first 3 bulleted items 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
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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 (1) 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 (2)
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 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.
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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.
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 (1) 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 (2) 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 or other agreement specified in the related Prospectus
Supplement (in any case, a "Pooling and Servicing Agreement"). In general, the
parties to a Pooling and Servicing Agreement will include the Depositor, the
Trustee,
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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 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
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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 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.
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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: (1) 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; (2) the enforceability of the related Mortgage Note and Mortgage and
the existence of title insurance insuring the lien priority of the related
Mortgage; (3) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (4) 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 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
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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 (1) such
procedures are consistent with the terms of the related Pooling and Servicing
Agreement and (2) 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: (1) Mortgage Loans that are delinquent in
respect of a specified number of scheduled payments; (2) Mortgage Loans as to
which the related borrower has entered into or consented to bankruptcy,
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 (3) 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
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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 collectibility 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 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. Unless
otherwise provided in the related Prospectus Supplement, 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
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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 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:
- all payments on account of principal, including principal prepayments, on
the Mortgage Loans;
- 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;
- 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 the seventh bulleted item listed 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;
- any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates;
- any advances made with respect to delinquent scheduled payments of
principal and interest on the Mortgage Loans;
- any amounts paid under any Cash Flow Agreement;
- 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
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Defaulted Mortgage Loans", and all proceeds of any Mortgage Asset
purchased as described under "Description of the
Certificates -- Termination";
- 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;
- 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";
- 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
- 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.
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:
- to make distributions to the Certificateholders on each Distribution
Date;
- 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;
- 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;
- 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 the bulleted clause immediately listed above incurred by it while such
remain outstanding and unreimbursed;
- 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";
- 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
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"-- Certain Matters Regarding the Master Servicer, the Special Servicer,
the REMIC Administrator and the Depositor" and "-- Certain Matters
Regarding the Trustee";
- 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;
- if and to the extent described in the related Prospectus Supplement, to
reimburse prior draws on any form of Credit Support;
- 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;
- to pay any servicing expenses not otherwise required to be advanced by
the Master Servicer, the Special Servicer or any other specified person;
- 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 transactions, as
and to the extent described under "Certain Federal Income Tax
Consequences -- REMICs -- Prohibited Transactions Tax and Other Taxes";
- to pay for the cost of various opinions of counsel obtained pursuant to
the related Pooling and Servicing Agreement for the benefit of
Certificateholders;
- to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement;
and
- 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 (1) will not affect the amount or timing of any scheduled
payments of principal or interest on the Mortgage Loan, (2) 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 (3) 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, (1) a
material default on the Mortgage Loan has occurred or a payment default is
imminent, (2) 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 (3) 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
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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:
(1) 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
(2) 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 (1)(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 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 before the close of the third calendar
year following the year of acquisition, unless (1) the Internal Revenue Service
(the "IRS") grants an extension of time to sell such property or (2) the Trustee
receives an opinion of independent counsel to the effect that the holding of the
property by the Trust Fund for longer than such period 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 unless the method of operation that produces such
income would produce a greater after-tax return than a different method of
operation of 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
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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.
Except as otherwise provided in the Prospectus Supplement, 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.
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 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 (1) the
replacement
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cost of the improvements less physical depreciation and (2) 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 Provisions".
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: (1) a specified portion of the interest payments on
each Mortgage Loan in the related Trust Fund, whether or not serviced by it; (2)
an additional specified portion of the interest payments on each Mortgage Loan
then currently serviced by it; and (3) 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
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firm of independent certified public accountants stating that (1) 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 (2) 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.
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
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misfeasance, bad faith or gross 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 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 gross 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,
- 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,
- 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;
- 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
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not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such series;
- 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
- 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.
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
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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, (1) to cure any ambiguity, (2) to correct or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error, (3) 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, (4)
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 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), (5) 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 (6) 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 (1) 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 (2) 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.
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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 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 gross 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
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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 33 1/3% (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 and/or cash
collateral accounts, overcollateralization, 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 Certificateholders 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 (1) the nature and
amount of coverage under such Credit Support, (2) any conditions to payment
thereunder not otherwise described herein, (3) 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 (4) 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
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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 CONCERNING 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 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
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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.
CASH COLLATERAL ACCOUNT
If so specified in the related Prospectus Supplement, all or any portion of
credit enhancement for a series of Certificates may be provided by the
establishment of a cash collateral account. A cash collateral account will be
similar to a reserve fund except that generally a cash collateral account is
funded initially by a loan from a cash collateral lender, the proceeds of which
are invested with the cash collateral lender or other eligible institution. The
loan from the cash collateral lender will be repaid from such amounts as are
specified in the related Prospectus Supplement. Amounts on deposit in the cash
collateral account will be available in generally the same manner described
above with respect to a reserve fund. As specified in the related Prospectus
Supplement, a cash collateral account may be deemed to be part of the assets of
the related Trust, may be deemed to be part of the assets of a separate cash
collateral trust or may be deemed to be property of the party specified in the
related Prospectus Supplement and pledged for the benefit of the holders of one
or more classes of Certificates of a series.
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.
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
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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 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.
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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 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.
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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 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.
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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 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
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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 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, (1)
assume the lease and retain it or assign it to a third party or (2) 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
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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.
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
become sufficiently involved 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 or not 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". This is the so-called "secured creditor exemption."
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with respect
to lender liability and the secured creditor
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exemption. The Act offers substantial protection of lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for a lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The Act
provides that "merely having the capacity to influence, or unexercised right to
control" operations does not constitute participation in management. A lender
will lose the protection of the secured creditor exemption only if it exercises
decision making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of operational functions of the mortgaged property. The Act also
provides that a lender will continue to have the benefit of the secured-creditor
exemption even if it forecloses on a mortgaged property, purchases it at a
foreclosure sale or accepts a deed-in-lieu of foreclosure provided that the
lender seeks to sell the mortgaged property at the earliest practicable
commercially reasonable time on commercially reasonable terms.
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 ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs underground
petroleum storage tanks. Under the Act, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection of secured creditors.
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.
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 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 of the
related series.
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
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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 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 (1) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (2) 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.
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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 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
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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.
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.
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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: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) 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.
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 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 Internal Revenue Code of 1986, as amended (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
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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. 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: (1)
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 (2) 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 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
Certificates, 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.
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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 "real estate assets" within the meaning of Section 856(c)(4)(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)(4)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" for a REMIC within the meaning of
Section 860G(a)(3) of the Code and "permitted assets" for a financial asset
securitization investment trust within the meaning of Section 860L(c) 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.
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
"real estate assets" within the meaning of Section 856(c)(4)(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
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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
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
the day prior to 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
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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
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 (1) 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 (2) 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 (1) 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, (2) using a discount rate equal to the
original yield to maturity of the Certificate and (3) 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,
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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 (1) 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 (2) 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 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: (1) on the basis of a constant yield
method, (2) in the case of a REMIC Regular Certificate issued without original
issue discount, in an
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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 (3) 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 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. Although final Treasury regulations
issued under Section 171 of the Code do not by their terms apply to prepayable
obligations such as REMIC Regular Certificates, 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.
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
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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.
A holder of a REMIC Residual Certificate (a "REMIC Residual
Certificateholder") 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
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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" 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 (including interest, market discount and, if
applicable, original issue discount and less premium) 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.
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, such Class's fair market value). 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.
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), but without regard to the de minimis
rule applicable to REMIC Regular Certificates. 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
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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
REMIC will have additional income in each taxable year in 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 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,
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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 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 (1) the daily portions
of REMIC taxable income allocable to such REMIC Residual Certificate over (2)
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. 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 (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) 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.
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 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
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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 January 4, 1995, the IRS issued final 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, any REMIC Residual Certificate acquired on or after January 4, 1995
will not be treated as a security and thus generally may not be marked to
market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of 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
such types of holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related Prospectus Supplement, such fees and expenses
will be allocated to 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, (1) 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 (2) 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 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 (1) 3% of the excess of the
individual's adjusted gross income over such amount or (2) 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
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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 20% for
property held for more than one year. 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 (1) 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 (2) 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 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.
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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.
As provided in each Pooling and Servicing Agreement, a REMIC may recognize "net
income from foreclosure property" subject to federal income tax to the extent
that the REMIC Administrator determines that such method of operation will
result in a greater after-tax return to the Trust Fund than any other method of
operation.
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 or
Contributions Tax 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 (1) 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 the total
anticipated excess inclusions with respect to such REMIC Residual Certificate
for periods after the transfer and (2) 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
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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 (1)
residual interests in such entity are not held by disqualified organizations and
(2) 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 (1) 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
(2) 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 (1) 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 (2) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by Section 860E(c) of the
Code. An exception to this tax, otherwise available to a pass-through entity
that is furnished certain affidavits by record holders of interests in the
entity and that does not know such affidavits are false, is not available to an
electing large partnership.
For these purposes, a "disqualified organization" means (1) 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), (2) 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 (3) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, 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. For
these purposes, an "electing large partnership" means a partnership (other than
a service partnership or certain commodity pools) having more than 100 members
that has elected to apply certain simplified reporting provisions under the
Code.
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 holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related
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REMIC, and will be designated as and will act as agent of, and attorney-in-fact
for, the tax matters person with respect to the REMIC in all respects.
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. The New Regulations,
as described below, will change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
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Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a U.S. 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 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 U.S. Person and providing the name and address of
such Certificateholder). For these purposes, "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership (except to the extent
provided in applicable Treasury regulations) or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income tax regardless of its source, or a trust if a court within the
United States is able to exercise primary supervision over the administration of
such trust, and one or more such U.S. Persons have the authority to control all
substantial decisions of such trust (or, to the extent provided in applicable
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to elect to be treated as U.S. Persons). 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.
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations will be effective
January 1, 2001. Current withholding certificates remain valid until the earlier
of December 31, 2000 or the due date of expiration of the certificate under the
rules as currently in effect. The New Regulations would require, in the case of
Regular Certificates held by a foreign partnership, that (x) the certification
described above be provided by the partners rather than by the foreign
partnership and (y) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule would apply in
the case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors concerning the application of the certification requirements in the New
Regulations.
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
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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 any 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.
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 (1) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (2) "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 (3) "real estate assets"
within the meaning of Section 856(c)(4)(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 and "real estate assets" within the
meaning of Section 856(c)(4)(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)(B) 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
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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 (1) 3% of the excess of the individual's adjusted gross income over
such amount or (2) 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 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 (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(2) 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
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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 (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) 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.
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 regulations Section 1.1286-1, 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 (1) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage
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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.
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
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any given day equals the sum of (1) 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 (2) 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 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: (1) on the basis of a constant yield method, (2) 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 (3) 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.
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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 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
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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 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 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. Regulations have
been promulgated regarding contingent payment debt instruments (the "Contingent
Payment Regulations"), but it appears that Grantor Trust Strip Certificates, due
to their similarity to other mortgage-backed securities (such as REMIC regular
interests and debt instruments subject to Section 1272(a)(6) of the Code) that
are expressly excepted from the application of the Contingent Payment
Regulations, may be excepted from such regulations. Like the OID Regulations,
the Contingent Payment 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 similar to those under the OID Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply a "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule. Holders of Grantor Trust Strip Certificates are bound by the issuer's
projected payment schedule. The projected payment schedule consists of all
noncontingent payments and a projected amount for each contingent payment based
on the comparable yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
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comparable yield referred to above is a rate that, as of the issue date,
reflects the yield at which the issuer would issue a fixed rate debt instrument
with terms and conditions similar to the contingent payment debt instrument,
including 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 comparable yield.
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
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 generally provides for
maximum tax rates of noncorporate taxpayers of 39.6% on ordinary income and 20%
on long-term capital gains (generally, property held for more than one year). 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
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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.
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.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on retirement plans, and on certain
other employee benefit 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.
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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 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. Accordingly, even if such MBS included in a Trust Fund were deemed
to be assets of Plan investors, the mortgages underlying such MBS would not be
treated as assets of such Plans. Private label mortgage participations, mortgage
pass-through 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 Certificates if such MBS are included in the Trust Fund.
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"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; and PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager." 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 such 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.
The DOL has granted to certain underwriters administrative exemptions,
referred to herein as the "Exemptions", for certain mortgage-backed and
asset-backed certificates underwritten in whole or in part by the underwriters.
An Exemption might be applicable to the initial purchase, the holding, and the
subsequent resale by a Plan of certain certificates, such as the Offered
Certificates, underwritten by the underwriters,
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representing interests in pass-through trusts that consist of certain
receivables, loans and other obligations, provided that the conditions and
requirements of the Exemption are satisfied. The loans described in the
Exemptions include mortgage loans such as the Mortgage Assets. However, it
should be noted that in issuing the Exemptions, the DOL may not have considered
interests in pools of the exact nature as some of the Offered Certificates. If
all of the conditions of an Exemption are met, whether or not a Plan's assets
would be deemed to include an ownership interest in the Mortgage Assets, the
acquisition, holding and resale of the Offered Certificates by Plans would be
exempt from certain of the prohibited transaction provisions of ERISA and the
Code.
INSURANCE COMPANY GENERAL ACCOUNTS
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transactions in connection with the servicing, management and operation of a
trust (such as the Trust) in which an insurance company general account has an
interest as a result of its acquisition of certificates issued by the trust,
provided that certain conditions are satisfied. If these conditions are met,
insurance company general accounts would be allowed to purchase certain Classes
of Certificates which do not meet the requirements of any of the Exemptions
solely because they (1) are subordinated to other Classes of Certificates in the
Trust and/or (2) have not received a rating at the time of the acquisition in
one of the three highest rating categories from S&P, Moody's, DCR or Fitch. All
other conditions of one of the Exemptions would have to be satisfied in order
for PTCE 95-60 to be available. Before purchasing such Class of Certificates, an
insurance company general account seeking to rely on Section III of PTCE 95-60
should itself confirm that all applicable conditions and other requirements have
been satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL is required to issue final
regulations ("401(c) Regulations") no later than December 31, 1997 which are to
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan Assets. On December 22, 1997, the DOL proposed such regulations.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute Plan Assets, unless (1) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (2)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan Assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Offered Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the Offered Certificates after
the date which is 18 months after the date the 401(c) Regulations become final.
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.
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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. The appropriate characterization of those Offered Certificates not
qualifying as "mortgage related securities" ("Non-SMMEA Certificates") under
various legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase such Offered Certificates, may be subject to
significant interpretive uncertainties. Accordingly, investors whose investment
authority is subject to legal restrictions should consult their own legal
advisors to determine whether and to what extent the Non-SMMEA Certificates
constitute legal investments for them.
Generally, only classes of Offered Certificates that (1) are rated in one
of the two highest rating categories by one or more Rating Agencies and (2) are
part of a series evidencing interests in a Trust Fund consisting of loans
originated by certain types of Originators specified in SMMEA and secured by
first liens on real estate, will be "mortgage related securities" for purposes
of SMMEA. Classes of Offered Certificates qualifying as "mortgage related
securities" will 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 (including
the District of Columbia and Puerto Rico) whose authorized investments are
subject to state regulation, to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Under SMMEA, a number of states enacted legislation, on or before
the October 3, 1991 cutoff for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related security" (effective
December 31, 1996) to include, in relevant part, Offered Certificates satisfying
the rating and qualified Originator requirements for "mortgage related
securities," but evidencing interests in a Trust Fund consisting, in whole or in
part, of first liens on one or more parcels of real estate upon which are
located one or more commercial structures, states were authorized to enact
legislation, on or before September 23, 2001, specifically referring to Section
347 and prohibiting or restricting the purchase, holding or investment by
state-regulated entities in such types of Offered Certificates. Section 347 also
provides that the enactment by a state of any such legislative restrictions
shall not affect the validity of any contractual commitment to purchase, hold or
invest in securities qualifying as "mortgage related securities" solely by
reason of Section 347 that was made, and shall not require the sale or
disposition of any securities acquired, prior to the enactment of such state
legislation. Accordingly, the investors affected by any such state legislation,
when and if enacted, will be authorized to invest in Offered Certificates
qualifying as "mortgage related securities" 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 in "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.
sec. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") has amended
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12 C.F.R. Part 1 to authorize national banks to purchase and sell for their own
account, without limitation as to a percentage of the bank's capital and surplus
(but subject to compliance with certain general standards in 12 C.F.R. sec. 1.5
concerning "safety and soundness" and retention of credit information), certain
"Type IV securities," defined in 12 C.F.R. sec. 1.2(1) to include certain
"commercial mortgage-related securities" and "residential mortgage-related
securities." As so defined, "commercial mortgage-related security" and
"residential mortgage-related security" mean, in relevant part, "mortgage
related security" within the meaning of SMMEA, provided that, in the case of a
"commercial mortgage-related security," it "represents ownership of a promissory
note or certificate of interest or participation that is directly secured by a
first lien on one or more parcels of real estate upon which one or more
commercial structures are located and that is fully secured by interests in a
pool of loans to numerous obligors." In the absence of any rule or
administrative interpretation by the OCC defining the term "numerous obligors,"
no representation is made as to whether any class of Offered Certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The National Credit Union
Administration ("NCUA") has adopted rules, codified at 12 C.F.R. Part 703, which
permit federal credit unions to invest in "mortgage related securities" under
certain limited circumstances, other than stripped mortgage related securities,
residual interests in mortgage related securities, and commercial mortgage
related securities, unless the credit union has obtained written approval from
the NCUA to participate in the "investment pilot program" described in 12 C.F.R.
sec. 703.140. The Office of Thrift Supervision (the "OTS") has issued Thrift
Bulletin 13a (December 1, 1998), "Management of Interest Rate Risk, Investment
Securities, and Derivative Activities," which thrift institutions subject to the
jurisdiction of the OTS should consider before investing in any of the Offered
Certificates.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement") of
the Federal Financial Institutions Examination Council, which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the OTS effective May 26, 1998, and by the
NCUA effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through securities
and mortgage-derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain classes of Offered Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase Offered Certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of the 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
and, if applicable, whether SMMEA has been overridden in any jurisdiction
relevant to such investor.
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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 Banc of America
Securities LLC, 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 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.
96
<PAGE> 240
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 Banc of America Securities LLC in connection with
offers and sales related to market-making transactions in Offered Certificates
previously offered hereunder in transactions with respect to which Banc of
America Securities LLC acts as principal. Banc of America Securities LLC 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 BankAmerica
Corporation. Certain legal matters relating to the Certificates will be passed
upon for the underwriter or underwriters by Cadwalader, Wickersham & Taft.
Certain federal income tax matters and other matters will be passed upon for the
Depositor by 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 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.
97
<PAGE> 241
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 in this Prospectus or in such Prospectus Supplement, 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.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that
contains reports, proxy and information statements, and other information that
has been filed electronically with the SEC. The Internet address is
http://www.sec.gov.
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 in this Prospectus since the date hereof or in such
Prospectus Supplement 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 in this Prospectus, 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 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 (1) 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 (2) 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.
98
<PAGE> 242
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Depositor hereby incorporates 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 in this Prospectus 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 Bank of America Corporate Center, Charlotte, North Carolina 28255, or by
telephone at (704) 386-2400.
99
<PAGE> 243
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
1998 Policy Statement......... 95
401(c) Regulations............ 93
Accrual Certificates.......... 7
Accrued Certificate
Interest.................... 30
Act........................... 61
ADA........................... 65
ARM Loans..................... 21
Available Distribution
Amount...................... 30
Book-Entry Certificates....... 29
Call Risk..................... 12
Cash Flow Agreement........... 23
CERCLA........................ 61
Certificate Account........... 23
Certificate Balance........... 7
Certificate Owner............. 35
Certificateholder............. 36
Closing Date.................. 69
Code.......................... 66
Commercial Properties......... 18
Commission.................... 98
Committee Report.............. 69
Companion Class............... 32
Contingent Payment
Regulations................. 89
Contributions Tax............. 79
Controlled Amortization
Class....................... 32
Cooperatives.................. 18
CPR........................... 26
Credit Support................ 8
Crime Control Act............. 66
Cut-off Date.................. 31
Debt Service Coverage Ratio... 19
Definitive Certificates....... 29
Depositor..................... 18-28
Determination Date............ 24, 30
Direct Participants........... 35
Distribution Date............. 7
Distribution Date Statement... 33
DOL........................... 92
DTC........................... 98
Due Dates..................... 20
Due Period.................... 24
Equity Participation.......... 21
ERISA......................... 91
Events of Default............. 49
Excess Funds.................. 28
Exchange Act.................. 98
Exemptions.................... 92
Extension Risk................ 12
FAMC.......................... 22
FHLMC......................... 22
FNMA.......................... 22
GNMA.......................... 22
Garn Act...................... 63
Grantor Trust Certificates.... 9
Grantor Trust Fractional
Interest Certificate........ 83
Grantor Trust Fund............ 67
Grantor Trust Strip
Certificate................. 83
Indirect Participants......... 35
Insurance and Condemnation
Proceeds.................... 42
IRS........................... 45, 67
Issue Premium................. 75
Letter of Credit Bank......... 54
Liquidation Proceeds.......... 42
Loan-to-Value Ratio........... 20
Lock-out Date................. 21
Lock-out Period............... 21
Mark-to-Market Regulations.... 77
Master Servicer............... 5
MBS........................... 18
MBS Administrator............. 5
MBS Agreement................. 22
MBS Issuer.................... 22
MBS Servicer.................. 22
MBS Trustee................... 22
Mortgages..................... 18
Mortgage Asset Seller......... 18
Mortgage Asset Pool........... 5
Mortgage Assets............... 18
Mortgage Loans................ 18
Mortgage Notes................ 18
Mortgage Rate................. 20
Mortgaged Properties.......... 18
Multifamily Properties........ 18
NCUA.......................... 95
Net Leases.................... 20
Net Operating Income.......... 19
New Regulations............... 82
Non-SMMEA Certificates........ 94
Nonrecoverable Advance........ 32
Notional Amount............... 31
OCC........................... 94
OID Regulations............... 67
Offered Certificates.......... cover
Originator.................... 18
OTS........................... 95
Participants.................. 35
Parties in Interest........... 91
Pass-Through Rate............. 7
Percentage Interest........... 30
Permitted Investments......... 42
</TABLE>
100
<PAGE> 244
<TABLE>
<S> <C>
Plan Asset Regulations........ 92
Plans......................... 91
Pooling and Servicing
Agreement................... 36
Prepayment Assumption......... 69
Prepayment Interest
Shortfall................... 24
Prepayment Period............. 33
Prepayment Premium............ 21
Prohibited Transactions Tax... 79
Prospectus Supplement......... cover
PTCE.......................... 92
PTCE 95-60.................... 93
Purchase Price................ 38
Rating Agency................. 9
RCRA.......................... 62
Record Date................... 30
Related Proceeds.............. 32
Relief Act.................... 66
REMIC......................... 67
REMIC Administrator........... 16
REMIC Certificates............ 67
REMIC Provisions.............. 67
REMIC Regular Certificates.... 9
REMIC Regulations............. 67
REMIC Residual
Certificateholder........... 73
REMIC Residual Certificates... 9
REO Property.................. 40
RICO.......................... 66
Senior Certificates........... 6
Senior Liens.................. 18
SMMEA......................... 9
SPA........................... 26
Special Servicer.............. 5
Stripped Interest
Certificates................ 6
Stripped Principal
Certificates................ 6
Subordinate Certificates...... 53
Sub-Servicer.................. 41
Sub-Servicing Agreement....... 41
Tax Exempt Investor........... 94
Tiered REMICs................. 68
Title V....................... 65
Trust Assets.................. 16
Trust Fund.................... 18
Trustee....................... 5
UBTI.......................... 94
UCC........................... 56
U.S. Person................... 82
Value......................... 20
Voting Rights................. 34
Warranting Party.............. 39
</TABLE>
101
<PAGE> 245
NOTES CONCERNING INFORMATION PRESENTED IN
THE ATTACHED COMPUTER DISKETTE
The attached diskette contains a spreadsheet file that can be put on a
user-specified hard drive or network drive. The file is "NL99SL.xls" The file
"NL99SL.xls" is a Microsoft Excel(1), Version 5.0 spreadsheet. The file
provides, in electronic format, certain loan level information shown in ANNEX A
of the Prospectus Supplement.
Open the file as you would normally open any spreadsheet in Microsoft
Excel. After the file is opened, a securities law legend will be displayed. READ
THE LEGEND CAREFULLY. To view the ANNEX A data, "click" on the worksheet labeled
"ANNEX A."
All mortgage loan principal balance information presented in the disk
reflects the actual outstanding balances of the mortgage loans as of April 30,
1999, rolled to the Cut-off Date assuming receipt of all scheduled payments and
no prepayments.
The interest rates applicable to certain mortgage loans will have converted
or otherwise been modified prior to the Delivery Date. For such mortgage loans,
the interest rates shown are the rates that will apply as of June 1, 1999 (or,
in the case of one such mortgage loan, July 1, 1999), after giving effect to
such conversion or modification.
- ---------------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE> 246
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YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON
THEIR RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
WHEN ACTING AS UNDERWRITERS OF THE CERTIFICATES AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THE CERTIFICATES
WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS UNTIL
AUGUST 24, 1999.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Table of Contents...................... S-1
Summary of Prospectus Supplement....... S-8
Risk Factors........................... S-21
Description of the Mortgage Pool....... S-40
The Mortgage Loan Seller............... S-52
Servicing of the Mortgage Loans........ S-55
Description of the Certificates........ S-66
The Trustee and the Fiscal Agent....... S-85
Yield and Maturity Considerations...... S-86
Use of Proceeds........................ S-95
Certain Federal Income Tax
Consequences......................... S-95
Certain ERISA Considerations........... S-98
Legal Investment....................... S-100
Method of Distribution................. S-101
Legal Matters.......................... S-101
Ratings................................ S-102
Annex A................................ A-1
Annex B................................ B-1
PROSPECTUS
Summary of Prospectus.................. 5
Risk Factors........................... 10
Prospectus Supplement.................. 16
Description of the Trust Funds......... 18
Yield and Maturity Considerations...... 23
The Depositor.......................... 28
Description of the Certificates........ 29
The Pooling and Servicing Agreements... 36
Description of Credit Support.......... 53
Certain Legal Aspects of Mortgage
Loans................................ 55
Certain Federal Income Tax
Consequences......................... 66
State and Other Tax Consequences....... 91
Certain ERISA Considerations........... 91
Legal Investment....................... 94
Use of Proceeds........................ 96
Method of Distribution................. 96
Legal Matters.......................... 97
Financial Information.................. 97
Rating................................. 97
Available Information.................. 98
Incorporation of Certain Information by
Reference............................ 99
Index of Principal Definitions......... 100
</TABLE>
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$1,093,048,075
(APPROXIMATE)
NATIONSLINK
FUNDING
CORPORATION
DEPOSITOR
CLASS A-1, CLASS A-2, CLASS A-3,
CLASS A-4, CLASS A-5, CLASS A-6,
CLASS A-1V, CLASS B, CLASS C, CLASS D
NATIONSLINK FUNDING CORPORATION
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES
SERIES 1999-SL
------------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------------
BANC OF AMERICA SECURITIES LLC
May 20, 1999
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